<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 26, 2000
REGISTRATION NO. 333-39492
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
SEMITOOL, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
MONTANA 81-0384392
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
</TABLE>
SEMITOOL, INC.
655 WEST RESERVE DRIVE
KALISPELL, MONTANA 59901
(406) 752-2107
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
------------------------------
RAYMON F. THOMPSON
CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER
SEMITOOL, INC.
655 WEST RESERVE DRIVE
KALISPELL, MONTANA 59901
(406) 752-2107
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------------
COPIES TO:
<TABLE>
<S> <C>
WILLIAM D. SHERMAN, ESQ. PETER T. HEALY, ESQ.
JUSTIN L. BASTIAN, ESQ. STEVEN L. PICKERING, ESQ.
HEIKE E. FISCHER, ESQ. C. BROPHY CHRISTENSEN, ESQ.
MORRISON & FOERSTER LLP O'MELVENY & MYERS LLP
755 PAGE MILL ROAD 275 BATTERY STREET
PALO ALTO, CALIFORNIA 94304 SAN FRANCISCO, CALIFORNIA 94111
(650) 813-5600 (415) 984-8700
</TABLE>
------------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended (the "Securities Act"), other than securities offered only in
connection with dividend or interest reinvestment plans, check the following
box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
------------
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
------------
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL HEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON
SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SUCH SECTION 8(A), MAY
DETERMINE.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
SUBJECT TO COMPLETION, DATED JULY 26, 2000
PRELIMINARY PROSPECTUS
4,100,000 SHARES
[LOGO]
COMMON STOCK
----------------
We are offering 3,036,000 shares of our common stock and the selling
shareholders are selling an additional 1,064,000 shares of our common stock. We
will not receive any proceeds from the sale of shares by the selling
shareholders.
Our common stock is traded on the Nasdaq National Market under the symbol
"SMTL." The last reported sale price of our common stock on the Nasdaq National
Market on July 24, 2000 was $14.88 per share.
SEE "RISK FACTORS" BEGINNING ON PAGE 4 TO READ ABOUT THE RISKS YOU SHOULD
CONSIDER BEFORE BUYING SHARES OF OUR COMMON STOCK.
THE SECURITIES AND EXCHANGE COMMISSION AND STATE SECURITIES REGULATORS HAVE NOT
APPROVED OR DISAPPROVED THESE SECURITIES, OR DETERMINED IF THIS PROSPECTUS IS
TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- -----
<S> <C> <C>
Public Offering Price....................................... $ $
Underwriting Discounts and Commissions...................... $ $
Proceeds to Semitool........................................ $ $
Proceeds to the Selling Shareholders........................ $ $
</TABLE>
We and a selling shareholder have granted the underwriters a 30-day option to
purchase up to an additional 615,000 shares of our common stock to cover any
over-allotments.
------------------------
BEAR, STEARNS & CO. INC.
NEEDHAM & COMPANY, INC.
WIT SOUNDVIEW
RAGEN MACKENZIE INCORPORATED
The date of this prospectus is , 2000.
<PAGE>
INSIDE FRONT COVER:
Semitool logo top center
Four graphics depicting:
(a) a portion of a patterned semiconductor wafer;
(b) the inside of a LT-210c copper plater with a the robot feeding a
wafer into on of the tool's plating chamber;
(c) a Storm wafer transport container cleaner with an operator in front
of it; and
(d) a Spectrum tool.
Text above graphics "(a)": Providing innovative solutions for the global
semiconductor industry
Text below graphics "(b)": Our products include batch and single wafer wet
chemical processing tools with applications in electrochemical deposition for
high speed interconnects and for cleaning, stripping, and etching, thermal
processing, and wafer transport container cleaning.
CENTERFOLD: FIRST PAGE
Heading: A pioneer and leader in copper electrochemical deposition
Graphic: Copper plating head of an LT-210c in the open position with the robotic
arm removing a wafer with copper deposited on it.
Text above graphic: Copper is increasingly being used as the interconnect metal
for advanced integrated circuits to achieve better performance and lower costs.
Copper is applied to integrated circuits by a process known as electrochemical
deposition (ECD). Semitool has developed considerable expertise and experience
in copper ECD processing.
Text below graphic: Our Capsule-TM- performs side-selective processing of
semiconductor wafers, providing the ability to clean the back, bevel, and edge
of the wafer without damaging the delicate copper interconnect structures on the
front of the wafer.
Graphic: close up of the edge of a semiconductor wafer with copper deposited on
it and with the copper removed from the `edge exclusion' area of the wafer by
the Capsule.
Text below graphic: Removal of copper from the back, bevel, and edge of a wafer
with the Capsule-TM- precludes transport of copper contamination and
interference with processes which follow the electrochemical deposition process.
Graphic: LT-210c
Text above graphic: With over seven years of experience in electrochemical
deposition, Semitool is a leader in the application of copper for high speed
interconnects for integrated circuits. In addition to copper, Semitool also
provides electrochemical deposition processes for other critical metals such as
gold, platinum, and nickel.
Text below graphic: LT-210c-TM- is an advanced electrochemical deposition system
used for applying copper and other metals to semiconductor wafers. The system
features integrated cleaning with Semitool's exclusive Capsule-TM-. The LT
family of tools are designed to provide precise, reliable performance in a high
volume manufacturing environment.
CENTERFOLD: SECOND PAGE
Centered heading: Advanced automated batch processing systems
Graphics: Two graphics of the Storm
<PAGE>
Text above the graphic: Storm-TM- offers wafer transport container cleaning
processes to promote yield enhancement in semiconductor manufacturing. Utilizing
Semitool's spin and spray technology, the Storm-TM- provides high productivity
in a small footprint.
Graphic: Robotic Arm of Spectrum feeding a batch of wafers into the process
chamber
Text beside the graphic: Semitool designs and manufactures critical, value-added
components for the systems it sells, including robots for the handling of
semiconductor wafers within the systems.
Graphic: Spectrum
Text beside the graphic: Spectrum-TM- is an advanced technology automated batch
process system for use in high volume manufacturing of integrated circuits. The
system delivers critical cleaning, stripping, and etching processes at numerous
steps of the integrated circuit fabrication cycle.
<PAGE>
PROSPECTUS SUMMARY
THIS SUMMARY HIGHLIGHTS INFORMATION MORE FULLY DESCRIBED ELSEWHERE IN THIS
PROSPECTUS. THIS SUMMARY IS NOT COMPLETE AND DOES NOT CONTAIN ALL THE
INFORMATION YOU SHOULD CONSIDER BEFORE BUYING SHARES OF OUR COMMON STOCK IN THIS
OFFERING. YOU SHOULD READ THIS ENTIRE PROSPECTUS CAREFULLY, INCLUDING "RISK
FACTORS" AND OUR CONSOLIDATED FINANCIAL STATEMENTS AND THE RELATED NOTES
APPEARING ELSEWHERE IN THIS PROSPECTUS, BEFORE DECIDING TO INVEST IN SHARES OF
OUR COMMON STOCK. EXCEPT AS OTHERWISE INDICATED, INFORMATION IN THIS PROSPECTUS
REFLECTS A 2-FOR-1 SHARE STOCK SPLIT THAT WE EFFECTED ON MARCH 28, 2000 AND
ASSUMES NO EXERCISE OF THE UNDERWRITERS' OVER-ALLOTMENT OPTION.
SEMITOOL, INC.
Semitool is a worldwide leader in the design, development, manufacture and
support of high performance wet chemical processing equipment for use in the
fabrication of semiconductor devices. Our primary families of tools include
electrochemical deposition systems for the plating of copper interconnects for
integrated circuits and other metals for various applications, and wafer surface
preparation systems for cleaning, stripping and etching processes. This suite of
technologically innovative batch and single wafer processing tools leverages our
core wet chemical expertise and our more than two decades of innovation and
experience building and supporting production-proven semiconductor fabrication
equipment.
The manufacturing of integrated circuits, called ICs, requires up to 350
complex and repetitive process steps to layer materials and create various
features on a silicon wafer. Deposition is a process in which a film of either
electrically insulating or conductive material, such as copper, is deposited on
the surface of the wafer. The deposition of these film layers is interspersed
with a number of other processes, including cleaning, stripping and etching,
which selectively remove materials and otherwise condition the surface of the
wafer. The IC manufacturing industry is experiencing several trends that are
increasing the demand for wet chemical processing equipment that enables the
fabrication of advanced ICs. These trends include:
- development of smaller feature geometries;
- transition to copper as a material for creating the circuitry, or
interconnect, between the components of an integrated circuit; and
- migration to larger (300 millimeter diameter) wafers.
Our objective is to be the leading provider of innovative wet chemical
processing equipment to IC manufacturers. To achieve this goal, we intend to
pursue the following strategies:
- maintain and expand our technology leadership by continuing to invest in
research and development that leverages our wet chemical expertise;
- offer a broad range of differentiated products for use in diverse IC
manufacturing process applications;
- leverage our process expertise across a variety of markets and
applications; and
- capitalize on our design and manufacturing expertise.
With more than 20 years dedicated to the semiconductor and related
industries, we have applied our wet chemical expertise in design, engineering,
process and manufacturing to deliver innovations in electrochemical deposition
and cleaning, stripping and etching processes to our global customer base. Our
customers include many of the major semiconductor device manufacturers
worldwide, including Advanced Micro Devices, Conexant Systems, Fujitsu, IBM,
Infineon, Intel, Lucent Technologies, Maxim Integrated Products, Motorola, NEC,
Philips Semiconductor, Samsung, STMicroelectronics, TSMC and UMC.
1
<PAGE>
Our principal executive offices are located at 655 West Reserve Drive in
Kalispell, Montana 59901, and our telephone number is (406) 752-2107. Our
website address is www.semitool.com. The information in our website does not
constitute a part of this prospectus and is not incorporated into this
prospectus by reference.
We own the registered trademark "Semitool." This prospectus also includes
other trademarks and tradenames of Semitool and third parties.
THE OFFERING
<TABLE>
<S> <C>
Common stock offered by Semitool.................... 3,036,000 shares
Common stock offered by the selling shareholders.... 1,064,000 shares
Common stock to be outstanding after this
offering.......................................... 31,301,420 shares
Use of proceeds..................................... For repayment of debt and general
corporate purposes, including working
capital. See "Use of Proceeds."
Nasdaq National Market symbol....................... SMTL
</TABLE>
The table set forth above is based on shares of our common stock outstanding
as of March 31, 2000. This table excludes:
- 1,159,350 shares of our common stock issuable upon exercise of outstanding
options under our Amended 1994 Stock Option Plan as of March 31, 2000 at a
weighted average exercise price of $6.19 per share; and
- 757,604 shares of our common stock reserved for issuance under our Amended
1994 Stock Option Plan as of March 31, 2000.
RESULTS OF OPERATIONS FOR OUR THIRD FISCAL QUARTER ENDED JUNE 30, 2000
Net sales for the third quarter ended June 30, 2000 increased to $64.9
million from $54.3 million in the second quarter ended March 31, 2000, an
increase of 19.5% sequentially. Net sales for the third quarter ended June 30,
2000 increased 117.8% from $29.8 million for the third quarter ended June 30,
1999. Net sales for the nine months ended June 30, 2000 were $168.8 million, an
increase of 96.1% over net sales for the nine months ended June 30, 1999 of
$86.1 million.
Net income for the third quarter ended June 30, 2000 increased to $6.9
million from $5.2 million in the second quarter ended March 31, 2000, an
increase of 32.7% sequentially. The net loss for the third quarter ended
June 30, 1999 was $2.7 million. Earnings per diluted share for the third quarter
ended June 30, 2000 was $0.24 compared to $0.18 for the second quarter ended
March 31, 2000, an increase of 33.3% sequentially. Loss per diluted share for
the third quarter ended June 30, 1999 was $0.10. Net income for the nine months
ended June 30, 2000 were $15.8 million compared to a net loss for the nine
months ended June 30, 1999 of $6.8 million. Earnings per diluted share for the
nine months ended June 30, 2000 was $0.55 compared to a net loss per diluted
share for the nine months ended June 30, 1999 of $0.25.
Our new order bookings for the third quarter ended June 30, 2000 were $80.2
million. As of June 30, 2000, the book-to-bill ratio was 1.24. Orders for
cleaning, stripping and etching equipment during the third quarter ended
June 30, 2000 increased 39.3% sequentially over the second quarter ended
March 31, 2000. This growth was driven by multiple unit orders from our
customers in Europe and Asia for our new, fully automated Spectrum batch
processing tool. Orders backlog as of June 30, 2000 was $107.3 million. For a
further discussion of backlog, see "Business--Backlog."
2
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(in thousands, except per share data)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED SEPTEMBER 30, MARCH 31,
------------------------------ -------------------
1997 1998 1999 1999 2000
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Net sales.................................. $193,952 $180,501 $122,528 $56,238 $103,863
Cost of sales.............................. 102,862 89,522 64,880 29,574 48,579
-------- -------- -------- ------- --------
Gross profit............................... 91,090 90,979 57,648 26,664 55,284
Operating expenses:
Selling, general and administrative...... 49,479 58,356 49,515 23,078 30,933
Research and development................. 21,179 24,536 20,874 10,749 11,193
-------- -------- -------- ------- --------
Total operating expenses............... 70,658 82,892 70,389 33,827 42,126
-------- -------- -------- ------- --------
Income (loss) from operations.............. 20,432 8,087 (12,741) (7,163) 13,158
Net income (loss).......................... $ 12,523 $ 4,805 $ (6,745) $(4,108) $ 8,919
======== ======== ======== ======= ========
Earnings (loss) per share:
Basic.................................... $ 0.46 $ 0.17 $ (0.24) $ (0.15) $ 0.32
======== ======== ======== ======= ========
Diluted.................................. $ 0.45 $ 0.17 $ (0.24) $ (0.15) $ 0.31
======== ======== ======== ======= ========
Weighted average common shares:
Basic.................................... 27,352 27,566 27,594 27,584 27,838
======== ======== ======== ======= ========
Diluted.................................. 27,666 27,808 27,594 27,584 28,639
======== ======== ======== ======= ========
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 2000
----------------------
ACTUAL AS ADJUSTED
-------- -----------
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 7,717 $ 43,019
Working capital............................................. 65,735 108,037
Total assets................................................ 155,673 190,975
Note payable to bank........................................ 8,911 1,911
Long-term debt and capital leases, due after one year....... 3,843 3,843
Total shareholders' equity.................................. 93,144 135,446
</TABLE>
See Note 1 to the consolidated financial statements for an explanation of
the determination of the number of shares used in computing per share data.
The as adjusted column in the consolidated balance sheet data above reflects
adjustments to the actual data to show our receipt of the estimated net proceeds
of $42.3 million from our sale of 3,036,000 shares of our common stock in this
offering at an assumed public offering price of $14.88 per share, after
deducting underwriting discounts and commissions and estimated offering
expenses.
