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 June 30, 1999
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 ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date:
Title Outstanding as of August 10, 1999
Common Stock 13,814,498
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
SEMITOOL, INC.
CONSOLIDATED BALANCE SHEETS
(Amounts in Thousands, Except for Share Amounts)
<TABLE>
<CAPTION>
June 30, September 30,
ASSETS 1999 1998
--------------- ---------------
<S> <C> <C>
(Unaudited)
Current assets:
Cash and cash equivalents $ 6,694 $ 7,287
Trade receivables, less allowance for doubtful
accounts of $1,484 and $1,542 24,697 34,855
Inventories 36,240 36,435
Prepaid expenses and other current assets 6,689 2,052
Deferred income taxes 6,379 6,379
--------------- ---------------
Total current assets 80,699 87,008
Property, plant and equipment, net 33,582 36,302
Intangibles, less accumulated amortization of $3,303 and $2,399 3,354 3,965
Other assets, net 884 715
--------------- ---------------
Total assets $ 118,519 $ 127,990
=============== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Note payable to bank $ -- $ 3,000
Accounts payable 11,075 8,987
Accrued commissions 1,443 935
Accrued warranty and installation 8,381 11,970
Accrued payroll and related benefits 3,819 4,240
Other accrued liabilities 4,328 2,414
Customer advances 1,915 2,380
Long-term debt, due within one year 440 596
Payable to shareholder 4 78
--------------- ---------------
Total current liabilities 31,405 34,600
Long-term debt, due after one year 3,945 3,836
Deferred income taxes 2,860 2,860
--------------- ---------------
Total liabilities 38,210 41,296
--------------- ---------------
Contingencies (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,
13,792,023 shares issued and outstanding in both periods 41,248 41,248
Retained earnings 38,911 45,754
Accumulated other comprehensive income (loss) 150 (308)
--------------- ---------------
Total shareholders' equity 80,309 86,694
--------------- ---------------
Total liabilities and shareholders' equity $ 118,519 $ 127,990
=============== ===============
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
<PAGE>
SEMITOOL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Amounts in Thousands, Except for Per Share Amounts)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
--------------------------- ---------------------------
<S> <C> <C> <C> <C>
1999 1998 1999 1998
----------- ----------- ----------- -----------
Net sales $ 29,838 $ 46,572 $ 86,076 $ 138,815
Cost of sales 15,216 22,463 44,790 66,960
----------- ----------- ----------- -----------
Gross profit 14,622 24,109 41,286 71,855
----------- ----------- ----------- -----------
Operating expenses:
Selling, general and administrative 13,336 15,181 36,414 43,381
Research and development 5,555 6,313 16,304 19,336
----------- ----------- ----------- -----------
Total operating expenses 18,891 21,494 52,718 62,717
----------- ----------- ----------- -----------
Income (loss) from operations (4,269) 2,615 (11,432) 9,138
Other income (expense), net 125 (252) 1,064 (395)
----------- ----------- ----------- -----------
Income (loss) before income taxes (4,144) 2,363 (10,368) 8,743
Provision for (benefit from) income taxes (1,409) 874 (3,525) 3,235
------------ ----------- ----------- -----------
Net income (loss) $ (2,735) $ 1,489 $ (6,843) $ 5,508
=========== =========== ============ ===========
Earnings (loss) per share:
Basic $ (0.20) $ 0.11 $ (0.50) $ 0.40
=========== =========== =========== ===========
Diluted $ (0.20) $ 0.11 $ (0.50) $ 0.40
=========== =========== =========== ===========
Weighted average common shares:
Basic 13,792 13,790 13,792 13,780
=========== =========== =========== ===========
Diluted 13,792 13,874 13,792 13,944
=========== =========== =========== ===========
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
<PAGE>
SEMITOOL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Amounts in Thousands)
<TABLE>
<CAPTION>
Nine Months Ended
June 30,
---------------------------------
<S> <C> <C>
1999 1998
--------------- ---------------
Operating activities:
Net income (loss) $ (6,843) $ 5,508
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
Depreciation and amortization 7,750 7,778
Provision for losses on accounts receivable 58 9
Loss on disposition of equipment 157 120
Change in:
Trade receivables 10,956 3,296
Inventories (2,325) (3,032)
Prepaid expenses and other current assets (4,572) (462)
Other assets (385) (214)
Accounts payable 1,219 (5,515)
Accrued commissions 508 (145)
Accrued warranty and installation (3,589) 1,642
Accrued payroll and related benefits (447) (186)
