FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(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, 1996
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: 0-25424
Semitool, Inc.
State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
Montana 81-0384392
Semitool, Inc.
655 West Reserve Drive
Kalispell, Montana 59901
(Address of principal executive offices, zip code)
Registrant's telephone number: (406)752-2107
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes x No ____
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.
Title Outstanding as of August 2, 1996
Common Stock 13,652,677
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TABLE OF CONTENTS
Page No.
PART I. FINANCIAL INFORMATION..................................................1
Item 1. Consolidated Financial Statements (unaudited)..........................1
Consolidated Balance Sheets...................................1
Consolidated Statements of Income.............................2
Consolidated Statements of Cash Flows.........................3
Notes to Consolidated Financial Statements....................4
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations .............................................6
PART II. OTHER INFORMATION ...................................................10
Item 1. Legal Proceedings ...................................................10
Item 6. Exhibits and Reports on Form 8-K....................................10
SIGNATURES .....................................................11
Exhibit 27. Financial Data Schedule ..........................................12
<PAGE>
Part I. Financial Information
Item 1. Financial Statements
<TABLE>
<CAPTION>
SEMITOOL, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
June 30, 1996 and September 30, 1995
(Amounts in Thousands, Except for Share Amounts)
<S> <C> <C>
ASSETS
June 30, September 30,
1996 1995
--------------- ---------------
Restated
Current assets: (Note 7)
Cash and cash equivalents $ 1,991 $ 11,939
Marketable securities -- 4,010
Trade receivables, less allowance for doubtful accounts of $231 and $213 33,436 28,483
Inventories 37,187 19,263
Prepaid expenses and other current assets 2,202 1,334
Receivable from shareholder 34 --
Deferred income taxes 2,898 2,719
-------- --------
Total current assets 77,748 67,748
Property, plant and equipment, net 25,249 18,771
Intangibles, less accumulated amortization of $778 and $481 1,503 1,249
Other assets 1,310 299
-------- --------
Total assets $105,810 $ 88,067
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Note payable to bank $ 6,200 $ --
Accounts payable 15,420 6,062
Customer advances 1,850 2,949
Income taxes payable 323 2,982
Long-term debt, due within one year 369 924
Payable to shareholders -- 77
Accrued liabilities:
Payroll and related benefits 3,220 9,181
Commissions 1,411 2,092
Warranty and installation 6,143 4,251
Other 1,552 2,021
-------- --------
Total current liabilities 36,488 30,539
Long-term debt, due after one year 3,733 4,011
Deferred income taxes 880 704
-------- --------
Total liabilities 41,101 35,254
-------- --------
Shareholders' equity:
Preferred stock, no par value, 5,000,000 shares
authorized, no shares issued and outstanding -- --
Common stock, no par value, 30,000,000 shares authorized, 13,652,677
and 13,649,902 shares issued and outstanding in 1996 and 1995 39,552 39,523
Retained earnings 25,157 13,290
-------- --------
Total shareholders' equity 64,709 52,813
-------- --------
Total liabilities and shareholders' equity $105,810 $ 88,067
======== ========
The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SEMITOOL, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
for the three and nine month periods
ended June 30, 1996 and 1995
(Amounts in Thousands, Except Per Share Amounts)
<S> <C> <C> <C> <C>
Three Months Ended Nine Months Ended
June 30, June 30,
---------------------------- -------------------------
1996 1995 1996 1995
------------- ------------ ----------- ------------
(Restated) (Restated)
Net sales $ 41,053 $ 37,240 $ 122,676 $ 87,915
Cost of sales 21,067 18,592 61,145 43,011
-------- ------- --------- -------
Gross profit 19,986 18,648 61,531 44,904
-------- ------- --------- -------
Operating expenses:
Selling, general and administrative 10,079 8,477 28,914 22,584
Research and development 5,145 3,199 13,692 7,585
Cost of technology rights -- -- -- 1,672
-------- ------- --------- -------
Total operating expenses 15,224 11,676 42,606 31,841