3
<PAGE>
RISK FACTORS
ANY INVESTMENT IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. YOU
SHOULD CONSIDER CAREFULLY THE FOLLOWING INFORMATION ABOUT THESE RISKS, TOGETHER
WITH THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS, BEFORE YOU DECIDE TO
BUY OUR COMMON STOCK. IF ANY OF THE FOLLOWING RISKS ACTUALLY OCCUR, OUR
BUSINESS, FINANCIAL CONDITION, RESULTS OF OPERATIONS AND CASH FLOWS WOULD LIKELY
SUFFER. IN THESE CIRCUMSTANCES, THE MARKET PRICE OF OUR COMMON STOCK COULD
DECLINE, AND YOU MAY LOSE ALL OR PART OF YOUR INVESTMENT.
CYCLICALITY IN THE SEMICONDUCTOR INDUSTRY HAS HISTORICALLY LED TO SUBSTANTIAL
DECREASES IN DEMAND FOR OUR SYSTEMS AND MAY FROM TIME TO TIME CONTINUE TO DO SO.
Our operating results are subject to significant variation due to the
cyclical nature of the semiconductor industry. Our business depends upon the
capital expenditures of semiconductor manufacturers, which, in turn, depend upon
the current and anticipated market demand for semiconductors and products using
semiconductors. The semiconductor industry experienced a downturn in 1998 and
1999 which seriously harmed our operating results during that period. Typically,
the semiconductor equipment industry has experienced more pronounced decreases
in net sales than the semiconductor industry as a whole. Our net sales decreased
from $194.0 million in fiscal 1997 to $180.5 million in fiscal 1998, and to
$122.5 million in fiscal 1999. Any further downturns in the semiconductor
industry will likely lead to proportionately greater downturns in our net sales.
Although there are indications that the semiconductor industry may be
improving:
- the semiconductor industry may experience other, possibly more severe and
prolonged, downturns in the future;
- any continued recovery of the semiconductor industry may not result in an
increased demand by semiconductor manufacturers for capital equipment or
our products; and
- the semiconductor industry may not continue to improve.
Any future downturn in the semiconductor industry, or any failure of that
industry to fully recover from its recent downturn, will harm our business,
financial condition, results of operations and cash flows.
OUR OPERATING RESULTS HAVE IN THE PAST VARIED AND PROBABLY WILL CONTINUE TO VARY
SIGNIFICANTLY IN THE FUTURE FROM QUARTER TO QUARTER, CAUSING VOLATILITY IN OUR
STOCK PRICE.
Our quarterly operating results have varied significantly in the past and
may continue to do so in the future, which could cause our stock price to
decline. Some of the factors that may influence our operating results and
subject our common stock to extreme price and volume fluctuations include:
- changes in customer demand for our systems, which is influenced by
economic conditions in the semiconductor industry;
- demand for products that use semiconductors;
- market acceptance of our systems and those of our customers and changes in
our product offerings;
- the timing, cancellation or delay of customer orders and shipments;
- product development costs, including research, development, engineering
and marketing expenses associated with our introduction of new products
and product enhancements; and
- the levels of our fixed expenses relative to our net sales.
5
<PAGE>
In light of these factors and the cyclical nature of the semiconductor
industry, we expect to continue to experience significant fluctuations in
quarterly and annual operating results. Moreover, many of our expenses are fixed
in the short-term which, together with the need for continued investment in
research and development, marketing and customer support, limits our ability to
reduce expenses quickly. As a result, declines in net sales could harm our
business, financial condition, results of operations and cash flows.
OUR NET SALES MAY VARY SIGNIFICANTLY FROM QUARTER TO QUARTER DUE TO RELATIVELY
SMALL FLUCTUATIONS IN OUR UNIT SALES.
During any quarter, a significant portion of our net sales may be derived
from the sale of a relatively small number of systems. For example, our batch
processing tools range in price from approximately $15,000 to $3.2 million per
tool and our single wafer processing tools for cleaning, stripping and etching
range in price from $300,000 to $2.2 million per tool. Accordingly, a small
change in the number of tools we sell may also cause significant changes in our
operating results. This, in turn, could cause fluctuations in the market price
of our common stock.
VARIATIONS IN THE AMOUNT OF TIME IT TAKES FOR US TO SELL OUR SYSTEMS MAY CAUSE
FLUCTUATIONS IN OUR OPERATING RESULTS, WHICH COULD CAUSE OUR STOCK PRICE TO
DECLINE.
Variations in the length of our sales cycles could cause our net sales, and
thus our business, financial condition, operating results and cash flows, to
fluctuate widely from period to period. This variation could cause our stock
price to decline. Our customers generally take a long time to evaluate many of
our products before committing to make a purchase. We expend significant
resources educating and providing information to our prospective customers
regarding the uses and benefits of our systems. The length of time it takes us
to make a sale depends upon many factors, including:
- the efforts of our sales force and our independent sales representatives;
- the complexity of the customer's fabrication processes;
- the internal technical capabilities and sophistication of the customer;
and
- capital expenditure budget cycle of our customers.
Because of the number of factors influencing the sales cycle, the period
between our initial contact with a potential customer and the time when we
recognize revenue from that customer, if ever, varies widely in length. Our
sales cycle typically ranges from one to twelve months. Sometimes our sales
cycle can be much longer, particularly with our international customers. The
subsequent build cycle, or the time it takes us to build a product to customer
specifications after receiving an order, typically ranges from one to six
months. During these cycles, we commit substantial resources to our sales
efforts in advance of receiving any revenue, and we may never receive any
revenue from a customer despite our sales efforts.
When a customer purchases one of our systems, that customer often evaluates
the performance of the system for a lengthy period before potentially purchasing
any more of our systems. The number of additional products a customer may
purchase from us, if any, oftentimes depends on many factors, including a
customer's capacity requirements. The period between a customer's initial
purchase and subsequent purchases, if any, often varies from two to twelve
months or longer, and variations in length of this period could cause further
fluctuations in our operating results and possibly in our stock price.
6
<PAGE>
RAPID TECHNOLOGICAL CHANGE COULD MAKE OUR PRODUCTS OBSOLETE OR UNMARKETABLE FOR
SPECIFIC APPLICATIONS.
We operate in an industry that is subject to evolving industry standards,
rapid technological changes, rapid changes in customer demands and the rapid
introduction of new, higher performance systems with shorter product life
cycles. As a result, we expect to continue to make significant investments in
research and development. Although, historically, we have had adequate funds
from operations to devote to research and development, there can be no assurance
that such funds will be available in the future or, if available, that they will
be adequate. Also, we must manage product transitions successfully, since
announcements or introductions of new products by us or our competitors could
adversely affect sales of our existing products because these existing products
can become obsolete or unmarketable for specific purposes. There can be no
assurance that we will be able to develop and introduce new products or
enhancements to our existing products on a timely basis or in a manner which
satisfies customer needs or achieves widespread market acceptance. Any
significant delay in releasing new systems could adversely affect our
reputation, give a competitor a first-to-market advantage or allow a competitor
to achieve greater market share. The failure to adjust to rapid technological
change could harm our business, financial condition, results of operations and
cash flows.
OUR ELECTROCHEMICAL DEPOSITION PRODUCTS MAY BECOME OBSOLETE OR TECHNOLOGICAL
CHANGES MAY REDUCE OR LIMIT INCREASES IN EQUIPMENT CONSUMPTION, PARTICULARLY FOR
COPPER INTERCONNECTS.
Our business is to a large extent affected by the adoption of our family of
electrochemical deposition tools, primarily for copper interconnect plating
applications. Accordingly, our business would suffer if these products became
obsolete or if sales of these products decreased. Our success depends on our
ability to keep pace with technological changes and advances in the
semiconductor industry and to adapt and improve our products in response to
evolving customer needs and industry trends. Since its inception the
semiconductor industry has experienced rapid technological change in the design,
manufacture, performance and application of ICs and these changes are expected
to continue in the future. Therefore, one or more developments in the
semiconductor industry may render our products obsolete or less important to the
IC manufacturing process, including:
- increased competition from new or existing competitors who produce
electrochemical deposition equipment;
- the adoption of a new process for fabricating interconnects on ICs; and
- advances in deposition technology that make it possible to deposit metal
interconnects, such as copper, without our electrochemical deposition
process.
FAILURE OF OUR PRODUCTS TO GAIN MARKET ACCEPTANCE WOULD ADVERSELY AFFECT OUR
FINANCIAL CONDITION.
We believe that our growth prospects depend upon our ability to gain
customer acceptance of our products and technology. Market acceptance of
products depends upon numerous factors, including compatibility with existing
manufacturing processes and products, perceived advantages over competing
products and the level of customer service available to support such products.
Moreover, manufacturers often rely on a limited number of equipment vendors to
meet their manufacturing equipment needs. As a result, market acceptance of our
products may be adversely affected to the extent potential customers utilize a
competitor's manufacturing equipment. There can be no assurance that growth in
sales of new products will continue or that we will be successful in obtaining
broad market acceptance of our systems and technology.
We expect to spend a significant amount of time and resources to develop new
systems and refine existing systems. In light of the long product development
cycles inherent in our industry, these expenditures will be made well in advance
of the prospect of deriving revenue from the sale of any new
7
<PAGE>
systems. Our ability to commercially introduce and successfully market any new
systems is subject to a wide variety of challenges during this development
cycle, including start-up bugs, design defects and other matters that could
delay introduction of these systems to the marketplace. In addition, since our
customers are not obligated by long-term contracts to purchase our systems, our
anticipated product orders may not materialize, or orders that do materialize
may be cancelled. As a result, if we do not achieve market acceptance of new
products, we may not be able to realize sufficient sales of our systems in order
to recoup research and development expenditures. The failure of any of our new
products to achieve market acceptance would harm our business, financial
condition, results of operation and cash flows.
OUR ABILITY TO REDUCE COSTS IS LIMITED BY OUR ONGOING NEED TO INVEST IN RESEARCH
AND DEVELOPMENT.
Our industry is characterized by the need for continued investment in
research and development as well as customer service and support. As a result of
our need to maintain our spending levels in these areas, our operating results
could be materially harmed if our net sales fall below expectations. In
addition, because of our emphasis on research and development and technological
innovation, our operating costs may increase further in the future. We expect
our research and development expenses to increase in absolute dollars for the
foreseeable future.
IF THE SEMICONDUCTOR INDUSTRY FAILS TO BROADLY ACCEPT COPPER AS A REPLACEMENT
FOR ALUMINUM AS THE WIRING CHOICE FOR ADVANCED SEMICONDUCTOR DEVICES, OUR COPPER
PLATING PRODUCTS MAY NOT ACHIEVE MARKET ACCEPTANCE.
Industries that use semiconductors are demanding increasingly complex,
higher performance devices. Traditionally, semiconductor devices have used
aluminum alloys to connect the transistors. However, we believe that as
interconnects become increasingly smaller, copper is evolving as a replacement
for aluminum as the wiring choice for advanced ICs. Our plating products are
designed for plating copper on the wafer for copper interconnects and for
cleaning the wafer after the plating process. If the semiconductor industry as a
whole does not transition to copper interconnects, our copper plating and
associated cleaning products will not achieve market acceptance or
profitability.
INTENSE COMPETITION IN THE MARKETS IN WHICH WE OPERATE MAY REDUCE THE DEMAND FOR
OUR PRODUCTS.
The markets in which we compete are highly competitive. We face substantial
competition from established competitors, some of which have:
- greater financial, marketing, technical and other resources;
- broader product lines;
- more extensive customer support capabilities; and
- larger sales organizations and customer bases.
We may also face competition from new market entrants. Significant
competitive factors in the semiconductor equipment market and other markets, in
which we compete, include system performance and flexibility, cost of ownership,
the size of each manufacturer's installed customer base, customer service and
support capabilities and breadth of product lines. In order to remain
competitive, we must maintain a high level of investment in research and
development, marketing and customer service while controlling operating
expenses. There can be no assurance that we will have sufficient resources to
continue to make such investments or that our products will continue to be
viewed as competitive as a result of technological advances by competitors or
changes in semiconductor processing technology. Our competitors may also
increase their efforts to gain and retain market share through competitive
pricing. Such competitive pressures may necessitate significant price reductions
by us or result in lost orders which could harm our business, financial
condition, results of operations and cash flows.
8
<PAGE>
Moreover, there has been significant merger and acquisition activity among
our competitors and potential competitors. These combinations may provide such
competitors and potential competitors with a competitive advantage over us by
enabling them to more rapidly expand their product offerings and service
capabilities to meet a broader range of customer needs. Many of our customers
and potential customers are relatively large companies that require global
support and service for their semiconductor manufacturing equipment. Our larger
competitors have more extensive infrastructures than we do, which could place us
at a disadvantage when competing for the business of global semiconductor device
manufacturers.
We expect our competitors to continue to improve the design and performance
of their products. There can be no assurance that our competitors will not
develop enhancements to, or future generations of, competitive products that
will offer superior price or performance features, or that new processes or
technologies will not emerge that render our products less competitive or
obsolete. As a result of the substantial investment required to integrate
capital equipment into a production line, we believe that once a manufacturer
has selected certain capital equipment from a particular vendor, the
manufacturer generally relies upon that vendor to provide equipment for the
specific production line application and may seek to rely upon that vendor to
meet other capital equipment requirements. Accordingly, we may be at a
competitive disadvantage for a protracted period of time with respect to a
particular customer if that customer utilizes a competitor's manufacturing
equipment. There can be no assurance that we will be able to compete
successfully in the future.
COMPLIANCE WITH ENVIRONMENTAL REGULATIONS MAY BE VERY COSTLY, AND THE FAILURE TO
COMPLY COULD RESULT IN LIABILITIES, FINES AND CESSATION OF OUR BUSINESS.
We are subject to a variety of governmental regulations related to the
discharge or disposal of toxic, volatile or otherwise hazardous chemicals.
Current or future regulations could require us to purchase expensive equipment
or to incur other substantial expenses to comply with environmental regulations.
Any failure by us to control the use of, or adequately restrict the discharge or
disposal of, hazardous substances could subject us to future liabilities, result
in fines being imposed on us, or result in the suspension of production or
cessation of our manufacturing operations.
DUE TO OUR SIGNIFICANT LEVEL OF INTERNATIONAL SALES, WE ARE SUBJECT TO
OPERATIONAL, FINANCIAL AND POLITICAL RISKS SUCH AS CURRENCY FLUCTUATIONS,
UNEXPECTED CHANGES IN REGULATORY REQUIREMENTS, TARIFFS, POLITICAL AND ECONOMIC
INSTABILITY, ADVERSE TAX CONSEQUENCES, OUTBREAKS OF HOSTILITIES AND DIFFICULTIES
IN MANAGING FOREIGN SALES REPRESENTATIVES AND STAFFING FOREIGN BRANCH
OPERATIONS.
