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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
(MARK ONE)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000
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OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from____________________ to ______________________
Commission file number: 0-23372
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GASONICS INTERNATIONAL CORPORATION
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(Exact name of registrant as specified in its charter)
DELAWARE 94-2159729
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2730 Junction Avenue, San Jose, California 95134
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (408) 570-7000
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
At August 3, 2000, there were 16,812,869 shares of the Registrant's Common
Stock, $0.001 par value per share, outstanding.
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GASONICS INTERNATIONAL CORPORATION
FORM 10-Q
INDEX
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<CAPTION>
PAGE NO.
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PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements 3
Condensed Consolidated Balance Sheets as of June 30, 2000
and September 30, 1999 3
Condensed Consolidated Statements of Operations for the three and
nine month periods ended June 30, 2000 and 1999 4
Condensed Consolidated Statements of Cash Flows for the nine
month periods ended June 30, 2000 and 1999 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 10
Item 2A. Quantitative and Qualitative Disclosure about Market Risks 26
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 27
Item 2. Changes in Securities 27
Item 3. Defaults Upon Senior Securities 27
Item 4. Submission of Matters to a Vote of Securityholders 27
Item 5. Other Information 27
Item 6. Exhibits and Reports on Form 8-K 27
SIGNATURES 28
Exhibit Index 29
</TABLE>
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GASONICS INTERNATIONAL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30, Sept. 30,
2000 1999
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ASSETS (UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 66,755 $ 16,858
Marketable securities 17,738 10,899
Trade accounts receivable, net 32,108 18,986
Inventories 25,698 16,523
Net deferred tax asset 5,697 5,697
Prepaid expenses and other current assets 4,386 3,197
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Total current assets 152,382 72,160
Property and equipment, net 10,359 11,266
Deposits and other assets 555 782
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Total assets $ 163,296 $ 84,208
=============== ==============
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Borrowings under credit facility $ 5,382 $ 2,832
Accounts payable 15,068 5,691
Income taxes payable 4,859 4,616
Accrued expenses 14,514 9,446
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Total current liabilities 39,823 22,585
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Stockholders' equity:
Common stock and
additional paid-in capital 91,066 40,637
Treasury stock (see Note 8) (2,639) (2,639)
Subscription receivable (10) (26)
Unrealized gain/loss on investment (109) -
Retained earnings 35,165 23,651
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Total stockholders' equity 123,473 61,623
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Total liabilities and stockholders' equity $ 163,296 $ 84,208
=============== ==============
</TABLE>
See accompanying notes.
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GASONICS INTERNATIONAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
JUNE 30, JUNE 30,
--------------------------------- ------------------------------
2000 1999 2000 1999
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<S> <C> <C> <C> <C>
Net sales $ 43,863 $ 17,902 $ 103,171 $ 41,139
Cost of sales 23,512 10,280 56,584 26,808
---------------- -------------- -------------- --------------
Gross margin 20,351 7,622 46,587 14,331
---------------- -------------- -------------- --------------
Operating expenses:
Costs associated with reduction in force - - - 407
Research & development 5,266 4,151 14,357 13,449
Selling, general & administrative 8,726 5,454 21,358 15,893
---------------- -------------- -------------- --------------
Total operating expenses 13,992 9,605 35,715 29,749
---------------- -------------- -------------- --------------
Operating income (loss) 6,359 (1,983) 10,872 (15,418)
Other income and expenses, net 710 362 1,395 939
---------------- -------------- -------------- --------------
Income (loss) before provision for income taxes 7,069 (1,621) 12,267 (14,479)
Provision for income taxes (495) - (753) -
----------------- -------------- --------------- --------------
Net income (loss) $ 6,574 $ (1,621) $ 11,514 $(14,479)
================ ============== =============== ==============
Net income (loss) per share - Basic $ 0.43 $ (0.11) $ 0.78 $ (1.01)
================ ============== =============== ==============
Net income (loss) per share - Diluted $ 0.40 $ (0.11) $ 0.72 $ (1.01)
================ ============== =============== ==============
Weighted average common shares 15,422 14,363 14,824 14,287
================ ============== =============== ==============
Weighted average common &
common equivalent shares 16,555 14,363 15,924 14,287
================ ============== =============== ==============
</TABLE>
See accompanying notes.
4
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GASONICS INTERNATIONAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
JUNE 30,
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2000 1999
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<S> <C> <C>
Cash flows from operating activities:
Net cash provided by (used for) operating activities $ 6,025 $(4,222)
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Cash flows from investing activities:
Purchases of property & equipment (2,175) (867)
Decrease (increase) in marketable securities (6,948) 5,823
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Net cash provided by (used for) investing activities (9,123) 4,956
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Cash flows from financing activities:
Increase in borrowings under credit facility 2,550 299
Repurchase of common stock - (1,255)
Proceeds from follow-on offering, net 47,612 -
Proceeds from issuance of common stock 2,833 2,620
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Net cash provided by financing activities 52,995 1,664
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Net increase in cash and cash equivalents 49,897 2,398
Cash & cash equivalents at beginning of period 16,858 14,698
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Cash & cash equivalents at end of period $66,755 $17,096
============= =============
</TABLE>
See accompanying notes.
5
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GASONICS INTERNATIONAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The accompanying condensed consolidated financial statements have been prepared
by us without audit and reflect all adjustments which are, in the opinion of
management, necessary for a fair presentation of our financial position and our
results of operations for the interim periods. The statements have been prepared
in accordance with the regulations of the Securities and Exchange Commission.
Accordingly, they do not include all information and footnotes required by
generally accepted accounting principles. The results of operations for the nine
months ended June 30, 2000 are not necessarily indicative of the operating
results to be expected for the full fiscal year. Such financial statements
should be read in conjunction with the information contained in our Annual
Report on Form 10-K for the year ended September 30, 1999 and quarterly reports
on Form 10-Q for the periods ending December 31, 1999 and March 31, 2000.
2. INVENTORIES
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
June 30, September 30,
2000 1999
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(unaudited)
<S> <C> <C>
Raw Materials $11,167 $ 7,784
Work in Process 9,672 5,409
Finished Goods 4,859 3,330
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$25,698 $16,523
=================== ==================
</TABLE>
3. RECONCILIATION OF EARNINGS AND SHARE AMOUNTS USED IN EPS CALCULATION
Net income (loss) per share data has been computed using the weighted average
number of shares of common stock and dilutive common equivalent shares from
stock options (using the treasury stock method).
Effective December 31, 1997, we adopted SFAS No. 128, "Earnings per Share."
Basic earnings per common share for the three and nine month periods ended June
30, 2000 and 1999 were computed by dividing net income by the weighted average
number of shares of common stock outstanding during the period. Diluted earnings
per common share for the three and nine month periods ended June 30, 2000 and
1999, were calculated using the treasury stock method to compute the weighted
average common stock outstanding (in thousands, except per share data).