-------- ------- --------- -------
Income from operations 4,762 6,972 18,925 13,063
Other income (expense), net (127) 159 (88) 53
-------- ------- --------- -------
Income before income taxes 4,635 7,131 18,837 13,116
Provision for income taxes 1,715 2,641 6,970 3,342
-------- ------- --------- -------
Net income $ 2,920 $ 4,490 $ 11,867 $ 9,774
======== ======= ========= =======
Net income per share (Notes 4 & 7) $ 0.21 $ 0.32 $ 0.86 $ 0.83
======== ======= ========= =======
Weighted average common shares outstanding (Notes 4 & 7) 13,862 13,884 13,875 11,798
======== ======= ========= =======
Pro forma information (Note 6):
Income from operations before pro forma adjustments $ 4,762 $ 6,972 $ 18,925 $13,063
Elimination of cost of technology rights -- -- -- 1,672
-------- ------- --------- -------
Income from operations 4,762 6,972 18,925 14,735
Other income (expense), net (127) 159 (88) 53
-------- ------- --------- -------
Income before income taxes 4,635 7,131 18,837 14,788
Provision for income taxes 1,715 2,641 6,970 5,496
-------- ------- --------- -------
Net income $ 2,920 $ 4,490 $ 11,867 $ 9,292
======== ======= ========= =======
Net income per share (Notes 4 & 7) $ 0.21 $ 0.32 $ 0.86 $ 0.77
======== ======= ========= =======
Shares used in pro forma calculation (Notes 4 & 7) 13,862 13,884 13,875 12,084
======== ======= ========= =======
The accompanying notes are an integral part of the financial statements.
</TABLE>
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<TABLE>
<CAPTION>
SEMITOOL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
for the nine month periods ended June 30, 1996 and 1995
(Amounts in Thousands)
<S> <C> <C>
Nine Months Ended June 30,
-------------------------------
1996 1995
------------ -------------
Operating Activities: (Restated)
Net income $ 11,867 $ 9,774
Reconciliation of net income to net cash used in operating activities:
(Gain) loss on sale of equipment 1 (184)
Depreciation and amortization 2,807 1,658
Deferred income tax provision (benefit) (3) (1,451)
Change in:
Trade receivables (4,953) (13,289)
Inventories (18,785) (8,289)
Prepaid expenses and other current assets (868) (740)
Shareholder receivable/payable (111) 30
Other assets 89 (149)
Accounts payable 9,358 (1,131)
Customer advances (1,099) 2,340
Income taxes payable (2,659) 1,972
Payroll and related benefits (5,961) 2,904
Commissions (681) 581
Warranty and installation 1,892 1,844
Other liabilities (469) 972
-------- --------
Net cash used by operating activities (9,575) (3,158)
-------- --------
Investing activities:
Purchase of marketable securities -- (8,000)
Proceeds from sale of marketable securities 4,010 3,998
Purchases of property, plant and equipment (8,418) (6,511)
Increase in intangible assets (550) (612)
Increase in covenant not to compete (1,200) --
Proceeds from sale of equipment 389 184
-------- --------
Net cash used by investing activities (5,769) (10,941)
-------- --------
Financing activities:
Net proceeds from initial public offering -- 33,589
Proceeds from exercised stock options 29 140
Borrowings under line of credit 36,625 12,805
Repayments under line of credit (30,425) (19,045)
Proceeds from additional long-term debt -- 71
Repayments of long-term debt (833) (2,308)
Net repayments to shareholder -- (682)
Dividends paid -- (8,921)
-------- --------
Net cash provided by financing activities 5,396 15,649
-------- --------
Net (decrease) increase in cash and cash equivalents (9,948) 1,550
Cash and cash equivalents at beginning of period 11,939 1,532
-------- --------
Cash and cash equivalents at end of period $ 1,991 $ 3,082
======== ========
The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE>
SEMITOOL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Basis of Presentation
The consolidated financial statements included herein have been prepared by
Semitool, Inc., (the Company) without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information and
footnote disclosures, normally included in financial statements prepared in
accordance with generally accepted accounting principles, have been condensed or
omitted as permitted by such rules and regulations. The Company believes the
disclosures included herein are adequate; however, these consolidated statements
should be read in conjunction with the consolidated financial statements and the
notes thereto for the year ended September 30, 1995 previously filed with the
Securities and Exchange Commission on Form 10-K.
