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 March 31, 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 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 April 28, 1999
Common Stock 13,792,023
<PAGE>
Part I. Financial Information
Item 1. Financial Statements
SEMITOOL, INC.
CONSOLIDATED BALANCE SHEETS
(Amounts in Thousands, Except for Share Amounts)
<TABLE>
<CAPTION>
<S> <C> <C>
March 31, September 30,
ASSETS 1999 1998
---------------- ---------------
(Unaudited)
Current assets:
Cash and cash equivalents $ 8,340 $ 7,287
Trade receivables, less allowance for doubtful
accounts of $1,484 and $1,564 24,797 34,855
Inventories 32,866 36,435
Prepaid expenses and other current assets 4,580 2,052
Deferred income taxes 6,379 6,379
---------------- ---------------
Total current assets 76,962 87,008
Property, plant and equipment, net 34,145 36,302
Intangibles, less accumulated amortization of $3,028 and $2,399 3,533 3,965
Other assets, net 647 715
---------------- ---------------
Total assets $ 115,287 $ 127,990
================ ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Note payable to bank $ -- $ 3,000
Accounts payable 8,442 8,987
Accrued commissions 1,005 935
Accrued warranty and installation 8,844 11,970
Accrued payroll and related benefits 3,653 4,240
Other accrued liabilities 1,861 2,414
Customer advances 1,302 2,380
Long-term debt, due within one year 551 596
Payable to shareholder -- 78
---------------- ---------------
Total current liabilities 25,658 34,600
Long-term debt, due after one year 3,659 3,836
Deferred income taxes 2,860 2,860
---------------- ---------------
Total liabilities 32,177 41,296
---------------- ---------------
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,
13,792,023 shares issued and outstanding 41,248 41,248
Retained earnings 41,646 45,754
Accumulated other comprehensive income (loss) 216 (308)
---------------- ---------------
Total shareholders' equity 83,110 86,694
---------------- ---------------
Total liabilities and shareholders' equity $ 115,287 $ 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 Six Months Ended
March 31, March 31,
--------------------------- ---------------------------
<S> <C> <C> <C> <C>
1999 1998 1999 1998
----------- ----------- ----------- -----------
Net sales $ 25,816 $ 45,241 $ 56,238 $ 92,243
Cost of sales 13,889 21,399 29,574 44,497
----------- ----------- ----------- -----------
Gross profit 11,927 23,842 26,664 47,746
----------- ----------- ----------- -----------
Operating expenses:
Selling, general and administrative 11,421 14,496 23,078 28,200
Research and development 5,200 6,896 10,749 13,023
----------- ----------- ----------- -----------
Total operating expenses 16,621 21,392 33,827 41,223
----------- ----------- ----------- -----------
Income (loss) from operations (4,694) 2,450 (7,163) 6,523
Other income (expense), net 198 (204) 939 (143)
----------- ----------- ----------- -----------
Income (loss) before income taxes (4,496) 2,246 (6,224) 6,380
Income taxes (1,529) 831 (2,116) 2,361
----------- ----------- ----------- -----------
Net income (loss) $ (2,967) 1,415 $ (4,108) $ 4,019
=========== =========== =========== ===========
Earnings (loss) per share:
Basic $ (0.22) $ 0.10 $ (0.30) $ 0.29
=========== =========== =========== ===========
Diluted $ (0.22) $ 0.10 $ (0.30) $ 0.29
=========== =========== =========== ===========
Average common shares:
Basic 13,792 13,780 13,792 13,775
=========== =========== =========== ===========
Diluted 13,792 13,926 13,792 13,971
=========== =========== =========== ===========
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>
Six Months Ended
March 31,
----------------------------------
<S> <C> <C>
1999 1998
---------------- ----------------
Operating activities:
Net income (loss) $ (4,108) $ 4,019
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 5,078 5,035
Provision for losses on accounts receivable 58 --
Loss on Fixed Assets 157 37
Change in:
Trade receivables 10,802 4,709
Inventories 2,301 (2,074)
Prepaid expenses and other current assets (2,501) (553)
Other assets (69) (110)
Accounts payable (1,439) (3,375)
Accrued commissions 70 (765)
Accrued warranty and installation (3,126) (245)
Accrued payroll and related benefits (610) (708)
Other accrued liabilities (140) (211)
Customer advances (1,081) 416
Income taxes payable -- (1,416)
Shareholder payable (78) 39
---------------- ----------------
Net cash provided by operating activities 5,314 4,798
---------------- ----------------
Investing activities:
Purchases of property, plant and equipment (1,640) (6,764)
Increase in intangible assets (197) (1,172)
Proceeds from sale of equipment 1,008 52
---------------- ----------------
Net cash used in investing activities (829) (7,884)
---------------- ----------------
Financing activities:
Proceeds from exercise of stock options -- 318
Borrowings under line of credit 1,000 44,975
Repayments under line of credit (4,000) (43,975)
Proceeds from long-term debt -- 1,100
Repayments of long-term debt (222) (194)
Repayments of short-term debt (413) --
---------------- ----------------
Net cash provided by (used in) financing activities (3,635) 2,224
---------------- ----------------
Effect of exchange rate changes on cash and cash equivalents 203 (26)
---------------- ----------------
Net increase (decrease) in cash and cash equivalents 1,053 (888)
Cash and cash equivalents at beginning of period 7,287 5,060
---------------- ----------------
Cash and cash equivalents at end of period $ 8,340 $ 4,172
================ ================
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, 1998
previously filed with the SEC on Form 10-K.
