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 year ended December 31, 1998
Commission file number 0-23628
Fusion Systems Corporation
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(Exact name of registrant as specified in its charter)
Delaware 52-0915080
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(State of incorporation) (I.R.S. Employer Identification No.)
7600 Standish Place, Rockville, Maryland 20855
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(Address of principal executive offices) (Zip code)
(301) 251-0300
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(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(g) of the Act:
Title of each class
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Contingent Payment Rights
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding twelve months
and (2) has been subject to such filing requirements for the past
ninety days. Yes X
---
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation 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. X
---
The registrant meets the conditions set forth in General
Instruction I(1)(a) and (b) for Form 10-K and is therefore filing
this form with the reduced disclosure format.
As of January 31, 1999, there were 10 Common Shares outstanding
which were held by Eaton Corporation.
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Part I
Item 1. Business
Background
Fusion Systems Corporation and Subsidiaries (the "Company" or
"Fusion"), wholly-owned subsidiaries of Eaton Corporation ("Eaton"),
is a worldwide supplier of single-wafer ashers and photostabilizers
used in the fabrication of advanced semiconductor devices. The
Company was founded in 1971 to develop microwave-powered
electrodeless ultraviolet ("UV") lamps originally used to cure
coatings, adhesives and inks on a variety of end-use products. The
Company began commercial shipments in 1975 and introduced its first
product for the semiconductor industry in 1983. On September 6,
1996, Fusion sold its UV curing business to Fairey Group, plc of
Egham, United Kingdom.
The Company has made major investments in its business to expand its
product lines and increase its worldwide sales and service
capabilities. The Company has continued to add to its semiconductor
equipment product families through internal development and
technology sourcing. The Company has also made investments to
strengthen its direct sales and service operations in Europe and
South Korea and expand its presence in Japan and Taiwan.
The Company derives most of its revenues from the sale of
free-standing semiconductor fabrication systems. In addition, it
obtains revenues from royalties and the sale of consumables and
services.
Acquisition by Eaton Corporation
On June 30, 1997, Fusion and Eaton, an Ohio corporation, entered
into a definitive merger agreement under which Eaton agreed to
acquire the Company. Under the terms of the agreement, on July 7,
1997, Eaton initiated a cash tender offer for all outstanding shares
of the Company at $39 per share. The tender offer was subject to a
majority of the outstanding shares of the Company, on a fully
diluted basis, being tendered, and other customary conditions. Eaton
agreed to acquire any remaining Company shares not acquired in the
tender offer in a merger at the same $39 per share price.
On July 25, 1997, the Company declared a dividend of one Contingent
Payment Right ("Right") on each share outstanding. Each Right
entitled holders to receive on March 31, 1999 an additional cash
payment if the Company's 1998 revenues had exceeded $122 million,
with a maximum $5.00 per Right if the Company's 1998 revenues had
reached $149 million or more. The Company's 1998 revenues were
$41.1 million; therefore, no payment will be made to the holders of
these Rights.
On August 4, 1997, Eaton's wholly-owned subsidiary, ETN Acquisition
Corporation, completed the tender offer for all of the outstanding
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shares and the associated preferred share purchase rights of the
Company (the Rights were not acquired by Eaton). On August 5, 1997,
ETN Acquisition Corporation merged into the Company, resulting in
each share of the Company not acquired in the tender offer being
canceled and converted into the right to receive $39 cash.
Technology and Products
Fusion's growth is driven by products based on distinctive core
competencies. Starting with the core microwave lamp technology,
Fusion has steadily built and integrated additional core
competencies in such areas of technology as optics, thermal control,
microwave power supplies and applicators, software, robotics, and
barrier discharge ozone generation.
Fusion has used these core competencies to develop its three product
families: the downstream Plasma Asher, the Ozone Asher and the
Photostabilizer. Each of these products is available on the
single-chamber Fusion 200(TM) platform and the high-throughput,
dual-chamber Gemini(TM) platform. These standardized platforms
include advanced robotic unicassette wafer-handling systems, low
particulate design and materials, and in situ diagnostics, and are
compatible with important industry standards including SMIF
(Standard Mechanical InterFace), SECS (Semiconductor Equipment
Communications Standard) and GEM (Generic Equipment Model).
Ashers
The function of the photoresist pattern in semiconductor device
fabrication is to provide a highly precise stencil that allows
certain areas of the substrate to be processed, while others are
blocked by the photoresist. After processing at each photoresist
masking level, the photoresist stencil must be removed to start the
next level.
Fusion developed its first asher product, a proprietary ozone asher,
as an alternative method of ashing for those process steps in which
plasma might damage sensitive electronic structures. Fusion's Ozone
Asher is protected by process and equipment patents, and by trade
secrets which make possible superior barrier discharge ozone
generators. The Fusion Ozone Asher is priced competitively with
downstream plasma ashers and provides competitively low cost of
ownership, high throughputs and extremely low device damage. In
addition to its original ashing application, the Fusion Ozone Asher
has found use in surface cleaning and metal passivation. A number of
Fusion's key accounts use the Ozone Asher in mass production of
advanced devices on 200mm wafers.
For many process levels, downstream plasma ashing is regarded as
preferable to ozone ashing because of its adaptability in a variety
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of processes, including residue removal, and because of its
similarity to widely-used plasma-based etching processes. Fusion's
second ashing product is an advanced downstream microwave plasma
asher. Physical separation of the region in which microwave energy
creates a plasma from the region near the wafer provides shielding
of the wafer from charged particles in the plasma that can cause
damage. In December 1992, Fusion entered into an agreement with
Texas Instruments (the "TI Agreement"), whereby Fusion licensed the
rights to the design, drawings and applications data for a microwave
downstream plasma asher which Texas Instruments ("TI") had developed
and used extensively in its own 150mm MOS device production lines.
The TI Agreement grants to the Company a worldwide, non-exclusive
right to use certain plasma asher technology and to develop,
manufacture and sell products based on such technology.
Fusion enhanced the TI design, implemented it on the Fusion 200(TM)
platform, and improved the microwave plasma generation and heating
subsystems. Initial shipments of this product were made during the
fourth quarter of 1993.
In 1996, Fusion introduced a new tool called Enhanced Strip (ES), an
advanced version of Fusion's Plasma Asher, designed with residue
removal capability. The ES process uses fluorine-based gas
chemistries to provide dry in situ removal of residues created after
processes such as etch and ion implant, effectively eliminating the
need for wet process steps which normally follow ashing. A distinct
competitive advantage of the ES tool is the capability to ash and to
remove residues in the same chamber. This enables the Fusion ES
system to use high productivity parallel processing in Gemini(TM)
systems, whereas competitors' systems must use slower, sequential
processing. The development of the ES process meets market needs
resulting from industry's desire to eliminate wet process steps.
These typically use hazardous and difficult-to-handle substances and
are reaching their physical limitations as advanced semiconductor
device geometries continue to shrink.
Photostabilizers
Fusion's Photostabilizers use proprietary electrodeless UV lamp
technology, together with a carefully controlled temperature ramp,
to harden or "stabilize" photoresist patterns in seconds. Fusion's
photostabilization process improves yields by hardening the resist
structure through cross-linking of the photoresist material,
avoiding pattern distortion and the resulting loss of critical
dimensional control that can otherwise take place when the resist is
exposed to subsequent processes such as etching or ion implantation.
Fusion invented the process that currently dominates the
photostabilization market, although thermal ovens and hot plates are
used for slower or less critical stabilization steps.
Fusion's Photostabilizers process 200mm wafers automatically from
cassettes using advanced robotics and software compatible with full
factory automation. The Company believes such features reduce
operating expenses for the user by improving wafer handling and
control system reliability.
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Marketing, Sales and Service
Fusion's product development and marketing strategy requires close
working relationships with customers. Relationships built by the
Company with its key accounts have led to partnering activities on
major new product developments. In addition, the Company works with
its key accounts to define quality performance indicators which
measure the Company's progress toward continuous improvement goals.
A major goal of Fusion's global strategy is to ensure that key
accounts receive the same high level of support at all fabrication
facility locations worldwide.
In Japan, Tokyo Electron Limited (TEL) had been Fusion's distributor
since 1983. On March 16, 1999, Sumitomo Heavy Industries, Ltd. was
appointed the exclusive distributor in Japan for Fusion photo-
stabilizers and ashers and Eaton rapid thermal processors and
furnaces. The agreeement with TEL is in the process of being
terminated.
Customers
Sales to Texas Instruments represented 13% of net sales in 1998.
Sales to five other customers together represented 32% of net sales
in 1998 and 1997; however, no single customer represented 10% or
more of net sales in 1997. Sales to IBM, Micron Technology, and
Atmel represented 15%, 11%, and 11% of net sales in 1996,
respectively. The semiconductor capital equipment industry is
typically characterized by small unit sales but high value sales to
a well-defined customer base. The cancellation or delay of orders
from any one of the Company's key accounts due to business
conditions or industry-wide slowdowns, pricing pressures and the
impact of competitive products could materially adversely affect the
Company's financial performance and business in general, and
contribute to marked fluctuations in quarterly operating results.