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<TABLE>
<CAPTION>
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PER SHARE
FOR THE THREE MONTHS ENDED JUNE 30, 2000 INCOME SHARES AMOUNT
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<S> <C> <C> <C>
Net income $ 6,574
BASIC EARNINGS PER SHARE
Income available to common stockholders $ 6,574 15,422 $ 0.43
Effect of Dilutive Securities:
Options issued to purchase Common stock 1,133
DILUTED EARNINGS PER SHARE
Income available to common stockholders $ 6,574 16,555 $ 0.40
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PER SHARE
FOR THE THREE MONTHS ENDED JUNE 30, 1999 LOSS SHARES AMOUNT
-------------------------------------------------------------- ----------------- -------------------- ----------------
Net loss $ (1,621)
BASIC AND DILUTED LOSS PER SHARE
Loss to common stockholders $ (1,621) 14,363 $ (0.11)
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PER SHARE
FOR THE NINE MONTHS ENDED JUNE 30, 2000 INCOME SHARES AMOUNT
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Net income $ 11,514
BASIC EARNINGS PER SHARE
Income available to common stockholders $ 11,514 14,824 $ 0.78
Effect of Dilutive Securities:
Options issued to purchase Common stock 1,100
DILUTED EARNINGS PER SHARE
Income available to common stockholders $ 11,514 15,924 $ 0.72
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PER SHARE
FOR THE NINE MONTHS ENDED JUNE 30, 1999 LOSS SHARES AMOUNT
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<S> <C> <C> <C>
Net loss $(14,479)
BASIC AND DILUTED LOSS PER SHARE
Loss to common stockholders $(14,479) 14,287 $(1.01)
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</TABLE>
7
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4. RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities," or SFAS No. 133, which establishes accounting and
reporting standards for derivative instruments, including specific derivative
instruments embedded in other contracts and for hedging activities. It requires
that we recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value. We
are required to adopt SFAS No. 133 in the first quarter of fiscal 2001.
Currently, we do not engage in hedging activities or purchase derivative
instruments. We do not expect the impact of adopting SFAS No. 133 to be material
to us.
In December 1999, the SEC issued Staff Accounting Bulletin No. 101, "Revenue
Recognition in Financial Statements," or SAB No. 101. SAB No. 101 provides
guidance on applying generally accepted accounting principles to revenue
recognition issues in financial statements. We will adopt SAB No. 101 as
required in the first quarter of fiscal 2001. When we adopt SAB No. 101, we will
recognize revenue when we substantially complete the terms of the applicable
sales arrangement, which generally occurs upon the customers' acceptance of the
product. The adoption of SAB No.101 will have a significant impact on our
revenue recognition policy because we currently recognize sales upon shipment
with appropriate accruals of the associated costs. We expect SAB No. 101 to have
a significant effect on our operating results in the first quarter. Furthermore,
adoption of this pronouncement will impact the comparability of our financial
statements from period to period, relationships with customers and internal
procedures and controls. We are currently evaluating the effect on our financial
statements.
5. SEGMENT REPORTING
In 1999, we adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." SFAS No. 131 supersedes SFAS No. 14,
"Financial Reporting for Segments of a Business Enterprise," replacing the
"industry segment" approach with the "management" approach. The management
approach designates the internal organization that is used by management for
making operating decisions and assessing performance as the source of our
reportable segments. SFAS No. 131 also requires disclosures about products
and services, geographic areas and major customers. The adoption of SFAS No.
131 did not affect our results of operations or financial position, but did
affect the disclosure of segment information. We are organized on the basis
of products and services. All of our business units have been aggregated into
one operating segment. Our service business is a separate operating segment:
however, this segment does not meet the quantitative thresholds as prescribed
in SFAS No. 131. As a result, in the opinion of management, no additional
operating segment information is required to be disclosed.
6. COMPREHENSIVE INCOME
Effective December 31, 1998 we adopted SFAS No. 130 "Reporting Comprehensive
Income," which establishes standards for reporting and display of comprehensive
income and our
8
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components (revenue, expenses, gains and losses) in a full set of
general-purpose financial statements. For the nine months ended June 30, 2000
and 1999, there were no material items of other comprehensive income (loss),
thus comprehensive income for these periods did not differ materially from net
income as reported in the accompanying financial statements.
7. CHARGES TAKEN DURING FISCAL YEAR 1999
The nine month period ended June 30, 1999 included pre-tax charges of
approximately $407,000, related primarily to costs of a reduction in force
completed in December 1998. As of December 31, 1999, these costs had been paid.
8. STOCK REPURCHASE PROGRAM
On December 16, 1998, our Board of Directors authorized a stock repurchase
program. Under this program 500,000 shares of our Common Stock may be
repurchased in the open market, from time-to-time at market prices not to exceed
$15.00 per share using available cash. As of June 30, 2000, we had repurchased
200,000 shares of common stock in the open market at an aggregate cost of
approximately $2.6 million.
9
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The following Management's Discussion and Analysis of Financial Condition and
Results of Operations may contain forward-looking statements within the meaning
of Section 21E of the Securities Exchange Act of 1934, as amended, including,
but not limited to, statements relating to future sales, gross margins, product
development, operating expense levels, and the sufficiency of financial
resources to support future operations, and are subject to the Safe Harbor
provisions created by that statute. Such statements are based on current
expectations that involve inherent risks and uncertainties, including those
discussed below and under the heading "Risks Related to our Business" that could
cause actual results to differ materially from those expressed. Readers are
cautioned not to place undue reliance on these forward-looking statements, which
speak as of the date hereof. We undertake no obligation to publicly release the
results of any revisions to any forward-looking statements, which may be made to
reflect events or circumstances after the date hereof or to reflect the
occurrence of unanticipated events. This discussion should be read in
conjunction with the Condensed Consolidated Financial Statements and Notes to
the Condensed Consolidated Financial Statements presented in our 1999 Annual
Report on Form 10-K and quarterly reports on Form 10-Q for the periods ended
December 31, 1999 and March 31, 2000, available upon request, for a more
complete understanding of our financial position, business and results of
operations.
OVERVIEW
We are a leading developer and global supplier of photoresist and Integrated
Clean solutions used in advanced semiconductor device manufacturing. Our
versatile Integrated Clean solutions, which combine photoresist removal and
residue removal technologies within a single platform, allow our customers to
integrate manufacturing process steps, increasing their yields and throughput.
We also provide low pressure chemical vapor deposition, or LPCVD, systems for
the flat panel display, or FPD, industry. We market and sell our products to
leading semiconductor device and FPD manufacturers worldwide, including 15 of
the top 20 semiconductor device manufacturers.
Our operating results have fluctuated significantly in the past and will
continue to fluctuate significantly in the future. We anticipate that factors
continuing to affect our future operating results will include the cyclicality
of the semiconductor industry and the markets served by our customers including
the prolonged and severe downturn in the worldwide semiconductor industry, among
others. Furthermore, announcements by us or our competitors of new products and
technologies could cause customers to defer purchases of our existing systems,
which would also harm our business. Our gross margins have varied and will
continue to vary significantly based on a variety of factors, including the
following:
- sales mix and average selling prices of our systems;
- price-based competition;
- mix of revenues, including spare parts, service and support revenues;
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- inventory management;
- costs associated with new product introductions and enhancements;
- configuration and installation costs;
- delays, cancellations or rescheduling of customer orders;
- underabsorption of manufacturing overhead and field service and
support infrastructure;
- start-up inefficiencies associated with new products.