The financial information presented as of any date other than September 30, 1998
has been prepared from the books and records without audit. Financial
information as of September 30, 1998 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 March 31, 1999, the consolidated results of
operations for the three and six month periods ended March 31, 1999 and 1998 and
the consolidated cash flows for the six month periods ended March 31, 1999 and
1998. The results of operations for the periods presented may not be indicative
of those which may be expected for the full year.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, Statement of Financial Accounting Standards No. 131 (SFAS 131),
"Disclosures about Segments of an Enterprise and Related Information," was
issued. SFAS 131 establishes standards for the way that a public enterprise
reports information about operating segments in its financial statements. SFAS
131 is effective for fiscal years beginning after December 15, 1997, and
requires restatement of earlier periods presented. The Company has not yet
determined the effect that the adoption of this standard will have on the form
of presentation of its financial statements.
In June 1998, Statement of Financial Accounting Standards No. 133 (SFAS 133),
"Accounting for Derivative Instruments and Hedging Activities" was issued. SFAS
133 establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts,
(collectively referred to as derivatives) and for hedging activities. It
requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. SFAS 133 is effective for all fiscal quarters of fiscal years
beginning after June 15, 1999; however, earlier application of all of the
provisions of this Statement is encouraged as of the beginning of any fiscal
quarter. The Company has not yet determined the effect that the adoption of this
standard will have on the financial condition, results of operations, and cash
flows of the Company.
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):
March 31, 1999 September 30, 1998
-------------------- --------------------
Parts and raw materials $ 19,455 $ 22,334
Work-in-process 7,424 8,344
Finished goods 5,987 5,757
-------------------- --------------------
$ 32,866 $ 36,435
==================== ====================
During the six months ended March 31, 1999 and 1998, $1,636,000 and $1,486,000,
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 Six Months Ended
March 31, March 31,
--------------------------- --------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
Federal $ (1,368) $ 673 $ (1,888) $ 2,295
State (161) 83 (228) 278
Foreign -- 75 -- (212)
----------- ----------- ----------- -----------
Total $ (1,529) $ 831 $ (2,116) $ 2,361
=========== =========== =========== ===========
Note 5. Contingency
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.
Note 6. Earnings (Loss) Per Common Share
The following table sets forth the computation of basic and diluted earnings
(loss) per share (in thousands, except for per share amounts):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31, March 31,
-------------------------- --------------------------
<S> <C> <C> <C> <C>
1999 1998 1999 1998
----------- ---------- ----------- -----------
Numerator:
Net income (loss) for basic and diluted
earnings (loss) per share $ (2,967) $ 1,415 $ (4,108) $ 4,019
=========== ========== =========== ===========
Denominator:
Average common shares used for basic
earnings (loss) per share 13,792 13,780 13,792 13,775
Effect of diluted securities:
Stock options -- 146 -- 196
----------- ---------- ----------- -----------
Denominator for diluted earnings
(loss) per share 13,792 13,926 13,792 13,971
=========== ========== =========== ===========
</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 Six Months Ended
March 31, March 31,
-------------------------- --------------------------
<S> <C> <C> <C> <C>
1999 1998 1999 1998
----------- ----------- ----------- -----------
Net income (loss) (2,967) 1,415 (4,108) 4,019
Foreign currency translation adjustment (198) (514) 524 (197)
----------- ----------- ----------- -----------
Other Comprehensive income (loss) (3,165) 901 (3,584) 3,822
=========== =========== =========== ===========
</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 on Form 10-Q
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 including the adequacy of cash and cash equivalents, 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
SECOND QUARTER OF FISCAL 1999 COMPARED WITH SECOND QUARTER OF FISCAL 1998
Net Sales. Net sales consist of revenues from sales of equipment, spare parts,
software and service contracts. Net sales decreased 42.9% to $25.8 million in
the second quarter of fiscal 1999 from $45.2 million for the same period in
fiscal 1998. Second quarter sales for fiscal 1999 were lower in all product
categories except Electrochemical Deposition (ECD) and Supervisory Systems which
were essentially flat when compared to second quarter 1998. Surface preparation
equipment sales were down 53.4%.