In the opinion of management, these unaudited financial statements contain all
of the adjustments (normal and recurring in nature) necessary to present fairly
the consolidated financial position of the Company at June 30, 1996, the
consolidated results of operations for the three and nine month periods ended
June 30, 1996 and 1995 and the consolidated cash flows for the nine month
periods ended June 30, 1996 and 1995. The results of operations for the periods
presented may not be indicative of those which may be expected for the full
year.
Note 2. Principles of Consolidation
The consolidated financial statements include the accounts of Semitool, Inc.,
and its subsidiaries. All significant intercompany and affiliated accounts and
transactions are eliminated in consolidation.
Note 3. Inventories
Inventories are summarized as follows (in thousands):
June September
30, 1996 30, 1995
--------- ---------
Parts and raw materials $18,961 $10,080
Work-in-process 16,485 7,834
Finished goods 1,741 1,349
------- -------
$37,187 $19,263
======= =======
Note 4. Net Income per Share
Net income per share and the weighted average common shares for the three and
nine months ended June 30, 1995 have been restated to reflect the Company's
three-for-two stock split that occurred in August of 1995 and the effects of the
pooling-of-interests with Semy Engineering, Inc., which is more fully described
in Note 7.
Note 5. Income Taxes
The components of the Company's income tax provision (benefit) are as
follows, (in thousands):
Three Months Ended Nine Months Ended
June 30, June 30,
---------------------- ----------------------
1996 1995 1996 1995
Federal: ------- ------- ------- -------
Current $ 1,631 $ 2,271 $ 6,117 $ 3,645
Deferred (33) (303) (3) (1,270)
State:
Current 144 427 846 648
Deferred (3) (26) -- (181)
Foreign (24) 272 10 500
------- ------- ------- -------
$ 1,715 $ 2,641 $ 6,970 $ 3,342
======= ======= ======= =======
Components of the deferred tax assets and liabilities as of June 30, 1996 are as
follows, (in thousands):
Assets Liabilities Total
-------- ------------ -------
Accrued liabilities, principally
vacation and health insurance $ 603 $-- $ 603
Accrued reserves, principally bad
debt, warranty and inventory 1,955 -- 1,955
Inventory capitalization 340 -- 340
Depreciation and amortization -- (880) (880)
------ ---- -------
Total $2,898 $(880) $ 2,018
====== ===== =======
Note 6. Pro Forma Information
The following pro forma information reflects certain assumptions regarding
transactions and their effects that have occurred as a result of the completion
of the Company's initial public offering. All such transactions have been
completed prior to June 30, 1996.
Pro Forma Statement of Income Information
The consolidated pro forma statements of income for the three and nine month
periods ended June 30, 1995 present the pro forma effects on the historical
financial information of eliminating the cost of technology rights and of
recognizing a provision for income taxes based upon S corporation pre-tax income
at statutory rates, net of actual research and development credits generated in
the period. Both the technology rights payments and the Subchapter S tax
election terminated with the effective date of the stock offering. These
adjustments have been made as if they occurred at the beginning of the periods
presented.
Note 7. Acquisition of Semy Engineering, Inc.
On February 29, 1996, the Company acquired substantially all of the assets and
assumed certain liabilities of Semy Engineering, Inc. (Semy), in exchange for
600,000 shares of the Company's common stock. This transaction was accounted for
using the pooling-of-interests method and accordingly all periods presented are
restated to show the effects of this transaction as if it had occurred at the
beginning of each period presented.