See "Forward Looking Statements" on pages 14 through 17 of this
report.
Research, Development and Engineering
The market for semiconductor manufacturing equipment is generally
characterized by rapid technological development and product
innovation. The Company believes that continued and timely
development of new processes and products and enhancements to
existing processes and products are necessary to maintain its
competitive position and to continue its expansion into additional
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niche markets. Accordingly, the Company intends to continue to
devote significant resources to research and development programs
and to maintain close relationships with customers to remain
responsive to their process and product needs.
Fusion's total research and development and product engineering
expenses (in millions) were $19 in 1998 and 1997 and $16 in 1996.
Competition
Fusion has competed in the past primarily with firms that are
significantly smaller than those which typically supply the
high-priced semiconductor fabrication equipment for major process
steps, such as etch and deposition equipment.
The asher market is segmented by region and technology. Fusion
competes against United States-based suppliers of single-wafer
plasma ashers: GaSonics International Corporation, Mattson
Technology, Inc. and Matrix Semiconductor Systems, Inc. In the
Pacific Region market, Fusion also competes against Japan-based
suppliers: Plasma Systems Corporation, Canon, Inc. and M.C.
Electronics Co., Ltd. The Pacific Region market is marked by a
higher concentration of batch systems, although single-wafer systems
are rapidly increasing market share. Large suppliers of
semiconductor equipment, such as Lam Research Corporation and
Applied Materials Incorporated, have added process modules to their
equipment which perform a similar function to that performed by the
Company's asher products. These companies have significantly greater
service, support and technical resources than the Company. The
Company will continue to face competition from single-wafer dry
ashers made by competing manufacturers as well as by barrel ashers
and wet chemistry suppliers. Competitive factors could lead to the
loss of business for the Company, materially affecting financial
performance and business in general, and could contribute to marked
fluctuations in quarterly operating results.
In photostabilization, the Company primarily competes against
thermal bake ovens and hot plates in all markets, and faces
additional competition from a Japanese manufacturer of
photostabilizers, Ushio Electric Ltd. ("Ushio"), in Japan and the
Pacific Region. In those markets, the Company believes that it will
increasingly benefit from patents issued to the Company, primarily
covering Fusion's UV/Bake(TM) process. In 1996, Fusion announced
that it had reached a technology accord with Ushio regarding a
long-standing dispute between the Company and Ushio. Under the terms
of this agreement, the customers of Fusion and Ushio will have the
right to royalty-free use of patents of both companies in the field
of UV hardening of photoresists for the production of semiconductor
devices.
Manufacturing and Suppliers
The Company's manufacturing operations are located at its Rockville,
Maryland headquarters and consist primarily of component
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procurement, final assembly, testing and quality control. Most of
the components used in Fusion's products are fabricated by outside
suppliers to the Company's engineering specifications.
One component used in two of the Company's three product groups has
been continuously obtained by the Company for over twenty years from
a single source. The supplier is a leading, worldwide electronics
manufacturer which historically has provided timely delivery without
any significant delay or interruptions. In the unanticipated event
of a phase-out of the manufacture of this component, the supplier
has previously confirmed that it will provide Fusion with enough
supply to meet the Company's requirements for five years from the
date of any notification of discontinuance. The Company believes it
would have sufficient time following such a notice to alter its
designs to accept substitute components, or to engage an alternative
supplier to build the component to specification. The Company
currently maintains inventories of this component as a safeguard
against the possibility of short-term supply interruptions. If the
Company were to experience a prolonged inability to obtain such
component, it would have a material adverse effect on the Company's
results of operations. See "Forward Looking Statements" on pages 14
through 17 of this report.
Backlog
Fusion's backlog at December 31, 1998, 1997 and 1996 (in millions)
was $9, $18 and $39, respectively. Backlog consists of orders for
which a written customer purchase order has been received or a
customer purchase order number has been communicated to the Company.
All orders are subject to cancellation or rescheduling by the
customer with limited or no penalties. The Company's backlog at any
particular date may not necessarily be indicative of actual sales
for any succeeding period.
Employees
At December 31, 1998, the Company had approximately 240 full-time
employees. The success of the Company's future operations depends in
large part on the Company's ability to recruit and retain engineers,
technicians and other professionals who are in considerable demand.
There can be no assurance that the Company will be successful in
retaining or recruiting key personnel. None of the Company's
employees are represented by a labor union and the Company has never
experienced a work stoppage, slowdown or strike. The Company
considers its employee relations to be good.
Item 2. Properties
The Company's headquarters, principal manufacturing and research and
development facilities are located in Rockville, Maryland. The
Company leases these facilities under four separate leases.
The Company also leases warehouse space located in Rockville,
Maryland under a lease that expires December 31, 1999. In addition,
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the Company leases space for sales offices in Boise, Idaho and
Carrollton, Texas. The terms of these leases expire in 1999.
The Company leases space for its international operations in Alton,
England; Milan, Italy; Tokyo, Japan; and Seoul, South Korea with
terms expiring between 1999 and 2002.
Item 3. Legal Proceedings
None required to be reported.
Part II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters
The Company's Common Shares were previously traded on the Nasdaq
National Market tier of The Nasdaq Stock Market prior to the
acquisition of Fusion by Eaton on August 4, 1997. Eaton currently
holds all the outstanding Common Shares of Fusion, for which there
is no active trading market.
The high and low market prices for the Contingent Payment Rights
were $13/16 and $1/64 in 1998 and were traded on the Nasdaq Stock
Market. The Rights were delisted on December 22, 1998.
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Overview
Fusion is a worldwide supplier of single-wafer ashers and
photostabilizers used in the fabrication of advanced semiconductor
devices. The Company was founded in 1971 and introduced its first
product for the semiconductor industry in 1983.
On June 30, 1997, the Company and Eaton Corporation ("Eaton")
entered into a definitive merger agreement under which Eaton agreed
to acquire the Company.
On August 4, 1997, Eaton's wholly-owned subsidiary, ETN Acquisition
Corporation, completed a tender offer for all of the outstanding
shares of common stock and the associated preferred share purchase
rights of the Company. See pages 29 and 30 of the financial review
in this report.
The semiconductor capital equipment industry is dependent on the
performance and capacity of the semiconductor device ("chip")
industry which historically has been a cyclical industry which could
materially affect the results of operations. See "Forward Looking
Statements" on pages 14 through 17 of this report.
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Results of Operations
The Company's net sales are derived from system sales, spare parts,
service and royalty revenues. Net sales decreased to approximately
$41.1 million in 1998, a 51% decrease from 1997 results. 1998 proved
to be a very difficult year for the semiconductor capital equipment
industry as the industry began to collapse in the first half of the
year. Late in 1998, the semiconductor equipment industry appeared to
have reached the bottom of the current cycle.
The unprecedented severity of conditions in the semiconductor
equipment industry caused the Company to take drastic steps to
ensure capacity is appropriately sized for current market
conditions. In 1998, restructuring charges of $5.0 million were
recorded. The overall restructuring efforts included workforce
reductions and inventory and asset write-downs. The charge for
workforce reductions included the termination of approximately 90
employees, primarily manufacturing personnel. As of year-end, the
majority of the employees were terminated. The charge for asset
write-downs primarily related to inventory, which was written down
to estimated market value, and is included in cost of products sold.
The Company's gross profit as a percentage of net sales was 14% and
47% in 1998 and 1997, respectively. The decrease in gross profit
for 1998 was primarily due to $9.3 million of amortization expense
related to the excess cost over net assets of business acquired and
intangible asset, resulting from Eaton's acquisition of Fusion in
1997. Amortization expense in 1997 was $4.0 million. Restructuring
charges of $3.7 million were also included in costs of products sold
in 1998. Excluding amortization expense and restructuring charges,
gross profit as a percentage of net sales was 46% in 1998 and 51% in
1997. The remaining 5% decrease was a result of higher per unit
overhead costs due to declining sales volumes.
Selling, general and administrative expenses primarily consist of
salaries, sales commissions, marketing and related expenses, and
expenses associated with the general management of the business.
Selling, general and administrative expenses decreased to $19.5
million in 1998, an 8% decrease from 1997. The decrease in 1998 was
due to lower product shipment levels, which resulted in lower
commission costs, and to the implementation of significant cost
control measures in response to the general industry slowdown. This
decrease was offset by the $1.7 million administrative charge from
Eaton ($.5 million in 1997) and $2.7 million of compensation expense
related to the Special Bonus Plan. See "Stock Options" in the Notes
to the Consolidated Financial Statements on page 34 of this report
for details of the Special Bonus Plan.
Research, development and engineering expenses increased to $19.2
million in 1998, a 1% increase from 1997. The increase in 1998
was primarily due to an increase in the level of effort needed to
develop advanced products, and to support and improve existing
products.