Other accrued liabilities 2,280 602
Customer advances (466) 977
Income taxes payable -- (1,904)
Shareholder payable (75) (1)
--------------- ---------------
Net cash provided by operating activities 4,226 8,473
--------------- ---------------
Investing activities:
Purchases of property, plant and equipment (2,191) (7,537)
Increase in intangible assets (292) (2,061)
Proceeds from sale of equipment 1,020 52
--------------- ---------------
Net cash used in investing activities (1,463) (9,546)
--------------- ---------------
Financing activities:
Proceeds from exercise of stock options -- 336
Borrowings under line of credit 1,000 62,420
Repayments under line of credit (4,000) (62,420)
Proceeds from long-term debt 442 1,100
Repayments of long-term debt (489) (301)
Repayments of short-term debt (413) --
--------------- ---------------
Net cash provided by (used in) financing activities (3,460) 1,135
--------------- ---------------
Effect of exchange rate changes on cash and cash equivalents 104 (35)
--------------- ---------------
Net increase (decrease) in cash and cash equivalents (593) 27
Cash and cash equivalents at beginning of period 7,287 5,060
--------------- ---------------
Cash and cash equivalents at end of period $ 6,694 $ 5,087
=============== ===============
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 (the "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, 1998
previously filed with the SEC on Form 10-K.
Financial information as of September 30, 1998 has been derived from the audited
financial statements of the Company. In the opinion of management, the
accompanying unaudited financial statements contain all of the adjustments
(normal and recurring in nature) necessary to present fairly the consolidated
financial position of the Company and subsidiaries and the consolidated results
of their operations and their cash flows. The results of operations for the
periods presented may not be indicative of those which may be expected for the
full year.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." SFAS No. 131 requires publicly-held
companies to report financial and other information about key revenue-producing
segments of the entity for which such information is available and is utilized
by the chief operation decision maker. Specific information to be reported for
individual segments includes profit or loss, certain revenue and expense items
and total assets. A reconciliation of segment financial information to amounts
reported in the financial statements is also to be provided. SFAS No. 131 is
effective for the Company in fiscal 1999 and the form of the presentation of the
Company's financial statements has not yet been determined.
In March 1998, the AICPA issued Statement of Position ("SOP") 98-1, "Accounting
for the Costs of Computer Software Developed or Obtained for Internal Use." SOP
98-1 requires companies to capitalize certain costs of computer software
developed or obtained for internal use, provided that those costs are not
research and development. SOP 98-1 is effective for the Company in fiscal 2000
and the timing and effect of adoption has not yet been determined.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS 133 establishes accounting and
reporting standards for derivative financial instruments and for hedging
activities. SFAS 133, as amended by SFAS 137, is effective for the Company in
fiscal 2001 and the timing and effect of adoption has not yet been determined.
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.
<PAGE>
Note 3. Inventories
Inventories are summarized as follows (in thousands):
June 30, 1999 September 30, 1998
---------------------- ----------------------
Parts and raw materials $ 21,636 $ 22,334
Work-in-process 8,733 8,344
Finished goods 5,871 5,757
---------------------- ----------------------
$ 36,240 $ 36,435
====================== ======================
During the nine months ended June 30, 1999 and 1998, $2,777,000 and $2,033,000,
respectively, of finished goods inventory was transferred to property, plant and
equipment.
Note 4. 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,
--------------------------- ---------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
Federal $ (1,316) $ 505 $ (3,201) $ 2,799
State (159) 61 (390) 341
Foreign 66 308 66 95
----------- ----------- ----------- -----------
Total $ (1,409) $ 874 $ (3,525) $ 3,235
=========== =========== =========== ===========
Note 5. Contingencies
A lawsuit brought by Mitsubishi Silicon America Corporation, successor to Siltec
Corporation (Case No. CV-98-826AA) was filed on July 7, 1998 in the United
States Federal District Court for the District of Oregon against the Company.