Our gross margin as a percentage of net sales for the third quarter and first
nine months of fiscal 2000 has increased compared to the comparable periods of
fiscal 1999. This increase is primarily due to increased utilization of our
field service organization and manufacturing capability resulting from higher
sales volume and product mix.
NET SALES. Net sales consist of revenues from system sales, spare part and
upgrade sales and maintenance and support. Our net sales in the third quarter of
fiscal 2000 increased 145% to $43.9 million compared to net sales of $17.9
million in the third quarter of fiscal 1999. For the nine month period ending
June 30, 2000, our net sales increased approximately 151% to $103.2 million
compared to net sales of $41.1 million for the same period last year. Increased
demand across most geographies and products, including our new Iridia system, is
the principal reason for our sales increase when compared to last fiscal year,
during which the severe worldwide business slowdown in the semiconductor
industry resulted in many IC manufacturers in nearly all geographic regions
reducing and delaying capital equipment purchases. As a result of this improved
business climate, we anticipate that quarter-to-quarter sales for at least the
next two quarters will continue to increase compared to the third quarter of
fiscal 2000, assuming the global semiconductor industry continues and sustains
its recovery.
Sales to our customers in North America, Europe, Asia/Pacific and Japan,
accounted for approximately 54%, 19%, 23% and 4%, respectively, of our total net
sales for the nine months ended June 30, 2000, compared to 59%, 13%, 22% and 6%,
respectively, of our total net sales for the same period in fiscal 1999. Our
percentage of international sales will continue to fluctuate from period to
period, but we anticipate that international sales will continue to account for
a significant portion of our net sales.
GROSS MARGIN. Our gross margin as a percentage of net sales was 46.4% for the
third quarter and 45.2% for the first nine months of fiscal 2000, compared to
42.5% and 34.8%, respectively, for the same periods of fiscal 1999. The
increase in gross margin for both periods of fiscal 2000 compared to fiscal
1999 was primarily due to increased utilization of our field service
organization and manufacturing capability resulting from higher sales volume
and, a product mix that included a relatively high concentration of single
chamber products that generally have higher gross margins than multi-chamber
products. We continue to focus on our gross margin improvement programs,
including the introduction of new value-added applications, features and
options on our PEP and Iridia systems, targeted cost reduction programs and
controlled spending. We expect that our gross margin rates for the next
several quarters will be higher than prior year comparable periods and may be
slightly higher than that reported in the third quarter of fiscal 2000 due to
further utilization of field service and manufacturing capability, product
cost reductions, and improved efficiencies in manufacturing. Our gross
margins, however, will continue to be at risk
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and could be materially adversely impacted by inefficiencies associated with
new product introductions, sales of lower margin flat panel display systems,
competitive pricing pressures, the semiconductor industry and economic
climate, changes in product mix and other factors.
COSTS ASSOCIATED WITH REDUCTION IN FORCE. In the first quarter of fiscal 1999,
we reduced our workforce in response to market conditions and recorded a charge
of $407,000 primarily for costs of severance compensation. As of December 31,
1999 the $407,000 had been paid.
RESEARCH AND DEVELOPMENT (R&D). Our R&D expenses as a percentage of net sales
decreased to 12.0% and 13.9% in the third quarter and first nine months of
fiscal 2000, respectively, compared to 23.2% and 32.7%, respectively, for the
same periods of fiscal 1999. This decrease as a percentage of net sales is due
primarily to comparatively higher sales volume in fiscal 2000. In absolute
dollars, our R&D expenses for the third quarter of fiscal 2000 increased to $5.3
million from $4.2 million for the same period of fiscal 1999. For the nine-month
period ended June 30, 2000, R&D expenses increased to $14.4 million from $13.4
million for the nine-month period ended June 30, 1999. The increase in absolute
dollars in both fiscal 2000 periods is primarily the result of higher
development costs associated with our 300mm product development program and new
process development for our advanced photoresist and advanced clean
applications. Our R&D expenses for the nine-month period ended June 30, 1999
included a $1.8 million charge for the accelerated write-off of equipment
produced and used in connection with our first 300mm product development
program. Additionally, our R&D expenses have increased in the current year
periods compared to the same periods of last fiscal year due to the reduced work
schedule that was in effect during the first half of fiscal 1999. This reduced
work schedule which ended in April, 1999 was part of our cost reduction efforts
taken as a result of poor business conditions attributable primarily to the
industry downturn and ended in April, 1999.
We continue to focus our R&D efforts on areas where we believe we may be able to
gain market share. In particular, we have focused our R&D spending on programs
to support the expanding number of available applications that target our
integrated clean strategy, the development of the 300mm platform and the support
of the LCD flat panel business. In June 1999, we formally introduced the PEP
Iridia which is a leading-edge solution targeting the growing market for
application-specific photoresist and wafer cleaning steps. We anticipate that
R&D spending in absolute dollars for the balance of fiscal year 2000 will
increase compared to prior year periods. We believe this increase will primarily
result from 300mm product development, new process applications primarily for
integrated clean and joint development projects.
SELLING, GENERAL AND ADMINISTRATIVE (SG&A). Our SG&A expenses for the third
quarter of fiscal 2000 increased to $8.7 million from $5.4 million in the
third quarter of fiscal 1999 and increased to $21.4 million from $15.9
million for the nine month periods of fiscal 2000 and 1999, respectively. As
a percentage of net sales, SG&A expenses decreased to 19.9% in the third
quarter of fiscal 2000 from 30.5% in the third quarter of fiscal 1999. For
the first nine months of fiscal 2000, our SG&A expenses decreased to 20.7%
from 38.6% in the same period last fiscal year. The percentage decrease in
both periods is due primarily to higher sales volume in fiscal 2000 as
compared to fiscal 1999. The increase in absolute spending was primarily
attributable to higher labor costs pertaining to increases in personnel and
salary rate increases, hiring and performance related incentive costs and
other sales and marketing activities, specifically
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equipment demonstration and evaluation costs, sales commissions, and travel.
Additionally, SG&A expenses in the third quarter and first nine months of
fiscal 2000 were higher than fiscal 1999 due to the reduced work schedule
that was in effect during the first half of fiscal 1999. We anticipate that
our SG&A expenses for the remaining portion of fiscal 2000 will increase when
compared to the same period last fiscal year due to continued hiring and
other expenses needed to support the increased business levels that we are
now experiencing.
