UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark one)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarterly period ended December 31, 1997
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.)
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 practical date:
Title Outstanding as of January 30, 1998
Common Stock 13,771,336
<PAGE>
Part I. Financial Information
Item 1. Financial Statements
SEMITOOL, INC.
CONSOLIDATED BALANCE SHEETS
December 31, 1997 and September 30, 1997
(Amounts in Thousands, Except for Share Amounts)
<TABLE>
<S> <C> <C>
December 31, September 30,
ASSETS 1997 1997
------------ -------------
(Unaudited)
Current assets:
Cash and cash equivalents $ 2,739 $ 5,060
Trade receivables, less allowance for doubtful accounts
of $224 and $224 37,299 40,896
Inventories 42,368 41,124
Prepaid expenses and other current assets 1,355 1,771
Deferred income taxes 5,902 5,902
------------ -------------
Total current assets 89,663 94,753
Property, plant and equipment, net 37,521 33,685
Intangibles, less accumulated amortization of $1,674 and $1,460 2,763 2,142
Other assets, net 1,033 1,145
------------ -------------
Total assets $ 130,980 $ 131,725
============ =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Note payable to bank $ 6,000 $ 4,000
Accounts payable 12,418 16,735
Accrued commissions 1,014 1,850
Accrued warranty and installation 10,292 9,820
Accrued payroll and related benefits 4,827 6,164
Other accrued liabilities 1,103 1,029
Customer advances 2,476 1,722
Income taxes payable 2,589 2,986
Long-term debt, due within one year 398 393
Payable to shareholder 24 7
------------ -------------
Total current liabilities 41,141 44,706
Long-term debt, due after one year 3,263 3,364
Deferred income taxes 2,075 2,075
------------ -------------
Total liabilities 46,479 50,145
------------ -------------
Contingency (Note 5)
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,
13,771,186 and 13,755,514 shares issued and outstanding 40,727 40,590
Retained earnings 43,553 40,949
Foreign currency translation adjustment 221 41
------------ -------------
Total shareholders' equity 84,501 81,580
------------ -------------
Total liabilities and shareholders' equity $ 130,980 $ 131,725
============ =============
The accompanying notes are an integral part of the consolidated
financial statements.
</TABLE>
<PAGE>
SEMITOOL, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
for the three months ended December 31, 1997 and 1996
(Amounts in Thousands, Except for Per Share Amounts)
<TABLE>
Three Months Ended
December 31,
----------------------
<S> <C> <C>
1997 1996
---------- ----------
Net sales $ 47,002 $ 42,508
Cost of sales 23,098 23,425
--------- ---------
Gross profit 23,904 19,083
--------- ---------
Operating expenses:
Selling, general and administrative 13,704 10,481
Research and development 6,127 4,988
--------- ---------
Total operating expenses 19,831 15,469
--------- ---------
Income from operations 4,073 3,614
Other income (expense), net 61 (55)
--------- ---------
Income before income taxes 4,134 3,559
Provision for income taxes 1,530 1,353
--------- ---------
Net income $ 2,604 $ 2,206
========= =========
Earnings per share:
Basic $ 0.19 $ 0.16
========= =========
Diluted $ 0.19 $ 0.16
========= =========
Average common shares:
Basic 13,770 13,657
Diluted 13,998 13,718
The accompanying notes are an integral part of the consolidated financial
statements.
</TABLE>
<PAGE>
SEMITOOL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
for the three months ended December 31, 1997 and 1996
(Amounts in Thousands)
<TABLE>
Three Months Ended
December 31,
----------------------------
<S> <C> <C>
1997 1996
------------- -------------
Operating activities:
Net income $ 2,604 $ 2,206
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
(Gain) loss on sale of equipment (10) 18
Depreciation and amortization 2,482 1,387
Change in:
Trade receivables 3,815 3,489
Inventories (2,682) (1,024)
Prepaid expenses and other current assets 416 (170)
Other assets 36 (96)
Accounts payable (4,317) (4,324)
Accrued commissions (836) (660)
Accrued warranty and installation 472 507
Accrued payroll and related benefits (1,337) 10
Other accrued liabilities 74 249
Customer advances 754 (161)
Income taxes payable (397) (166)
Shareholder payable 17 (9)
------------ ------------
Net cash provided by (used in) operating activities 1,091 1,256
------------ ------------
Investing activities:
Purchases of property, plant and equipment (4,627) (667)
Increase in intangible assets (835) (198)
Proceeds from sale of equipment 29 4
------------ ------------
Net cash provided by (used in) investing activities (5,433) (861)
------------ ------------
Financing activities:
Proceeds from exercise of stock options 137 62
Borrowings under line of credit 26,300 10,180
Repayments under line of credit (24,300) (10,180)
Proceeds from long-term debt -- 11
Repayments of long-term debt (96) (92)
------------ ------------
Net cash provided by (used in) financing activities 2,041 (19)
------------ ------------
Effect of exchange rate changes on cash and cash equivalents (20) --
------------ ------------
Net increase (decrease) in cash and cash equivalents (2,321) 376
Cash and cash equivalents at beginning of period 5,060 3,058
------------ ------------
Cash and cash equivalents at end of period $ 2,739 $ 3,434
============ ============
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 United States Securities and Exchange Commission (SEC).