The lawsuit alleges breach of warranties and seeks damages and attorney's fees
in excess of $5 million. The Company believes the lawsuit to be without merit
and intends to contest the action vigorously. However, given the inherent
uncertainty of litigation and the early stages 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,
results of operations or cash flows.
The Company is subject to other legal proceedings and claims which have arisen
in the ordinary course of its business and have not been finally adjudicated.
Although there can be no assurance as to the ultimate disposition of these
matters, it is the opinion of the Company's management, based upon the
information available at this time, that the currently expected outcome of these
matters, individually or in the aggregate, will not have a material adverse
effect on the results of operations, financial condition or cash flows of the
Company.
<PAGE>
Note 6. Earnings Per Common Share
The following table sets forth the computation of basic and diluted earnings
(loss) per share (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
--------------------------- ---------------------------
<S> <C> <C> <C> <C>
1999 1998 1999 1998
----------- ----------- ----------- -----------
Numerator:
Net income (loss) for basic and diluted
earnings per share $ (2,735) $ 1,489 $ (6,843) $ 5,508
=========== =========== =========== ===========
Denominator:
Average common shares used for basic
earnings per share 13,792 13,790 13,792 13,780
Effect of dilutive securities:
Stock options -- 84 -- 164
----------- ----------- ----------- -----------
Denominator for diluted earnings per share 13,792 13,874 13,792 13,944
=========== =========== =========== ===========
</TABLE>
The effect of stock options are not included in the calculation of the diluted
earnings (loss) per share to the extent that their inclusion would be
anti-dilutive.
Note 7. Comprehensive Income (Loss).
The Company adopted Statement of Financial Accounting Standard ("SFAS") No. 130,
"Reporting Comprehensive Income" as of the first quarter of fiscal 1999. The
adoption of this statement had no impact on the Company's current or previously
reported net income (loss) or shareholders' equity.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
--------------------------- ---------------------------
<S> <C> <C> <C> <C>
1999 1998 1999 1998
----------- ----------- ----------- -----------
Net income (loss) $ (2,735) $ 1,489 $ (6,843) $ 5,508
Foreign currency translation adjustment (66) (358) 458 (873)
----------- ----------- ----------- -----------
Other Comprehensive income (loss) $ (2,801) $ 1,131 $ (6,385) $ 4,635
=========== =========== =========== ===========
</TABLE>
Accumulated other comprehensive income (loss) presented in the accompanying
consolidated balance sheets consists of the cumulative foreign currency
translation adjustment.
<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. 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." Forward looking
statements include: the Company's statements in Part I, Item 2 under the
headings (a) "Results of Operations" regarding the Company's expectations that
(i) it will continue to fund research and development with a multiyear
perspective, (ii) research and development expenses may fluctuate from quarter
to quarter, and (iii) that new order increases may reflect a market recovery,
(b) "Nine Months of fiscal year 1999 Compared with Nine Months of fiscal year
1998" regarding (i) the Company's anticipation that its income tax rate will be
34% for the remainder of fiscal 1999, (ii) the Company's anticipation that it
will not have major year 2000 compliance problems, and (iii) the Company's
expectation that year 2000 compliance costs will not significantly increase
information technology department costs, and (c) "Liquidity and Capital
Resources" regarding (i) its belief that cash and cash equivalents, funds
generated from operations, and borrowings under the Company's line of credit
agreement will be sufficient to meet the Company's planned requirements for the
balance of the fiscal year, and (ii) that the Company expects total purchases of
property, plant and equipment to be approximately $5.0 million for the next
twelve months. 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, anticipated growth
opportunities in the copper and metal plating market segments, commercialization
and technological difficulties, capacity and supply constraint difficulties,
changes in management policies, unanticipated Year 2000 compliance problems and
other risks detailed herein or in its Form 10-K. 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
THIRD QUARTER OF FISCAL YEAR 1999 COMPARED WITH THIRD QUARTER OF FISCAL YEAR
1998
Net Sales. Net sales consist of revenues from sales of equipment, including
associated spare parts and service contracts, and software products. Net sales
were $29.8 million in the third quarter of fiscal year 1999 compared with net
sales of $46.6 million for the same period in fiscal year 1998. Sales in all
product categories were lower during the third quarter when compared to the same
period a year ago. Weakness in demand for semiconductor equipment is the main
reason for lower sales levels.