OTHER INCOME (EXPENSE). Other income and expense generally consists of interest
expense, interest income, currency translation gains and losses and royalty
income. Interest expense of approximately $14,000 incurred in the third quarter
and $43,000 for the first nine months of fiscal 2000 compared to $8,000 for the
third quarter and $35,000 for the first nine months of fiscal 1999 is primarily
the result of borrowings under short-term credit agreements from the Bank of
Tokyo-Mitsubishi and Sumitomo Bank made to our wholly-owned subsidiary in Japan,
GaSonics International Japan K.K., and due to an accounts receivable factoring
arrangement in Japan. As of June 30, 2000, borrowings under these loan
agreements totaled approximately 581 million yen, which was equivalent to
approximately $5.4 million as of that date. Interest income received, which is
primarily derived from our short-term investments, was approximately $668,000
and $1.3 million for the third quarter and nine-month period of fiscal 2000,
respectively, compared to $330,000 and $834,000 for the same periods,
respectively, of fiscal 1999. The increase in interest income in both periods of
fiscal 2000 compared to the same periods last fiscal year results principally
from increased cash balances and investments in marketable securities purchased
with the net proceeds from our follow-on public offering in May 2000.
Additionally, interest income for the first nine months of fiscal 2000 has
increased as a result of changing our investment portfolio late last fiscal year
from tax exempt securities to taxable securities due to net operating losses and
an operating loss carry-forward. Foreign currency translations resulting in a
net gain of approximately $15,000 and a net loss of approximately $38,000 were
incurred during the third quarter and first nine months of fiscal 2000,
respectively, due to fluctuations in currency exchange rates primarily in Japan.
There was essentially no net impact of foreign currency translation for the
third quarter last fiscal year and approximately $65,000 in net losses for the
nine month period of fiscal 1999. Royalty income in connection with the sale of
the industrial plasma cleaning products was approximately $43,000 and $137,000
for the third quarter and first nine months of fiscal 2000, respectively,
compared to $67,000 and $245,000 for the comparable periods of fiscal 1999.
PROVISION FOR INCOME TAXES/BENEFITS. We recorded a provision for income taxes of
$495,000 in the third quarter. As a percentage of pretax income, the tax
provision was 7% compared to 5% last quarter. The increase in percentage is due
to our latest projection of fiscal 2000 pretax income and how much it will
exceed our net tax loss carry-forward that is available to offset certain future
tax liabilities.
LIQUIDITY AND CAPITAL RESOURCES
During the third quarter of fiscal 2000, our cash, cash equivalents and
marketable securities increased by approximately $56.7 million to $84.5 million
at June 30, 2000 from $27.8 million at September 30, 1999. This increase in
cash, cash equivalents and marketable securities primarily reflects the $46.7
million in net proceeds from the sale of Common Stock in our follow-on public
offering in May 2000 and cash flows from operating activities. Operations
provided cash of
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approximately $6.0 million for the nine month period ended June 30, 2000
compared to $4.2 million of cash used for operating activities in the same
period last year. The change in cash flow from operations activities for the
first nine months of fiscal 2000 compared to the same period last fiscal year
is primarily the result of our return to profitability in fiscal 2000
compared to an operating loss for the same period last year, partly offset by
uses of cash to fund receivables and inventory resulting from increased
business levels.
Investing activities in the first nine months of fiscal 2000 used cash of
approximately $9.1 million resulting from the net purchases of marketable
securities of approximately $6.9 million and $2.2 million for the acquisition of
equipment and programs in progress for improved operating and information
systems. For the same period of fiscal 1999, investing activities provided cash
of approximately $5.0 million resulting from the net sale of marketable
securities of approximately $5.8 million and used cash of $867,000 primarily for
improved operating and information systems and demonstration equipment.
Financing activities in the first nine months of fiscal 2000 provided cash of
approximately $50.4 million that resulted from the sale of common stock in
connection with our follow-on public offering in May 2000 and from the
issuance of common stock in connection with our employee stock purchase and
stock option programs. Additionally, $2.5 million in cash was provided from
borrowings by GaSonics International Japan K.K. ("Gasonics K.K.") under its
credit agreements with the Bank of Tokyo-Mitsubishi ("BTM") and Sumitomo
Bank. For the first nine months of fiscal 1999, $2.6 million in cash was
provided from the issuance of common stock under our stock purchase and
option plans, $299,000 from borrowings by Gasonics K.K. under its overdraft
credit agreement with BTM, and used cash of approximately $1.3 million for
the open-market repurchase of 100,000 shares of our common stock.
At June 30, 2000, we had working capital of approximately $112.6 million
compared to $49.6 million at September 30, 1999. Accounts receivable and
inventory at June 30, 2000 increased by approximately $13.1 million and $9.2
million, respectively, from September 30, 1999. Our receivables increased
primarily due to our higher sales levels in the current period and our inventory
has increased due to increased demand for our products. We expect future
inventory levels to fluctuate from period to period, and believe that because of
the relatively long manufacturing cycle of our equipment, our investment in
inventory will continue to require a significant portion of working capital. As
a result of such investment in inventory, we may be subject to an increasing
risk of inventory obsolescence, which could materially adversely affect our
operating results.
At June 30, 2000, our principal sources of liquidity consisted of
approximately $66.8 million of cash and cash equivalents, $17.7 million in
marketable securities, and $20.0 million available under our unsecured
working capital line of credit with Union Bank of California, the maturity
date of which expires on March 31, 2001. A commercial letter of credit
provision of $500,000 is also provided under the line of credit. This line of
credit bears interest at the bank's LIBOR rate plus 1.25% per annum.
Available borrowing under the credit line is reduced by the amount of
outstanding letters of credit. As of June 30, 2000, except for $140,358
outstanding under the letter of credit provision, there were no borrowings
under this line. This line of credit contains certain covenants, including
covenants relating to financial ratios and tangible net worth, which
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we must maintain. As of June 30, 2000, we were in compliance with our bank
covenants. Our wholly-owned Japanese subsidiary, GaSonics K.K., has an
overdraft credit agreement with the Bank of Tokyo-Mitsubishi ("BTM") with an
available credit line totaling 300 million Japanese yen which, as of June 30,
2000, is equivalent to approximately $2.8 million U.S. dollars. This
overdraft credit facility was renewed on March 31, 2000, bears interest at a
rate of 1.375% per annum and expires on March 31, 2001. As of June 30, 2000,
GaSonics K.K. had borrowed 281 million yen under this credit facility, which
is equivalent to approximately $2.6 million as of that date. Additionally,
GaSonics K.K. has a basic credit agreement with BTM and Sumitomo Bank, which
provides up to 200 million yen and 100 million yen, respectively, of credit
issued in the form of notes payable. On February 29, 2000 and on May 2, 2000
notes payable were issued under this agreement totaling 200 million yen,
which is equivalent to approximately $1.9 million. Both Notes bear interest
at 1.5% per annum and expire on January 31, 2001. Both agreements with BTM
are secured by a Letter of Guarantee issued by us. Under the credit agreement
with Sumitomo Bank, an additional note payable was issued on June 20, 2000
for 100 million yen, which is equivalent to approximately $900,000, bears
interest at 1.5% and expires on January 31,2001. The agreement with Sumitomo
is not secured by a Letter of Guarantee from us.