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, 1997
previously filed with the SEC on Form 10-K.
The financial information presented as of any date other than September 30, 1997
has been prepared from the books and records without audit. Financial
information as of September 30, 1997 has been derived from the audited financial
statements of the Company, but does not include all disclosures required by
generally accepted accounting principles. 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, 1997, the consolidated results of
operations for the three month periods ended December 31, 1997 and 1996 and the
consolidated cash flows for the three month periods ended December 31, 1997 and
1996. 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 wholly-owned subsidiaries. All significant intercompany and affiliated
accounts and transactions are eliminated in consolidation.
Note 3. Inventories
Inventories are summarized as follows (in thousands):
<TABLE>
<S> <C> <C>
December 31, 1997 September 30, 1997
----------------- ------------------
Parts and raw materials $ 22,382 $ 22,028
Work-in-process 13,014 14,869
Finished goods 6,972 4,227
----------------- ------------------
$ 42,368 $ 41,124
================= ==================
</TABLE>
During the three months ended December 31, 1997 and 1996, $1,438,000 and
$1,028,000, respectively, of finished goods inventory was transferred to
capitalized equipment.
<PAGE>
Note 4. Income Taxes
The components of the Company's income tax provision (benefit) are as follows,
(in thousands):
<TABLE>
Three Months Ended
December 31,
----------------------
<S> <C> <C>
1997 1996
--------- ---------
Federal $ 1,621 $ 1,071
State 197 92
Foreign (288) 190
-------- --------
Total $ 1,530 $ 1,353
======== ========
</TABLE>
Note 5. Contingency
A class action lawsuit (Case No. DV-96-124A) was filed on 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 current 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 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. Earnings Per Common Share
In 1997, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 128 (SFAS 128), "Earnings per Share." The Company
adopted SFAS 128 during the first quarter of fiscal 1998. SFAS 128 replaced the
previously required primary and fully diluted earnings per share with basic and
diluted earnings per share. Unlike primary earnings per share, basic earnings
per share excludes any dilutive effects of options, warrants and convertible
securities. Diluted earnings per share is calculated in a manner that is similar
to the previously reported fully diluted earnings per share. All earnings per
share amounts for all periods have been presented to conform to the requirements
of SFAS 128.
The following table sets forth the computation of basic and diluted earnings per
share (in thousands, except for per share amounts):
<TABLE>
Three Months Ended
December 31,
----------------------
<S> <C> <C>
1997 1996
--------- ---------
Numerator:
Net income for basic and diluted earnings
per share $ 2,604 $ 2,206
======== ========
Denominator:
Average common shares used for basic
earnings per share 13,770 13,657
Effect of diluted securities:
Stock options 228 61
-------- --------
Denominator for diluted earnings per share 13,998 13,718
======== ========
</TABLE>
<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, including without
limitation, statements regarding use of sales, service and support
organizations, gross margins, research and development, costs of manufacturing,
future balances, and effects of new accounting standards, 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. 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.
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 1998 COMPARED WITH FIRST QUARTER OF FISCAL 1997
Net Sales. Net sales consist of revenues from sales of equipment, spare parts
and service contracts. Net sales increased 10.6% to $47.0 million in the first
quarter of fiscal 1998 from $42.5 million for the same period in fiscal 1997.
Sales of the Company's electrochemical deposition tools increased in the first
quarter of fiscal 1998 compared to the same period in fiscal 1997 which is the
primary reason for the overall gain in sales for the quarter.
Gross Profit. Gross margin was 50.9% of net sales in the first quarter of fiscal
1998 compared to 44.9% of net sales for the same period in fiscal 1997. Higher
than normal margins were obtained on some of the equipment revenue recognized
during the quarter. Without these special situations gross margin would have
been approximately 50.1% for the first quarter of fiscal 1998. The Company's
gross margin has 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 29.2% of net sales in the first quarter of fiscal 1998 compared to
24.7% of net sales for the same period in fiscal 1997. The Company's SG&A
expenses increased to $13.7 million in the first quarter of fiscal 1998 from
$10.5 million for the same period in fiscal 1997. The increase in SG&A expenses
reflects costs to support a broader range of equipment, costs associated with
additional sales and service personnel supporting the Asian and domestic markets
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. R&D expense was
$6.1 million (13.0% of net sales) in the first quarter of fiscal 1998 as
compared to $5.0 million (11.7% of net sales) for the same period in fiscal
1997. Much of the increase is related to the development of the Company's copper
deposition tools.