Separate net sales and net income (loss) of the combined companies is presented
in the following table ( in thousands):
Five Months Three Months Nine Months
Ended Ended Ended
February 29, June 30, June 30,
1996 1995 1995
---------------------------------------
Net sales:
Semitool ............. $ 56,957 $ 34,778 $ 78,466
Semy ................. 7,424 2,462 9,449
--------- --------- ---------
$ 64,381 $ 37,240 $ 87,915
========= ========= =========
Net income (loss):
Semitool ............. $ 5,392 $ 4,498 $ 9,749
Semy ................. 1,331 (8) 25
--------- --------- ---------
$ 6,723 $ 4,490 $ 9,774
========= ========= =========
Note 8. Contingency
A purported class action lawsuit brought by Dr. Stanley Bierman, IRA (Case No.
DV-96-124A) was filed February 26, 1996, in the Montana Eleventh Judicial
District Court, Flathead County, Kalispell, Montana against the Company and
certain of its officers and directors. The complaint includes allegations that
the Company issued misleading statements concerning its business and prospects.
The suit seeks injunctive relief, damages, costs and other relief as the court
may find appropriate. The Company believes the lawsuit to be without merit and
intends to contest the action vigorously. However, given the inherent
uncertainty of litigation, insurance issues, and the early stage of discovery,
there can be no assurance that the ultimate outcome will be in the Company's
favor or that if the ultimate outcome is not in the Company's favor that such an
outcome, the divergence of management's attention, and any costs associated with
the lawsuit, will not have a material adverse effect on the Company's financial
condition or results of operations.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operation
This Quarterly Report on Form 10-Q contains forward-looking statements. A
forward-looking statement may contain words such as "will continue to be," "will
be," "continue to," "expect to," "anticipates that," "to be" or "can impact."
Management cautions that forward-looking statements are subject to risks and
uncertainties that could cause the Company's actual results to differ materially
from those projected in forward-looking statements.
Results of Operations
Third Quarter Of Fiscal 1996 Compared With Third Quarter Of Fiscal 1995
Net Sales. Net sales consist of revenues from sales of equipment, spare parts
and service contracts. Net sales increased 10.2% to $41.1 million in the third
quarter of fiscal 1996 from $37.2 million for the same period in fiscal 1995.
Four of the Company's automated batch chemical processing tools with a sales
value of approximately $5.4 million that were scheduled to ship in the third
quarter have been carried over to the fourth quarter. Two of the tools will have
customer specified modifications adding $300,000 in features. The shipment of
the other two tools was moved to the fourth quarter because of the cumulative
effect of producing new models of existing tools and receiving independent third
party Communate Europiene (CE Labeling) certification on tools shipped earlier
in the quarter. Two new versions of the Magnum automated batch chemical tool
were shipped during the quarter. One of the new Magnums incorporates carrierless
spray processing while the other features immersion processing. The first two
production models of the VTP 1500 Express vertical furnace were also shipped in
the third quarter. Both of the new Magnum models and the VTP 1500 Express
required, and received, European certification during the quarter.
Gross Profit. Gross margins were 48.7% of net sales in the third quarter of
fiscal 1996 compared to 50.1% of net sales for the same period in fiscal 1995.
Cost associated with building new tool models was the most significant factor in
the decline in gross margins in the third quarter from the year earlier period.
The Company's gross margins have been, and will continue to be, affected by a
variety of factors, including the mix and average selling price of products
sold, and the cost to manufacture, service and support new and enhanced
products. In addition, the geographic mix of exported equipment can impact gross
margins as all of the Company's North American and European sales are through
employees or commissioned representatives, while some of the Company's Asian
sales are through a distributor who purchases at a discount rather than
receiving a commission.
Selling, General and Administrative. Selling, general and administrative
expenses (SG&A) were 24.6% of net sales in the third quarter of fiscal 1996
compared to 22.8% of net sales for the same period in fiscal 1995. The Company's
SG&A expense increased $1.6 million in absolute dollars to $10.1 million in the
third quarter of fiscal 1996 from $8.5 million for the same period in fiscal
1995. The increase in absolute dollars in selling, general and administrative
expense reflects staffing to higher levels in anticipation of increased shipment
volume combined with a delay in tool shipments, a broader range of equipment to
market and service, and the Company's nascent effort to introduce direct sales
and service personnel into the Asian marketplace, partially offset by a decline
in expense at Semy Engineering, Inc. (Semy) associated with higher fiscal 1995
bonus payments.