Gross Profit. Gross profit margin was 49.0% of net sales in the third quarter of
fiscal year 1999 compared to 51.8% of net sales for the same period in fiscal
year 1998. Lower absorption of manufacturing costs due to lower volume levels,
was the primary contributing factor to this margin decline. The Company's gross
profit margin has been, and will continue to be, affected by a variety of
factors, including an increase or decrease in operating levels or sales volume,
the mix and average selling price of products sold, and the cost to manufacture,
service and support new and enhanced products.
<PAGE>
Selling, General and Administrative. Selling, general and administrative
expenses were $13.3 million or 44.7% of net sales in the third quarter of fiscal
year 1999 compared to $15.2 million or 32.6% of net sales for the same period in
fiscal year 1998. The decrease in selling, general and administrative expense is
primarily attributable to cost reductions in response to lower sales volume
levels and lower variable costs. The increase as a percent of sales in the third
quarter of fiscal 1999 as compared to the third quarter of fiscal 1998 is a
result of a greater decline in sales than the decline in selling, general and
administrative expense. A substantial portion of the Company's selling, general
and administrative expenses are fixed in the short term and as such may
fluctuate as a percentage of net sales from period to period.
Research and Development. Research and development expenses consist of salaries,
project materials, laboratory costs, professional fees, and other costs
associated with the Company's research and development efforts. Research and
development expense was $5.6 million or 18.6% of net sales in the third quarter
of fiscal year 1999 compared to $6.3 million or 13.6% of net sales in the same
period in fiscal year 1998.
The Company is committed to technology leadership in the semiconductor equipment
industry and expects to continue to fund research and development with a
multiyear perspective. The Company's research and development expenses have
fluctuated from quarter to quarter in the past and this fluctuation is expected
to continue in the future, both in the absolute dollar amount and as a
percentage of net sales.
Other Income (Expense), Net. Other income (expense), net was a net other income
of $125,000 in the third quarter of fiscal year 1999 compared to a net expense
of $252,000 for the same period in fiscal year 1998. Interest income exceeded
interest expense during the third quarter of fiscal 1999.
Provision for and benefit from Income Taxes. The provision for and benefit from
income taxes are made based on the blended estimate of federal, state and
foreign effective income tax rates.
Orders Backlog. The Company includes in its orders backlog those customer orders
for which it has written authorization and shipment is scheduled within the next
twelve months. Orders backlog was approximately $49.6 million at June 30, 1999
compared to approximately $53.2 million at June 30, 1998 and $30.8 million at
the beginning of the current fiscal year.
The Company's new order bookings were $50.1 million in the current fiscal year
third quarter compared to $32.9 million in this fiscal year's second quarter.
New order bookings have increased sequentially in comparison to the preceding
quarter in each of the three quarters of this fiscal year. Even though the
bookings for the first nine months of fiscal 1999 are approximately 18% below
the first nine months of fiscal 1998, the quarterly sequential increase in new
order bookings may reflect a market recovery in the semiconductor equipment
industry. 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 orders backlog at any
particular date is not necessarily indicative of actual sales for any succeeding
period.
NINE MONTHS OF FISCAL YEAR 1999 COMPARED WITH NINE MONTHS OF FISCAL YEAR 1998
Net Sales. Net sales consist of revenue from sales of equipment, spare parts and
service, and fab supervisory systems. Net sales decreased 38.0% to $86.1 million
in the first nine months of fiscal year 1999 from $138.8 million for the same
period in fiscal year 1998. Sales in all product categories, with the exception
of software sales which were slightly ahead of last year, were lower during the
first nine months when compared to the same period a year ago. Weakness in
demand for semiconductor equipment is the main reason for lower sales levels.