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During the third quarter of 1997, Eaton acquired Fusion. The
purchase price allocation included $85 million for purchased in-
process research and development, which was determined through an
independent valuation based on the income method using a risk
adjusted discount rate of 31% applied to project cash flows. Three
groups of projects comprised over 95% of the total value of
purchased in-process research and development, and are described in
more detail below. All of the purchased in-process research and
development was expensed at the date of acquisition because
technological feasibility had not been established and no
alternative commercial use had been identified. The nature of the
efforts required to develop the purchased in-process technology into
commercially viable products principally relate to the completion of
all planning, designing and testing activities that are necessary to
establish that these products can be produced to meet their design
requirements, including functions, features and technical
performance requirements.
Gemini Photostablizer (GPS) - This project involved the development
of a 300 mm photostabilizer and was valued at $22.4 million. This
product will be scaled for 300 mm wafers and will include functions
new to photostabilizing. In order to realize this new technology,
product designs will have to be configured and scaled for the
larger wafers. At the acquisition date, the greatest risk of
potential failure associated with this project was that it could
not be accomplished given technical and economic constraints.
Product completion was originally expected in late 1998.
Development was ultimately completed in the first quarter of 1999,
resulting in the sale of the first prototype. This small delay had
a nominal impact upon 1998 consolidated results of operations, and
will not have a significant impact upon the Company's financial
condition or ultimate expected investment return.
Gemini Enhanced Strip (GES) - These projects involve the
development of the next generation Enhanced Strip products for both
200 mm and 300 mm wafers and together were valued at $37.4 million.
These new products will incorporate various new functions,
including targeting applications for 0.25 micron and 0.18 micron
geometries. Areas requiring design are the same as those in the
GPS project, with corresponding risks of failure. Product
completion was originally planned for mid-1999, and is still
scheduled for completion in that time frame.
Gemini Microwave Plasma Asher (GPL) - These projects involved the
development of the next generation of plasma ashers for 200 mm and
300 mm wafers and together were valued at $22.8 million. These new
products will incorporate substantial changes in an attempt to
enable targeting applications for 0.25 micron and 0.18 micron
geometries. The primary risk related to these projects involved the
achievement of tightly controlled process parameters, which is
considered difficult due to the smaller linewidths targeted with
these projects. Product completion was originally planned for mid-
1998, and was completed by the fourth quarter of 1998. This small
delay had a nominal impact upon 1998 consolidated results of
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operations, and no significant impact upon the Company's financial
condition or ultimate expected investment return.
Other income, net of expenses, was $3.7 million in 1998, a 25%
decrease from 1997 results. Other income consists primarily of
interest income and foreign exchange gains and losses.
The Company's effective tax rate was a benefit of 31% in 1998 and 2%
in 1997. The change in the rate, when compared to 1997, was
primarily due to the non-deductible write-off of purchased in-
process research and development in 1997.
Liquidity and Capital Resources
The Company's operating cash needs are primarily for working capital
and to fund its capital expenditure program. The Company's capital
requirements typically consist of manufacturing equipment, research
and development equipment, office equipment, and leasehold
improvements.
Subsequent to the acquisition by Eaton, Fusion began participating
in Eaton's centralized cash management system. Under this system,
cash receipts are transferred to Eaton and cash disbursements are
funded by Eaton. Accordingly, the cash balances presented in the
accompanying consolidated balance sheet at December 31, 1998 do not
represent cash balances required or generated by operations.
Year 2000
Like most companies, Fusion is impacted by computer software that
relies on two digits in the date fields in order to function
properly. Software that uses two digits rather than four to
identify the applicable year may be unable to interpret
appropriately the calendar Year 2000, and thus could cause
disruption of normal business activities. The Company relies on
software in various aspects of the business including manufacturing,
product development, many administrative functions and certain
products. Much of this software may be unable to interpret the
calendar Year 2000 appropriately without some form of remediation.
The Company is addressing the Year 2000 issue through Eaton's
corporate-wide initiative led by Eaton's Vice President-Information
Technologies and involving program managers from each Eaton and
Fusion business unit. The activities associated with this
initiative include reviewing critical information technology (IT)
and non-IT systems, as well as those which interface with major
customers, suppliers, other third parties, and date-sensitive
products.
Eaton's Year 2000 compliance efforts, which include Fusion,
encompass the following focus areas:
Business Management Systems: This area includes information systems
and applications relating to manufacturing, marketing, sales
(including EDI-Electronic Data Interchange and an integrated order
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processing and management system), purchasing, product development
and computer aided design systems. These systems have been
identified as very important to the support of Eaton's and Fusion's
operations and have been given the highest priority toward becoming
Year 2000 compliant.
Enterprise Network Infrastructure (including personal computers):
One enterprise network is utilized throughout Eaton which will be
upgraded by the end of the second quarter of 1999 to become Year
2000 compliant. All personal/desktop computers and related software
will also be made compliant.
Administrative Systems: This area includes systems associated with
human resources, cash management and financial accounting and
reporting. In North America and Europe, Eaton operates a highly
centralized systems environment which is expected to be fully
compliant by mid-year 1999. To ensure compliance, testing of these
systems will continue through the third quarter of 1999.
Shop Floor Equipment and Facilities Infrastructure: Eaton is
auditing the machinery and equipment used both in manufacturing and
in support operations at each location including Fusion. This audit
determines Year 2000 readiness, measures the risk of non-compliance
and determines the best remediation plan to be followed in avoiding
potential disruptions in production. This focus area has been
substantially completed.
Software in Products: All of Eaton's products which are currently
marketed, and the vast majority of the products which have been
marketed in the past, are either not date-sensitive or do not
require remediation. With respect to certain previously marketed
products of Eaton's Semiconductor Equipment business segment (which
includes Fusion), Eaton is offering product upgrades or other
remediation programs, including programs covered by product
warranties.
Supplier Assurance: To determine Year 2000 readiness, Eaton
undertook a supplier assurance program in 1997, which included
surveying suppliers and evaluating their responses. Based on this
evaluation and the criticality of the items or services provided by
the suppliers, Eaton is auditing their compliance and working with
them toward assuring compliance or, if needed, the development of
contingency plans (e.g., the selection of alternative suppliers).
Customer Assurance: Eaton is working with the Automotive Industry
Action Group, various other trade organizations and customers to
ensure that a common Year 2000 compliance approach is applied across
those respective industries. Continuous interaction with these
trade organizations is helping to identify the issues requiring
attention and to develop appropriate solutions.
Eaton's Year 2000 program activities include the identification of
affected hardware and software, the development of a plan for
remediating those systems in the most effective manner, the
execution of that plan, which includes continuous testing, and the
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monitoring of the program's success. Although various Eaton
locations are at differing stages of readiness with respect to the
various focus areas, the identification and plan development phases
of the project are substantially completed. Eaton is well underway
in the execution phase and anticipates completing the majority of
the program by mid-year 1999 although certain applications at
certain Eaton businesses will be completed throughout the second
half of 1999. Continuous review and testing is being conducted
throughout all phases of the program to help ensure that compliance
is achieved and maintained as the Year 2000 approaches.
The program, as it relates to IT, involves a combination of hardware
and software modifications, upgrades and replacements. In many
instances, Eaton will replace or has replaced non-compliant systems
with newer systems, which will significantly improve functionality
as well as appropriately interpret the calendar year 2000 and
beyond. Although the timing of these actions may have been
influenced by the Year 2000 issue, in virtually all instances they
will involve capital expenditures that would have occurred in the
normal course of business. As part of reengineering and other
initiatives, Eaton is also currently upgrading and replacing other
systems to provide significantly enhanced functionality. These
upgrades and replacements are unrelated to the Year 2000
remediation.
As part of the Year 2000 program, detailed contingency plans are
being formalized as the target date for completion approaches.
Business disruption scenarios are currently being identified and
appropriate strategies and detailed plans are being evaluated and
tested in the development of these various plans.
The current estimate of total Year 2000 program costs for Fusion is
approximately $1.9 million. Included in this estimate are
compensation and benefit costs of employees who are fully dedicated
to the Year 2000 compliance effort. Costs of employees not fully
dedicated to that effort are not tracked and are excluded from the
estimate. As of year end, approximately $1 million of the estimated
costs have been incurred and the remaining costs are expected to be
incurred in the first half of 1999. The total estimated cost
primarily represents purchased hardware and newly developed or
purchased software, which is capitalized in accordance with normal
Company policy while other remediation costs associated with existing
systems are expensed as incurred. Cash flow related to these costs
will be satisfied with funds from operations that are normally
budgeted for procurement and maintenance of information systems and
production and facilities equipment. Regular project status reporting
is required, and cost estimates are updated as more refined estimates
become available.
The Company believes that it has an effective program in place to
resolve the Year 2000 issue in a timely manner. However,
satisfactory completion of the program may not prevent business
disruptions resulting from actions of the Company's critical
suppliers and customers. Such disruptions would impair the Company's
ability to obtain necessary materials for production or sell products
to customers. If such a disruption occurred, the Company may
experience lost or delayed sales and profits depending on the
duration of the disruption. Key aspects of the program are
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addressing this uncertainty but the Company's ability to be fully
confident of conditions related to third parties is limited.
Currently, the Company cannot reasonably estimate the amount of
potential lost or delayed sales and profits.