Our net sales attributable to customers outside the United States as a
percentage of our total net sales were approximately 35.9% in fiscal 1997, 38.3%
in fiscal 1998, 52.8% in fiscal 1999 and 57.8% in the six month period ended
March 31, 2000. We expect net sales outside the United States to continue to
represent a significant portion of our future net sales. Sales to customers
outside the United States are subject to various risks, including:
- exposure to currency fluctuations;
- political and economic instability, particularly in Taiwan and Korea;
- unexpected changes in regulatory requirements in each of the countries
outside the United States in which we operate;
- tariffs and other market barriers in each of the countries outside the
United States in which we operate;
- potentially adverse tax consequences in each of the countries outside the
United States in which we operate;
9
<PAGE>
- outbreaks of hostilities, particularly in Taiwan and Korea;
- difficulties in managing foreign sales representatives and distributors in
each of the countries outside the United States in which we operate; and
- difficulties in staffing and managing foreign branch operations in each of
the countries outside the United States in which we operate.
In addition, because a majority of our international sales are denominated
in U.S. Dollars, our ability to compete overseas could be adversely affected by
a strengthening U.S. Dollar. Moreover, although we endeavor to meet technical
standards established by foreign standards setting organizations, there can be
no assurance that we will be able to comply with changes in foreign standards in
the future. Our inability to design products to comply with foreign standards or
any significant or prolonged decline in our international sales could harm our
business, financial condition, results of operations and cash flows.
IF THE PROTECTION OF OUR PROPRIETARY RIGHTS IS INADEQUATE, OUR BUSINESS COULD BE
HARMED.
Our success depends in significant part on the technically innovative
features of our products. We currently hold 74 U.S. patents, some with pending
foreign counterparts, have 118 U.S. patent applications pending and intend to
file additional patent applications as we deem appropriate. There can be no
assurance that patents will issue from any of our pending applications or that
existing or future patents will be sufficiently broad to protect our technology.
While we attempt to protect our intellectual property rights through patents,
copyrights and non-disclosure agreements, there can be no assurance that we will
be able to protect our technology, or that competitors will not be able to
develop similar technology independently. In addition, the laws of certain
foreign countries may not protect our intellectual property to the same extent
as the laws of the United States. Moreover, there can be no assurance that our
existing or future patents will not be challenged, invalidated or circumvented,
or that the rights granted thereunder will provide meaningful competitive
advantages to us. In any of such events, our business, financial condition,
results of operations and cash flows could be harmed.
There has been substantial litigation regarding patent and other
intellectual property rights in semiconductor-related industries. Although we
are not aware of any infringement by our products of any patents or proprietary
rights of others, further commercialization of our products could provoke claims
of infringement from third parties. In the future, litigation may be necessary
to enforce patents issued to us, to protect trade secrets or know-how owned by
us or to defend us against claimed infringement of the rights of others and to
determine the scope and validity of the proprietary rights of others. Any such
litigation could result in substantial cost and diversion of effort by us, which
by itself could have a material adverse effect on our financial condition,
results of operations and cash flows. Further, adverse determinations in such
litigation could result in our loss of proprietary rights, subject us to
significant liabilities and damages to third parties, require us to seek
licenses from third parties or prevent us from manufacturing or selling our
products, any of which could harm our business, financial condition, results of
operations and cash flows.
PROTECTION OF OUR INTELLECTUAL PROPERTY RIGHTS OR THE EFFORTS OF THIRD PARTIES
TO ENFORCE THEIR OWN INTELLECTUAL PROPERTY RIGHTS AGAINST US, HAS IN THE PAST
RESULTED IN, AND MAY IN THE FUTURE RESULT IN, COSTLY AND TIME-CONSUMING
LITIGATION.
In order to enforce any patents issued to or licensed by us, or to determine
the scope or validity of a third party's patent or other proprietary rights, we
may be required to initiate litigation. Any such litigation, regardless of
outcome, could be expensive and time consuming, and could subject us to
significant liabilities or require us to re-engineer our product or obtain
expensive licenses from third parties.
10
<PAGE>
For example, in August 1998, we filed suit against Novellus Systems, Inc. in
the United States District Court for the Northern District of California (Case
No. C-98-3089 DLJ), alleging infringement of two of our patents relating to
single substrate processing tools used in electrochemical deposition of copper
onto semiconductor wafers. We sought damages for past infringement, a permanent
injunction prohibiting future infringement, treble damages for willful
infringement, prejudgment interest and attorneys' fees. Novellus answered the
complaint by denying all of the allegations and counter-claiming for declaratory
judgment of invalidity, noninfringement and attorneys' fees. Novellus filed a
motion for summary judgment of noninfringement, which motion was granted on
March 17, 2000, and judgment was subsequently entered on May 12, 2000 dismissing
the case. We filed an appeal to the United States Court of Appeals for the
Federal Circuit on May 15, 2000, seeking review of the ruling on the motion for
summary judgment. We can provide no assurance of the prospect of our success in
such litigation.
OUR EFFORTS TO PROTECT OUR INTELLECTUAL PROPERTY MAY BE LESS EFFECTIVE IN SOME
FOREIGN COUNTRIES WHERE INTELLECTUAL PROPERTY RIGHTS ARE NOT AS WELL PROTECTED
AS IN THE UNITED STATES.
In fiscal 1999, approximately 52.8% of our net sales was derived from sales
in foreign countries, including certain countries in Asia such as Japan, Korea
and Taiwan. The laws of some foreign countries do not protect our proprietary
rights to as great an extent as do the laws of the United States, and many U.S.
companies have encountered substantial problems in protecting their proprietary
rights against infringement in such countries, some of which are countries in
which we have sold and continue to sell systems. For example, Taiwan is not a
signatory to the Patent Cooperation Treaty, which is designed to specify rules
and methods for defending intellectual property internationally. In Taiwan, the
publication of a patent prior to its filing would invalidate the ability of a
company to obtain a patent. Similarly, in contrast to the United States where
the contents of patents remain confidential during the patent prosecution
process, the contents of a patent are published upon filing which provides
competitors an advanced view of the contents of a patent application prior to
the establishment of patent rights. There is a risk that our means of protecting
our proprietary rights may not be adequate in these countries. Our competitors
in these countries may independently develop similar technology or duplicate our
systems. If we fail to adequately protect our intellectual property in these
countries, it would be easier for our competitors to sell competing products in
those countries.
WE DEPEND ON OUR KEY CUSTOMERS.
Our ten largest customers accounted for 52.2% of net sales in fiscal 1997,
54.6% in fiscal 1998, 50.9% in fiscal 1999 and 55.4% in the six months ended
March 31, 2000. We expect this trend to continue. Although the composition of
our largest customers has changed from year to year, the loss of, or a
significant curtailment of purchases by, one or more of our key customers or the
delay or cancellation of a large order could cause our net sales to decline
significantly which would harm our business, financial condition, results of
operations and cash flows. Similarly, delays in payments by key customers could
have a significant impact on our cash flows.
There is a limited number of mostly large companies operating in the highly
concentrated, capital intensive semiconductor industry. Accordingly, we expect
that we will continue to depend on a small number of large companies for a
significant portion of our net sales. In addition, as large semiconductor
manufacturers seek to establish closer relationships with their suppliers, we
expect that our customer base will become even more concentrated.
OUR DEPENDENCE ON KEY SUPPLIERS COULD DELAY SHIPMENTS AND INCREASE OUR COSTS.
Some components and subassemblies included in our products are obtained from
a single source or a limited group of suppliers. The loss of, or disruption in,
shipments from these sole or limited source suppliers could in the short-term
adversely affect our business and results of operations. Further,
11
<PAGE>
a significant increase in the price of one or more of these components could
harm our business, financial condition, results of operations and cash flows.
ANTI-TAKEOVER PROVISIONS IN OUR CHARTER DOCUMENTS COULD ADVERSELY AFFECT THE
RIGHTS OF THE HOLDERS OF OUR COMMON STOCK.
The anti-takeover provisions of Montana law and our Articles of
Incorporation and bylaws may make a change of control of Semitool difficult,
even if a change of control would be beneficial to our shareholders. Our
Articles of Incorporation authorize our Board of Directors to issue preferred
stock in one or more series and to fix the rights, preferences, privileges and
restrictions granted to or imposed upon any unissued shares of preferred stock
and to fix the number of shares constituting any series and the designations of
such series, without further vote or action by the shareholders. Although we
have no present plans to issue any preferred stock, we view the authorized
preferred stock as a financing vehicle. In addition, under Montana law and our
charter documents, our Board of Directors may adopt additional anti-takeover
measures in the future.
Any anti-takeover provisions, including any issuance of preferred stock,
could have the effect of discouraging a third party from making a tender offer
or otherwise attempting to gain control of us. In addition, these provisions
could limit the price that investors might be willing to pay in the future for
shares of our common stock.
COMPETITIVE CONDITIONS IN OUR INDUSTRY MAY LEAD TO INCREASED PRICE COMPETITION
OR LOSS OF MARKET SHARE FOR OUR PRODUCTS.
Due to intense competitive conditions in the semiconductor equipment
industry, we have from time to time selectively reduced prices on our systems in
order to protect our market share, and competitive pressures may necessitate
further price reductions. Our competitors are likely to announce the
introduction of new products or lower prices which will affect the prices of our
systems and the level of discounts we grant our customers. To the extent that
any of our semiconductor equipment systems are not distinguished from those of
our competitors by significant technological advantages, we may experience
increased price competition or loss of market share with respect to those
systems.
WE MUST ATTRACT AND RETAIN KEY PERSONNEL INCLUDING A PRESIDENT AND A VICE
PRESIDENT OF SALES, TO HELP DIRECT AND SUPPORT OUR FUTURE GROWTH. COMPETITION
FOR SUCH PERSONNEL IN OUR INDUSTRY IS HIGH.
Our success depends to a significant degree upon the continued contributions
of our key management, engineering, sales and marketing, customer support,
finance and manufacturing personnel. The loss of any of these key personnel,
particularly our Chairman, President and Chief Executive Officer Raymon F.
Thompson, who would be extremely difficult to replace, could harm our business
and operating results. We do not have key person life insurance on any of our
executives. From time to time, we search for new members of our key management
team and are currently looking for a president and vice president of sales. In
addition, at times in our industry, we have often experienced significant
employee attrition, and we may experience further attrition in the event of a
future downturn. Further, to support future growth, we will need to attract and
retain additional qualified employees. Competition for such personnel in our
industry is intense, and we may not be successful in attracting and retaining
qualified senior executives and other employees.
WE MANUFACTURE SUBSTANTIALLY ALL OF OUR EQUIPMENT AT A SINGLE FACILITY, AND ANY
PROLONGED DISRUPTION IN THE OPERATIONS OF THAT FACILITY COULD HAVE A MATERIAL
ADVERSE EFFECT ON OUR NET SALES.
We manufacture substantially all of our equipment in our primary
manufacturing facility located in Kalispell, Montana. Our manufacturing
processes are highly complex and require sophisticated and costly equipment and
a specially designed facility. As a result, any prolonged disruption in the
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<PAGE>
operations of our manufacturing facility, whether due to technical or labor
difficulties, destruction or damage as a result of a fire or any other reason,
could seriously harm our ability to satisfy our customer order deadlines. If we
cannot timely deliver our systems, our net sales could suffer a material adverse
effect.
WE RELY UPON INDEPENDENT SALES REPRESENTATIVES FOR A SIGNIFICANT PORTION OF OUR
SALES, AND A DISRUPTION IN OUR RELATIONSHIPS WITH THESE REPRESENTATIVES COULD
HAVE A NEGATIVE IMPACT ON OUR SALES IN CHINA, JAPAN AND TAIWAN.
Historically, a substantial portion of our sales have been made through
independent sales representatives and distributors. Currently, we do not use any
distributors. We expect that sales through independent sales representatives
will represent a material portion of our sales for the next several years. In
particular, all our sales in China and Taiwan and some sales in Japan will
continue to be made through independent sales representatives for the next
several years. In some locations, our independent sales representatives also
provide field service to our customers. The activities of these representatives
are generally not within our control. A reduction in the sales or service
efforts or financial viability of any of our independent sales representatives,
or a deterioration or termination of any of our relationships with them, could
harm our net sales, our financial results and our ability to support our
customers.
SINCE A SUBSTANTIAL PORTION OF OUR NET SALES ARE DERIVED FROM SALES IN FOREIGN
COUNTRIES THAT ARE DENOMINATED IN U.S. DOLLARS, WE COULD EXPERIENCE A
SIGNIFICANT DECLINE IN SALES OR EXPERIENCE COLLECTION PROBLEMS IN THE EVENT THE
U.S. DOLLAR BECOMES MORE EXPENSIVE RELATIVE TO LOCAL CURRENCIES.
A substantial portion of our international sales are denominated in U.S.
Dollars. As a result, if the U.S. Dollar rises in value in relation to foreign
currencies, our systems will become more expensive to customers outside the
United States and less competitive with systems produced by competitors outside
the United States. Such conditions could negatively impact our international
sales. Foreign sales also expose us to collection risk in the event it becomes
more expensive for our foreign customers to convert their local currencies into
U.S. Dollars.
IF WE DELIVER SYSTEMS WITH DEFECTS, OUR CREDIBILITY WILL BE HARMED AND THE SALES
AND MARKET ACCEPTANCE OF OUR SYSTEMS WILL DECREASE.
Our systems are complex and sometimes have contained errors, defects and
bugs when introduced. If we deliver systems with errors, defects or bugs, our
credibility and the market acceptance and sales of our systems could be harmed.
Further, if our systems contain errors, defects or bugs, we may be required to
expend significant capital and resources to alleviate such problems. Defects
could also lead to product liability as a result of lawsuits against us or
against our customers. We have agreed to indemnify our customers in some
circumstances against liability arising from defects in our systems. Our product
liability policy currently provides only limited coverage per claim. In the
event of a successful product liability claim, we could be obligated to pay
damages which are not covered by product liability insurance or which are
significantly in excess of our product liability insurance limits.
A SMALL GROUP OF MAJOR SHAREHOLDERS WILL CONTINUE TO HAVE A SIGNIFICANT
INFLUENCE OVER OUR BUSINESS AFTER THIS OFFERING AND COULD DELAY, DETER OR
PREVENT A CHANGE OF CONTROL OR OTHER BUSINESS COMBINATION.
Immediately after the closing of this offering, Raymon F. Thompson, our
Chairman, President and Chief Executive Officer, will hold approximately 37.2%
of our outstanding stock, or 35.4% if the underwriters' option to purchase
additional shares of our common stock is exercised in full. In addition,
immediately after the closing of this offering, our officers and directors as a
group will hold approximately 37.6% of our outstanding stock, or 35.8% if the
underwriters' option to purchase additional shares of our common stock is
exercised in full. The interests of these shareholders may not
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<PAGE>
always coincide with our interests or those of our other shareholders. By virtue
of their stock ownership and board representation, these shareholders will
continue to have a significant influence over all matters submitted to our Board
of Directors and our shareholders, including the election of our directors, and
will be able to exercise significant control over our business, policies and
affairs. Through their concentration of voting power, these shareholders, acting
individually or together, could cause us to take actions that we would not
consider absent their influence, or could delay, deter or prevent a change of
control of us or other business combination that might otherwise be beneficial
to our other shareholders.
OUR BACKLOG MAY NOT RESULT IN FUTURE NET SALES.