Gross Profit. Gross margin was 46.2% of net sales in the second quarter of
fiscal 1999 compared to 52.7% of net sales for the same period in fiscal 1998.
The decline in gross margin was due to a lower level of cost absorption caused
by reduced manufacturing activity which was only partially offset by overhead
cost reductions and by lower warranty expense. 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 44.2% of net sales in the second quarter of fiscal 1999 compared
to 32.0% of net sales for the same period in fiscal 1998. The Company's SG&A
expenses decreased to $11.4 million in the second quarter of fiscal 1999 from
$14.5 million for the same period in fiscal 1998. The decrease in SG&A expenses
primarily reflects cost reductions in response to lower sales levels. 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
$5.2 million (20.1% of net sales) in the second quarter of fiscal 1999 as
compared to $6.9 million (15.2% of net sales) for the same period in fiscal
1998.
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 $198,000 in the second quarter of fiscal 1999, which includes gain on sale of
fixed assets of $104,000, compared to a net other expense of $204,000 for the
same period in fiscal 1998.
Income Taxes. Income taxes for the second fiscal quarter of 1999 were a $1.5
million tax benefit and a $831,000 provision for the second fiscal quarter of
1998. Income tax provisions and benefits are made based on the blended estimate
of federal, state and foreign effective income tax rates which was estimated to
be 34% in the second fiscal quarter of 1999 and 37% in fiscal 1998.
FIRST HALF OF FISCAL 1999 COMPARED WITH FIRST HALF OF FISCAL 1998
Net Sales. Net sales consists of revenues from sales of equipment, spare parts
and service, and fab supervisory systems. Net sales decreased $36.0 million or
39.0% to $56.2 million in the first half of fiscal 1999 from $92.2 million in
the same period in fiscal 1998. The overall sales decrease is primarily
attributable to the reduction of capital equipment spending by the Company's
customers in response to the semiconductor industry downturn driven by excess
capacity and the Asian economic decline.
Gross Profit. Gross profit as a percentage of sales, decreased to 47.4% in the
first half of fiscal 1999 from 51.8% in the same period in fiscal 1998. The
decline in gross margin was due to a lower level of cost absorption caused by
reduced manufacturing activity which was only partially offset by overhead cost
reductions and by lower warranty expense. The Company's gross margin has been,
and will continue to be, affected by a variety of factors, including the cost to
manufacture, service, and support new and enhanced products, as well as the mix
and average selling prices of products sold. The Company anticipates that the
cost to manufacture and support newer tool models will improve over time, but
that it will continue to design and sell additional models of its existing tools
and additional tool types, which may offset in part the anticipated improvement.
Selling, General and Administrative. Selling, general and administrative (SG&A)
expenses were $23.1 million or 41.0% of net sales in fiscal 1999 compared to
$28.2 million or 30.6% of net sales in the same period in fiscal 1998. The
decrease in SG&A expenses primarily reflects cost reductions in response to
lower sales levels. 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 expenses
were $10.7 million or 19.1% of net sales in the first half of fiscal 1999
compared to $13.0 million or 14.1% of net sales in the same period of fiscal
1998.
The Company is committed to technology leadership in the semiconductor equipment
industry and expects to continue to fund research and development expenditures
with a multiyear perspective. Such funding has resulted in fluctuations in R&D
expenses from period to period in the past. The Company expects such
fluctuations to continue in the future, both in absolute dollars and as a
percentage of net sales, primarily due to the timing of expenditures and changes
in the level of net sales.
Other Income (Expense), Net. Other Income (Expense), Net was net other income of
$939,000 in the first half of fiscal 1999, which includes a foreign exchange
gain of $847,000, compared to a net other expense of $143,000 in the same period
in fiscal 1998.
Income Taxes. Income taxes for the first half of fiscal 1999 were a $2.1 million
tax benefit and a $2.4 million provision for the same period of fiscal 1998.
Income tax provisions and benefits are made based on the blended estimate of
federal, state and foreign effective income tax rates which was estimated to be
34% in the first half of fiscal 1999 and 37% in the same period of fiscal 1998.
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 $29.4
million at March 31, 1999 compared to $63.2 million at March 31, 1998.
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.