Euro
On January 1, 1999, eleven of the fifteen member countries of the
European Monetary Union (EMU) began a three-year transition phase
during which a common currency called the Euro was adopted as their
legal currency. The Euro began trading on currency exchanges and is
available for non-cash transactions. During the transition period,
public and private parties may pay for goods and services using
either the Euro or the participating country's legacy currency on a
"no compulsion, no prohibition" basis. The conversion rates between
the existing legacy currencies and the Euro were fixed on January 1,
1999. The legacy currencies will remain legal tender for cash
transactions between January 1, 1999 and December 31, 2001, at which
time all legacy currencies will be withdrawn from circulation and
the new Euro denominated bills and coins will be used for cash
transactions.
The Company conducts business transactions with customers and
suppliers within the participating countries that will be utilizing
the Euro as their local currency in 1999 and in other parts of the
world. Eaton has established Euro-denominated bank accounts to
accommodate Euro transactions. The Company's exposure to changes in
foreign exchange rates may also be reduced as a result of the Euro
conversion.
The Company is addressing the Euro through Eaton's steering
committee which was established to review strategic and tactical
areas arising from the Euro conversion. Immediate efforts have
focused on aspects of the Euro conversion that required adjustment
or compliance by January 1, 1999 and for conducting Euro-denominated
business during 1999. These aspects included transacting business
in the Euro, the competitive impact on product pricing and
adjustments to billing systems to handle parallel currencies. Eaton
has determined that these systems have the capability to handle Euro
transactions and is currently in a position to transact business in
Euro's. Continuing analysis and development efforts by the steering
committee and project teams at the business units will help ensure
that the implementation of the Euro meets the timetable and
regulations established by the EMU.
Based on current estimates, the Company does not expect that the
costs incurred to address the Euro will have a material impact on
financial condition or results of operations.
FORWARD-LOOKING STATEMENTS
- - --------------------------
The Company has included in this Annual Report certain expectations
for 1999. Actual results could differ materially from these
<PAGE>
Page 15
forward-looking statements since they inherently are subject to
risks and uncertainties. Important factors which could cause such a
difference include continuity of business relationships with and
purchases by major customers, product mix, competitive pressure on
sales and pricing, increases in material and other production costs
which cannot be recouped in product pricing, costs and disruptions
associated with the Year 2000 issue, difficulties in introducing new
products as well as global economic and market conditions, and the
impact of the conversion to the Euro currency.
Dependence on Key Customers - Because of the relative concentration
of semiconductor device manufacturing, the Company typically sells a
significant percentage of its systems to a limited number of
customers. The loss of business or the delay of orders from any of
these customers or from other key accounts of the Company due to
business conditions affecting a particular customer, industry-wide
slowdowns impacting multiple customers, pricing pressures or the
impact of competitive products, could materially adversely affect
the Company's business and financial results. As is typical in the
semiconductor industry, none of the Company's customers has entered
into a long-term agreement requiring it to purchase the Company's
products, and all orders are subject to cancellation or rescheduling
by the customer.
Cyclicality of the Semiconductor Industry - The Company's business
depends in large part upon the capital equipment expenditures of
semiconductor manufacturers, which in turn depend on the current and
anticipated market demand for integrated circuits and products
utilizing integrated circuits. The semiconductor industry is highly
cyclical and has historically experienced periodic downturns, which
often have had a severe adverse effect on capital equipment
expenditures by semiconductor manufacturers. Semiconductor industry
downturns have adversely affected the sales, gross profit, and
operating results of semiconductor equipment suppliers, including
the Company. The Company anticipates that a significant portion of
new orders will depend upon demand from semiconductor manufacturers
building or expanding large fabrication facilities, and there can be
<PAGE>
Page 16
no assurance that such demand will exist in any given period of
time.
Risks Associated with International Operations - Any decrease in
sales outside North America may have a material adverse effect on
the Company's operating results. The Company's international sales
and operations are subject to customary risks of international
operations including risks associated with fluctuations in interest
and currency exchange rates, changes in foreign economic conditions,
trade restrictions, and potentially adverse tax consequences. The
Company's international business and financial performance may be
adversely affected by such factors.
Rapid Technological Change; Competition - Equipment and processes
used in semiconductor manufacturing are subject to rapid
technological development and product innovation. The Company, to
remain successful, must be responsive to new developments in
photostabilization and asher technology and enhanced process
capabilities. The Company will continue to face competition from its
competitors who will continue to develop new products or
enhancements that may offer improved performance. The Company's
financial results may be negatively impacted by the failure of new
or existing products to be favorably received by customers due to
price, availability, features, other product choices or the level
and quality of support for the Company's products.
Sole or Limited Sources of Supply - The Company relies to a
substantial extent on outside suppliers to manufacture many of its
components. Certain of these are obtained from a sole supplier or a
limited group of suppliers. One component used in two of the
Company's three product groups has been continuously obtained by the
Company for over 20 years from a single source. The supplier is a
leading, worldwide electronics manufacturer which historically has
provided timely delivery without any significant delay or
interruptions. The Company's reliance on outside suppliers involves
several risks, including a potential inability to obtain an adequate
supply of required components and reduced control over pricing and
timely delivery of components. Because the manufacture of certain of
these components is a complex process and requires long lead times,
there can be no assurance that delays or shortages caused by
suppliers will not occur. Any inability to obtain adequate
deliveries or any other circumstance that would require the Company
to seek alternative sources of supply or to manufacture such
components internally could delay the Company's ability to ship its
systems and could have a material adverse effect on the Company.
Intellectual Property Rights - Although the Company seeks to protect
its proprietary technology, proprietary rights relating to the
Company's technology will be protected from unauthorized use by
others only to the extent that they are covered by enforceable
patents or are maintained in confidence as trade secrets. There can
be no assurance that patents will be issued from current patent
applications or that any patent issued to the Company will not be
challenged, invalidated or circumvented or that the rights granted
thereunder will provide adequate protection or competitive advantage
<PAGE>
Page 17
to the Company. Moreover, even with patent protection, the Company's
business may be adversely affected by competitors that independently
develop functionally equivalent technology. Although there are no
pending lawsuits against the Company regarding infringement of any
existing patents, there can be no assurance that third parties will
not assert infringement claims in the future. If any such claims are
asserted against the Company, the Company could seek to obtain a
license from third parties or challenge the claim in litigation.
Failure to obtain licenses or adverse determinations in any
litigation could materially adversely affect the Company's business,
financial condition and results of operations.
Reliance on Attracting and Retaining Key Employees - The Company's
continued success will depend in large part on its ability to
attract and retain highly-qualified technical, managerial, sales and
marketing, and other personnel. Competition for such personnel in
the Company's industry is intense. There can be no assurance that
the Company will be able to continue to attract or retain such
personnel.
Item 7A. Quantitative and Qualitative Disclosure about Market Risk
Not applicable.
Item 8. Financial Statements and Supplementary Data
The consolidated financial statements, financial review, and reports
of independent auditors are presented on pages 22 through 40 of this
report.
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
None required to be reported.
Part IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K
(a) (1) Index to Consolidated Financial Statements
The following consolidated financial statements and financial
review, included in Item 8, are filed as a separate section of this
report:
Reports of Independent Auditors - pages 22 and 23
Consolidated Balance Sheets as of December 31, 1998
and 1997 - pages 24 and 25
Statements of Consolidated Operations for the Years
Ended December 31, 1998, 1997 and 1996 - page 26
<PAGE>
Page 18
Statements of Consolidated Shareholder's Equity for
the Years Ended December 31, 1998, 1997 and 1996 -
page 27
Statements of Consolidated Cash Flows for the Years
Ended December 31, 1998, 1997 and 1996 - page 28
Financial Review - pages 29 through 40
(2) All schedules for which provision is made in Regulation S-X
of the Securities and Exchange Commission are not required
under the related instructions or are inapplicable and,
therefore, have been omitted.
(3) Exhibits
2 (a) Stock Purchase Agreement date December 30, 1993
between GEO International Corporation and Fusion UV
Curing Systems Corporation (incorporated by reference
to the Form S-1, Registration No. 33-76258)
3 (a) Amended and Restated Certificate of Incorporation
(incorporated by reference to the Form S-1,
Registration No. 33-81494)
3 (b) Amended and Restated By-Laws (incorporated by
reference to the Form S-1, Registration No. 33-81494)
4 (a) Specimen Stock Certificate (incorporated by reference
to the Form S-1, Registration No. 33-76258)
4 (b) Stock Purchase Agreement dated December 29, 1982 by
and among American Research Development Division of
Textron Inc., Fusion Systems Corporation and those
Purchasers listed on Schedule A thereto (incorporated
by reference to the Form S-1,Registration No. 33-76258)
10 Material contracts
10 (a) Form of Severance Agreement (incorporated by
reference to the Form S-1, Registration
No. 33-76258)
10 (c) Lease-Rockville (incorporated by reference to the
Form S-1, Registration No. 33-76258)
10 (d) Ninth Amendment of Lease Agreement dated May 26,
1994 between Rockville Office/Industrial Associates
and the Registrant(incorporated by reference to the
Form S-1, Registration No. 33-81494)
10 (e) Tenth Amendment of Lease Agreement dated September
29, 1994 between Rockville Office/Industrial
Associates and the Registrant (incorporated by
reference to the Form S-1, Registration
No. 33-81494)
<PAGE>
Page 19
10 (g) License Agreement between Texas Instruments
Incorporated and Fusion Semiconductor Systems
Corporation (incorporated by reference to the Form
S-1, Registration No. 33-76258)
10 (h) Agreement dated April 27, 1990 between Fusion
Semiconductor Systems Corporation and Ushio, Inc.