Gross Profit. Gross profit margin was 48.0% of net sales in the first nine
months of fiscal year 1999 compared to 51.8% of net sales for the same period in
fiscal year 1998. Lower absorption of manufacturing costs due to lower volume
levels, was the primary contributing factor to this margin decline. The
Company's gross profit margin has been, and will continue to be, affected by a
variety of factors, including an increase or decrease in operating levels and
sales volume, 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 $36.4 million or 42.3% of net sales in the first nine months of
fiscal year 1999 compared to $43.4 million or 31.3% of net sales for the same
period in fiscal year 1998. The decrease in SG&A expenses primarily reflects
cost reductions in response to lower sales levels and lower variable costs.
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
$16.3 million or 18.9% of net sales in the first nine months of fiscal year 1999
compared to $19.3 million or 13.9% of net sales for the same period in fiscal
year 1998. Presently, the Company's development efforts have been associated
with its electrochemical deposition and surface preparation equipment and the
development of improved ECD and wafer cleaning processes.
Other Income (Expense), Net. Other income (expense), net was a net other income
of $1.1 million in the first nine months of fiscal year 1999 compared to a net
expense of $395,000 for the same period in fiscal year 1998. Interest expense
exceeded interest income in the first nine months of fiscal year 1999 but was
offset by a foreign exchange gain of $819,000 most of which occurred in the
first quarter of fiscal 1999.
Provision for and benefit from Income Taxes. Provision for and benefit from
income taxes are made based on the blended estimate of federal, state and
foreign effective income tax rates. The effective income tax rate for the first
nine months of fiscal year 1999 was 34% compared to 37% for the comparable
period in fiscal year 1998. The Company anticipates its effective income tax
rate will be 34% for the remainder of fiscal 1999.
NEW ACCOUNTING PRONOUNCEMENTS
Recently issued accounting standards include Statement of Financial Accounting
Standards (SFAS) No. 131 "Disclosures about Segments of an Enterprise and
Related Information," issued by the FASB in June 1997. Also, Statement of
Position (SOP) 98-1 "Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use," was issued by the AICPA in March 1998 and SFAS No.
133 "Accounting for Derivative Instruments and Hedging Activities" was issued by
FASB in June 1998. Descriptions of SFAS No. 131, SOP 98-1 and SFAS 133 are
included in the notes to the financial statements. These pronouncements have not
been adopted by the Company and the timing and effect of adoption has not yet
been determined.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operating activities was $4.2 million during the first nine
months of fiscal 1999, compared to $8.5 million provided in the same period in
fiscal 1998. During the first nine months of fiscal 1999, the Company's
inventory decreased $2.3 million to $36.2 million. A decrease in trade
receivables of $11.0 million combined with an increase in accounts payable of
$1.2 million offset an increase in prepaid expenses of $4.6 million, which
includes a $3.5 million increase in income taxes receivable, and a decrease in
accrued warranty of $3.6 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 during the first nine months of fiscal 1999 consisted
primarily of $2.2 million of property, plant and equipment acquisitions
partially offset with proceeds from the sale of equipment of $1.0 million.
Financing activities included $3.0 million in net repayments under the Company's
revolving line of credit.
As of June 30, 1999, the Company's principal sources of liquidity consisted of
approximately $6.7 million of cash and cash equivalents, and the entire amount
available under the Company's $25 million revolving line of credit. The credit
facility is with Seafirst Bank, a Bank of America affiliate, and bears interest
at the bank's reference rate or Libor plus 1.5%. The revolving line of credit
expires on April 1, 2001 and all principal amounts owing are due by April 1,
2004. The revolving line of credit agreement, which was amended during the
quarter, has various restrictive covenants, including a prohibition against
pledging or in any way encumbering current or operating assets during the term
of the agreement and the maintenance of various financial ratios.
The Company believes that cash and cash equivalents, funds generated from
operations, and funds available under its bank lines will be sufficient to meet
the Company's planned capital requirements during the next twelve months
including the spending of approximately $5.0 million to purchase property, plant
and equipment. The Company believes that success in its industry requires
substantial capital in order to maintain the flexibility to take advantage of
opportunities as they arise. 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 additional equity or debt
financings to fund such activities or to fund greater than anticipated growth.