We believe that our existing cash, cash equivalents, marketable securities and
available lines of credit at June 30, 2000 are sufficient to meet our working
capital cash requirements during the next twelve months. Beyond the next twelve
months, we may require additional equity or debt financing to achieve our
working capital or capital equipment needs. There can be no assurance that
additional financing will be available when required or, if available, will be
on reasonable terms.
RISKS RELATED TO OUR BUSINESS
OUR OPERATING RESULTS COULD FLUCTUATE, WHICH MAY CAUSE OUR STOCK PRICE TO
DECLINE.
Our operating results have fluctuated significantly in the past, and we expect
that results will continue to fluctuate significantly in the future for a number
of reasons, including:
- the cyclicality of the semiconductor industry;
- changes in pricing by us, competitors, customers or suppliers;
- inventory obsolescence;
- accounts receivable write-offs;
- product mix;
- the timing of new product announcements and releases by us or our
competitors;
- delays, cancellations or rescheduling of customer orders;
- our ability to produce systems in volume and meet customer
requirements;
- the ability of any customer to finance purchases of our equipment;
- procedures and controls;
- changes in overhead absorption levels due to changes in the number of
systems manufactured; and
- lengthy sales cycles.
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Fluctuations in our operating results may adversely impact our stock price.
Furthermore, if these factors are not adequately addressed, they may harm our
business.
CYCLICALITY IN THE SEMICONDUCTOR DEVICE INDUSTRY COULD HARM OUR OPERATING
RESULTS.
Our operating results have varied, and may vary in the future, due to the
cyclical nature of the semiconductor device industry. Downturns in the
semiconductor device industry will likely lead to proportionately greater
downturns in our revenues. Our business depends upon the capital expenditures of
semiconductor device manufacturers, which, in turn, depend upon the current and
anticipated market demand for semiconductors and products using semiconductors.
The semiconductor device industry is cyclical and has historically experienced
periodic downturns, which have often resulted in substantial decreases in demand
for semiconductor capital equipment, including photoresist removal and residue
removal equipment. There is typically a six to twelve month lag between a change
in the economic condition of the semiconductor device industry and the resulting
change in the level of capital expenditures by semiconductor device
manufacturers. In most cases, the resulting decrease in capital expenditures has
been more pronounced than the precipitating downturn in semiconductor device
industry revenues. The semiconductor device industry experienced downturns in
1998 and 1996, during which industry revenues declined by an estimated 8.4% and
8.6% as reported by World Semiconductor Trade Statistics, Inc. During these
periods, we experienced significant cancellations and delays of new orders and
rescheduling of existing orders, which harmed our financial results.
The semiconductor device industry may experience severe and prolonged downturns
in the future. Future downturns in the semiconductor device industry, or any
failure of that industry to fully recover from its recent downturn, will
seriously harm our business, financial condition and results of operations.
OUR QUARTERLY RESULTS MAY FLUCTUATE, WHICH MAY HARM OUR BUSINESS.
In the past, we have experienced fluctuations in our quarterly results and
fluctuations may continue in the future. Specifically, our quarterly net sales
and operating results have in the past, and will in the future, depend upon
obtaining orders and shipping systems in the same quarter. Backlog at the
beginning of a quarter typically does not include all orders required to achieve
our sales objectives for that quarter. In addition, orders in backlog are
subject to cancellations or reschedulings by customers with limited or no
penalties. We cannot forecast the timing of these occurrences or their impact on
our sales and operating results. We have experienced and will continue to
experience cancellations and rescheduling of orders. Consequently, backlog at
any particular date is not necessarily representative of actual sales expected
for the succeeding period. Our business for a particular quarter may also be
harmed if an anticipated order is not received in time to permit shipment during
the same quarter.
Moreover, our quarterly results fluctuate because a substantial portion of our
revenues is derived from the sale of our systems, which typically range in price
from approximately $150,000 to $2.0 million or more. As a result, operating
results for a particular quarter could be significantly impacted by the timing
of a single transaction.
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Furthermore, significant investments in research and development, capital
equipment and customer service and support capability worldwide have resulted in
significant fixed costs, which we have not been and will not be able to reduce
rapidly if sales goals for a particular period are not met. As a result, a delay
in generating or recognizing revenue for any reason could cause significant
variations in our operating results from quarter to quarter and could result in
greater than expected operating losses. Also, because we manufacture our systems
according to forecast, a reduction in customer orders or backlog could lead to
excess inventory and possible inventory obsolescence, increasing costs and
reducing margins that could harm our business, financial condition and results
of operations.
OUR GROSS MARGINS MAY FLUCTUATE, WHICH MAY HARM OUR BUSINESS.
Historically, our gross margins have varied significantly, and we expect that
our gross margins will continue to vary based on a variety of factors,
including:
- sales mix and average selling prices of our systems;
- price-based competition;
- mix of revenues, including spare parts, service and support revenues;
- costs associated with new product introductions and enhancements;
- configuration and installation costs;
- delays, cancellations or rescheduling of customer orders;
- underabsorption of manufacturing overhead and field service and
support infrastructure; and
- start-up inefficiencies associated with new products.
If the factors causing fluctuations are not adequately addressed, they may harm
our business and adversely impact our stock price.
IF WE DO NOT CONTINUALLY IMPROVE OUR SYSTEMS IN RESPONSE TO RAPID TECHNOLOGICAL
CHANGES, WE WOULD ENCOUNTER A DECLINE IN SALES OR A LOSS OF MARKET ACCEPTANCE.
The semiconductor manufacturing industry is characterized by rapid technological
change resulting in new product introductions and enhancements. Failure to keep
pace with technological developments in the semiconductor manufacturing
industry, to translate technological development into systems and products on a
timely and cost-effective basis, or to develop a sufficient volume of
manufacturing for new products would significantly harm our business.
Furthermore, new product introductions or enhancements and new technologies
developed by our competitors could result in a decline in our sales and loss of
market acceptance of our existing products.
Our success in developing, introducing and selling new and enhanced systems
depends upon a variety of factors, including:
- product selection relative to the technological and commercial needs
of the industry;
- timely and efficient completion of product design and development;
- timely and efficient execution of the manufacturing and assembly
processes;
- effective sales and marketing; and
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- product performance and reliability in the field.
Because new product development commitments must be made well in advance of
sales, new product decisions must anticipate both the future demand for the type
of semiconductor devices under development by leading semiconductor device
manufacturers and the equipment required to produce semiconductor devices. We
may not be successful in selecting, developing, manufacturing and marketing new
products or enhancing our existing products. If we are unable to offer these
products in a competitive manner, our business will be harmed.
Additionally, our future performance depends, in part, on the successful
commercialization of our low pressure chemical vapor deposition, or LPCVD,
systems and 300mm systems. However, these products may not lead to significant
revenues or enhance our profitability.
A LIMITED NUMBER OF OUR CUSTOMERS ACCOUNT FOR A SIGNIFICANT PORTION OF OUR NET
SALES, AND THE LOSS OF, OR REDUCTION IN ORDERS FROM, A MAJOR CUSTOMER COULD HARM
OUR BUSINESS.