(incorporated by reference to the Form S-1,
Registration No. 33-76258)
10 (i) Letter dated August 14, 1985 from sole source
supplier (incorporated by reference to the Form S-1,
Registration No. 33-76258)
10 (j) Severance Agreement of Leslie S. Levine
(incorporated by reference to the Form S-1,
Registration No. 33-76258)
10 (k) Lease Agreement dated December 7, 1994 between CM
Partners #3, L.P. and the Registrant (incorporated
by reference to the Form 10-K for fiscal year ended
December 31, 1994, Commission File No. 0-23628)
10 (m) Sublease Agreement dated November 21, 1995 between
American National Red Cross and the Registrant
(incorporated by reference to the Form 10-K for
fiscal year ended December 31, 1996)
10 (n) Eleventh Amendment of Lease Agreement dated December
4, 1995 between Rockville Office/Industrial
Associates and the Registrant (incorporated by
reference to the Form 10-K for fiscal year ended
December 31, 1996)
10 (o) Asset Purchase Agreement dated October 1, 1995
between Fusion Lighting, Inc. and the Registrant
(incorporated by reference to the Form 10-K for
fiscal year ended December 31, 1996)
10 (p) Purchase Agreement dated as of August 14, 1996 by
and among Fairey Investments, Inc., Fusion UV
Systems, Inc., Fairey Overseas Development Limited
and Fusion UV Systems Limited, on the one hand and
Fusion Systems Corporation, Fusion UV Curing Systems
Corporation, Fusion Technology International, Inc.,
and Fusion Europe Limited, on the other hand
(incorporated by reference to the Form 8-K, dated
September 6, 1996)
24 Power of Attorney
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the
fourth quarter of 1998.
(c) Exhibits
Certain exhibits required by this portion of Item 14
are filed as a separate section of this report.
(d) Financial Statement Schedules
None required to be filed.
<PAGE>
Page 20
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Fusion Systems Corporation
--------------------------
Registrant
Date: March 31, 1999 /s/ Billie K. Rawot
------------------------------
Billie K. Rawot
Vice President and Controller;
Principal Accounting Officer
Eaton Corporation
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf
of the registrant and in the capacities and on the date indicated.
DATE: March 31, 1999
Signature Title
- - ----------------------- ----------------------------------------
*
- - -----------------------
Alexander M. Cutler Chairman of the Board
*
- - -----------------------
Stephen R. Hardis Director
*
- - -----------------------
Gerald L. Gherlein Director
*
- - -----------------------
John C. Matthews President and Chief Executive Officer
<PAGE>
Page 21
*
- - -----------------------
Adrian T. Dillon Vice President, Chief Financial Officer,
and Chief Accounting Officer
*By /s/ Billie K. Rawot
--------------------------------------
Billie K. Rawot, Attorney-in-Fact
for the officers and directors signing
in the capacities indicated
<PAGE>
Page 22
REPORT OF INDEPENDENT AUDITORS
- - ------------------------------
To the Shareholder
Fusion Systems Corporation and Subsidiaries
We have audited the accompanying consolidated balance sheets of
Fusion Systems Corporation and Subsidiaries (wholly-owned
subsidiaries of Eaton Corporation) as of December 31, 1998 and
1997, and the related statements of consolidated operations,
shareholder's equity, and cash flows for the years then
ended. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. 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 financial statements referred to above present
fairly, in all material respects, the consolidated financial
position of Fusion Systems Corporation and Subsidiaries (wholly-
owned subsidiaries of Eaton Corporation) at December 31, 1998 and
1997, and the consolidated results of their operations and their cash
flows for the years then ended in conformity with generally accepted
accounting principles.
/s/ Ernst & Young LLP
Cleveland, Ohio
March 22, 1999
<PAGE>
Page 23
REPORT OF INDEPENDENT AUDITORS
- - ------------------------------
To Fusion Systems Corporation:
We have audited the accompanying consolidated statements of income,
shareholders' equity, and cash flows of Fusion Systems Corporation
(a Delaware corporation) and subsidiaries for the year ended
December 31, 1996. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform an 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 audit
provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements of Fusion
Systems Corporation and subsidiaries referred to above present
fairly, in all material respects, the results of their operations
and their cash flows for the year ended December 31, 1996, in
conformity with generally accepted accounting principles.
/s/ Arthur Andersen LLP
Washington, D.C.
February 6, 1997
<PAGE>
Page 24
Fusion Systems Corporation and Subsidiaries
(wholly-owned subsidiaries of Eaton Corporation)
<TABLE>
Consolidated Balance Sheets
<CAPTION>
December 31
--------------------
(Thousands) 1998 1997
---- ----
<S> <C> <C>
ASSETS
Current assets
Cash & cash equivalents $ 1,595
Short-term investments 124 $ 16,329
Accounts receivable 10,644 17,296
Notes receivable from Eaton Corporation 86,211 72,784
Due from Eaton Corporation 6,170 4,269
Inventories 8,271 16,012
Deferred income taxes 3,219 2,442
Other current assets 928 949
-------- --------
117,162 130,081
Property, plant & equipment
Land & leasehold improvements 6,686 6,262
Machinery & equipment 9,666 9,242
-------- --------
16,352 15,504
Accumulated depreciation (4,514) (506)
-------- --------
11,838 14,998
Intangible assets 31,905 37,619
Excess cost over net assets of business
acquired 49,283 51,351
Other assets 5,515 3,750
-------- --------
$215,703 $237,799
======== ========
</TABLE>
The Financial Review on pages 29 to 40 is an integral part of the
consolidated financial statements.
<PAGE>
Page 25
Fusion Systems Corporation and Subsidiaries
(wholly-owned subsidiaries of Eaton Corporation)
<TABLE>
Consolidated Balance Sheets
<CAPTION>
December 31
--------------------
(Thousands) 1998 1997
---- ----
<S> <C> <C>
LIABILITIES & SHAREHOLDER'S EQUITY
Current liabilities
Accounts payable $ 997 $ 2,727
Other current liabilities 7,900 7,216
-------- --------
8,897 9,943
Deferred income taxes 12,015 13,166
Shareholder's equity
Common shares -- --
Capital in excess of par value 194,671 194,671
Retained earnings 397 20,606
Accumulated other comprehensive
income (loss) (277) (587)
-------- --------
194,791 214,690
-------- --------
$215,703 $237,799
======== ========
</TABLE>
The Financial Review on pages 29 to 40 is an integral part of the
consolidated financial statements.
<PAGE>
Page 26
Fusion Systems Corporation and Subsidiaries
(wholly-owned subsidiaries of Eaton Corporation)
<TABLE>
Statements of Consolidated Operations
<CAPTION>
Year ended December 31
------------------------------
(Thousands) 1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Net sales $ 41,084 $ 84,422 $ 84,594
Costs & expenses
Cost of products sold 35,150 45,106 40,271
Selling, general & administrative 19,496 21,306 18,246
Research, development & engineering 19,207 18,984 15,756
Liquidation of stock options 13,748
Purchased in-process research &
development 85,000
-------- -------- --------
73,853 184,144 74,273
-------- -------- --------
(Loss) income from operations (32,769) (99,722) 10,321
Other income (expense)
Interest income--net 4,454 5,648 3,493
Other--net (756) (744) (126)
-------- -------- --------
3,698 4,904 3,367
-------- -------- --------
(Loss) income from continuing
operations before income taxes (29,071) (94,818) 13,688
Income taxes (benefit) (8,862) (1,942) 4,959
-------- -------- --------
(Loss) income from continuing
operations (20,209) (92,876) 8,729
Discontinued operations
Operations, net of income tax 3,709
Gain on sale, net of income tax 54,965
-------- -------- --------
Net (loss) income $(20,209) $(92,876) $ 67,403
======== ======== ========
</TABLE>
The Financial Review on pages 29 to 40 is an integral part of the
consolidated financial statements.