We schedule the production of our systems based in part upon order backlog.
Due to possible customer changes in delivery schedules and cancellations of
orders, our backlog at any particular date is not necessarily indicative of
actual sales for any succeeding period. In addition, while we evaluate each
customer order on a case by case basis to determine qualification for inclusion
in backlog, there can be no assurance that amounts included in backlog will
ultimately result in future sales. A reduction in backlog during any particular
period, or the failure of our backlog to result in future sales, could harm our
business.
WE HAVE EXPERIENCED A PERIOD OF RAPID GROWTH AND IF WE ARE NOT ABLE TO
SUCCESSFULLY MANAGE THIS AND FUTURE GROWTH, OUR BUSINESS, FINANCIAL CONDITION
AND RESULTS OF OPERATIONS COULD BE SIGNIFICANTLY HARMED.
We have recently experienced a significant growth in net sales. Our net
sales increased 84.7% from approximately $56.2 million during the six months,
ended March 31, 1999 to approximately $103.9 million during the six months ended
March 31, 2000. In addition, our consolidated orders backlog increased 213.3%
from approximately $29.4 million at March 31, 1999 to $92.1 million at
March 31, 2000. We cannot assure you we will be able to continue to maintain or
increase the level of net sales in future periods. Further, this growth has
placed, and is expected to continue to place, a significant strain on our
management and operations. If we are unable to effectively manage this growth,
our business, financial condition and results of operations could be
significantly harmed.
OUR STOCK PRICE MAY BE VOLATILE AND OUR COMMON STOCK MAY BE THINLY TRADED, WHICH
COULD CAUSE INVESTORS TO LOSE A SUBSTANTIAL PART OF THEIR INVESTMENTS IN OUR
COMMON STOCK.
The stock market in general, and the stock prices of technology companies in
particular, have recently experienced volatility which has often been unrelated
to the operating performance of any particular company or companies. If market
or industry-based fluctuations continue, our stock price could decline
regardless of our actual operating performance and investors could lose a
substantial part of their investments. The market price of our common stock will
likely fluctuate in response to a number of factors, including the following:
- variations in our operating results;
- announcements by us or our competitors of significant contracts or
acquisitions;
- our failure to meet the performance estimates of securities analysts;
- changes in financial estimates of our net sales and operating results by
securities analysts;
- stock market price and volume fluctuations attributable to inconsistent
trading volume levels; and
- general stock market conditions.
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<PAGE>
WE COULD BE SUBJECT TO CLASS ACTION LITIGATION DUE TO STOCK PRICE VOLATILITY,
WHICH, IF IT OCCURS, WILL DISTRACT OUR MANAGEMENT AND COULD RESULT IN
SUBSTANTIAL COSTS OR LARGE JUDGMENTS AGAINST US.
In the past, securities class action litigation has often been brought
against companies following periods of volatility in the market prices of their
securities. We may be the target of similar litigation in the future. Securities
litigation could result in substantial costs and divert our management's
attention and resources, which could cause harm to our business, financial
condition and results of operations.
WE HAVE BROAD DISCRETION IN HOW WE MAY USE THE OFFERING PROCEEDS AND THE MANNER
IN WHICH WE MAY INVEST THESE PROCEEDS MAY NOT YIELD A FAVORABLE, OR ANY, RETURN
FOR US.
The net proceeds of this offering are not allocated for specific uses other
than working capital and general corporate purposes, except for approximately
$7.0 million which we intend to use to repay a portion of the outstanding debt
under our current revolving credit facility. Thus, our management has broad
discretion over how the net proceeds of this offering will be used and could
spend the net proceeds in a way with which you may not agree. We cannot assure
you that the net proceeds will be invested in a way that yields a favorable, or
any, return for us.
CHANGES TO ACCOUNTING STANDARDS AND RULES COULD ADVERSELY AFFECT THE AMOUNT AND
TIMING OF RECOGNITION OF REVENUE.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, or SAB 101, REVENUE RECOGNITION IN FINANCIAL
STATEMENTS. SAB 101 provides guidance on applying generally accepted accounting
principles to revenue recognition issues in financial statements. When we adopt
SAB 101 in the first quarter of fiscal 2001, we will recognize revenue when we
substantially complete the terms of the applicable sales arrangement, which
generally occurs upon the customers' acceptance of our product. While we have
not fully assessed the impact on us of the adoption of SAB 101, we believe that
it may require a significant amount of our first quarter of fiscal 2001 net
sales to be deferred. Any change in our revenue recognition policy resulting
from the implementation of SAB 101 would be reported as a change in accounting
principle in the quarter ending December 31, 2000 with a cumulative adjustment
in that quarter to reflect the effect of the change. As a result, while SAB 101
would not affect the fundamental aspects of our operations as measured by our
shipments and cash flows, implementation of SAB 101 could have an adverse effect
on our reported results of operations for the first quarter of fiscal 2001 when
SAB 101 will be implemented.
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<PAGE>
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus and the documents incorporated by reference contain
forward-looking statements, including, without limitation, statements concerning
the future of the industry, product development, business strategy (including
the possibility of future acquisitions), continued acceptance and growth of our
products and dependence on significant customers. These statements can be
identified by the use of forward-looking terminology such as "may," "will,"
"expect," "anticipate," "estimate," "continue" or other similar words. These
statements discuss future expectations, contain projections of results of
operations or of financial condition or state other forward-looking information.
When considering forward-looking statements, you should keep in mind the risk
factors and other cautionary statements in this prospectus. Readers are
cautioned not to place undue reliance on any of these forward-looking
statements, which reflect our management's views as of the date of this
prospectus. The "Risk Factors" and other factors noted throughout this
prospectus could cause our actual results to differ significantly from those
contained in any forward-looking statement.
USE OF PROCEEDS
The net proceeds to us from the sale of the 3,036,000 shares of common stock
we are offering are estimated to be approximately $42.3 million (approximately
$43.9 million if the underwriters' over-allotment option is exercised in full),
at an assumed public offering price of $14.88 per share (the last reported sale
price of our common stock on the Nasdaq National Market on July 24, 2000), after
deducting estimated underwriting discounts and commissions and estimated
offering expenses. We will not receive any proceeds from the sale of the shares
of our common stock by the selling shareholders.
We intend to use approximately $7.0 million of the net proceeds from this
offering to repay a portion of the outstanding debt under our current revolving
credit facility. Borrowing under this credit facility bears interest at the
bank's prime rate or, at our option for loan amounts of $500,000 or more, LIBOR
plus 1.5%. As of March 31, 2000, our interest rate was 9.0%. We intend to use
the remaining net proceeds from this offering primarily for general corporate
purposes, including working capital. The amounts that we actually expend will
vary significantly, depending on a number of factors, including future revenue
growth, if any, and the amount of cash we generate from operations. As a result,
we will retain broad discretion in the allocation of the net proceeds of this
offering. In addition, we may use a portion of the net proceeds to acquire
complementary products, technologies or businesses; however, we currently have
no commitments or agreements and are not involved in any negotiations with
respect to any such transactions. Pending use of the net proceeds of this
offering, we intend to invest the remaining portion of the net proceeds in
interest-bearing, investment-grade securities.
DIVIDEND POLICY
We have not declared or paid any cash dividends on our capital stock since
our initial public offering in February 1995. We currently expect to retain
future earnings, if any, for use in the operation and expansion of our business
and do not anticipate paying any cash dividends in the foreseeable future. In
addition, our existing bank line of credit prohibits the payment of dividends
without our bank's consent.
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PRICE RANGE OF OUR COMMON STOCK
Our common stock is traded on the Nasdaq National Market under the symbol
"SMTL." The following table sets forth, for the periods indicated, the high and
low daily sales price per share for our common stock as reported by the Nasdaq
National Market.
<TABLE>
<CAPTION>
COMMON STOCK
-------------------
HIGH LOW
-------- --------
<S> <C> <C>
FISCAL 1998 (ENDED SEPTEMBER 30, 1998)
First Quarter............................................ $13.13 $ 6.00
Second Quarter........................................... $ 7.38 $ 5.81
Third Quarter............................................ $ 7.25 $ 3.94
Fourth Quarter........................................... $ 4.81 $ 2.56
FISCAL 1999 (ENDED SEPTEMBER 30, 1999)
First Quarter............................................ $ 4.25 $ 2.13
Second Quarter........................................... $ 4.69 $ 3.00
Third Quarter............................................ $ 5.00 $ 3.00
Fourth Quarter........................................... $ 6.94 $ 4.19
FISCAL 2000
First Quarter............................................ $ 7.81 $ 4.00
Second Quarter........................................... $26.63 $ 6.75
Third Quarter............................................ $21.75 $11.13
Fourth Quarter through July 24, 2000..................... $19.25 $14.50
</TABLE>
On July 24, 2000, the reported last sales price for our common stock as
reported by the Nasdaq National Market was $14.88 per share. As of July 24,
2000, there were 130 shareholders of record of our common stock.
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CAPITALIZATION
The following table sets forth our capitalization as of March 31, 2000:
- on an actual basis; and
- on an as adjusted basis to give effect to the sale of 3,036,000 shares of
our common stock by us at an assumed public offering price of $14.88 per
share, less estimated underwriting discounts and commissions and estimated
offering expenses payable by us.
<TABLE>
<CAPTION>
MARCH 31, 2000
(UNAUDITED)
----------------------------
ACTUAL AS ADJUSTED
------------ -------------
(IN THOUSANDS, EXCEPT SHARE
AND PER SHARE DATA)
<S> <C> <C>
Note payable to bank........................................ $ 8,911 $ 1,911
======= ========
Long-term debt and capital leases, due after one year....... 3,843 3,843
------- --------
Shareholders' equity:
Preferred stock, no par value: 5,000,000 authorized; no
shares issued and outstanding (actual and as
adjusted)............................................... -- --
Common stock, no par value: 75,000,000 authorized;
28,265,420 issued and outstanding (actual); 31,301,420
shares issued and outstanding
(as adjusted)........................................... 44,497 86,799
Retained earnings........................................... 47,928 47,928
Accumulated other comprehensive income...................... 719 719
------- --------
Total shareholders' equity................................ 93,144 135,446
------- --------
Total capitalization...................................... $96,987 $139,289
======= ========
</TABLE>
The data in the table above excludes:
- 1,159,350 shares of our common stock issuable upon exercise of outstanding
options under our Amended 1994 Stock Option Plan as of March 31, 2000 at a
weighted average exercise price of $6.19 per share; and
- 757,604 shares of our common stock reserved for issuance under our Amended
1994 Stock Option Plan as of March 31, 2000.
18
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected consolidated financial data as of
and for the periods indicated. The consolidated statement of operations data for
the fiscal years ended September 30, 1997, 1998 and 1999 and the consolidated
balance sheet data as of September 30, 1998 and 1999 were derived from our
consolidated financial statements audited by PricewaterhouseCoopers LLP,
independent accountants, included elsewhere in this prospectus. The consolidated
statement of operations data for the fiscal years ended September 30, 1995 and
1996 and the consolidated balance sheet data as of September 30, 1995, 1996 and
1997 were derived from our consolidated financial statements audited by
PricewaterhouseCoopers LLP, independent accountants, not included or
incorporated by reference in this prospectus. The consolidated financial data as
of and for the six month periods ended March 31, 1999 and 2000 were derived from
unaudited interim financial statements contained elsewhere in this prospectus.
The unaudited interim financial statements were derived from our books and
records without audit and include all of the adjustments (normal and recurring
in nature) necessary for a fair presentation of the data. Results of operation
for interim periods are not necessarily indicative of results to be expected for
the full fiscal year. You should read this information together with the
discussion in "Management's Discussion and Analysis of Financial Condition and
Results of Operation" and our consolidated financial statements and the related
notes.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED SEPTEMBER 30, MARCH 31,
---------------------------------------------------- -------------------
1995 1996 1997 1998 1999 1999 2000
-------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Net sales........................................ $128,326 $174,204 $193,952 $180,501 $122,528 $56,238 $103,863
Cost of sales.................................... 62,468 89,573 102,862 89,522 64,880 29,574 48,579
-------- -------- -------- -------- -------- ------- --------
Gross profit..................................... 65,858 84,631 91,090 90,979 57,648 26,664 55,284
Operating expenses:
Selling, general and administrative............ 31,843 40,946 49,479 58,356 49,515 23,078 30,933
Research and development....................... 13,088 19,503 21,179 24,536 20,874 10,749 11,193
-------- -------- -------- -------- -------- ------- --------
Total operating expenses................... 44,931 60,449 70,658 82,892 70,389 33,827 42,162
-------- -------- -------- -------- -------- ------- --------
Income (loss) from operations.................... 20,927 24,182 20,432 8,087 (12,741) (7,163) 13,158
-------- -------- -------- -------- -------- ------- --------
Other income (expense), net...................... 313 (156) (234) (807) 1,796 939 (42)
Income (loss) before income taxes................ 21,240 24,026 20,198 7,280 (10,945) (6,224) 13,116
Income taxes..................................... 6,355 8,890 7,675 2,475 (4,200) (2,116) 4,197
-------- -------- -------- -------- -------- ------- --------
Net income (loss)................................ $ 14,885 $ 15,136 $ 12,523 $ 4,805 $ (6,745) $(4,108) $ 8,919
======== ======== ======== ======== ======== ======= ========
Earnings (loss) per share:
Basic.......................................... $ 0.60 $ 0.55 $ 0.46 $ 0.17 $ (0.24) $ (0.15) $ 0.32
======== ======== ======== ======== ======== ======= ========
Diluted........................................ $ 0.57 $ 0.55 $ 0.45 $ 0.17 $ (0.24) $ (0.15) $ 0.31
======== ======== ======== ======== ======== ======= ========
Weighted average common shares:
Basic.......................................... 24,160 27,302 27,352 27,566 27,594 27,584 27,838
======== ======== ======== ======== ======== ======= ========
Diluted........................................ 25,126 27,716 27,666 27,808 27,594 27,584 28,639
======== ======== ======== ======== ======== ======= ========
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents........................ $ 11,939 $ 3,058 $ 5,060 $ 7,287 $ 4,789 $ 8,340 $ 7,717
Working capital.................................. 37,209 43,797 50,047 52,408 52,308 51,304 65,735
Total assets..................................... 88,067 114,954 131,725 127,990 131,884 115,287 155,673
Note payable to bank............................. -- 4,000 4,000 3,000 10,160 551 8,911
Long-term debt and capital leases,
due after one year............................. 4,011 3,637 3,364 3,836 3,911 3,659 3,843
Total shareholders' equity....................... 52,813 68,003 81,580 86,694 81,025 83,110 93,144
</TABLE>
The following selected pro forma consolidated statement of operations data
eliminates payments in fiscal 1995 for technology rights that ceased in
February 1995, upon the closing of the initial public
19
<PAGE>
offering of our common stock. Additionally, pro forma net income has been
determined by assuming that we had been taxed as a C corporation for federal
income tax purposes for fiscal 1995. The pro forma provision for income taxes
has been calculated by using statutory rates for federal and state taxes applied
to pro forma income before income taxes, net of actual research and development
credits generated. The pro forma effective tax rate in fiscal 1995 was 37.1%.