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.
YEAR 2000
The status of the Company's Year 2000 (Y2K) readiness project is presented
below:
1. Planning (completed July 1998)
2. Assessment (completed October 1998)
3. Testing (completed March 1999)
4. Repairs/Reinstallations (in progress)
5. Retesting (in progress)
6. Contingency plans (June 1999 - October 1999).
The Company is currently working in the repairs/reinstallations, retesting, and
contingency planning phases with its IT systems, non-IT systems, and its
customers and suppliers. All mission critical IT systems have been tested and
are believed to be Y2K ready. Manufacturing planning systems are scheduling
materials and job completions into the Year 2000 without problems.
Some of the Company's equipment and the fab supervisory systems that it sells
contain hardware and software components that are subject to the Y2K problem.
Approximately 99% of these products shipped prior to that date have upgrades
that are complete and available to the Company's customers. All products shipped
since April 11, 1998 are believed to be Y2K ready.
Total costs associated with the Company's Y2K readiness program are not expected
to significantly increase information technology department costs.
Due to the inherent uncertainty surrounding the Y2K issue, the Company cannot
anticipate all of the possible problems that may occur. Adverse consequences
from Y2K issues may materially affect the Company's warranty liability, the
value of its capitalized software and the carrying value of its inventory as
well as the Company's financial condition, results of operations and cash flows.
The Y2K problems could also subject the Company to litigation which may include
consequential damages.
LITIGATION
A lawsuit brought by Mitsubishi Silicon America Corporation, successor to Siltec
Corporation (Case No. CV-98-826AA) was filed on July 7, 1998 in the United
States Federal District Court for the District of Oregon against the Company.
The lawsuit alleges breach of warranties and seeks damages and attorney's fees
in excess of $5 million. The Company believes the lawsuit to be without merit
and intends to contest the action vigorously. However, given the inherent
uncertainty of litigation and the early stages 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,
results of operations or cash flows.
The Company is subject to other legal proceedings and claims which have arisen
in the ordinary course of its business and have not been finally adjudicated.
Although there can be no assurance as to the ultimate disposition of these
matters, it is the opinion of the Company's management, based upon the
information available at this time, that the currently expected outcome of these
matters, individually or in the aggregate, will not have a material adverse
effect on the results of operations, financial condition or cash flows of the
Company.
Item 3. Quantitative and Qualitative Disclosures About Financial Market Risk
Financial Market Risks
Financial Market risks relating to the Company's operations result primarily
from changes in interest rates and changes in foreign currency exchange rates.
Interest Rate Sensitivity
The Company as of June 30, 1999 has approximately $4.4 million in long-term
debt. The Company's long-term debt bears interest at a fixed rate. As a result,
changes in the fixed rate interest market would change the estimated fair value
of its fixed rate long-term debt. The Company believes that a ten percent change
in the long-term interest rate would not have a material effect on the Company's
financial condition or result of operations.
Foreign Currency Exchange Rate Sensitivity
The Company conducts its Japanese business in Japanese yen. The Company enters
into forward foreign currency exchange contracts primarily as an economic hedge
against the short-term impact of foreign currency fluctuations of its Japanese
subsidiary. These contracts are denominated in Japanese yen. The maturities of
the forward foreign exchange contracts are generally short-term in nature. The
Company's forward exchange contracts are marked-to-market as are the underlying
transactions being hedged. The impact of movements in currency exchange rates on
forward foreign exchange contracts generally offsets the related impact on
anticipated transactions denominated in yen. Given the historic average level of
hedging, the effect of a ten percent change in foreign exchange rates on the
Japanese Yen would not be material to the Company's financial condition, results
of operations or the cash flows. However, during the first nine months of fiscal
1999, the Company had significant assets denominated in Japanese Yen that were
not hedged. The Yen during the first nine months of the fiscal year increased in
value as compared to the US dollar by 16.1%. This change resulted in a foreign
exchange gain of $819,000 most of which occurred in the first quarter of fiscal
1999 and is reported in other income on the statement of operations.