Research and Development. Research and development expenses (R&D) consist of
salaries, project materials, laboratory costs, consulting fees and other costs
associated with the Company's research and development efforts. Research and
development expense was $5.1 million (or 12.5% of net sales) in the third
quarter of fiscal 1996 as compared to $3.2 million (or 8.6% of net sales) for
the same period in fiscal 1995. The increase in spending on research and
development is primarily associated with the Company's automated batch chemical
processor, the fast ramp vertical furnace, and the single substrate processor.
The Company's research and development expenses have fluctuated from quarter to
quarter in the past. The Company expects such fluctuation to continue in the
future, both in absolute dollars and as a percentage of net sales, primarily due
to the timing of expenditures and fluctuations in the level of net sales in a
given quarter. The Company expects that R&D expense during the fiscal fourth
quarter will again be heavily weighted toward the same three tool types as in
the third quarter.
Other Income (Expense), Net. Other income (expense), net was a net expense of
$127,000 in the third quarter of fiscal 1996 compared a net income of $159,000
for the same period in fiscal 1995. Interest expense on the Company's borrowings
was the largest single component of Other Income (Expense), Net in the current
quarter while interest income was the largest component in the comparable prior
year period.
Provisions for Income Taxes. The provisions for income taxes for the third
fiscal quarters of 1996 and 1995 were $1.7 million and $2.6 million,
respectively. Both periods reflect a tax provision at a 37% effective rate.
Backlog. The Company includes in its backlog those customer orders for which it
has received purchase orders or purchase order numbers and for which shipment is
scheduled within the next twelve months. Sales backlog was approximately $110
million at June 30, 1996. The current backlog contains orders from more than 70
different companies. Three customers represent approximately 36% of backlog with
no other customer exceeding 6%. The Company's automated batch chemical
processing tool, first shipped in fiscal 1995, now represents the largest single
component of the backlog with the vertical furnace second. Together these tools
account for over 64% of the total backlog and most of the more than 28% of
backlog which is not scheduled to ship until calendar year 1997.
Orders are generally subject to cancellation or rescheduling by customers with
limited or no penalty. As the result of systems ordered and shipped in the same
quarter, changes in customer delivery schedules, cancellations of orders and
delays in product shipments, the Company's backlog at any particular date is not
necessarily indicative of actual sales for any succeeding period. During the
third quarter of fiscal 1996, the Company experienced all four of the above
listed variables. While the cancellation or rescheduling of orders is always a
risk in its business, the Company believes the magnitude of risk has increased
in recent months and is unlikely to decline over the next few quarters. The
single largest component of this increased risk is the unsettled market
conditions for many types of semiconductors and the fact that semiconductor
manufacturers are the Company's principal customer base.
Nine Months Of Fiscal 1996 Compared With Nine Months Of Fiscal 1995
Net Sales. Net sales increased 39.5% to $122.7 million in the first nine months
of fiscal 1996 from $87.9 million for the same period in fiscal 1995. The
Company's automated batch chemical tools, single substrate processors and wafer
carrier cleaning systems combined for aggregate sales of $34.0 million in the
first three quarters of fiscal 1996 compared to $15.1 million for the comparable
period in fiscal 1995. On a year-to-date basis, net sales remain widely
distributed with no customer accounting for as much as 10% of the total.
Gross Profit. Gross margins were 50.2% of net sales in the first nine months of
fiscal 1996 compared to 51.1% of net sales for the same period in fiscal 1995.
Margins as a percentage of net sales in both years have been favorably impacted
by the acquisition of Semy which, over the last two years, has had margins
higher than the average of the Company's other products. The Company's gross
margins have been, and will continue to be, affected by a variety of factors,
including the mix and average selling price of products sold, and the cost to
manufacture, service and support new and enhanced products. In addition, the
geographic mix of export work can impact gross margins as all of the Company's
North American and European sales are through employees or commissioned
representatives, while some of the Company's Asian sales are through a
distributor who purchases at a discount rather than receiving a commission.