The continuing market weakness and the low orders backlog level at the beginning
of fiscal 1999 limits the Company's visibility into the second half of fiscal
1999, however, the Company will have substantially lower sales and a net loss
for the fiscal year.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, Statement of Financial Accounting Standards No. 131 (SFAS 131),
"Disclosures about Segments of an Enterprise and Related Information," was
issued. SFAS 131 establishes standards for the way that a public enterprise
reports information about operating segments in its financial statements. SFAS
131 is effective for fiscal years beginning after December 15, 1997, and
requires restatement of earlier periods presented. The Company has not yet
determined the effect hat the adoption of this standard will have on the form of
presentation of its financial statements.
In June 1998, Statement of Financial Accounting Standards No. 133 (SFAS 133),
"Accounting for Derivative Instruments and Hedging Activities" was issued. SFAS
133 establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts,
(collectively referred to as derivatives) and for hedging activities. It
requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. SFAS 133 is effective for all fiscal quarters of fiscal years
beginning after June 15, 1999; however, earlier application of all of the
provisions of this Statement is encouraged as of the beginning of any fiscal
quarter. The Company has not yet determined the effect the adoption of this
standard will have on the financial condition, results of operations, and cash
flows of the Company.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operating activities was $5.3 million during the first six
months of fiscal 1999, compared to $4.8 million provided in the same period in
fiscal 1998. During the first six months of fiscal 1999 the Company's inventory
decreased $2.3 million to $32.9 million. A decrease in trade receivables of
$10.8 million was partially offset by a decrease in accounts payable of $1.4
million, prepaid expenses of $2.5 million, and accrued warranty of $3.1 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 half of fiscal 1999 consisted primarily of
$1.6 million of property, plant and equipment acquisitions. Financing activities
included $3.0 million in net repayments under the Company's revolving line of
credit.
As of March 31, 1999, the Company's principal sources of liquidity consisted of
approximately $8.3 million of cash and cash equivalents, and the entire amount
under the Company's $25 million revolving line of credit was available. The
credit facility is with Seafirst Bank and bears interest at the bank's prime
lending rate. 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 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, scheduled to be completed June
1999)
5. Retesting (in progress, scheduled to be completed June 1999)
6. Contingency plans (June 1999 - October 1999).
The Company is currently in the repairs/reinstallations phase with its IT
systems, non-IT systems, and its customers and suppliers. All mission critical
IT systems have been tested and are Y2K ready.
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.
The Company is currently in the repairs/reinstallation and retesting phases.
Scheduled completion of repair/reinstallation has been moved to June 1999 with
most of the remaining work left on installed products. All products shipped
since April 11, 1998 are Y2K ready and most of the products shipped prior to
that date have upgrades available or installed. The installed upgrades have been
retested.
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.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Market Risks
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 March 31, 1999 has approximately $4.2 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 10% 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 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 half of fiscal 1999,
the Company had significant assets denominated in Japanese Yen that were not
hedged. The Yen during the first half of the fiscal year increased in value as
compared to the US dollar by 13%. This change resulted in a foreign exchange
gain of $847,000 which was reported in other income on the statement of
operations.
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.
<PAGE>
SEMITOOL, INC.
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) Exhibits:
(27) Financial Data Schedule for Form 10-Q dated March 31, 1999.
(b) Reports on Form 8-K:
There were no reports on Form 8-K filed during the three months ended
March 31, 1999.
<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: May 12, 1999 By /s/ William A. Freeman
-------------------------------------------
William A. Freeman
Vice President and Chief Financial Officer
By /s/ Larry A. Viano
-------------------------------------------
Larry A. Viano
Chief Accounting Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Exhibit 27
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM
10-Q AS OF MARCH 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-END> MAR-31-1999
<CASH> 8,340
<SECURITIES> 0
<RECEIVABLES> 26,281
<ALLOWANCES> 1,484
<INVENTORY> 32,866
<CURRENT-ASSETS> 76,962
<PP&E> 61,719
<DEPRECIATION> 27,574
<TOTAL-ASSETS> 115,287
<CURRENT-LIABILITIES> 25,658
<BONDS> 3,659
0
0
<COMMON> 41,248
<OTHER-SE> 41,862
<TOTAL-LIABILITY-AND-EQUITY> 115,287
<SALES> 53,669
<TOTAL-REVENUES> 56,238
<CGS> 29,070
<TOTAL-COSTS> 29,574
<OTHER-EXPENSES> 10,749
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 207
<INCOME-PRETAX> (6,224)
<INCOME-TAX> (2,116)
<INCOME-CONTINUING> (4,108)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,108)
<EPS-PRIMARY> (0.30)
<EPS-DILUTED> (0.30)
</TABLE>