We sell a significant proportion of our systems to a limited number of
customers. Sales to our ten largest customers accounted for approximately 75% of
our net sales in the first nine months of fiscal 2000, 69% in fiscal year 1999,
64% in fiscal year 1998 and 66% in fiscal year 1997. In the first nine months of
fiscal 2000, Intel and Motorola each accounted for greater than 10% of our total
net sales. In fiscal 1999, Intel accounted for greater than 10% of our net
sales. In fiscal 1998, Intel and Motorola each accounted for more than 10% of
our net sales. In fiscal 1997, Samsung, Promos Technologies and Intel each
accounted for more than 10% of net sales. We expect that a high percentage of
our net sales will continue to come from a limited number of customers.
We have no long-term purchase agreements with our customers. If we lose a
significant customer, our sales could decline and our business will be harmed.
In addition, if sales to some customers decrease or those customers complete or
delay purchasing requirements for new or expanded fabrication facilities, our
business could be harmed. For example, Intel has recently announced a decision
to diversify its supplier base and may decrease its purchases from us in the
future.
OUR LONG AND VARIABLE SALES CYCLE DEPENDS ON MANY FACTORS OUTSIDE OF OUR CONTROL
AND COULD CAUSE US TO EXPEND SIGNIFICANT TIME AND RESOURCES PRIOR TO EARNING
ASSOCIATED REVENUES.
Sales of our systems depend, in part, upon the decision of prospective
customers to increase manufacturing capacity by expanding existing
manufacturing facilities or building new facilities. Because facilitization
of these plants requires significant capital commitment, equipment
qualification and equipment installation, we often experience delays in
finalizing these sales following initial system qualification. Due to these
and other factors, our systems typically have a lengthy and variable sales
cycle during which we may expend substantial funds and management effort to
secure final sale and installation of our products.
The length of the sales cycle may increase if customers centralize purchasing
decisions or if they delay purchase decisions in periods of industry
downturns. The lengthy sales cycles may also intensify the evaluation
process, which may increase sales and marketing expenditures, exposing
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us to risks, including obsolescence, fluctuations and the resulting
difficulties in forecasting operating results.
THE COMPLEXITY OF OUR SYSTEMS MAY RESULT IN A SIGNIFICANT DELAY BETWEEN THE
INITIAL INTRODUCTION OF OUR SYSTEMS AND THE COMMENCEMENT OF VOLUME PRODUCTION.
The large number of components in, and the complexity of, our systems can lead
to significant delays between the initial introduction of our systems and the
commencement of volume production. As is typical in the semiconductor capital
equipment market, we experience occasional delays in the introduction of some of
our systems and enhancements, and we may continue to experience delays in the
future. We have experienced and will continue to experience technical, quality
and manufacturing difficulties with some of our systems and enhancements. Any
delay in the introduction of our systems could cause us to lose revenue, incur
substantial expenses and harm our reputation. In addition, if new products have
reliability or quality problems, our operating results will be harmed because of
additional expenses, such as service and warranty expenses.
OUR OPERATIONS ARE CHARACTERIZED BY THE NEED FOR CONTINUED INVESTMENT IN
RESEARCH AND DEVELOPMENT AND, AS A RESULT, OUR ABILITY TO REDUCE COSTS IS
LIMITED.
Our operations are characterized by the need for continued investment in
research and development. If our revenues are below expectations, our operating
results could be harmed because our ability to reduce these costs while
remaining competitive is limited. In addition, because of our emphasis on
research and development and technological innovation, there can be no assurance
that our operating costs will not increase in the future. We expect the level of
research and development expenses to increase in the near future in absolute
dollar terms.
THE SEMICONDUCTOR CAPITAL EQUIPMENT INDUSTRY IS INTENSELY COMPETITIVE, WHICH
COULD IMPAIR SALES OF OUR PRODUCTS AND HARM OUR REVENUES AND RESULTS OF
OPERATIONS.
We operate in the highly competitive semiconductor capital equipment industry
and face competition from a number of companies, including Eaton Corporation,
Mattson Technology, Plasma Systems and ULVAC, some of which have greater
financial, engineering, manufacturing, marketing and customer support resources
and broader product offerings than we do. As a result, our competitors may be
able to respond more quickly to new or emerging technologies or market
developments by devoting greater resources to the development, promotion and
sale of products, which could impair sales of our products. Moreover, there has
been significant merger and acquisition activity among our competitors and
potential competitors, particularly during the recent downturn in the
semiconductor device and semiconductor capital equipment industries. These
transactions by our competitors and potential competitors may provide them with
a competitive advantage over us by enabling them to rapidly expand their product
offerings and service capabilities to meet a broader range of customer needs.
Many of our customers and potential customers in the semiconductor device
manufacturing industry are large companies that require global support and
service for their semiconductor capital equipment. While we believe that our
global support and service infrastructure is sufficient to meet the needs of our
current customers, future or existing competitors may have more extensive
infrastructures than we do, or
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better infrastructures in particular geographic regions, which could place us
at a disadvantage when competing for the business of global semiconductor
device manufacturers.
In addition, because we rely on sales of our dry chemistry processing equipment,
we may be at a disadvantage to some competitors that offer more diversified
product lines. We believe that we will continue to face competition from current
and new suppliers employing other technologies, such as wet chemistry,
traditional dry chemistry and other techniques, as those competitors attempt to
extend the capabilities of their existing products.
Furthermore, many of our competitors invest heavily in the development of new
systems that will compete directly with ours. We expect our competitors in each
product area to continue to improve the design and performance of their products
and to introduce new products with competitive prices and performance
characteristics. Our systems may not be able compete successfully with those of
our competitors. Increased competitive pressure has led and may continue to lead
to reduced demand and lower prices for some of our products, which could harm
our business.
Competitors of our LCD division in Japan include Japan-based companies and
Japan-based joint ventures who manufacture alternative technologies and are well
established in Japan. At any time they could enter our markets with improved
technologies or with systems that directly compete with our LCD division.
OUR FUTURE DEPENDS ON OUR ABILITY TO FURTHER PENETRATE THE ASIA/PACIFIC MARKET,
WHICH CONSISTS OF JAPAN, KOREA, SINGAPORE AND TAIWAN.
For the first nine months of fiscal 2000 and for fiscal 1999, the Asia/Pacific
market represented 27% and 26%, respectively, of our total net sales, while the
Asia/Pacific market represents 57% of the worldwide semiconductor capital
equipment industry. Some of our competitors have products that are targeted to
address the need for low-cost, high-throughput equipment found in Taiwan
foundries. Some of our competitors also have well entrenched positions in these
markets as a result of long personal relationships, robust infrastructures and
experienced management teams. We may not be able to displace our entrenched
competitors. As a result, our market share and overall global competitive
position may be harmed, and the future growth of our business may be limited.
Our efforts to further penetrate these increasingly important Pacific Rim
markets may not be successful.
WE ARE DEPENDENT ON INTERNATIONAL SALES AND SUBJECT TO THE RISKS OF
INTERNATIONAL BUSINESS.