<PAGE>
Page 27
Fusion Systems Corporation and Subsidiaries
(wholly-owned subsidiaries of Eaton Corporation)
<TABLE>
Statements of Consolidated Shareholder's Equity
<CAPTION>
Accumulated
Common shares Capital in other Total
--------------- excess of Treasury Retained comprehensive shareholder's
Shares Amount par value stock earnings income (loss) equity
------ ------ ---------- -------- -------- ------------- -------------
(Thousands except share amounts)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1996 7,758,000 $ 78 $ 38,899 $ 46,079 $ 677 $ 85,733
Net income 67,403 67,403
Other comprehensive income (loss) (718) (718)
--------
Total comprehensive income 66,685
Exercise of stock options 152,000 1 1,665 $ 53 1,719
Income tax benefit from exercise of
stock options 409 409
Employee stock purchase plan 25,000 513 513
Treasury stock purchases (472,000) (8,285) (8,285)
--------- ------ -------- ------- -------- ------- --------
Balance at December 31, 1996 7,463,000 79 41,486 (8,232) 113,482 (41) 146,774
Net loss (92,876) (92,876)
Other comprehensive income (loss) (546) (546)
--------
Total comprehensive income (loss) (93,422)
Exercise of stock options 31,000 (155) 548 393
Income tax benefit from exercise of
stock options 128 128
Employee stock purchase plan 9,000 158 158
Recapitalization in connection
with purchase by Eaton (7,502,990) (79) (7,605) 7,684
Parent company investment in
connection with purchase by
Eaton 160,659
--------- ------ -------- ------- -------- ------- --------
Balance at December 31, 1997 10 -- 194,671 0 20,606 (587) 214,690
Net loss (20,209) (20,209)
Other comprehensive income 310 310
--------
Total comprehensive income (loss) (19,899)
--------- ------ -------- ------- -------- ------- --------
Balance at December 31, 1998 10 $ -- $194,671 $ 0 $ 397 $ (277) $194,791
========= ====== ======== ======= ======== ======= ========
</TABLE>
The Financial Review on pages 29 to 40 is an integral part of the
consolidated financial statements.
<PAGE>
Page 28
Fusion Systems Corporation and Subsidiaries
(wholly-owned subsidiaries of Eaton Corporation)
<TABLE>
Statements of Consolidated Cash Flows
<CAPTION>
Year ended December 31
--------------------------------
(Thousands) 1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Net cash (used in) provided by operating activities
Net (loss) income $(20,209) $(92,876) $ 67,403
Adjustments to reconcile to net cash (used in)
provided by operating activities
Write-off of purchased in-process research
and development 85,000
Gain on disposal of discontinued operations (54,965)
Depreciation and amortization 13,326 7,521 3,282
Deferred income taxes (1,490) 131 (1,004)
Changes in operating assets and liabilities
Accounts receivable 6,652 (2,809) (1,362)
Due from Eaton Corporation (1,901) (7,443)
Inventories 7,741 (1,292) (4,232)
Other assets (1,790) (767) 4
Accounts payable (1,730) (247) (1,067)
Other current liabilities (1,244) (883) 2,513
Accrued income taxes (3,391) 588
Other--net 208 27
-------- -------- --------
(645) (16,848) 11,187
Net cash provided by (used in) investing activities
Payment of expenses related to sale of discontinued
operations (1,249)
Expenditures for property, plant and equipment (848) (5,835) (10,396)
Net sales (purchases) of marketable securities 16,205 58,138 (48,601)
Foreign currency translation adjustments 310 (546) (718)
Notes receivable from Eaton Corporation (13,427) (72,784)
Proceeds from sale of discontinued operations 117,568
Income taxes paid on sale of discontinued operations (35,875)
Other--net 99
-------- -------- --------
2,240 (22,276) 22,077
Net cash provided by (used in) financing activities
Proceeds from exercise of stock options and stock
sale, net 3 2,179
Purchase of common shares (8,232)
Income tax benefit from exercise of stock options 128 409
Treasury stock issued 548
-------- -------- --------
0 679 (5,644)
-------- -------- --------
Total increase (decrease) in cash and cash equivalents 1,595 (38,445) 27,620
Cash and cash equivalents at beginning of year 0 38,445 10,825
-------- -------- --------
Cash and cash equivalents at end of year $ 1,595 $ 0 $ 38,445
======== ======== ========
</TABLE>
The Financial Review on pages 29 to 40 is an integral part of the
consolidated financial statements.
<PAGE>
Page 29
Fusion Systems Corporation
(wholly-owned subsidiaries of Eaton Corporation)
FINANCIAL REVIEW
(amounts in thousands except shares and per share data)
BUSINESS DESCRIPTION AND SIGNIFICANT ACCOUNTING POLICIES
- - --------------------------------------------------------
Business Description
- - --------------------
Fusion Systems Corporation and Subsidiaries, (the "Company" or
"Fusion"), wholly-owned subsidiaries of Eaton Corporation,
design, manufacture, market and service single-wafer ashers and
photostabilizers which are used for manufacturing of integrated
circuits in the semiconductor industry. The Company has its
headquarters in Rockville, Maryland, as well as subsidiaries
and facilities in Europe and the Pacific Region. In addition,
the Company maintains sales and service offices in various
locations in the United States, Europe and the Pacific Region.
Acquisition by Eaton Corporation
- - ---------------------------------
On June 30, 1997, Fusion and Eaton Corporation ("Eaton"),
entered into a definitive merger agreement under which Eaton
agreed to acquire the Company. Under the terms of the
agreement, on July 7, 1997, Eaton initiated a cash tender offer
for all outstanding shares of the Company at $39 per share. The
tender offer was subject to a majority of the outstanding
shares of the Company, on a fully diluted basis, being
tendered, and other customary conditions. Eaton agreed to
acquire any remaining Company shares not acquired in the tender
offer at the same $39 per share price.
On July 25, 1997, the Company declared a dividend of one
Contingent Payment Right ("Right") on each share outstanding.
Each Right entitled the holders to receive on March 31, 1999 an
additional cash payment if the Company's 1998 revenues had
exceeded $122,000, with a maximum $5.00 per right payment made
if the Company's 1998 revenues had reached $149,000 or more.
The Company's 1998 revenues were $41,084; therefore, no
payment will be made to the holders of these Rights.
On August 4, 1997, Eaton's wholly-owned subsidiary, ETN
Acquisition Corporation, completed the tender offer for all of
the outstanding shares and the associated preferred share
purchase rights of the Company (the Rights were not acquired by
Eaton). On August 5, 1997, ETN Acquisition Corporation merged
into the Company, resulting in each share of the Company not
<PAGE>
Page 30
acquired in the tender offer being canceled and converted into
the right to receive $39 cash.
Subsequent to the acquisition, all Fusion Common Shares were
canceled; the resulting recapitalization of shares is displayed
in the accompanying Statement of Consolidated Shareholder's
Equity. As a result of the recapitalization, the Company has
10 Common Shares outstanding with a par value of $.01 per
share, which are owned by Eaton.
The acquisition of Fusion by Eaton was accounted for by the
purchase method of accounting. The acquisition price paid by
Eaton exceeded the Fusion net assets acquired by $160,659,
summarized as follows:
In-process research & development $ 85,000
Intangible assets 40,000
Excess cost over net assets of business acquired 54,464
Other, principally deferred taxes (18,805)
--------
$160,659
========
The excess cost of Eaton's investment in Fusion over the net
assets acquired of $54,464 is being amortized by the straight-
line method for financial statement purposes over a useful life
of fifteen years. Amortization expense was $3,604 and $1,577
in 1998 and 1997, respectively. The intangible assets of
$40,000 consist of developed technology which is being
amortized by the straight-line method for financial statement
purposes over a useful life of seven years. Amortization
expense was $5,714 and $2,381 in 1998 and 1997, respectively.
The purchase price allocation included $85,000 for purchased
in-process research and development which was determined
through an independent valuation. This amount was expensed at
the date of acquisition because technological feasibility had
not been established and no alternative commercial use had been
identified. Therefore, 1997 results include the write-off of
$85,000 for purchased in-process research and development, with
no income tax benefit.
A special charge of $13,748 ($8,936 net of income tax benefit)
for the liquidation of Fusion's vested stock options and other
charges related to the acquisition of the Company by Eaton were
recorded in operations in 1997.
Principles of Consolidation
- - ---------------------------
The consolidated financial statements include accounts of the
Company and all of its subsidiaries. All significant
intercompany transactions and balances have been eliminated.
Foreign Currency Translation
- - ----------------------------
The functional currency for all subsidiaries outside the United
States is the local currency. Financial statements for these
subsidiaries are translated into United States dollars at year-
<PAGE>
Page 31
end exchange rates as to assets and liabilities and weighted-
average exchange rates as to revenues and expenses. The
resulting translation adjustments are recorded in shareholder's
equity and included in comprehensive income.
Cash Equivalents and Short-Term Investments
- - -------------------------------------------
The Company considers cash equivalents to include all
investments purchased with original maturity dates of 90 days
or less. The investments are held to maturity. Short-term
investments, which consist principally of U.S. Government
securities and are held-to-maturity, are carried at amortized
cost and include investments with original maturities of
greater than three months having a remaining maturity of less
than 12 months. The amounts reflected in the accompanying
balance sheets do not differ materially from their fair values.
Subsequent to the acquisition by Eaton, Fusion began
participating in Eaton's centralized cash management system.
Under this system, cash receipts are transferred to Eaton and
cash disbursements are funded by Eaton. Accordingly, the cash
balances presented in the accompanying consolidated balance
sheet at December 31, 1998 and 1997 do not represent cash
balances required or generated by operations.
Concentrations of Credit Risk
- - -----------------------------
The Company's assets that are exposed to credit risk consist
primarily of trade receivables and marketable securities.
