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 December 31, 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.
(Exact Name of Registrant as Specified in Its Charter)
Montana 81-0384392
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
Semitool, Inc.
655 West Reserve Drive
Kalispell, Montana 59901
(Address of principal executive offices, zip code)
Registrant's telephone number, including area code: (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 January 30, 1997
Common Stock 13,666,927
<PAGE>
Part I. Financial Information
Item 1. Financial Statements
<TABLE>
<CAPTION>
SEMITOOL, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
December 31, 1996 and September 30, 1996
(Amounts in Thousands, Except for Share Amounts)
December 31, September 30,
ASSETS 1996 1996
---------------- ---------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 3,434 $ 3,058
Trade receivables, less allowance for doubtful accounts of $233 and $233 35,694 39,183
Inventories 36,905 36,909
Prepaid expenses and other current assets 2,493 2,323
Deferred income taxes 4,373 4,373
---------------- ---------------
Total current assets 82,899 85,846
Property, plant and equipment, net 26,830 26,337
Intangibles, less accumulated amortization of $1,029 and $899 1,649 1,581
Other assets, net 1,209 1,190
---------------- ---------------
Total assets $ 112,587 $ 114,954
================ ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Note payable to bank $ 4,000 $ 4,000
Accounts payable 12,853 17,177
Accrued commissions 1,091 1,751
Accrued warranty and installation 8,504 7,997
Accrued payroll and related benefits 5,042 5,032
Other accrued liabilities 843 594
Customer advances 3,596 3,757
Income taxes payable 1,168 1,334
Long-term debt, due within one year 378 374
Payable to shareholder 24 33
---------------- ---------------
Total current liabilities 37,499 42,049
Long-term debt, due after one year 3,552 3,637
Deferred income taxes 1,265 1,265
---------------- ---------------
Total liabilities 42,316 46,951
---------------- ---------------
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,
13,662,727 and 13,655,577 shares issued and outstanding 39,639 39,577
Retained earnings 30,632 28,426
---------------- ---------------
Total shareholders' equity 70,271 68,003
---------------- ---------------
Total liabilities and shareholders' equity $ 112,587 $ 114,954
================ ===============
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SEMITOOL, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
for the three months ended December 31, 1996 and 1995
(Amounts in Thousands, Except for Per Share Amounts)
Three Months Ended
December 31,
----------------------------
1996 1995
----------- -----------
<S> <C> <C>
Net sales $ 42,508 $ 38,049
Cost of sales 23,425 18,903
----------- -----------
Gross profit 19,083 19,146
----------- -----------
Operating expenses:
Selling, general and administrative 10,481 8,969
Research and development 4,988 3,918
----------- -----------
Total operating expenses 15,469 12,887
----------- -----------
Income from operations 3,614 6,259
Other income (expense), net (55) 95
----------- -----------
Income before income taxes 3,559 6,354
Provision for income taxes 1,353 2,353
----------- -----------
Net income $ 2,206 $ 4,001
=========== ===========
Net income per share $ 0.16 $ 0.29
=========== ===========
Weighted average common shares outstanding 13,719 13,899
=========== ===========
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SEMITOOL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
for the three months ended December 31, 1996 and 1995
(Amounts in Thousands)
Three Months Ended
December 31,
---------------------------------
1996 1995
---------------- ---------------
<S> <C> <C>
Operating activities:
Net income $ 2,206 $ 4,001
Adjustments to reconcile net income to net cash provided by (used in) operating
activities:
Loss on sale of equipment 18 -
Depreciation and amortization 1,387 837
Deferred income tax benefit - (366)
Change in:
Trade receivables 3,489 (5,926)
Inventories (1,024) (4,254)
Prepaid expenses and other current assets (170) 414
Shareholder payable (9) -
Other assets (96) 97
Accounts payable (4,324) 3,015
Accrued commissions (660) 29
Accrued warranty and installation 507 1,010
Accrued payroll and related benefits 10 (4,550)
Other accrued liabilities 249 (439)
Customer advances (161) (663)
Income taxes payable (166) 677
---------------- ---------------
Net cash provided by (used in) operating activities 1,256 (6,118)
---------------- ---------------
Investing activities:
Proceeds from sale of marketable securities - 1,002
Purchases of property, plant and equipment (667) (3,881)
Increase in intangible assets (198) (141)
Proceeds from sale of equipment 4 -
---------------- ---------------
Net cash used in investing activities (861) (3,020)
---------------- ---------------
Financing activities:
Proceeds from exercise of stock options 62 3
Borrowings under line of credit 10,180 -
Repayments under line of credit (10,180) -
Proceeds from long-term debt 11 -
Repayments of long-term debt (92) (656)
---------------- ---------------
Net cash used in financing activities (19) (653)
---------------- ---------------
Net increase (decrease) in cash and cash equivalents 376 (9,791)
Cash and cash equivalents at beginning of period 3,058 11,939
---------------- ---------------
Cash and cash equivalents at end of period $ 3,434 $ 2,148
================ ===============
The accompanying notes are an integral part of the consolidated 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, 1996 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 as of December 31, 1996, the
consolidated results of operations for the three months ended December 31, 1996
and 1995 and the consolidated cash flows for the three months ended December 31,
1996 and 1995. The results of operations and the cash flows 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 wholly-owned subsidiaries. All significant intercompany accounts and
transactions are eliminated in consolidation.