International sales accounted for 46% of our total net sales for the first nine
months of fiscal 2000 and 46% in fiscal year 1999, 45% in fiscal year 1998 and
55% in fiscal year 1997. As a result of our expanded international operations,
we anticipate that international sales will continue to account for a
significant portion of our total net sales in the foreseeable future. These
international sales will continue to be subject to a number of risks, including:
- unexpected changes in regulatory requirements;
- difficulty in satisfying existing regulatory requirements;
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- exchange rates;
- foreign currency fluctuations;
- tariffs and other barriers;
- political and economic instability;
- potentially adverse tax consequences;
- outbreaks of hostilities;
- difficulties in accounts receivable collection;
- longer collection cycles;
- difficulties in managing distributors or representatives; and
- difficulties in staffing and managing foreign subsidiary and branch
operations.
We are also subject to the risks associated with the imposition of domestic and
foreign legislation and regulations relating to the import or export of
semiconductor equipment. We cannot predict if the import or export of our
products will be subject to tariffs, quotas, duties, taxes or other charges or
restrictions imposed by the United States or any other country in the future.
In addition, Taiwan accounts for a growing portion of the world's semiconductor
manufacturing. There are currently strained relations between China and Taiwan.
Any adverse development in those relations could significantly impact the
worldwide production of semiconductors, which would lead to reduced sales of our
products and harm our operating results.
WE ARE HIGHLY DEPENDENT ON OUR KEY PERSONNEL AND THEY MAY BE DIFFICULT TO
REPLACE.
Our success depends to a large extent upon the efforts and abilities of our key
managerial and technical employees. The loss of key employees could limit our
ability to develop new products and adapt existing products to our customers'
evolving requirements and result in lost sales and diversion of management
resources. We have no employment agreements preventing our officers or key
employees from joining our competitors or competing with us. Furthermore, much
of our competitive advantage and intellectual property is based on the
expertise, experience and know-how of our key personnel regarding our
technologies, systems and products. If we are unable to retain our key
personnel, or if any of our key personnel join a competitor or otherwise compete
with us, our business and operating results could be harmed.
OUR FUTURE PERFORMANCE DEPENDS ON OUR ABILITY TO ATTRACT KEY PERSONNEL.
Our growth depends in part on our ability to attract and retain qualified
management, engineering, financial and accounting, technical, marketing and
sales and support personnel for our operations. Competition for personnel is
intense, particularly in Northern California where we are based. We may not
be successful in attracting or retaining personnel, which could harm our
business.
IF WE ARE FOUND TO INFRINGE INTELLECTUAL PROPERTY RIGHTS OF OTHERS, OUR BUSINESS
MAY BE HARMED.
As is typical in the semiconductor industry, we occasionally receive notices
from third parties alleging infringement claims. Although we have no significant
claims or lawsuits regarding any possible infringement claims currently filed
against us, there can be no assurance that infringement
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claims by third parties, or claims for indemnification by our customers
resulting from infringement claims, will not be asserted against us in the
future. These assertions, whether or not proven to be true, could harm our
business.
If any claims are asserted against us, we may seek to obtain a license under the
third party's intellectual property rights. However, whether such a license
would be available to us at all, or on terms acceptable to us, is unclear. Any
license would likely increase our expenses. We could also decide to resort to
litigation to challenge claims or enforce our intellectual property rights.
Litigation against us, even if unsuccessful, could be very expensive and time
consuming and could harm our business.
IF WE FAIL TO ADEQUATELY PROTECT OUR INTELLECTUAL PROPERTY RIGHTS, OUR BUSINESS
MAY BE HARMED.
We attempt to protect our intellectual property rights through patents,
copyrights, trade secrets and other measures. However, there can be no assurance
that we will be able to protect our technology adequately or that competitors
will not independently develop similar technology. Nor can we be sure that any
of our pending patent applications will be issued or that foreign intellectual
property laws will protect our intellectual property rights. Our issued patents
could be challenged, invalidated or circumvented and the rights granted may not
provide us with competitive advantages. Furthermore, we cannot be certain that
others will not independently develop similar products, duplicate our products
or design around our patents or patent applications.
IF WE ENGAGE IN ACQUISITIONS, WE WILL INCUR A VARIETY OF EXPENSES, AND WE MAY
NOT BE ABLE TO REALIZE THE ANTICIPATED BENEFITS.
We have recently announced our intent to acquire Gamma Precision Technologies
("GPT") and in the future, we may pursue additional acquisitions of
additional product lines, technologies or businesses. We may have to issue
debt or equity securities to pay for future acquisitions, which could be
dilutive, and in the case of debt would have to be repaid, and could harm our
business. In addition, we have limited experience in the acquisition process.
Acquisitions involve a number of risks, including:
- difficulties in and costs associated with the assimilation of the
operations, technologies personnel and products of the acquired
companies;
- assumption of known or unknown liabilities or other unanticipated
events or circumstances;
- diversion of management's attention;
- risks of entering markets in which we have limited or no experience;
and
- potential loss of key employees.
From time to time, we have engaged in preliminary discussions with third parties
concerning potential acquisitions of product lines, technologies and businesses.
However, other than our letter of intent with GPT, there are currently no
commitments or agreements with respect to any acquisitions.
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WE PRODUCE A MAJORITY OF OUR PRODUCTS AT A SINGLE FACILITY AND ANY DISRUPTION IN
THE OPERATIONS OF THAT FACILITY COULD HARM OUR BUSINESS.
We produce most of our products in our manufacturing facility located in San
Jose, California. Our manufacturing processes are highly complex and require
sophisticated and costly equipment and a specially designed facility. As a
result, any prolonged disruption in the operations of our manufacturing
facility, whether due to technical or labor difficulties, destruction of or
damage to this facility as a result of an earthquake, fire or any other reason,
could harm our business, financial condition or results of operations.
Furthermore, San Jose is located on a primary fault line. We currently do not
have a disaster recovery plan and do not carry sufficient business interruption
insurance to compensate us for losses that may occur.
WE DEPEND ON A LIMITED NUMBER OF SUPPLIERS FOR PRODUCTS, AND THE LOSS OF ANY
SUPPLIER MAY HARM OUR BUSINESS.
We purchase a number of components and subassemblies necessary for manufacturing
our systems from a limited number of suppliers and in some instances a sole
supplier. Specifically, we rely on a limited number of suppliers for robotics,
microwave power supplies and platens, and on single sources for magnetrons and
microwave applicators used in our products. Our LCD division in Japan is heavily
dependent on a single supplier for quartz fabrication used in its LPCVD systems.
We are exploring alternative sources for these critical materials. In addition,
we have been establishing longer term contracts with some of these suppliers to
mitigate the potential risks of shortages, lack of control over pricing and
delays in delivery of components and subassemblies. However, we are also
increasingly relying on outside vendors to manufacture components and
subassemblies.
Our reliance on sole or a limited number of suppliers and our increasing
reliance on subcontractors involve several risks, including shortages, lack of
control over pricing and delays in delivery of components and subassemblies.