Accounts receivable include large dollar balances due from
reputable and geographically dispersed customers, and the
Company has not experienced significant losses related to
uncollectible accounts.
Property, Plant, and Equipment
- - ------------------------------
Property, plant, and equipment are recorded at cost and are
depreciated using the straight-line method over the estimated
useful lives of the assets, generally three to ten years.
Leasehold improvements are amortized over the shorter of the
life of the asset or the duration of the lease.
Long-lived Assets
- - -----------------
Long-lived assets are reviewed for impairment whenever events
or changes in circumstances indicate that the carrying amount
may not be recovered through future net cash flows generated by
the assets.
Revenue Recognition
- - -------------------
Revenue from product sales is generally recognized when
equipment is shipped.
<PAGE>
Page 32
Research and Development
- - ------------------------
Research and development costs are expensed as incurred and are
included in research, development and engineering expenses in
the statements of consolidated operations.
Warranty
- - --------
The Company generally warrants its products, excluding certain
consumables, for a one to two-year period. The Company warrants
its consumables for up to 1,000 hours of operation. Estimated
warranty costs are accrued in the period in which revenue from
the related product sales is recognized.
Interest Expense
- - ----------------
The statements of consolidated operations do not include an
allocation of Eaton's interest expense related to its debt
obligations as none of Eaton's debt obligations specifically
relate to Fusion.
Recently Issued Accounting Pronouncements
- - -----------------------------------------
In June 1998, SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities", was issued. The Company
must adopt the standard by the beginning of the first quarter
of the year 2000. Because of the Company's minimal use of
derivatives, the adoption of SFAS No. 133 is not expected to
have a significant effect on earnings or financial position.
Estimates
- - ---------
Preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions in certain circumstances that
affect amounts reported in the accompanying consolidated
financial statements and notes. Actual results could differ
from these estimates.
UNUSUAL CHARGES
- - ---------------
During 1998, the unprecedented severity of conditions in the
semiconductor equipment industry caused the Company to take
drastic steps to restructure the business. As a result of
these actions, unusual pretax charges of $5,003 ($3,252
aftertax) were recorded in 1998. Components of the 1998
restructuring charges, included in income from operations, are
as follows:
<PAGE>
Page 33
Balance
Original remaining at
charges Utilized December 31, 1998
-------- -------- -----------------
Workforce reductions $ 981 $ (377) $ 604
Inventory & other
asset write-downs 4,022 (4,022)
------ ------- ------
$5,003 $(4,399) $ 604
====== ======= ======
The charge for workforce reductions primarily represents
severance and other related benefit payments for the expected
termination of approximately 90 employees, primarily
manufacturing personnel although certain administrative
functions will also be affected. As of December 31, 1998, the
majority of the employees have been terminated. The balance
remaining at the end of 1998 will be utilized in 1999.
The charge for asset write-downs primarily relates to
inventory, which was written down to estimated market value and
is included in cost of products sold.
ACCOUNTS RECEIVABLE
- - -------------------
Accounts receivable are net of an allowance for doubtful accounts
of $604 and $206 at December 31, 1998 and 1997, respectively.
INVENTORIES
- - -----------
Inventories are valued at the lower of cost or market using the
first-in, first-out ("FIFO") method. Inventories consist of the
following at December 31:
1998 1997
---- ----
Raw materials and purchased parts $ 4,825 $ 5,528
Work in process and finished
subassemblies 1,198 10,093
Finished goods 2,248 391
------- -------
Total $ 8,271 $16,012
======= =======
<PAGE>
Page 34
OTHER CURRENT LIABILITIES
- - -------------------------
Other current liabilities consist of the following at December 31:
1998 1997
---- ----
Salaries, severance, payroll
taxes and employee health
benefits $1,548 $1,743
Warranty 1,823 3,275
Special Bonus Plan 2,306
Vacation 539 652
Profit sharing 609
Restructuring 604
Other 1,080 937
------ ------
$7,900 $7,216
====== ======
STOCK OPTIONS
- - -------------
A Special Bonus Plan was established for those individuals holding
unvested options at the date of acquisition. The Special Bonus
Plan will provide a cash payment on the second anniversary of the
acquisition date to each employee who continues to be an employee
of the Company. The cash payment will total the number of Common
Shares subject to such unvested options times the excess of the
$39 per share purchase price of the acquisition over the exercise
price per Common Share of such unvested options plus interest on the
amount at a rate of 6% per annum from the date of acquisition.
Based on the probable nature of this liability as of December 31,
1998, the estimated expense of $2,710 was recorded in selling,
general, and administrative expense in the Statement of Consolidated
Operations.
At the date of acquisition by Eaton, the Company had three
stock option plans. Pursuant to the acquisition by Eaton, all
outstanding stock options under these plans were canceled.
Those individuals holding vested stock options at the time of
the acquisition were paid out the value of the options which
totaled the number of Common Shares subject to such vested
option times the excess of the $39 per share purchase price of
the acquisition over the exercise price per Common Share
of such vested options. The total payout was $13,748 which was
recorded in operations in 1997.
COMPREHENSIVE INCOME
- - --------------------
In the first quarter of 1998, the Company adopted Statement of
Financial Accounting Standard (SFAS) No. 130, "Reporting
Comprehensive Income". SFAS No. 130 establishes new standards
for reporting comprehensive income and its components. The
adoption of SFAS No. 130 has no impact on the Company's net
income or shareholder's equity. For the Company, the
difference between net income (loss) as historically reported
in the statements of consolidated operations and comprehensive
<PAGE>
Page 35
income is foreign currency translation adjustments recorded in
shareholder's equity.
COMMITMENTS AND CONTINGENCIES
- - -----------------------------
Lease Commitments and Rental Expense
- - ------------------------------------
Minimum rental commitments for 1999 under noncancelable
operating leases, which expire at various dates and in some
cases contain renewal options, are $1,800 and decline
substantially thereafter.
Under the terms of the facility lease agreements, the Company
may be assessed additional amounts for maintenance and taxes.
Rental expense was approximately $1,553, $1,272 and $1,621 in
1998, 1997 and 1996, respectively.
Claims and Contingencies
- - ------------------------
Incidental to the normal course of business, certain claims,
suits and complaints have been filed or are pending against the
Company. In the opinion of management, resolution of these
matters will not have a material adverse effect upon the
financial position or future operating results of the Company,
and adequate provision for any potential losses has been made
in the accompanying consolidated financial statements.
EMPLOYEE BENEFITS
- - -----------------
Prior to the acquisition by Eaton, the Company maintained a 401(k)
profit-sharing plan which was terminated in 1998 in connection with
the acquisition. The Company's contributions were discretionary and
amounted to approximately $480 in 1997 and 1996. As a result of the
plan termination, all eligible employees had the option of
participating in the Eaton Share Purchase and Investment Plan (SPIP)
beginning January 1, 1998. Eaton sponsors a SPIP for its
United States operations under which eligible participating
employees may choose to contribute up to 17% of their eligible
compensation to the SPIP. Eaton matches employee contributions
up to 6% of the participant's eligible compensation as limited by
United States income tax regulations. The matching contribution
percentage, which is determined each quarter based on net income
per Eaton Common Share-basic, ranges from 25% to 100% of a
participant's contribution and is invested in Eaton Common
Shares. The Company's expense related to the SPIP match was $510
in 1998.
Beginning in 1998, the majority of the Company's United States
employees are covered by a non-contributory defined benefit pension
plan sponsored by Eaton. The plan provides a benefit that is based
on employees' accumulated pay, as defined in the plan document.
Eaton's policy is to fund at least the minimum required by applicable
regulations. The Company is allocated a cost for participation in
the pension plan, which was $703 in 1998.
<PAGE>
Page 36
The Company has no obligation to provide health care benefits to
employees who retire and, therefore, no liabilities for these
items are recorded in the consolidated financial statements.
INCOME TAXES
- - ------------
Since Eaton's acquisition of Fusion, Fusion's taxable income
related to its United States operations is included in Eaton's
consolidated income tax returns. Eaton accounts and pays for all
related income taxes. Fusion's consolidated statements of
operations for the years ended December 31, 1998 and 1997 include
an allocation of Eaton's United States income tax expense in
amounts generally equivalent to the provisions which would have
resulted had Fusion filed separate income tax returns. The
Company's foreign operations account and pay for income taxes
related to their operations.
The (benefit) provision for income taxes from continuing
operations for the years ended December 31 consists of the
following:
1998 1997 1996
---- ---- ----
Current:
U.S. Federal $(6,502) $(1,979) $ 5,681
State (951) (211) 1,032
Foreign 81 117 306
------- ------ -------
(7,372) (2,073) 7,019
Deferred:
U.S. Federal (1,490) 131 (2,060)
------- ------- -------
$(8,862) $(1,942) $ 4,959
======= ======= =======
Foreign pretax (losses) income totaled $(1,675), $(1,032), and
$2,312 in 1998, 1997 and 1996, respectively.