Pro forma consolidated operations data for the year ended September 30, 1995
were $22,599 income from operations, $14,403 net income, $0.60 basic earnings
per share, and $0.57 diluted earnings per share, based on an average number of
basic shares of common stock of 24,160 and an average number of diluted shares
of common stock of 25,226. Between October 1, 1986 and February 1, 1995, we
elected to be taxed under the provisions of Subchapter S of the Internal Revenue
Code of 1986, as amended. Under those provisions, we had not been subject to
federal corporate income taxation. In connection with the closing of our initial
public offering, we terminated our S corporation status. Prior to the
termination of our S corporation status, we paid dividends only in amounts
sufficient to cover shareholders' tax liabilities other than the final
distribution of prior accumulated S corporation earnings. The per share dividend
information has therefore not been presented.
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH OUR CONSOLIDATED
FINANCIAL STATEMENTS AND THE RELATED NOTES INCLUDED ELSEWHERE IN THIS
PROSPECTUS. OUR DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS BASED UPON
CURRENT EXPECTATIONS THAT INVOLVE RISKS AND UNCERTAINTIES, SUCH AS OUR PLANS,
OBJECTIVES AND INTENTIONS. FACTORS THAT MIGHT CAUSE FUTURE RESULTS TO DIFFER
MATERIALLY FROM THOSE PROJECTED IN THE FORWARD-LOOKING STATEMENTS, INCLUDE, BUT
ARE NOT LIMITED TO, THOSE DISCUSSED IN "RISK FACTORS" AND ELSEWHERE IN THIS
PROSPECTUS.
OVERVIEW
Semitool is a worldwide leader in the design, development, manufacture, and
support of high performance wet chemical processing equipment for use in
fabrication of semiconductor devices. Our primary families of tools include
electrochemical deposition systems for the plating of copper interconnects for
integrated circuits and other metals for various applications, and wafer surface
preparation systems for cleaning, stripping and etching processes. This suite of
technologically innovative batch and single wafer processing tools leverages our
core wet chemical expertise and our experience building and supporting
production-proven semiconductor fabrication equipment.
With more than 20 years dedicated to the semiconductor and related
industries, we have applied our wet-chemical expertise in design, engineering,
process and manufacturing to deliver innovations in electrochemical deposition
and wafer surface preparation to our global customer base. Our customers include
many of the major semiconductor manufacturers worldwide, including Advanced
Micro Devices, Conexant Systems, Fujitsu, IBM, Infineon, Intel, Lucent
Technologies, Maxim Integrated Products, Motorola, NEC, Philips Semiconductor,
Samsung, STMicroelectronics, TSMC and UMC.
We report our business as two segments, the Semiconductor Equipment segment
and the Software Control Systems segment. The Semiconductor Equipment segment is
our largest segment and its primary products are batch and single wafer
processing equipment. Our Software Control Systems segment's primary product
provides communication software interfaces coupled with equipment specific
software modules to link most types of manufacturing equipment used in the
semiconductor manufacturing front-end processes.
We sell our products both in the United States and internationally. In
fiscal 1999, our sales distribution by geographic area was 47.8% in North
America, 24.0% in Europe, 18.7% in Japan and 9.5% in the rest of Asia. This
compares with 61.7% in North America, 26.5% in Europe, 8.6% in Japan and 3.2% in
the rest of Asia in fiscal 1998. Worldwide sales, service and support are
primarily provided through our employees in the United States, Europe, Japan,
Korea and Singapore and through the use of independent sales representatives in
China, Japan, Taiwan, and the United States. We anticipate that international
sales will continue to account for a significant portion of net sales, although
the percentage of international sales and the geographic distribution may
fluctuate from period to period.
Revenue from sales of products is generally recognized at the time the
product is shipped. Service contract revenue is recognized ratably over the
period of the related contract. Software revenue is recognized when there is
persuasive evidence of an arrangement, the software has been delivered, the
price is fixed and determinable and collectibility is probable in accordance
with the American Institute of Certified Public Accountants' Statement of
Position 97-2 "Software Revenue Recognition."
21
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth our selected consolidated statement of
operations data for the periods indicated expressed as a percentage of net
sales:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED SEPTEMBER 30, MARCH 31,
------------------------------ ----------------------
1997 1998 1999 1999 2000
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net sales.................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales................................ 53.0 49.6 53.0 52.6 46.8
----- ----- ----- ----- -----
Gross profit................................. 47.0 50.4 47.0 47.4 53.2
Operating expenses:
Selling, general and administrative........ 25.5 32.3 40.4 41.0 29.8
Research and development................... 10.9 13.6 17.0 19.1 10.8
----- ----- ----- ----- -----
Total operating expenses................. 36.4 45.9 57.4 60.1 40.6
----- ----- ----- ----- -----
Income (loss) from operations................ 10.6 4.5 (10.4) (12.7) 12.6
Other income (expense), net.................. (0.1) (0.5) 1.5 1.7 --
----- ----- ----- ----- -----
Income (loss) before income taxes............ 10.5 4.0 (8.9) (11.0) 12.6
Income taxes................................. 4.0 1.4 (3.4) (3.8) 4.0
----- ----- ----- ----- -----
Net income (loss)............................ 6.5% 2.6% (5.5)% (7.2)% 8.6%
===== ===== ===== ===== =====
</TABLE>
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED MARCH 31, 2000 AND 1999
NET SALES. Net sales consist of revenues from sales of equipment, spare
parts, software and service contracts. Net sales were $103.9 million for the six
months ended March 31, 2000, compared to $56.2 million during the same period in
fiscal 1999. This represents an increase in net sales for the six months ended
March 31, 2000 of 84.7% over the same period in fiscal 1999. Sales in all
product categories, including electrochemical deposition tools, batch processing
tools, software control systems, thermal products and spare parts and service
increased for the six months ended March 31, 2000 when compared to the same
period in fiscal 1999. The increase in net sales is due principally to the
recovery in the semiconductor industry and the transition to copper plating for
IC interconnects.
Net sales for the Semiconductor Equipment segment were $97.0 million for the
six months ended March 31, 2000, compared to $49.6 million in net sales for the
same period in fiscal 1999. This represents an increase for net sales in the six
months ended March 31, 2000 of 95.5% when compared to the same period in fiscal
1999. In the six months ended March 31, 2000, net sales of electrochemical
deposition equipment and cleaning, stripping and etching equipment increased by
138.0% and 78.6%, respectively, as compared to the same period in fiscal 1999.
The increase in net sales was driven primarily by expansion of production
capacity by semiconductor manufacturers, as in the case of our batch chemical
processing tools, and by the technology enabling products for electrochemical
deposition.
Net sales for the Software Control Systems segment were $7.8 million for the
six months ended March 31, 2000, compared to $6.7 million for the same period in
fiscal 1999. This represents an increase in net sales for the six months ended
March 31, 2000 of 15.5%, which is primarily attributable to the recovery in the
semiconductor industry. Net sales in the six months ended March 31, 2000
includes approximately $891,000 in intersegment sales, which compares to
approximately $90,000 for the same period of fiscal 1999. Intersegment sales in
each period consists of sales made by the Software Control Systems segment to
the Semiconductor Equipment segment. The Semiconductor Equipment segment
includes the system control software with its sales of automated batch and
single wafer processing equipment. Sales between the two segments are made only
when the Semiconductor
22
<PAGE>
Equipment segment has firm orders for the equipment in which the software is
installed. All intersegment sales are eliminated in the consolidated statements
of operations.
GROSS PROFIT. Our gross margin was 53.2% for the six months ended
March 31, 2000 compared to 47.4% for the same period in fiscal 1999. The
increase in gross margin was primarily due to changes in product sales mix and a
higher level of cost absorption caused by increased manufacturing capacity
utilization. Our gross margin has been, and will continue to be, affected by a
variety of factors, including the sales mix and average selling price of
products sold, and changes in the cost to manufacture components, service and
support new and enhanced products. We anticipate that the cost to manufacture
and support new products will decrease over time, but we also expect to continue
to design and sell additional models of our existing products and new products,
which may adversely affect the anticipated improvement.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses were $30.9 million for the six months ended March 31, 2000, compared to
$23.1 million for the same period in fiscal 1999. Selling, general and
administrative expenses increased on an absolute basis primarily due to the
increased sales activity and the related field service costs. As a percent of
net sales, selling, general and administrative expenses were 29.8% for the six
months ended March 31, 2000, which compares with 41.0% for the same period in
fiscal 1999. The decrease as a percent of net sales is primarily due to a
substantial portion of these expenses being fixed in the short-term.
RESEARCH AND DEVELOPMENT. Research and development expenses were
$11.2 million for the six months ended March 31, 2000, compared to
$10.7 million for the same period in fiscal 1999. The difference from period to
period on an absolute basis represents normal fluctuation. Research and
development expenses were 10.8% of net sales in the six months ended March 31,
2000, compared to 19.1% for the same period in fiscal 1999. The decline as a
percentage of net sales for the six months ended March 31, 2000 was a result of
increased sales volume.
We are committed to technology leadership in the semiconductor equipment
industry and expect to continue to fund research and development expenditures
with a multi-year perspective. Our research and development expenses have
fluctuated from quarter to quarter in the past. We expect 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.
INCOME (LOSS) FROM OPERATIONS. Income from operations for the Semiconductor
Equipment segment was $12.9 million for the six months ended March 31, 2000.
This compares with a loss of $7.5 million for the same period in fiscal 1999.
The increase period over period on an absolute basis was primarily attributed to
increased sales volume and higher gross margins, which more than offset higher
selling, general and administrative and research and development expenses.
Our Software Control Systems segment's income from operations for the six
months ended March 31, 2000 was approximately $891,000, compared to $384,000 for
the same period in fiscal 1999. Increased research and development expenses
resulted in lower income from operations for the six months ended March 31,
2000, which was partially offset by higher net sales and increased gross
margins.
OTHER INCOME (EXPENSE), NET. Other income (expense), net was an expense of
approximately $42,000 for the six months ended March 31, 2000. This amount
included interest expense of approximately $521,000 which was partially offset
by a foreign currency exchange gain of approximately $177,000 and other income
of approximately $302,000. This compares to other income, net of $939,000, for
the same period in fiscal 1999 which included a foreign exchange gain of
$847,000.
INCOME TAXES. Income taxes for the six months ended March 31, 2000 were a
$4.2 million tax provision and a $2.1 million benefit for the six months ended
March 31, 1999. Income tax provisions and benefits are made based on the blended
estimate of federal, state and foreign effective income tax
23
<PAGE>
rates, which were estimated to be 32% for the six months ended March 31, 2000
and 34% for the same period of fiscal 1999. The effective tax rate for fiscal
2000 declined when compared to fiscal 1999, primarily due to the extension of
Federal research and experimentation credits and the creation of research and
experimentation credits provided by the State of Montana.
RESULTS OF OPERATIONS FOR THE FISCAL YEARS ENDED SEPTEMBER 30, 1999, 1998 AND
1997
NET SALES. Net sales were $122.5 million, $180.5 million and
$194.0 million for fiscal 1999, 1998, and 1997. The overall decline in net sales
for each of the past two fiscal years is primarily attributable to the reduction
of capital equipment spending by our customers in response to excess
manufacturing capacity in the semiconductor industry and the Asian economic
decline. Partially offsetting the decline in net sales in the Semiconductor
Equipment segment due to these factors was a small increase in Software Control
Systems segment sales in both years.
Net sales for the Semiconductor Equipment segment were $109.6 million,
$168.9 million and $184.4 million for fiscal 1999, 1998 and 1997. Relative
contributions to consolidated net sales of this segment's product lines for 1999
were 16.4% for electrochemical deposition, 53.5% for cleaning, stripping and
etching and 19.4% for parts, service and other. For fiscal 1998, the relative
contribution to consolidated net sales was 13.7% for electrochemical deposition,
58.2% for cleaning, stripping and etching and 21.7% for parts, service and
other. The fiscal 1999 segment sales decline of 35.1% is due to lower sales in
all product lines, which was primarily the result of the semiconductor industry
downturn. However, the sales decline in our thermal products, which is included
in parts, service and other, was relatively greater than the general industry
decline due to a shift of marketing and sales resources away from that product
line. In fiscal 1998, segment net sales were $15.5 million less than segment net
sales in fiscal 1997. The decrease of 8.4% in fiscal 1998 was primarily
attributable to the decrease in cleaning, stripping and etching, and thermal
product lines sales which was partially offset by the increase in net sales of
electrochemical deposition products and spare parts and service.
In fiscal 1999, electrochemical deposition product net sales were
$20.4 million, a $4.2 million decline from the prior year, but the percentage
decline for this product line was significantly lower than the percentage
decline for all other product lines in this segment. Electrochemical deposition
net sales increased to $24.6 million in fiscal 1998 from $6.4 million in fiscal
1997. Essentially all of the fiscal 1998 increase in our electrochemical
deposition products was attributable to sales of tools for copper plating
applications.
Net sales for the Software Control Systems segment were $13.3 million,
$11.8 million and $10.5 million for fiscal 1999, 1998 and 1997. This included
intersegment sales of $413,000, $181,000 and $1.0 million for fiscal 1999, 1998
and 1997, respectively, which are eliminated in the consolidated statement of
operations. Segment net sales, excluding intersegment sales, increased 11.1%
from fiscal 1998 to fiscal 1999 and 21.7% from fiscal 1997 to fiscal 1998. The
net sales increases in both years were attributable to growing product
acceptance and increasing market demand of the segments' expanded product
offering. The fiscal 1998 increase was also due in part to a front end fab-wide
system installation for one customer.
GROSS PROFIT. Our gross margins were 47.0%, 50.4% and 47.0% for fiscal
1999, 1998 and 1997. The decrease in gross margin in fiscal 1999 was
attributable to a number of factors, including primarily the effect of lower
capacity utilization, higher obsolete inventory write-offs in the Semiconductor
Equipment segment and changes in sales mix in both segments. The increase in
gross margin in fiscal 1998 is attributable to a number of factors, including
the effect of manufacturing efficiencies earlier in that year which were
partially offset later in the year by excess capacity costs, lower material
costs in the Semiconductor Equipment segment and sales mix in both segments.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses were $49.5 million, $58.4 million and $49.5 million for fiscal 1999,
1998 and 1997. As a percent of net sales,
24
<PAGE>
selling, general and administrative expenses were 40.4%, 32.3% and 25.5% for
fiscal 1999, 1998 and 1997. The absolute decline in selling, general and
administrative expenses in fiscal 1999 compared to fiscal 1998 was the net
result of cost reductions and lower sales volumes.
The increase from fiscal 1997 to fiscal 1998 in selling, general and
administrative expenses by $8.9 million reflects primarily the full-year effect
of our mid 1997 decision to transition to our directly staffed sales and
customer support organization in most of the Asian marketplace, the larger
domestic and European customer service organization, and a $1.3 million bad debt
provision for an international receivable in fiscal 1998.