Selling, General and Administrative. Selling, general and administrative
expenses were 23.6% of net sales in the first nine months of fiscal 1996
compared to 25.7% of net sales for the same period in fiscal 1995. The Company's
SG&A expense increased in absolute dollars to $28.9 million on a year-to-date
basis in fiscal 1996 from $22.6 million for the same period in fiscal 1995. The
increase in absolute dollars in selling, general and administrative expense
reflects higher costs associated with increased sales volumes, a broader range
of equipment to market and service, and the Company's nascent effort to
introduce direct sales and service personnel into the Asian marketplace. The
increase in SG&A expense for the first nine months of fiscal 1996 compared to
the same period in fiscal 1995 was partially offset by a decline in those
expenses at Semy due to lower bonus payments in the current year.
Research and Development. Research and development expense was $13.7 million (or
11.2% of net sales) in the first nine months of fiscal 1996 as compared to $7.6
million (or 8.6% of net sales) for the same period in fiscal 1995. The increase
in spending on research and development on a year-to-date basis in fiscal 1996,
compared to the prior year, relates primarily to new tool models and process
development work associated with the Company's newer and more complex tools.
Cost of Technology Rights. In 1979, the Company acquired certain technology
rights from Raymon F. Thompson for installment payments equal to 8% of revenues
from the sale of certain of the Company's products that embody the technology.
The actual expense for the first nine months of fiscal 1995 was $1.7 million.
All payments for technology rights ceased in conjunction with the Company's
initial public stock offering resulting in no cost to the Company in fiscal
1996.
Other Income (Expense), Net. Other income (expense), net was a net expense of
$88,000 in the first nine months of fiscal 1996 compared a net income of $53,000
for the same period in fiscal 1995. During the first nine months of fiscal 1996,
the Company did not realize any gains on disposal of fixed assets, but did
realize $184,000 of such gains in the first half of fiscal 1995.
Provisions for Income Taxes. The provisions for income taxes for the first nine
months of 1996 and 1995 were $7.0 million and $3.3 million, respectively.
Effective in 1986, the Company elected to have its United States income taxed
under Subchapter S of the Code. The Company, however, remained a taxpaying
entity for Montana state income tax purposes. Income tax provisions recognized
by the Company after 1986 and before February 1, 1995 relate to state income
taxes and taxes imposed by foreign governments on the Company's foreign
operations. The Company terminated its Subchapter S election as of the close of
business on January 31, 1995 and subsequent to that date became subject to
federal income taxation at the corporate level. The combination of Subchapter S
status for the first four months of fiscal 1995 and the initial setup of the
Company's deferred tax assets resulted in an effective tax rate for the first
nine months of fiscal 1995 of 25.5%. The pro forma information includes an
adjustment to the prior year tax provision for comparison purposes.
Acquisitions. Semitool completed the acquisition of Semy in February of 1996.
The acquisition was accounted for using the pooling-of-interests method and,
therefore, prior periods now reflect the consolidation of Semy. Semy had a
higher gross margin percentage and a higher R&D expense percentage than the
Company averages for both the nine months to date of fiscal 1996 and all of
fiscal 1995. Semy's SG&A expense was higher than the consolidated Company
average for fiscal 1995 and the first fiscal quarter of 1996, but lower for the
second and third quarters of fiscal 1996. Semy's SG&A expenses are expected to
remain lower than the Company average for the foreseeable future due principally
to a reduction in the amounts of bonuses.
The Company's future operating results may be affected by inherent uncertainties
characteristic of the worldwide semiconductor equipment industry. Such
uncertainties include, but are not limited to, the growth of the semiconductor
industry to which the Company sells a majority of its products, the development
of new technologies by the Company or its competitors, the continued transition
to new generations of integrated circuits requiring more complex manufacturing
processes, competitive pricing pressures and global economic conditions. The
Semiconductor Industry Association (SIA) reported bookings lower than billings
for each of the first six months of calendar year 1996. The SIA index primarily
tracks the US semiconductor industry. The Company believes that the longer the
semiconductor industry maintains a "Book-to-Bill" ratio of less than 1.00, the
more likely companies in that industry are to reduce their capital spending
plans for the future, including purchases of the Company's products.