Note 3. Inventories
Inventories are summarized as follows (in thousands):
<TABLE>
<CAPTION>
December 31, 1996 September 30, 1996
----------------- ------------------
<S> <C> <C>
Parts and raw materials $ 17,992 $ 18,157
Work-in-process 15,441 15,702
Finished goods 3,472 3,050
----------------- ------------------
$ 36,905 $ 36,909
================= ==================
</TABLE>
During the quarter ended December 31, 1996, $1,028,000 in finished goods
inventory was transferred to capitalized equipment. No finished goods inventory
was transferred to capital equipment during the quarter ended December 31, 1995.
<PAGE>
Note 4. Income Taxes
The components of the Company's income tax provision (benefit) are as follows,
(in thousands):
Three Months Ended
December 31,
---------------------------------
1996 1995
Federal: -------------- -------------
Current $ 1,071 $ 2,247
Deferred - (317)
State:
Current 92 372
Deferred - (49)
Foreign 190 100
-------------- -------------
Total $ 1,353 $ 2,353
============== =============
Components of the deferred tax assets and liabilities as of December 31, 1996
are as follows, (in thousands):
<TABLE>
<CAPTION>
Assets Liabilities Total
------------- ------------- -------------
<S> <C> <C> <C>
Accrued liabilities, principally
vacation and health insurance $ 709 $ - $ 709
Accrued reserves, principally bad
debt, warranty and inventory 2,669 - 2,669
Inventory capitalization 433 - 433
Depreciation and software amortization - (1,265) (1,265)
Foreign net operating loss carryforward 475 - 475
Other 87 - 87
------------- ------------- -------------
Total $ 4,373 $ (1,265) $ 3,108
============= ============= =============
</TABLE>
Note 5. 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 compensatory damages 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, the early stage of discovery and insurance issues, 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
diversion 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.
Note 6. 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 the fiscal year 1996 data
presented are restated to show the effects of this transaction as if it had
occurred at the beginning of each period presented.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
CAUTION
Statements contained in this "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and elsewhere in this report which are not
historical facts are forward-looking statements within the meaning of Section
21E of the Securities Exchange Act of 1934, as amended, and are subject to the
safe harbor provisions created by that statute. 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 other filings with the Securities and Exchange Commission (SEC). 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 widespread market acceptance.
Shareholders or potential shareholders should read the "Risk Factors" section of
the Company's latest annual report on Form 10-K filed with the SEC in
conjunction with this quarterly report on Form 10-Q to better understand the
potential volatility of the Company's results and volatility in the Company's
common stock share price. The fact that some of the risk factors may be the same
or similar to the Company's past filings means only that the risks are present
in multiple periods. The Company believes that many of the risks detailed here
and in the Company's other SEC filings are part of doing business in the
semiconductor equipment industry and will likely be present in all periods
reported. The fact that certain risks are endemic to the industry does not
lessen the significance of the risk.
Shareholders or potential shareholders are cautioned not to place undue reliance
on these forward-looking statements, which speak only as of the date of this
report. The Company undertakes no obligation to release revisions to
forward-looking statements to reflect subsequent events, changed circumstances,
or the occurrence of unanticipated events.
RESULTS OF OPERATIONS
First Quarter Of Fiscal 1997 Compared With First Quarter Of Fiscal 1996
Net Sales. Net sales consist of revenues from sales of equipment, spare parts
and service contracts. Net sales increased 11.7% to $42.5 million in the first
quarter of fiscal 1997 from $38.0 million for the same period in fiscal 1996.
Net sales of the Company's Magnum automated batch chemical processor totaled
$11.4 million in the first quarter of fiscal 1997 compared to $2.2 million in
the year earlier quarter and turned what otherwise would have been a decline in
net sales into an increase. Semitool's automated batch chemical processing tool
is relatively new. The first Magnum shipments occurred in fiscal 1995 and
totaled $9.1 million for the year. Shipments of the Magnum during fiscal 1996
totaled $24.7 million. Semitool expects that Magnum shipments during fiscal 1997
will exceed $40 million and will, at least partially, offset declining shipments
of some other equipment due to more modest industry order patterns.
Gross Profit. Gross margins were 44.9% of net sales in the first quarter of
fiscal 1997 compared to 50.3% of net sales for the same period in fiscal 1996.
Cost associated with building new tool models was the most significant factor in
the decline in gross margins in the first quarter from the year earlier period.
Semitool does not expect excess costs related to the manufacture of newer
products to decline immediately, but it does expect incremental progress over
time. 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.