RESEARCH AND DEVELOPMENT. Research and development expenses were
$20.9 million, $24.5 million and $21.2 million for fiscal 1999, 1998 and 1997.
As a percent of net sales, research and development expenses were 17.0%, 13.6%
and 10.9% for fiscal 1999, 1998 and 1997. Research and development expenses for
fiscal 1999 were 14.9% below fiscal 1998's expense level which had increased
15.9% from fiscal 1997. During these periods, projects in the Semiconductor
Equipment segment included the development of the LT 210c linear copper plating
tool, the development of the high throughput fully automated Spectrum, the
Millennium platform, and the HydrOzone cleaning process, among others. The
Semiconductor Equipment segment's research and development activities were
focused on the electrochemical deposition and cleaning, stripping and etching
product lines.
INCOME (LOSS) FROM OPERATIONS. Income (loss) from operations for our
Semiconductor Equipment segment was a loss of $13.0 million, income of
$8.6 million and income of $18.3 million for fiscal 1999, 1998 and 1997. The
primary reason for the loss in fiscal 1999 and the decrease in income from
operations from fiscal 1997 to 1998 was due to the general decline in the
semiconductor industry. In fiscal 1999, this segment's selling, general and
administrative expenses and research and development expenses were reduced from
fiscal 1998 levels in response to the lower net sales in fiscal 1999 compared to
fiscal 1998. The loss from operations in fiscal 1999 and the reduction in income
from operations in fiscal 1998 compared to fiscal 1997 was also due in part to a
substantial portion of our selling, general and administrative expenses and our
research and development expenses being fixed in the short term. In fiscal 1999,
the Semiconductor Equipment segment's selling, general and administrative
expenses were also affected by an increase in legal expenses related to
litigation.
Income (loss) from operations for the Software Control Systems segment was
an income of $572,000, a loss of $381,000 and an income of $2.7 million for
fiscal 1999, 1998, and 1997. The increase from fiscal 1998 to 1999 is due to the
recovery in the semiconductor industry and growing product acceptance. Gross
margins increased slightly from fiscal 1999 compared to fiscal 1998. Selling
expenses increased in fiscal 1999 compared to fiscal 1998 in response to
increased sales, but research and development expenses decreased during the same
period as a major development project was completed in fiscal 1998. The decrease
from fiscal 1997 to fiscal 1998 was primarily due to reduced gross margins
related to marketing new products and increased research and development related
to the development of those products.
OTHER INCOME (EXPENSE), NET. Other income (expense), net was an income of
$1.8 million for fiscal 1999, an expense of $807,000 for fiscal 1998, and an
expense of $234,000 for fiscal 1997. A major component of this account was
interest expense of approximately $401,000, $559,000 and $499,000 for fiscal
1999, 1998 and 1997. In fiscal 1999, other income, net also included $468,000
from gains on sales of property and foreign exchange gains of $1.2 million. The
foreign exchange gain consisted of net gains and losses resulting from the
re-measurement of our accounts denominated in non-U.S. currencies into U.S.
Dollars, which is our functional currency, and net gains and losses on forward
contracts. The net exchange gain was due primarily to fluctuations of the U.S.
Dollar against the Japanese Yen. Other expense in fiscal 1998 included a
$483,000 write-off of capitalized costs associated with a canceled building
project.
INCOME TAXES. The fiscal 1999 income tax benefit, as a result of that
year's loss, was $4.2 million compared to a $2.5 million income tax provision
for fiscal 1998. The effective tax rates for fiscal 1999, 1998 and 1997 were
38.4%, 34.0% and 38.0%, respectively.
25
<PAGE>
QUARTERLY RESULTS OF OPERATIONS
The following tables presents unaudited consolidated statement of operations
data for the eight quarters ended March 31, 2000 in U.S. Dollars and as a
percentage of net sales. In management's opinion, all necessary adjustments,
consisting only of normal recurring accruals, have been included in the amounts
stated below to present fairly the selected quarterly information. You should
read this information in conjunction with the consolidated financial statements
and the related notes, included elsewhere in this prospectus. The results of
operations for any quarter are not necessarily indicative of results that may be
expected for any subsequent periods.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------------------------------------------------------------------------------
JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31,
1998 1998 1998 1999 1999 1999 1999 2000
-------- ---------- --------- --------- --------- ---------- --------- ---------
(UNAUDITED, IN THOUSANDS,
EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Net sales.................. $46,572 $41,686 $30,422 $25,816 $29,838 $36,452 $49,555 $54,308
Cost of sales.............. 22,463 22,562 15,685 13,889 15,216 20,090 23,738 24,841
------- ------- ------- ------- ------- ------- ------- -------
Gross profit............... 24,109 19,124 14,737 11,927 14,622 16,362 25,817 29,467
Operating expenses:
Selling, general and
administrative......... 15,181 14,975 11,657 11,421 13,336 13,101 14,955 15,978
Research and
development............ 6,313 5,200 5,549 5,200 5,555 4,570 5,312 5,881
------- ------- ------- ------- ------- ------- ------- -------
Total operating
expenses............. 21,494 20,175 17,206 16,621 18,891 17,671 20,267 21,859
------- ------- ------- ------- ------- ------- ------- -------
Income (loss) from
operations............... 2,615 (1,051) (2,469) (4,694) (4,269) (1,309) 5,550 7,608
------- ------- ------- ------- ------- ------- ------- -------
Other income (expense),
net...................... (252) (412) 741 198 125 732 18 (60)
Income (loss) before income
taxes.................... 2,363 (1,463) (1,728) (4,496) (4,144) (577) 5,568 7,548
Income taxes............... 874 (760) (587) (1,529) (1,409) (675) 1,837 2,360
------- ------- ------- ------- ------- ------- ------- -------
Net income (loss)........ $ 1,489 $ (703) $(1,141) $(2,967) $(2,735) $ 98 $ 3,731 $ 5,188
======= ======= ======= ======= ======= ======= ======= =======
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Net sales.................. 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales.............. 48.2% 54.1% 51.6% 53.8% 51.0% 55.1% 47.9% 45.7%
------- ------- ------- ------- ------- ------- ------- -------
Gross profit............... 51.8% 45.9% 48.4% 46.2% 49.0% 44.9% 52.1% 54.3%
Operating expenses:
Selling, general and
administrative......... 32.6% 35.9% 38.3% 44.3% 44.7% 35.9% 30.2% 29.5%
Research and
development............ 13.6% 12.5% 18.2% 20.1% 18.6% 12.6% 10.7% 10.8%
------- ------- ------- ------- ------- ------- ------- -------
Total operating
expenses............. 46.2% 48.4% 56.5% 64.4% 63.3% 48.5% 40.9% 40.3%
------- ------- ------- ------- ------- ------- ------- -------
Income (loss) from
operations............... 5.6% (2.5)% (8.1)% (18.2)% (14.3)% (3.6)% 11.2% 14.0%
------- ------- ------- ------- ------- ------- ------- -------
Other income (expense),
net...................... (0.5)% (1.0)% 2.4% (0.8)% 0.4% 2.0% 0.0% (0.1)%
Income (loss) before income
taxes.................... 5.1% (3.5)% (5.7)% (17.4)% (13.9)% (1.6)% 11.2% 13.9%
Income taxes............... 1.9% (1.8)% (1.9)% (5.9)% (4.7)% (1.9)% 3.7% 4.3%
------- ------- ------- ------- ------- ------- ------- -------
Net income (loss)........ 3.2% (1.7)% (3.8)% (11.5)% (9.2)% 0.3% 7.5% 9.6%
======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
26
<PAGE>
Our quarterly operation results have varied significantly in the past and
may continue to do so in the future. Some of the factors that may influence our
operating results include:
- changes in customer demand for our systems, which is influenced by
economic conditions in the semiconductor industry;
- demand for products that use semiconductors;
- market acceptance of our systems and those of our customers and changes in
our product offerings;
- the timing, cancellation or delay of customer orders and shipments;
- product development costs, including increased research, development,
engineering and marketing expenses associated with our introduction of new
products and product enhancements;
- the levels of our fixed expenses relative to our net sales;
- the timing of new product announcements and releases by us and our
competitors;
- market acceptance of new and enhanced versions of our products; and
- changes in pricing by us or our competitors.
We derive a substantial portion of our net sales from a relatively small
number of high dollar tools. Our net sales and operating results for a period
may be affected by the timing of orders received, orders shipped or, in the
future, upon tool acceptance in accordance with SAB 101.
In light of these factors and the cyclical nature of the semiconductor
industry, we expect to continue to experience significant fluctuations in
quarterly and annual operating results. Moreover, many of our expenses are fixed
in the short-term which, together with the need for continued investment in
research and development, marketing and customer support, limits our ability to
reduce expenses quickly.
Our quarterly net sales have increased in each of the last four quarters as
has net income. Gross margins have increased in the last two quarters. The
primary reasons for this growth is the general recovery of the semiconductor
industry and the acceptance of our electroplating tools by our customers.
On an absolute dollar basis our selling, general and administrative expenses
and our research and development expenses are increasing to meet the demands of
increased business activity. However, as a substantial portion of these costs
are fixed in the short-term, these costs are trending down as a percent of net
sales.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operating activities was $4.4 million for the six months
ended March 31, 2000, as compared to $5.3 million provided by operating
activities for the six months ended March 31, 1999. For the six months ended
March 31, 2000, cash provided by operations was lower as compared to the same
period in fiscal 1999 primarily due to increases in accounts receivable and
inventory, which were partially offset by increases in net income, accounts
payable and accrued warranty. Cash used in operating activities was $9.8 million
in fiscal 1999 and $15.0 million provided by operating activities in fiscal
1998. In fiscal 1999, cash was used in operations because of the net loss,
substantial increases in inventory, accounts receivable and income tax refund
receivable and a decrease in accrued warranty and installation, partially offset
by an increase in accounts payable and other accrued liabilities.
As of March 31, 2000, we had $53.7 million of accounts receivable and
$50.3 million of inventory as compared to $38.4 million of accounts receivable
and $41.7 million of inventory as of September 30, 1999, and $34.9 million of
accounts receivable and $36.4 million of inventory at September 30, 1998. We
expect future accounts receivable and inventory balances to fluctuate with net
sales. As is customary in the semiconductor manufacturing equipment industry,
products are generally built to fill
27
<PAGE>
specific customer orders, with typical order fulfillment times ranging from four
to six weeks for certain products to six months or more for more complex
products. Accordingly, while our finished goods inventory accounts for slightly
over 14.1% of total inventory, overall inventory levels tend to fluctuate with
the level and type of orders received. Currently, the tools with the longest
average cycle times are the Semiconductor Equipment segment's automated batch
and single wafer processing tools.
Cash used in investing activities for the six months ended March 31, 2000
was $2.1 million as compared to cash used in investing activities of $829,000
for the six months ended March 31, 1999. Cash used to purchase plant, property
and equipment in the first six months of fiscal 2000 was $1.5 million, compared
to $1.6 million in the six months ended March 31, 1999. Cash used for
investments in intangible assets was approximately $708,000 in the six months
ended March 31, 2000 as compared to $197,000 for the six months ended March 31,
1999. Cash used in investing activities in fiscal 1999 was $739,000 as compared
to cash used in investing activities of $12.5 million in fiscal 1998. Cash used
to purchase plant, property and equipment in fiscal 1999 was $2.0 million
compared to $9.8 million in fiscal 1998. In fiscal 1999, $3.4 million in cash
was provided by the sale of property. Major purchases of plant, property and
equipment during fiscal 1999 included the purchase of a building for the
Software Control Systems segment operations. Investments in intangible assets
used cash of approximately $654,000 in fiscal 1999 and $2.8 million cash used in
fiscal 1998 which included $2.2 million for Software Control Systems segment
software development costs capitalized once technological feasibility was
reached, and $600,000 for patents and trademarks.
Cash provided by financing activities for the six months ended March 31,
2000 consisted of cash provided by the exercise of stock options of
$3.0 million and cash used for net borrowing repayments of $2.2 million on our
line of credit and other short-term debts and the repayment of approximately
$217,000 on long-term debt and capitalized leases. Financing activities for the
six months ended March 31, 1999 consisted primarily of $3.4 million of
additional net borrowings under our line of credit to fund operations.
As of March 31, 2000, our principal sources of liquidity consisted of
approximately $7.7 million of cash and cash equivalents and $16.2 million
available under our $25 million revolving line of credit, which was amended
during the fourth quarter of fiscal 1999. The credit facility is with Bank of
America, N.A. and bears interest at the bank's prime lending rate or, at our
option for loan amounts of $500,000 or more, at LIBOR plus 1.5%. As of
March 31, 2000, the interest rate was 9.0%. Our revolving line of credit expires
on April 1, 2001 and all principal amounts owing are due by April 1, 2004. The
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 credit agreement and the maintenance of various financial
ratios. We increased this revolving line of credit to $40 million in July 2000
with all other terms and conditions remaining the same.
We believe that cash and cash equivalents, funds generated from operations
and funds available under our bank line will be sufficient to meet our planned
capital requirements during the next twelve months, including approximately
$5.0 million to purchase property, plant and equipment. We believe that success
in our industry requires substantial capital in order to maintain the
flexibility to take advantage of opportunities as they arise. We may, from time
to time, as market and business conditions warrant, invest in or acquire
complementary products, technologies or businesses. We may sell additional
equity or debt 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 our
shareholders.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, or SFAS 133, ACCOUNTING FOR DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES. SFAS 133 establishes accounting and
reporting standards for derivative instruments, including certain derivative
28
<PAGE>
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
us in fiscal 2001. We have not yet determined the effect the adoption of this
standard will have on our financial condition or results of operations.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, or SAB 101, REVENUE RECOGNITION IN FINANCIAL
STATEMENTS. SAB 101 provides guidance on applying generally accepted accounting
principles to revenue recognition issues in financial statements. When we adopt
SAB 101 in the first quarter of fiscal 2001, we will recognize revenue when we
substantially complete the terms of the applicable sales arrangement, which
generally occurs upon the customers' acceptance of our product. While we have
not fully assessed the impact on us of the adoption of SAB 101, we believe that
it may require a significant amount of our first quarter of fiscal 2001 net
sales to be deferred, which could be partially or totally offset by the
recognition of net sales for products shipped in prior periods, as required by
SAB 101. Any change in our revenue recognition policy resulting from the
implementation of SAB 101 would be reported as a change in accounting principle
in the quarter ending December 31, 2000 with a cumulative adjustment in that
quarter to reflect the effect of the change. We are also considering potential
changes to the terms of our agreements for equipment sales that could mitigate
the impact of SAB 101. In addition, we may need to renegotiate the financial
covenants under our line of credit agreement. As a result, while SAB 101 would
not affect the fundamental aspects of our operations as measured by our
shipments and cash flows, implementation of SAB 101 could have an adverse effect
on our reported results of operations for the first quarter of fiscal 2001 when
SAB 101 will be implemented.