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
A lawsuit brought by Mitsubishi Silicon America Corporation, successor to Siltec
Corporation (Case No. CV-98-826AA) was filed on July 7, 1998 in the United
States Federal District Court for the District of Oregon against the Company.
The lawsuit alleges breach of warranties and seeks damages and attorney's fees
in excess of $5 million. The Company believes the lawsuit to be without merit
and intends to contest the action vigorously. However, given the inherent
uncertainty of litigation and the early stages 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,
results of operations or cash flows.
The Company is subject to other legal proceedings and claims which have arisen
in the ordinary course of its business and have not been finally adjudicated.
Although there can be no assurance as to the ultimate disposition of these
matters, it is the opinion of the Company's management, based upon the
information available at this time, that the currently expected outcome of these
matters, individually or in the aggregate, will not have a material adverse
effect on the results of operations, financial condition or cash flows of the
Company.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit No. Description
10.29 First Amendment to Business Loan Agreement between Bank of
America NT&SA doing business as Seafirst Bank and
Semitool, Inc.
10.30 Employment Agreement between Gary Spray and Semitool, Inc.
dated May 25, 1999
27 Financial Data Schedule for Form 10-Q dated June 30, 1999.
(b) Reports on Form 8-K:
There were no reports on Form 8-K filed during the three months ended
June 30, 1999.
<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.
--------------
(Registrant)
Date: August 13, 1999 By /s/Larry A. Viano
---------------------------------------
Larry A. Viano
Controller, Treasurer and
Chief Accounting Officer
Date: August 13, 1999 By /s/William A. Freeman
---------------------------------------
William A. Freeman
Senior Vice President
and Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Exhibit 27
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM
10-Q AS OF June 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-END> JUN-30-1999
<CASH> 6,694
<SECURITIES> 0
<RECEIVABLES> 26,181
<ALLOWANCES> 1,484
<INVENTORY> 36,240
<CURRENT-ASSETS> 80,699
<PP&E> 63,257
<DEPRECIATION> 29,675
<TOTAL-ASSETS> 118,519
<CURRENT-LIABILITIES> 31,405
<BONDS> 3,945
0
0
<COMMON> 41,248
<OTHER-SE> 39,061
<TOTAL-LIABILITY-AND-EQUITY> 118,519
<SALES> 82,130
<TOTAL-REVENUES> 86,076
<CGS> 44,035
<TOTAL-COSTS> 44,790
<OTHER-EXPENSES> 16,304
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 281
<INCOME-PRETAX> (10,368)
<INCOME-TAX> (3,525)
<INCOME-CONTINUING> (6,843)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,843)
<EPS-BASIC> (0.50)
<EPS-DILUTED> (0.50)
</TABLE>
EXHIBIT 10.29
FIRST AMENDMENT TO BUSINESS LOAN AGREEMENT
This Amendment is entered into as of July 20, 1999, between BANK OF
AMERICA NT&SA doing business as SEAFIRST BANK ("Bank") and SEMITOOL, INC.
("Borrower").
Recitals
--------
A. Bank and Borrower entered into a certain Business Loan Agreement
dated as of September 30, 1998 (the "Agreement").
B. Bank and Borrower desire to amend certain terms and provisions of the
Agreement as more specifically set forth below.
Agreement
---------
1. Definitions. Capitalized terms used but not defined in this Amendment
shall have the meaning given to them in the Agreement.
2. Amendments. The Agreement is hereby amended as follows:
2.1 The first sentence of Paragraph 4.3 is amended to read as
follows:
Maintain a tangible net worth of at least equal to $70,000,000
plus the sum of 50% of net income after income taxes (without
subtracting losses) earned in each quarterly accounting period
commencing after June 30, 1999, and not permit Borrower's total
indebtedness which is not subordinated in a manner satisfactory to Bank
to exceed Borrower's tangible net worth.
2.2 Paragraph 11.2 is amended by the addition of the following
thereto:
Compliance with the foregoing Debt Coverage Ratio shall not be
required until the period commencing April 1, 2001, and shall be
measured as of the end of each quarterly accounting period ending after
that date (based upon the immediately preceding four quarters financial
results).