The majority of the Company's sales come from products with a unit selling price
ranging from $200,000 to over $2,000,000. A significant portion of the Company's
net sales in any given period is derived from the sale of a relatively small
number of units. The Company has experienced in the past, and expects to
continue to experience in the future, significant fluctuations in its results of
operations due to changes in the number and type of tools shipped. The Company's
expense levels are based, in part, on expectations of future sales and if sales
do not meet expectations, results will be adversely affected. In addition to
overall industry trends, a variety of factors have an influence on the Company's
operating results in a particular period. These factors include customer
cancellations or delays of shipments, specific feature requests by customers,
production delays or manufacturing inefficiencies, the timing of the receipt of
orders, management decisions to commence or discontinue product lines, the
Company's ability to design, introduce and manufacture new products on a cost
effective and timely basis, the timing of research and development expenditures,
expenses attendant to acquisitions and strategic alliances and the further
development of marketing and service capabilities.
Liquidity and Capital Resources
Cash used in operations was $9.6 million during the first nine months of fiscal
1996, compared to $3.2 million used in the same period in fiscal 1995. Cash
generated from net income and depreciation in the current fiscal year was more
than offset by an increase in working capital funding requirements with
inventory being the most significant. The $18.8 million increase in inventory
during the first nine months of fiscal 1996 reflects a shift in the Company's
product mix to more complex tools currently requiring longer cycle times to
manufacture, an increase in the absolute level of net sales, an increase in
parts held in various locations around the world for customer support, and
customer change orders delaying scheduled shipments. The Company expects future
working capital requirements to fluctuate based on net sales and the average
cycle time of the specific equipment types being manufactured.
Investing activities during the first nine months of fiscal 1996, consisted
primarily of $8.4 million of property and equipment additions and the sale of
$4.0 million of marketable securities. Related to the Semy acquisition, $1.2
million was invested in a covenant not to compete. Financing activities included
$6.2 million in net borrowings under the Company's $10 million revolving line of
credit and a $0.8 million repayment of long-term debt.
At June 30, 1996, the Company had $2.0 million of cash and cash equivalents.
During the third quarter, the Company extended the expiration of its $10 million
uncollateralized revolving line of credit with Seattle First National Bank
(Seafirst) from December 31, 1996 to December 31, 1997. At June 30, 1996, $6.2
million was borrowed against the line. Borrowings under the line of credit with
Seafirst bear interest at the bank's prime lending rate. The Company has
initiated discussions with Seafirst regarding an increase in the line of credit
and expects approval of an increase to $14 million during the fourth fiscal
quarter.
The Company believes that cash and cash equivalents, funds generated from
operations, and borrowings under its line of credit agreement will be sufficient
to meet the Company's planned capital requirements for the balance of the fiscal
year. During the third fiscal quarter, the Company began the construction of an
approximately 20,000 square foot facility to house cabinet and frame fabrication
in support of its assembly operations. Those operations will vacate
approximately the same number of square feet in the Company's main facility
which will be used to expand assembly and test functions. The Company is
planning to spend approximately $1.6 million in additional purchases of
property, plant and equipment over the balance of the fiscal year. Total
purchases of property, plant and equipment for fiscal 1996 is now expected to be
$10 million. Any decision to implement a major facility expansion, to add an
additional facility, or any significant increase in working capital needs to
fund currently unanticipated growth could result in the Company's effecting
additional equity or debt financing to fund that growth. The Company may, from
time to time, as market and business conditions warrant, invest in or acquire
complementary businesses, products or technologies. There can be no assurance
that the Company will be successful in raising sufficient capital to take
advantage of such opportunities, or if successful, that the terms of such
financing will be advantageous to the Company's overall operations. The Company
may effect an additional equity or debt financing to fund such activities. The
sale of additional equity securities or the issuance of equity securities in a
business combination could result in dilution to the Company's shareholders.
A purported class action lawsuit brought by Dr. Stanley Bierman, IRA (Case No.