In April 2000, Financial Accounting Standards Board Interpretation No. 44,
or FIN 44, ACCOUNTING FOR CERTAIN TRANSACTIONS INVOLVING STOCK COMPENSATION--an
interpretation of APB Opinion No. 25, was issued. FIN 44 clarifies and modifies
APB Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES. FIN 44 is
effective for us in the fourth quarter of fiscal year 2000. We have not yet
determined the effect, if any, the implementation of the interpretation will
have on our financial condition or results of operations.
MARKET RISKS
Market risks relating to our operations result primarily from changes in
interest rate and changes in foreign currency exchange rates.
As of March 31, 2000, we had approximately $4.2 million in long-term debt
and approximately $8.9 million in short-term debt. Our 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. We
believe that a 10% change in the long-term interest rate would not have a
material effect on our business, financial condition, results of operations or
cash flows.
All of our international operations are subject to inherent risks in
conducting business abroad, including fluctuation in the relative value of
currencies. We manage this risk and attempt to reduce such exposure through an
economic hedge by entering into short-term forward exchange contracts. At
March 31, 2000, we held forward contracts to purchase Japanese Yen with a face
value of $13.4 million, a market value of $13.9 million and an unrealized loss
of approximately $500,000. However, the impact of movements in currency exchange
rates on forward contracts is offset to the extent of intercompany receivables
denominated in Japanese Yen. The effect of a 10% change in foreign exchange
rates on hedged transactions involving Japanese Yen forward exchange contracts
and the underlying transactions would not be material to our financial
condition, results of operations or cash flows. We do not hold or issue
derivative financial instruments for trading or speculative purposes.
29
<PAGE>
BUSINESS
OVERVIEW
Semitool is a worldwide leader in the design, development, manufacture and
support of high performance wet chemical processing equipment for use in
fabrication of semiconductor devices. Our primary families of tools are
electrochemical deposition systems for the plating of copper interconnects for
integrated circuits and other metals for various applications, and wafer surface
preparation systems for cleaning, stripping and etching processes. We provide
our customers with this suite of technologically innovative batch and single
wafer processing tools that leverages our core wet chemical expertise and our
experience building and supporting production-proven semiconductor fabrication
equipment.
With more than 20 years dedicated to the semiconductor and related
industries, we have applied our wet chemical expertise in design, engineering,
process and manufacturing to deliver innovations in electrochemical deposition
and wafer surface preparation to our global customer base. Our customers include
many of the major semiconductor device manufacturers worldwide, including
Advanced Micro Devices, Conexant Systems, Fujitsu, IBM, Infineon, Intel, Lucent
Technologies, Maxim Integrated Products, Motorola, NEC, Philips Semiconductor,
Samsung, STMicroelectronics, TSMC and UMC.
INDUSTRY BACKGROUND
Semiconductor devices, commonly called integrated circuits, or ICs, consist
of components, typically millions of microscopic transistors, which are
interconnected with metal circuitry to form the functional IC. Fabrication of an
IC involves up to 350 complex and repetitive process steps, involving a vast
array of manufacturing equipment and chemical media. ICs are fabricated on
substrates, or wafers, made of a semiconductor material, most commonly silicon.
The fabrication process involves the deposition of multiple layers of insulating
and conducting films, along with cleaning, stripping and etching processes
throughout the fabrication to prepare the surface for the next step. There can
be between eight and 30 thin, patterned layers in an IC. After the fabrication
sequence, the wafer may contain up to several hundred ICs. Individual ICs are
derived from the wafer by a process involving extremely fine sawing, or dicing,
after which the wafer is cleaved into separate ICs. The IC is then "packaged" by
electrically connecting it to pins via metal wires or contacts to allow
insertion into an electronic device, and encapsulating the IC into a polymer
package.
Electronic systems require increasingly complex ICs that operate at higher
performance levels, while at the same time using less power and generating less
heat. Fabrication of such advanced ICs requires increases in the number of
fabrication process steps, a reduction in device feature sizes, as well as
innovations in IC fabrication processes and manufacturing equipment. Dataquest
estimated the overall semiconductor process equipment market to be
$17.5 billion in 1999 and projected it to grow to $38.3 billion in 2002,
representing a 29.9% compound annual growth rate.
TRENDS IN SEMICONDUCTOR MANUFACTURING
DEVELOPMENT OF SMALLER FEATURE GEOMETRIES. The development of smaller
feature geometries, 0.18 micron and below, enables device manufacturers to
produce greater numbers of ICs per wafer. Yet as device geometry line widths
decrease, manufacturing yields become increasingly sensitive to the magnitude of
processing defects.
TRANSITION TO COPPER. Aluminum alloys have traditionally been used to
connect the millions of transistors that make up each IC. As devices and
features are reduced in size, and device performance requirements increase, an
electrical conductor with superior conductivity is needed, and copper is
evolving as the material of choice to replace aluminum interconnects in ICs.
Copper, however, cannot be deposited reliably by traditional vacuum-based
systems. Electrochemical deposition, an alternative
30
<PAGE>
type of deposition, is an effective method to reliably and uniformly deposit
copper. In addition to the device performance benefits, copper electrochemical
deposition also results in lower cost and fewer manufacturing steps. The unique
chemical and physical properties of copper require the IC manufacturer to use
specialized fabrication equipment in place of existing tools.
MIGRATION TO 300 MILLIMETER WAFERS. The migration to a larger 300
millimeter wafer size lowers the manufacturing cost per IC by increasing the
number of ICs per wafer. Processing larger wafers requires the acquisition of
specialized equipment by IC manufacturers. Most 300 millimeter wafer processing
cannot be performed on previous generations of equipment, necessitating purchase
of new systems.
ELECTROCHEMICAL DEPOSITION
Deposition is the fabrication process in which a film of either electrically
insulating or electrically conductive material, such as aluminum or copper, is
deposited on the surface of the wafer. Traditional deposition methods involve
placing wafers in an ultra-high vacuum process chamber and introducing a variety
of pure and precisely metered gases while some form of energy is added to
activate a chemical reaction on the wafer surface. The result of the reaction is
the deposition of a thin layer of aluminum on the wafer. Traditional deposition
methods are expensive processes because of the high temperature and ultra-high
vacuum environment they require. Moreover, these methods are not well suited to
address the chemical properties of new interconnect materials, such as copper.
Electrochemical deposition, by contrast, is a wet chemical process that
involves plating a semiconductor wafer in the process chamber of a tool at room
pressure and temperature. This process does not require the expense and time
needed when using an ultra-high vacuum environment, and in the case of copper
plating, results in the deposition of a uniform film of copper metal on the
wafer. In addition to copper deposition, electrochemical deposition can also be
used for a variety of other applications, including solder bumps for IC
packaging, gold bumps and interconnects for communications ICs and platinum
deposition for capacitors in memory circuits. According to Dataquest estimates,
the market for electrochemical deposition equipment was $102 million in 1999,
and projected to grow to $373 million in 2002, representing a 54.1% compound
annual growth rate.
CLEANING, STRIPPING AND ETCHING PROCESSES
Cleaning, stripping, etching or otherwise conditioning the surface of the
wafer are critical steps in the semiconductor fabrication process.
Traditionally, these wet chemical processing steps have been accomplished using
specialized equipment, called wet benches. Wet benches suffer from process
limitations inherent in their design, including inconsistent processing across
the surface of each wafer, lower throughput per square foot and particle
contamination of the wafers. Particle contamination, in particular, arises
because contaminants are easily transferred to the surface of processed wafers
as they are moved in and out of the liquids which the wet benches contain. This
contamination decreases yield and increases cost of the fabrication process.
In contrast, spray tools used in the cleaning, stripping and etching
processes subject wafers to sequential spray applications of chemicals as the
wafers are spun at high speeds on their axes inside an enclosed process chamber.
This technology enables precise and uniform application of process chemicals,
enhanced process reliability because of reduced particle contamination, smaller
footprint tools and shorter process cycle times. Enhanced process reliability
and reduced particle contamination are increasingly critical as IC complexity
increases the number of wafer conditioning steps during the fabrication process,
as new materials, such as copper, which are hazardous to other parts of the
fabrication process, are introduced through plating, and as shrinking geometries
link ever smaller contamination levels to IC failure. According to Dataquest
estimates, the market for cleaning, stripping and etching equipment was
$1.1 billion in 1999, and projected to grow to $2.2 billion in 2002,
representing a 27.6% compound annual growth rate.
31
<PAGE>
THE SEMITOOL SOLUTION
Semitool is a worldwide leader in the design, development, manufacture and
support of high performance wet chemical processing equipment for use in
fabrication of semiconductor devices. Our primary families of tools include
electrochemical deposition systems for the plating of copper interconnects for
ICs and other metals for various applications, and wafer surface preparation
systems for cleaning, stripping and etching processes. This suite of
technologically innovative batch and single wafer processing tools leverages our
core wet chemical expertise and our more than two decades of innovation and
experience building and supporting production-proven semiconductor fabrication
equipment.
ELECTROCHEMICAL DEPOSITION SOLUTIONS. Our LT 210c and Equinox family of
electrochemical deposition systems incorporates proprietary plating technology
that operates at room pressure and temperature and enables precisely controlled
deposition of copper film on a device-side down semiconductor wafer. We
introduced the first high-throughput copper plating tool in calendar year 1994
and continue to develop innovative electrochemical deposition solutions. In
addition to copper deposition, our plating equipment is also used for a variety
of other applications, including solder bumps for IC packaging, gold bumps and
interconnects for communications ICs and platinum deposition for capacitors in
memory circuits.
BATCH CLEANING, STRIPPING AND ETCHING SOLUTIONS. Our Spectrum and Magnum
family of automated cleaning, stripping and etching equipment uses a spray
technology that we developed to batch-process up to 52 wafers. Our tools spin
the wafers in a carrier rotated on its axis inside an enclosed process chamber
and expose the wafers to a sequenced spray of chemicals. This spray technology
enables precise and uniform application of process chemicals, enhanced process
reliability because of reduced particle contamination and shorter process cycle
times. In addition, our batch wet chemical platforms enable our proprietary,
cost-effective cleaning process, called HydrOzone. This process uses a spray of
deionized water and ozone gas as a cleaning agent in place of the costly and
environmentally harmful chemical solutions traditionally relied upon for
cleaning semiconductor wafers.
SINGLE WAFER, CLEANING, STRIPPING AND ETCHING SOLUTIONS. Our Capsule
cleaning modules enable precise, side-selective application of chemicals to a
wafer enclosed in a controlled chamber. Capsule modules, either as process
chambers on our deposition tools or standing alone as our Millennium wet
chemical processing equipment, provide for both side-selective and wafer edge
cleaning. This allows the removal of copper and other contaminants hazardous to
subsequent steps in the IC fabrication process from the back and edges of the
wafer.
STRATEGY
Our objective is to be the leading provider of innovative wet chemical
processing equipment to semiconductor manufacturers worldwide. Our business
strategy incorporates the following key elements:
MAINTAIN AND EXPAND TECHNOLOGY LEADERSHIP. We intend to continue investing
in research and development to maintain and expand our technological leadership
position. We believe that our proprietary electrochemical deposition systems,
principally for the plating of copper interconnects, and wafer cleaning,
stripping and etching systems, provides us with a technological advantage over
competing wet chemical semiconductor processing equipment. We believe that our
technologies provide our customers with critical performance, quality, process
control and cost benefits. We further believe that technical innovations will
continue to be one of the leading drivers for market acceptance of new
semiconductor processing equipment.
32
<PAGE>
OFFER A BROAD RANGE OF PRODUCTS INCORPORATING INNOVATIVE TECHNOLOGIES. We
offer a broad range of differentiated products, including electrochemical
deposition equipment and cleaning, stripping and etching tools to semiconductor
manufacturers for use in diverse process applications. Since development and
introduction in 1979 of our first product, the SRD, or Spin Rinser/Dryer, we
have continued to enhance and expand our product offering in response to the
evolving needs of the semiconductor manufacturing industry.
LEVERAGE PROCESS TECHNOLOGIES ACROSS MARKETS AND APPLICATIONS. We believe
our technology and manufacturing expertise enables us to offer solutions to
manufacturers of other products, such as solder bumping for IC packaging, thin
film heads and hard disk media used for disk drives, MEMS, or micro
electromechanical systems, and ink jet print heads that use fabrication
processes similar to those used by semiconductor manufacturers.
CAPITALIZE ON DESIGN AND MANUFACTURING EXPERTISE. We intend to continue to
identify those design and manufacturing functions which add value to our
products. We believe we achieve a number of competitive advantages from our
internal design capabilities and selective vertical manufacturing integration,
including the ability to achieve cost and quality benefits, and to quickly bring
new products and product enhancements to market.
PRODUCTS
Semitool's broad product suite of high performance, technologically
innovative processing tools leverages our core wet chemical expertise and more
than two decades of experience building production-proven semiconductor
manufacturing equipment. Our primary wet chemical processing solutions consist
of electrochemical deposition equipment, primarily for the plating of copper, as
well as batch and single wafer cleaning, stripping and etching tools. All of
these solutions leverage and extend our core spin-spray technologies, that apply
process chemicals to wafers spun on their axes at high speed inside an enclosed
process chamber.
Complementing our core products, we also provide container cleaning
equipment that we developed through an extension of our core spin-spray
technology, precision thermal processing tools and semiconductor manufacturing
software control systems.
The following table summarizes various features of our principal families of
products:
<TABLE>
<CAPTION>
CALENDAR YEAR OF APPROXIMATE PRICE
PRODUCT LINE INTRODUCTION PRINCIPAL APPLICATIONS RANGE PER TOOL
------------ ---------------- --------------------------------- --------------------
(IN THOUSANDS)
<S> <C> <C> <C>
Electrochemical Deposition Products
LT 210C 1998 Electro-Plating $1,600-$2,600
LT 210 1996 Electro-Plating $1,100-$2,800
EQUINOX 1994 Electro-Plating $575-$1,600
Batch Cleaning, Stripping and
Etching Products
SPECTRUM 1998 Clean, Strip, Etch $1,200-$3,000
MAGNUM 1993 Clean, Strip, Etch $900-$3,200
SAT 1981 Clean, Strip, Etch $350-$900
SST 1980 Clean, Strip $225-$850
SRD 1979 Clean $15-$100
</TABLE>
33
<PAGE>
<TABLE>
<CAPTION>
CALENDAR YEAR OF APPROXIMATE PRICE
PRODUCT LINE INTRODUCTION PRINCIPAL APPLICATIONS RANGE PER TOOL
------------ ---------------- --------------------------------- --------------------
(IN THOUSANDS)
<S> <C> <C> <C>
Single Wafer Cleaning, Stripping and
Etching Products
MILLENNIUM 1998 Clean, Strip, Etch $1,000-$2,200
EQUINOX 1986 Clean, Strip, Etch $300-$1,000
Other Semiconductor
Equipment Products
STORM 1988 Container Cleaning $275-$450
VTP 1500 1987 Thermal Processing $800-$1,100
Software Control Systems
SEMY APC 1997 Run-to-Run Control, $185-$275
Automatic Fault Detection
</TABLE>
ELECTROCHEMICAL DEPOSITION PRODUCTS
LT 210C: The LT 210c is a compact version of the LT 210 platform, with a
reduction in footprint of nearly 40%. This next-generation system offers up to
ten process chambers, and utilizes two robots for wafer handling. The
combination of small size, multiple chambers and dual robots results in a highly
productive system for high volume manufacturing operations. The primary
application for the LT 210c is in copper deposition, but the system also
deposits gold, platinum, solder and nickel alloys. The LT 210c includes our
innovative Capsule for post-electrochemical deposition cleaning and removal of
copper contamination.