Selling, General and Administrative. Selling, general and administrative (SG&A)
expenses were 24.7% of net sales in the first quarter of fiscal 1997 compared to
23.6% of net sales for the same period in fiscal 1996. The Company's SG&A
expense increased $1.5 million in absolute dollars to $10.5 million in the first
quarter of fiscal 1997 from $9.0 million for the same period in fiscal 1996. The
increase in SG&A expenses reflects a broader range of equipment to market and
service, costs associated with additional sales and service personnel supporting
the Asian marketplace and increased sales volume. A substantial portion of the
Company's SG&A expense is fixed in the short term.
Research and Development. Research and development (R&D) expenses 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 $5.0 million (or 11.7% of net sales) in the first
quarter of fiscal 1997 as compared to $3.9 million (or 10.3% of net sales) for
the same period in fiscal 1996. 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 is committed to technology leadership in the semiconductor equipment
industry and expects to continue to fund R&D expenditures with a multiyear
perspective. 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.
Other Income (Expense), Net. Other income (expense), net was a net expense of
$55,000 in the first quarter of fiscal 1997 compared to a net income of $95,000
for the same period in fiscal 1996. 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 first
fiscal quarter of 1997 and 1996 were $1.3 million and $2.4 million,
respectively. Income tax provisions are made based on the blended estimate of
federal, state and foreign effective income tax rates.
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 $89.3
million as of December 31, 1996, compared to $75.1 million one year ago and
$85.9 million as of September 30, 1996. 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. Due largely to
customers rescheduling deliveries, approximately $17 million of the backlog is
not scheduled to ship until the fourth quarter of fiscal 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.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operations was $1.3 million during the first three months of
fiscal 1997, compared to $6.1 million used in operating activities during the
same period in fiscal 1996. Cash generated from net income, depreciation, and a
reduction in accounts receivable in the current fiscal year more than offset an
increase in inventory and a decline in accounts payable. 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.
Currently, the tools with the longest average cycle times are the automated
batch chemical tools and the single substrate processor.
Investing activities during the first three months of fiscal 1997, consisted
primarily of $700,000 of property and equipment additions. Financing activities
included no new net borrowings under the Company's revolving line of credit
during the quarter. As of December 31, 1996, the Company's principal sources of
liquidity consisted of approximately $3.4 million of cash and cash equivalents,
$6.0 million available under the Company's $10 million revolving line of credit,
and $15 million under its long-term credit facility. Both credit facilities are
with Seafirst Bank and bear interest at the bank's prime lending rate. The
revolving line of credit expires on December 31, 1997 when all principal amounts
owing are due. The long-term credit facility expires on December 31, 1998 with
amounts outstanding repayable in monthly principal and interest payments over a
five-year period ending December 2003.
The Company believes that cash and cash equivalents, funds generated from
operations, and borrowings under its line of credit agreements will be
sufficient to meet the Company's planned capital requirements for the balance of
the fiscal year. During the first fiscal quarter, the Company began remodeling
part of its facility in Cambridge, England in preparation for the commencement
of assembly operations at that location later in the year. Total purchases of
property, plant and equipment for fiscal 1997 are expected to be $9 million
including the facility improvement in England, but excluding any major facility
expansion or addition in the United States. The Company is currently formulating
additional expansion plans which can be triggered quickly should market
conditions warrant. Any decision to implement a major facility expansion, to add
an additional facility, or any significant increase in working capital needed to
fund 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. 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.
LITIGATION
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 compensatory damages 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, the early stage of discovery and insurance issues, 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
diversion 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.
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 compensatory damages 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, the early stage of discovery and insurance issues, 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
diversion 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 defendants have filed a motion to dismiss all
claims on the basis that the plaintiff 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.
(a) Exhibits:
(27) Financial Data Schedule for the three months ended December 31, 1996.
(b) Reports on Form 8-K:
There were no reports on Form 8-K filed during the three months ended
December 31, 1996.
<PAGE>
Signature
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: February 11, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Exhibit 27
This financial data schedule contains summary financial information extracted
from Form 10-Q as of December 31, 1996 and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> DEC-31-1996
<CASH> 3,434
<SECURITIES> 0
<RECEIVABLES> 35,927
<ALLOWANCES> 233
<INVENTORY> 36,905
<CURRENT-ASSETS> 82,899
<PP&E> 40,048
<DEPRECIATION> 13,218
<TOTAL-ASSETS> 112,587
<CURRENT-LIABILITIES> 37,499
<BONDS> 3,552
0
0
<COMMON> 39,639
<OTHER-SE> 30,632
<TOTAL-LIABILITY-AND-EQUITY> 112,587
<SALES> 42,096
<TOTAL-REVENUES> 42,508
<CGS> 23,336
<TOTAL-COSTS> 23,425
<OTHER-EXPENSES> 4,988
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 101
<INCOME-PRETAX> 3,559
<INCOME-TAX> 1,353
<INCOME-CONTINUING> 2,206
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,206
<EPS-PRIMARY> 0.16
<EPS-DILUTED> 0.16
</TABLE>