Because our manufacturing process is typically a complex process and requires
long lead times, there may be delays or shortages caused by suppliers in the
future. Some of our suppliers may have relatively limited financial and other
resources, which could impact their ability to deliver products in a timely
manner. Inadequate deliveries or any other circumstance that would require us to
seek alternative sources of supply or to manufacture necessary components
internally could significantly delay shipments, which could damage relationships
with current and prospective customers and harm our business.
A NEW ACCOUNTING PRONOUNCEMENT MAY CAUSE OUR OPERATING RESULTS TO FLUCTUATE.
In December 1999, the SEC staff released Staff Accounting Bulletin No. 101,
"Revenue Recognition in Financial Statements." As a result of this
pronouncement, companies will be required to recognize revenue only when they
substantially complete the applicable sales agreements, which will typically
occur upon customer acceptance. This pronouncement particularly impacts the
semiconductor manufacturing industry and the semiconductor capital
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equipment industry. Historically, the industry has recognized revenue upon
shipment, and we have consistently applied this revenue recognition policy. In
compliance with this pronouncement, we will adopt the accounting change in
revenue recognition in the first fiscal quarter of 2001, which we expect will
have a significant effect on our operating results in our first quarter.
Furthermore, adoption of this pronouncement will impact the comparability of our
financial statements from period to period, as well as our contractual
relationships with our customers and internal procedures and controls.
IF WE CANNOT SUCCESSFULLY EXPAND OUR OPERATIONS AND MANAGEMENT SYSTEMS, WE MAY
NOT BE ABLE TO GROW OR MAINTAIN OUR BUSINESS.
Sales growth and expansion in the scope of our operations in the past placed a
considerable strain on our operations and management systems. To effectively
deal with changes brought on by the cyclical nature of the industry, we may be
required to initiate an extensive reevaluation of our operating and financial
systems, procedures and controls. We will continue to upgrade and implement new
management systems as required. If we do not succeed in these efforts, we may
not be able to grow or maintain our business, and our business may be harmed.
OUR OFFICERS, DIRECTORS AND RELATED FAMILY MEMBERS CAN CONTROL THE OUTCOME OF
MATTERS REQUIRING STOCKHOLDER APPROVAL.
As of June 30, 2000, our officers, directors and members of their families who
may be deemed affiliates of such persons, beneficially owned approximately 10.5%
of our outstanding shares of common stock. Accordingly, these stockholders will
be able to significantly influence the election of our directors and the outcome
of corporate actions requiring stockholder approval, such as mergers and
acquisitions, regardless of how our other stockholders may vote. Such a high
level of ownership by these persons or entities could have a significant effect
in delaying, deferring or preventing a change in control and may impact the
voting power and other rights of other holders of common stock.
ANTI-TAKEOVER PROVISIONS CONTAINED IN OUR CHARTER DOCUMENTS AND UNDER DELAWARE
LAW COULD DELAY, IMPAIR OR PREVENT A CHANGE IN CONTROL.
Provisions of our Certificate of Incorporation, 1994 Stock Option/Stock Issuance
Plan, Bylaws and Delaware law may discourage transactions involving a change in
control. Our Certificate of Incorporation and Bylaws contain provisions that
limit liability and provide indemnification of our directors and officers and
provide that our stockholders can take action only at a duly called annual or
special meeting of stockholders. These provisions may have the effect of
deterring hostile takeovers or delaying changes in the control or management of
us. In addition, the ability of our board of directors to issue preferred stock
without further stockholder approval could have the effect of delaying,
deferring or preventing a change in control.
The Delaware anti-takeover law restricts business combinations with some
stockholders once the stockholder acquires 15% or more of our common stock. The
Delaware statute makes it more difficult for our company to be acquired without
the consent of our board of directors and management. We are also subject to the
provisions of Section 203 of the Delaware General
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Corporation Law prohibiting, under various circumstances, publicly-held Delaware
corporations from engaging in business combinations with interested stockholders
for a specified period of time without the approval of the holders of
substantially all of its outstanding voting stock. These provisions could delay
or impede the removal of incumbent directors and could make more difficult a
merger, tender offer or proxy contest involving us, even if these events could
be beneficial, in the short-term, to the interests of the stockholders. In
addition, these provisions could limit the price that investors might be willing
to pay in the future for shares of our common stock.
OUR FAILURE TO COMPLY WITH CURRENT OR FUTURE ENVIRONMENTAL REGULATIONS COULD
HARM OUR BUSINESS.
We are subject to a variety of governmental regulations relating to the use,
storage, discharge, handling, emission, generation, manufacture and disposal of
toxic or other hazardous substances used to manufacture our products. We believe
that we are currently in compliance, in all material respects, with these
regulations and that we have obtained all necessary environmental permits to
conduct our business. Nevertheless, the failure to comply with current or future
regulations could result in substantial fines being imposed on us, suspension of
production, alteration of our manufacturing process or cessation of operations.
These regulations could require us to acquire expensive remediation equipment or
to incur substantial expenses to comply with environmental regulations. Our
failure to control the use, disposal or storage of, or adequately restrict the
discharge of, hazardous or toxic substances could subject us to significant
liabilities and could harm our business.
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ITEM 2A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKS
INTEREST RATE RISK
Our exposure to market risk for change in interest rates relates primarily to
our investment portfolio. We do not use derivative financial instruments in our
investment portfolio. We invest in high-credit quality issuers and, by policy,
limits the amount of credit exposure to any one issuer. As stated in our policy,
we ensure the safety and preservation of our invested principal funds by
limiting default risk, market risk and reinvestment risk.
We mitigate default risk by investing in safe and high-credit quality securities
and by constantly positioning our portfolio to respond appropriately to a
significant reduction in a credit rating of any investment issuer, guarantor or
depository. The portfolio includes only securities with active secondary or
resale markets to ensure portfolio liquidity.
The table below presents principal amounts and related weighted average interest
rates by date of maturity for our investment portfolio (in thousands):
<TABLE>
<CAPTION>
Fiscal Years
Cash equivalents and short-term investments 2000 2001
-------------------------------------------------------------- ------------- -------------
<S> <C> <C>
Fixed rate short-term investments $59,647 $12,946
Average interest rate 6.42% 6.58%
</TABLE>
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We are not a party to any material litigation.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS.
None.
ITEM 5. OTHER INFORMATION.
On May 18, 2000, we completed our follow-on public offering of
2,003,000 shares of common stock at a price of $24.88 per share
netting proceeds of approximately $46.7 million.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are filed herewith:
Exhibit 27 Financial Data Schedule
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the quarter ended June 30,
2000.
27
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, as
amended, the registrant duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
GASONICS INTERNATIONAL CORPORATION
(Registrant)
/s/Rammy Rasmussen
------------------
Date: August 7, 2000 By: Rammy Rasmussen
Vice President, Finance
Chief Financial Officer and Secretary
(signing on behalf of the Registrant and as
principal financial officer)
28
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION SEQUENTIALLY
NUMBERED
PAGE
<S> <C>
27 Financial Data Schedule
</TABLE>
29