DV-96-124A) was filed February 26, 1996, in the Montana Eleventh Judicial
District Court, Flathead County, Kalispell, Montana against the Company and
certain of its officers and directors. The complaint includes allegations that
the Company issued misleading statements concerning its business and prospects.
The suit seeks injunctive relief, damages, costs and other relief as the court
may find appropriate. The Company believes the lawsuit to be without merit and
intends to contest the action vigorously. However, given the inherent
uncertainty of litigation, insurance issues, and the early stage of discovery,
there can be no assurance that the ultimate outcome will be in the Company's
favor or that if the ultimate outcome is not in the Company's favor that such an
outcome, the divergence of management's attention, and any costs associated with
the lawsuit, will not have a material adverse effect on the Company's financial
condition or results of operations.
Statements contained in this Item 2, "Management's Discussion and Analysis of
Financial Condition and Results of Operations," and elsewhere in this Quarterly
Report on Form 10-Q which are not historical facts are forward-looking
statements. A forward-looking statement may contain words such as "will continue
to be," "will be," "continue to," "expect to," "anticipates that," "to be" or
"can impact." Management cautions that forward-looking statements are subject to
risks and uncertainties that could cause the Company's actual results to differ
materially from those projected in such forward-looking statements. These risks
and uncertainties include, but are not limited to, the cyclical nature of the
semiconductor industry in general, lack of market acceptance for new products,
decreasing demand for the Company's existing products, impact of competitive
products and pricing, product development, commercialization and technological
difficulties, capacity and supply constraint difficulties and other risks
detailed herein and in the Company's Securities and Exchange Commission filings.
The Company's future results will depend on its ability to continue to enhance
its existing products and to develop and manufacture new products and to finance
such activities. There can be no assurance that the Company will be successful
in the introduction, marketing and cost effective manufacture of any new
products or that the Company will be able to develop and introduce in a timely
manner new products or enhancements to its existing products and processes which
satisfy customer needs or achieve market acceptance.
<PAGE>
Part II. Other Information
Item 1. Legal Proceedings
A purported class action lawsuit brought by Dr. Stanley Bierman, IRA (Case No.
DV-96-124A) was filed February 26, 1996, in the Montana Eleventh Judicial
District Court, Flathead County, Kalispell, Montana against the Company and
certain of its officers and directors. The complaint includes allegations that
the Company issued misleading statements concerning its business and prospects.
The suit seeks injunctive relief, damages, costs and other relief as the court
may find appropriate. The Company believes the lawsuit to be without merit and
intends to contest the action vigorously. However, given the inherent
uncertainty of litigation, insurance issues, and the early stage of discovery,
there can be no assurance that the ultimate outcome will be in the Company's
favor or that if the ultimate outcome is not in the Company's favor that such an
outcome, the divergence of management's attention, and any costs associated with
the lawsuit, will not have a material adverse effect on the Company's financial
condition or results of operations.
The Company and all the other defendents have filed a motion to dismiss all
claims on the basis that the plantiff cannot state such claims under Montana
law. The court has the motion to dismiss under submission.
Item 6. Exhibits and Reports on Form 8-K.
The Company reported on Form 8-K, dated February 29, 1996, the acquisition of
substantially all of the assets and assumption of certain liabilities of Semy
Engineering, Inc., (Semy) as of February 29, 1996.
The Form 8-K included audited financial statements of Semy as of and for the
fiscal year ended September 30, 1995 and the unaudited financial statements of
Semy as of December 31, 1995 and for the three month periods ended December 31,
1995 and 1994. Unaudited pro forma condensed combined balance sheets of the
Company and Semy at December 31, 1995 and the unaudited pro forma condensed
combined statements of operations of the Company and Semy for the fiscal years
ended September 30, 1993, 1994, and 1995, and the three month period ended
December 31, 1995 were also reported.
The Company, on May 1, 1996, amended the report on Form 8-K dated February 29,
1996 by filing Form 8-K/A.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Semitool, Inc.
By:/S/ John W. Sullivan
John W. Sullivan, Vice President - Finance and CFO
Date: August 6, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
AS OF JUNE 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
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