<PAGE>
Page 37
A reconciliation of the tax provision from the U.S. Federal
statutory tax rate to the Company's effective tax rate is as
follows:
1998 1997 1996
Amount Rate Rate Rate
------ ---- ---- ----
Taxes at the statutory
Federal rate $(10,175) (35%) (35%) 35%
State income taxes, net of
Federal tax benefit (618) (2%) 3%
Foreign Sales Corporation
Credit (3%)
Write-off of purchased in-
process research and
development 31%
Amortization of excess cost
over net assets of business
acquired 1,261 4% 1%
Other 670 2% 1% 1%
-------- ---- ---- ----
Tax provision at effective
Rates $ (8,862) (31%) (2%) 36%
======== ==== ==== ====
The components of deferred taxes are as follows at December 31:
Current Long-term Long-term
assets assets liabilities
------- --------- -----------
1998
Intangible assets $(11,167)
Inventory valuation $ 940
Accrued employee benefit costs 581
Warranty reserves 638
Special Bonus Plan 807
Other 253 (848)
------ --------
$3,219 $(12,015)
====== ========
1997
Intangible assets $(13,166)
Inventory valuation $ 792
Accrued employee benefit costs 228
Warranty reserves 1,146
Other 276 46
------ ------ --------
$2,442 $ 46 $(13,166)
====== ====== ========
<PAGE>
Page 38
Income tax payments in 1998, 1997, and 1996 were $0, $2,718, and
$41,468, respectively.
RELATED PARTY TRANSACTIONS
- - --------------------------
The note receivable from Eaton Corporation at December 31, 1998
bears interest at an annual rate of 5.28% and was due on March 2,
1999. Subsequent to December 31, 1998, the maturity date on the
note receivable was extended to August 2, 1999 at an interest rate
of 5.12%. Interest income on the note was $4,747 in 1998.
The notes receivable from Eaton Corporation at December 31, 1997
had an annual interest rate of 5.88% as to $33,507 and 5.78% as to
$39,277 and were due on March 2, 1998 and January 30, 1998,
respectively. Subsequent to December 31, 1997, the maturity dates
on the notes receivable were extended to September 2, 1998 at an
interest rate of 5.69%. Interest income on the notes was $1,327
in 1997.
Since Eaton's acquisition of Fusion, an allocation of corporate
general and administrative expenses which includes legal,
treasury, and accounting services provided to Fusion by Eaton, has
been recorded in operations and amounted to $1,664 in 1998 and
$504 in 1997.
During 1996, the Company paid an affiliate of one of the Company's
directors $1,047 for services rendered in connection with the sale
of the UV Curing business and with the Company's initial public
offering in 1994, respectively.
At the time of the Company's sale of the UV curing business to
Fairey Group, plc in September of 1996, in a separate transaction,
Fusion Lighting, Inc. received $5,000 from Fairey Group, plc, in
consideration for a mutual non-compete agreement, a cross license
of technology, a change of corporate name of Fusion Lighting and a
right of first opportunity to serve as Fusion Lighting's exclusive
distributor for certain of its products which have application to
UV curing.
DISCONTINUED OPERATIONS
- - -----------------------
On September 6, 1996, the Company sold the operations constituting
its ultraviolet ("UV")curing business for $121,000 in cash, plus
the assumption of certain liabilities, to the Fairey Group, plc, a
United Kingdom- based company. The assets sold included all of the
assets relating to the UV curing business of Fusion UV Curing
Systems Corporation and Fusion Europe Limited and all of the
capital stock of three of the Company's subsidiaries -- Fusion
Aetek UV Systems, Inc., Fusion Japan KK, and Fusion VuS GmbH.
The gain on the sale, recorded in the third quarter of 1996, was
approximately $55,000, net of transaction costs and income taxes.
The results of the UV curing business have been classified as
discontinued operations in the accompanying financial statements.
<PAGE>
Page 39
During 1996, net sales for the UV curing business were $40,000 through
the date of sale.
INFORMATION CONCERNING GEOGRAPHIC REGIONS
- - -----------------------------------------
The Company operates in a single business segment and manufactures
its products in the United States. The Company's foreign
operations consist primarily of sales and service activities. A
significant portion of the Company's net sales from its facilities
in Europe and the Pacific Region represent equipment sales shipped
directly from U.S. facilities. Net sales are categorized by the
location of the office from which the sales were generated rather
than by the customer's geographic location. A summary of net
sales and long-lived assets by operating location for the years
ended and as of December 31 are as follows:
1998 1997 1996
---- ---- ----
Net sales
North America $25,509 $66,617 $57,714
Europe 14,853 16,458 23,840
Pacific Region 722 1,347 3,040
------- ------- -------
Total net sales $41,084 $84,422 $84,594
======= ======= =======
Long-lived assets*
North America $11,061 $14,017
Europe 272 557
Pacific Region 505 424
------- -------
Total long-lived assets $11,838 $14,998
======= =======
*Long-lived assets consist of property, plant and equipment.
Significant Customers
One customer represented 13% of net sales in 1998. No single
customer represented 10% or more of net sales in 1997. Sales to
three customers represented 15%, 11%, and 11% of net sales in
1996, respectively.
<PAGE>
Page 40
QUARTERLY CONSOLIDATED RESULTS OF OPERATIONS (UNAUDITED)
- - --------------------------------------------------------
Fiscal Quarter
First Second Third Fourth
----- ------ ----- ------
1998:
Net sales $ 13,168 $ 12,351 $ 8,728 $ 6,837
Gross profit 3,674 3,568 (895) (413)
Net income (loss) $ (2,775) $ (3,330) $ (5,966) $ (8,138)
1997:
Net sales $ 19,429 $ 21,660 $ 23,670 $ 19,663
Gross profit 10,012 11,267 10,286 7,751
Net income (loss) $ 2,384 $ 2,566 $(97,031) $ (795)
The third and fourth quarter of 1998 includes restructuring
charges of $3,400 and $1,603, respectively. These charges relate
to workforce reductions and inventory and other asset write-downs.
Gross profit in 1998 includes amortization of the excess cost over
net assets acquired and intangible asset of $2,203, $2,465,
$2,199, and $2,451 in the first, second, third, and fourth
quarters, respectively.
Gross profit in the third and fourth quarter of 1997 includes
amortization of the excess cost over net assets of business
acquired and intangible asset of $1,583 and $2,375, respectively.
The third quarter 1997 includes the write-off of $85,000 for
purchased in-process research and development, with no income tax
benefit.
A special charge of $13,748 ($8,936 net of income tax benefit) for
the liquidation of Fusion's vested stock options, and other
charges related to the acquisition of the Company by Eaton were
recorded in operations in the third quarter of 1997.
<PAGE>
Page 41
Fusion Systems Corporation
1998 Annual Report on Form 10-K
Item 14(c)
Exhibit 24
Power Of Attorney
KNOW ALL MEN BY THESE PRESENTS: That each person whose
name is signed below has made, constituted and appointed, and by
this instrument does make, constitute and appoint David
O'Loughlin, Billie K. Rawot, or William J. Nowak his or her true
and lawful attorney, for him or her and in his or her name, place
and stead to subscribe, as attorney-in-fact, his or her signature
as Director or Officer or both, as the case may be, of Fusion
Systems Corporation, a Delaware corporation, to its Annual Report
on Form 10-K for the year ended December 31, 1998 pursuant to the
Securities Exchange Act of 1934, and to any and all amendments to
that Annual Report, hereby giving and granting unto each such
attorney-in-fact full power and authority to do and perform every
act and thing whatsoever necessary to be done in the premises, as
fully as he or she might or could do if personally present, hereby
ratifying and confirming all that each such attorney-in-fact shall
lawfully do or cause to be done by virtue hereof.
This Power of Attorney shall not apply to any Annual Report on
Form 10-K or amendment thereto filed after December 31, 1999.
IN WITNESS WHEREOF, this Power of Attorney has been signed as of
this 24th day of February, 1999.
/s/ Alexander M. Cutler /s/ Stephen R. Hardis
- - ----------------------------- ---------------------------
Alexander M. Cutler, Chairman Stephen R. Hardis, Director
/s/ Gerald L. Gherlein /s/ John C. Matthews
- - ----------------------------- ---------------------------
Gerald L. Gherlein, Director John C. Matthews, President
And Chief Executive Officer
/s/ Adrian T. Dillon
- - -----------------------------
Adrian T. Dillon, Vice President,
Chief Financial Officer and
Chief Accounting Officer
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidted Balance Sheets and the Statements of Consolidated Operations and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 1,595
<SECURITIES> 124
<RECEIVABLES> 11,248
<ALLOWANCES> 604
<INVENTORY> 8,271
<CURRENT-ASSETS> 116,770
<PP&E> 16,352
<DEPRECIATION> 4,514
<TOTAL-ASSETS> 215,703
<CURRENT-LIABILITIES> 8,897
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 194,791
<TOTAL-LIABILITY-AND-EQUITY> 215,703
<SALES> 41,084
<TOTAL-REVENUES> 41,084
<CGS> 35,150
<TOTAL-COSTS> 73,853
<OTHER-EXPENSES> (3,698)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (29,071)
<INCOME-TAX> (8,862)
<INCOME-CONTINUING> (20,209)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (20,209)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