3. Representations and Warranties. When Borrower signs this Amendment,
Borrower represents and warrants to Bank that:
3.1 There is no event which is, or with notice or lapse of time
or both would be, an Event of Default under the Agreement, except those
events, if any, that have been disclosed in writing to Bank or waived
in writing by Bank;
3.2 The representations and warranties in the Agreement are
true and correct as of the date of this Amendment as if made on the
date of this Amendment;
3.3 This Amendment is within Borrower's powers, has been duly
authorized, and does not conflict with any of Borrower's organizational
papers; and
3.4 This Amendment does not conflict with any law, agreement, or
obligation by which Borrower is bound.
4. Effectiveness of Amendment. This Amendment shall be effective as of
June 30, 1999, provided each of the following conditions is satisfied on or
before July 30, 1999:
4.1 Bank has received this Amendment, duly executed by Borrower;
and
4.2 Borrower has paid to Bank an amendment fee in the amount of
Seven Thousand Five Hundred Dollars ($7,500).
5. Effect of Amendment. Except as provided in this Amendment, all of the
terms and conditions of the Agreement shall remain in full force and effect.
6. Counterparts. This Amendment may be executed in counterparts, each of
which when so executed shall be deemed an original, but all such counterparts
together shall constitute but one and the same instrument.
In Witness Whereof, the parties hereto have executed this Amendment
as of the day and year first above written.
BANK OF AMERICA NT&SA SEMITOOL, INC.
doing business as SEAFIRST BANK
By /s/Stanley S. Diddams By /s/William A. Freeman
---------------------------------- ----------------------------------
Stanley S. Diddams William A. Freeman
Vice President Senior Vice President, Finance and
Chief Financial Officer
EXHIBIT 10.30
One of two
May 25, 1999
Mr. Gary Spray
10855 North 11th Street
Phoenix, AZ 85020
Dear Gary,
It is my pleasure to offer you the position of Vice President Sales for
Semitool, Inc. reporting to me, working out of the Phoenix office. The terms of
this offer are as follows:
1. Your start date will be as soon as possible, but no later than June
14, 1999.
2. Your base salary will be $210,000 per year, paid semi-monthly.
3. Your employment package will include a company car.
4. Considering specific goals and objectives we jointly compose, you
will be able to earn up to 40% of your base salary as a bonus.
These performance goals will encompass bookings, profitability, and
customer satisfaction.
5. The company will provide a condominium for the time you spend in
Kalispell this summer getting to know our company. A leased or
company car will be provided for you.
6. As part of your incentive package you will receive options on
40,000 shares of Semitool stock. Following Board approval, they
will be issued and vested according to the current distribution
plan.
7. You will be entitled to three weeks vacation within the first year
of employment, with scheduling subject to company approval.
8. You will be entitled to all standard benefits offered to Semitool
employees, some of which have waiting periods. They include life,
medical and dental insurance (eligibility the first of the month
following employment).
You will be eligible for the 401(k) Profit Sharing plan on July 1,
1999. However, if you have funds currently in a qualified plan,
you may roll those funds over into the Semitool 401(k) Plan prior
to that date.
9. As a condition of your employment you will be required to sign a
Confidentiality/conflict of interest agreement.
<PAGE>
Two of two
G. Spray
10. None of the above terms of this offer represents an agreement by
you or Semitool, Inc. for any specific length of employment.
Either you or Semitool may, at any time, terminate the employment
relationship upon notice to the other party. As with all Semitool
employment positions, there is a 90 day probationary period.
Any controversy or claim arising out of termination of employment
after your probationary period has expired shall be settled by
arbitration as provided in Montana's Uniform Arbitration Act,
27-5-211 et seq., MCA. The laws of Montana shall apply.
11. In the unlikely event you or Semitool determines this working
relationship is not to continue, we will provide a six month
severance package to defray the cost of your finding a new
position.
Sincerely, Acceptance: I have read and understand
all of the above and accept the terms
SEMITOOL, INC. of employment with Semitool, Inc.
/s/Gary Spray
--------------------------------------
/s/Fabio Gualandris Gary Spray
- ------------------------------
Fabio Gualandris
President Date June 1, 1999
---------------------------------