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 other income
of $61,000 in the first quarter of fiscal 1998 compared to a net expense of
$55,000 for the same period in fiscal 1997. Interest income and foreign exchange
gain exceeded interest expense in fiscal 1998. Whereas, interest expense and
foreign exchange losses exceed interest income in 1997.
Provision for Income Taxes. The provisions for income taxes for each of the
first fiscal quarters of 1998 and 1997 were $1.5 million and $1.4 million,
respectively. Income tax provisions are made based on the blended estimate of
federal, state and foreign effective income tax rates estimated to be 37% in
fiscal 1998 and 38% in fiscal 1997.
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 $59.8
million at December 31, 1997 compared to $89.3 million at December 31, 1996.
This decrease is reflective of the overall industry decline in demand for
semiconductor equipment.
Orders are generally subject to cancellation or rescheduling by customers with
limited or no penalty. As the result of tools 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.
Year 2000 Software System Status. The Company has conducted a preliminary review
of its software systems for year 2000 compliance. This includes software used by
the Company and the software developed by the Company that is incorporated in
the tools that it sells to customers. The tests completed to date show that most
of the Company's software is year 2000 compliant and will operate as is, or with
minor modifications. The Company will continue to test its software, but does
not anticipate major year 2000 compliance problems at this time.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operations was $1.1 million during the first three months of
fiscal 1998, compared to $1.3 million provided in the same period in fiscal
1997. During the first three months of fiscal 1998 the Company's inventory
increased $1.2 million to $42.4 million. An increase of $2.7 million in finished
goods and a $1.9 million decrease in work-in-process accounted for most of the
change. The Company believes that the only long-term trend evident in the
inventory buildup is the need to keep substantial inventory at strategic points
around the world in order to respond rapidly to the service needs of its
customers. A decrease in trade receivables of $3.8 million was offset by a
decrease in accounts payable of $4.3 million. The Company expects future working
capital balances to fluctuate based on net sales and the average cycle time of
the specific equipment types being manufactured.
Investing activities consisted primarily of $4.6 million of property, plant and
equipment acquisitions. Major additions included land purchased near Phoenix, AZ
for the future home of Semy Engineering, however building plans are not firmly
in place at this time. Financing activities included new net borrowings under
the Company's $10.0 million revolving line of credit. As of December 31, 1997,
the Company's principal sources of liquidity consisted of approximately $2.7
million of cash and cash equivalents, $4.0 million available under the Company's
$10.0 million revolving line of credit, and $15.0 million under its long-term
line of credit. The $15.0 million line of credit allows borrowings to be
converted to long-term debt if the Company chooses to do so. Both credit
facilities are with Seafirst Bank and bear interest at the bank's prime lending
rate. The revolving line of credit expires on March 31, 1999 when all principal
amounts owing are due. The long-term credit facility expires on December 31,
1999 with amounts outstanding repayable in monthly principal and interest
payments over a five-year period ending December 2004.
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. Total purchases of property, plant and equipment for fiscal
1998 are expected to be approximately $10.0 million including a facility
improvement in England, but excluding any major facility expansion or addition
in the United States. The Company has formulated preliminary facility 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 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 class action lawsuit (Case No. DV-96-124A) was filed on 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 current 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 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.
<PAGE>
SEMITOOL, INC.
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
A class action lawsuit (Case No. DV-96-124A) was filed on 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 current 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 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.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
(27) Financial Data Schedule for Form 10-Q dated December 31, 1997.
(b) Reports on Form 8-K:
There were no reports on Form 8-K filed during the three months
ended December 31, 1997.
<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.
--------------
(Registrant)
Date: February 11, 1998 By /s/Larry A. Viano
--------------------------------
Larry A. Viano
Controller and Treasurer
(Duly Authorized Officer and Principal
Financial Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Exhibit 27
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM
10-Q AS OF DECEMBER 31, 1997 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-30-1998
<PERIOD-END> DEC-31-1997
<CASH> 2,739
<SECURITIES> 0
<RECEIVABLES> 37,523
<ALLOWANCES> 224
<INVENTORY> 42,368
<CURRENT-ASSETS> 89,663
<PP&E> 55,114
<DEPRECIATION> 17,593
<TOTAL-ASSETS> 130,980
<CURRENT-LIABILITIES> 41,141
<BONDS> 3,263
0
0
<COMMON> 40,727
<OTHER-SE> 43,774
<TOTAL-LIABILITY-AND-EQUITY> 130,980
<SALES> 46,164
<TOTAL-REVENUES> 47,002
<CGS> 22,942
<TOTAL-COSTS> 23,098
<OTHER-EXPENSES> 6,127
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 125
<INCOME-PRETAX> 4,134
<INCOME-TAX> 1,530
<INCOME-CONTINUING> 2,604
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,604
<EPS-PRIMARY> 0.19
<EPS-DILUTED> 0.19
</TABLE>