LT 210: The LT 210 is a high productivity system with capability for up to
ten process chambers. Utilizing two robots mounted on linear tracks, the LT 210
provides a space efficient platform for electrochemical deposition processes.
Metals deposited by the LT 210 include copper, gold, platinum, solder and nickel
alloys. Our Capsule is also available on the LT 210.
EQUINOX: The Equinox system is an automated, single wafer processor for
medium to low production volumes and for research and development activities.
This system is offered with up to six process chambers and utilizes a single
wafer handling robot. It is offered for electrochemical deposition of copper,
gold, platinum, solder and nickel alloys.
BATCH CLEANING, STRIPPING AND ETCHING PRODUCTS
SPECTRUM: The Spectrum is our most advanced automated batch process tool.
It is a compact system, with a footprint 40% smaller than our previous Magnum
family of tools. It is dedicated to specific cleaning, stripping and etching
processes, including our HydrOzone process which uses deionized, or DI water,
and ozone gas to replace sulfuric acid based processing, and is designed for
high volume manufacturing. The Spectrum tool incorporates our most advanced
software and control systems.
MAGNUM: The Magnum is a fully automated batch process tool capable of
integrating modules for corrosive, caustic and solvent applications. It can be
integrated with spray, as well as immersion technology for addressing a wide
range of manufacturing challenges. Processing up to 52 wafers in a process
chamber in a carrier-less mode, the Magnum offers precise process control and
flexibility.
SAT: The SAT, or Spray Acid Tool, applies corrosive and caustic process
media to semiconductor wafers for removal of various contaminants, including
particles, metals, organic material, oxides and
34
<PAGE>
chemical films. It also provides extremely uniform etching performance. The SAT
is a manually loaded system, running batches of 25 wafers and performing
sequential processing whereby the process media is brought to the semiconductor
wafers and delivered as a spray. It is offered in one, two and three chamber
models. Our Hydrozone process can also be used on the SAT platform.
SST: The SST, or Spray Solvent Tool, applies solvent process media to
semiconductor wafers for removal of photoresist, etch polymers, polyimides and
organic contaminants. The SST performs sequential processing, by applying
solvents and rinse agents, such as DI water, for cleaning, and nitrogen gas for
drying. This manually loaded system runs batches of 25 wafers at a time in the
process chamber. It is offered in one and two process chamber models.
SRD: The SRD, or Spin Rinser/Dryer, is a highly efficient cleaning system
utilizing DI water to remove chemical residue, particles, and other
water-removable contaminants. The SRD provides DI cleaning with minimal amounts
of water, in a small footprint tool. It is offered in one, two and three chamber
models.
SINGLE WAFER CLEANING, STRIPPING, AND ETCHING PRODUCTS
MILLENNIUM: The Millennium, which is based on our compact LT 210c platform,
is an advanced single wafer processor with up to ten process chambers and two
wafer handling robots. This system incorporates our Capsule side-selective
processing module and can also be equipped with spray, immersion and vapor
process chambers for addressing a wide range of high volume, leading edge
applications.
EQUINOX: The Equinox system allows the combination of caustics, corrosives
and solvents in a single cluster tool in the cleaning, stripping and etching
processes. Suitable for medium to low production volumes and for research and
development applications, this system is offered with up to six process chambers
and utilizes a single wafer handling robot.
OTHER SEMICONDUCTOR EQUIPMENT PRODUCTS
STORM: The Storm is a single chamber system used for the cleaning of wafer
transport containers. It processes batches of containers simultaneously, thereby
offering high productivity in a space efficient system.
VT 1500: The VTP 1500 is our vertical thermal processor, featuring batch
applications for thermal deposition of oxide, nitride and polysilicon films. It
also is used for various anneal processes where precise control of temperature
and rate of change of temperature is required. Our VTP 1500 features our
patented double-lift system, which allows wafers to remain stationary, reducing
cycle time and providing more precise process control.
SOFTWARE CONTROL SYSTEMS
SEMY APC: Our SEMY APC, or Advanced Process and Equipment Control, software
systems provide automatic fault detection and run-to-run control of
semiconductor manufacturing equipment. This automated and integrated control
results in improved productivity, reduced scrap, increased device yield through
improved process control, and better equipment utilization by providing for
predictive maintenance.
35
<PAGE>
CUSTOMERS, SALES AND MARKETING
Our customers include leading worldwide semiconductor manufacturers. The
following is a representative list of our largest United States and
international customers, each having purchased approximately $2.0 million or
more in fiscal 1999:
<TABLE>
<S> <C> <C>
Advanced Micro Devices Lucent Technologies Seagate
Conexant Systems Maxim Integrated Products Sony
Fujitsu Motorola STMicroelectronics
IBM Nan Ya Technologies Tokyo Electron
Infineon NEC TSMC
Integrated Device Philips Semiconductor United Microelectronics
Technologies Samsung Unitive Electronics
Intel
Whiteoak Semiconductor
</TABLE>
We believe that our worldwide sales, service and customer support
organizations are important to the long-term success of our customer
relationships.
International sales, primarily in Europe and Asia, accounted for
approximately 35.9%, 38.3%, 52.8% and 57.8% of total net sales for fiscal 1997,
1998 and 1999 and the six months ended March 31, 2000, respectively. We market
and sell our products in the United States through our sales organization which
includes direct sales personnel and a limited number of independent sales
representatives. We currently have sales and service offices located throughout
the United States and Europe. Also, we have a direct sales and customer support
organization located in Japan, Singapore and Korea with independent sales
representatives serving China, Japan, Taiwan, and the United States. To enhance
our sales capabilities, we maintain demonstration and process development
laboratories at our facility in Kalispell, Montana and a demonstration
laboratory in Japan.
Field service personnel and application engineers service customers in the
United States, Europe, Japan and Asia, directly providing warranty service,
post-warranty service and equipment installations. Field service engineers are
located in nine sites throughout the United States, including dedicated
site-specific engineers at certain customer locations pursuant to customer
agreements. To further ensure customer satisfaction, we also provide service and
maintenance training, as well as process application training for our customers'
personnel on a fee basis. We maintain an inventory of spare parts strategically
located throughout the world, which allows us to provide same day or overnight
delivery in most instances.
BACKLOG
Consolidated orders backlog increased 213.3% to $92.1 million at March 31,
2000, from approximately $29.4 million at March 31, 1999. At March 31, 2000,
semiconductor equipment orders represented 95.5% of consolidated orders backlog,
and 97.3% as of the March 31, 1999.
We include in backlog those customer orders for which we have written
customer authorization and for which shipment is scheduled within the next
twelve months. Orders are generally subject to cancellation or rescheduling by
customers with limited or no penalty. Cancellations amounted to 2.3% of the
dollar amounts of orders in fiscal 1999 and 1.3% in fiscal 1998. As the result
of systems ordered and shipped in the same quarter, possible changes in customer
delivery, cancellations and shipment delays, the backlog at any particular date
and the new orders bookings for any particular period are not necessarily
indicative of actual sales for any succeeding period. In particular, during
periods of downturns in the semiconductor industry we have experienced
significant delays relating to orders that were previously included in our
consolidated orders backlog.
36
<PAGE>
MANUFACTURING
Most of the semiconductor equipment manufacturing is conducted at our
facilities located in Kalispell, Montana. Our manufacturing operations include
metals and plastics fabrication and finishing capabilities; component parts and
final product assembly; and extensive product testing capabilities.
Manufacturing personnel work closely with product development engineers to
ensure that products are engineered for manufacturability, affording a smooth
transition from prototype to full scale production. Component and product
prototyping is performed internally. Software Control Systems operations are
conducted at our facility in Phoenix, Arizona.
RESEARCH AND DEVELOPMENT
The market for semiconductor equipment and software control systems is
characterized by rapid technological change and product innovation. We believe
that continued timely development of products for both existing and new markets
is necessary to remain competitive. Therefore, we devote significant resources
to programs directed at developing new and enhanced products, as well as new
applications for existing products. We maintain extensive demonstration and
process development laboratories at our facilities in Montana, including a clean
room for testing and developing products. Research and development personnel
work directly with customers to provide process solutions, develop new processes
and to design and evaluate new equipment.
Expenditures for research and development, which are expensed as incurred,
were approximately $21.2 million in fiscal 1997, $24.5 million in fiscal 1998,
$20.9 million in fiscal 1999 and $11.2 million during the six months ended
March 31, 2000. These expenditures as a percentage of our net sales represented
approximately 10.8% during the six months ended March 31, 2000, 17.0% in fiscal
1999, 13.6% in fiscal 1998 and 10.9% in fiscal 1997.
COMPETITION
The markets in which we compete are highly competitive. We face substantial
competition from established competitors, certain of which have greater
financial, marketing, technical and other resources, broader product lines, more
extensive customer support capabilities, and larger sales organizations and
customer bases. We may also face competition from new domestic and overseas
market entrants. Significant competitive factors in the semiconductor equipment
market and other markets in which we compete include system performance and
flexibility, cost of ownership, the size of each manufacturer's installed
customer base, customer service and support and breadth of product line. We
believe that we compete favorably on the basis of these factors.
PATENTS AND OTHER INTELLECTUAL PROPERTY
Our success depends in significant part on the technically innovative
features of our products. We currently hold 74 U.S. patents, some with pending
foreign counterparts, have 118 U.S. patent applications pending and intend to
file additional patent applications as we deem appropriate. There can be no
assurance that patents will be issued from any of our pending applications or
that existing or future patents will be sufficiently broad to protect our
technology. While we attempt to protect our intellectual property rights through
patents, copyrights and non-disclosure agreements, there can be no assurance
that we will be able to protect our technology, or that competitors will not be
able to develop similar technology independently. In addition, the laws of
certain foreign countries may not protect our intellectual property to the same
extent as the laws of the United States. Moreover, there can be no assurance
that our existing or future patents will not be challenged, invalidated or
circumvented, or that the rights granted thereunder will provide meaningful
competitive advantages to us. In any of such events, our business, financial
condition, results of operations and cash flows could be harmed.
37
<PAGE>
In addition, we rely on trade secret protection for our technology, in part
through confidentiality agreements with our employees, consultants and third
parties. However, employees may breach these agreements, and we may not have
adequate remedies for any breach. In any case, others may come to know about or
determine our trade secrets through a variety of methods.
We also rely to a lesser extent on technology developed and licensed from
third parties. These licenses may not continue to be available to us on
commercially reasonable terms in the future. The loss of existing technology
licenses could harm the performance of our existing services until equivalent
technology can be identified, obtained and integrated. Failure to obtain new
technology licenses may result in delays or reductions in the introduction of
new and existing features, functions or services, which would harm our business.
From time to time, we receive letters alleging patent infringement or
inviting us to take a license to other parties' patents. We evaluate these
letters on a case-by-case basis. Offers such as these may lead to litigation if
we reject the opportunity to obtain the license.
There has been substantial litigation regarding patent and other
intellectual property rights in semiconductor-related industries. Although we
are not aware of any infringement by our products of any patents or proprietary
rights of others, further commercialization of our products could provoke claims
of infringement from third parties. Any such claims could have a material
adverse effect on our financial condition, and adverse determinations in any
litigation could also harm our business, financial condition, results of
operations and cash flows. We can give no assurance that third parties will not
claim patent infringement in the future.
EMPLOYEES
At March 31, 2000, we had 1,095 full time employees and 167 temporary
workers worldwide. None of our employees is represented by a labor union, and we
have never experienced a work stoppage or strike. We consider our employee
relations to be good.
FACILITIES
We own five facilities around the world. We have two manufacturing
facilities located on sites in Kalispell, Montana with approximately 200,000
square feet in the aggregate. We also own a building and land located in
Cambridge, England which serves as our European sales and customer service
headquarters and a building and land located in Coopersburg, Pennsylvania, which
serves as a manufacturing facility for our Rhetech, Inc. subsidiary. In
addition, in fiscal 1999, we purchased a building and land in Phoenix, Arizona
to house our Semy Engineering, Inc. subsidiary. All the facilities above support
our Semiconductor Equipment segment, except our Phoenix, Arizona facility which
supports our Software Control Systems segment. We believe that our existing
manufacturing facilities will be adequate to meet our requirements for the
foreseeable future and that suitable additional or substitute space will be
available as needed. We also lease fourteen other smaller facilities worldwide,
which are used as sales and customer service centers.
LEGAL MATTERS
In August 1998, we filed suit against Novellus Systems, Inc. in the United
States District Court for the Northern District of California (Case
No. C-98-3089 DLJ), alleging infringement of two of our patents relating to
single substrate processing tools used in electrochemical deposition of copper
onto semiconductor wafers. We seek damages for past infringement, a permanent
injunction prohibiting future infringement, treble damages for willful
infringement, prejudgment interest and attorneys' fees. Novellus answered the
complaint by denying all of the allegations and counter-claiming for declaratory
judgment of invalidity and noninfringement and attorneys' fees. Novellus filed a
motion for summary
38
<PAGE>
judgment of noninfringement, which motion was granted on March 17, 2000, and
judgement was subsequently entered on May 12, 2000 dismissing the case. We filed
an appeal to the United States Court of Appeals for the Federal Circuit on
May 15, 2000 seeking review of the ruling on the motion for summary judgment.
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 us. The
lawsuit alleges breach of warranties and seeks damages and attorneys' fees of
approximately $5.4 million. The trial is scheduled to commence in February,
2001. We believe the lawsuit to be without merit and are contesting the action
vigorously. However, given the inherent uncertainty of litigation and the stage
of discovery, there can be no assurance that the ultimate outcome will be in our
favor. Further, regardless of the ultimate outcome, there can be no assurance
that the diversion of management's attention, and any costs associated with the
lawsuit, will not have a material adverse effect on our financial condition,
results of operations or cash flows.
We are subject to other legal proceedings and claims which have arisen in
the ordinary course of our 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 our 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 our
results of operations, financial condition or cash flows.
In addition, we have been notified by the Market Regulation Department of
NASD Regulation, Inc., which is the regulatory subsidiary of the National
Association of Securities Dealers, or NASD, that they are conducting a review of
trading activity in our common stock surrounding our January 10, 2000
announcement concerning our results for the quarter ended December 31, 1999. We
are aware that the son of our Chairman acquired 2,000 shares of our common stock
for his SEP retirement account during the relevant time period. According to
NASD Regulation, the NASD review should not be construed as an indication that
any violations of NASD rules or federal securities laws occurred, or as a
reflection upon any person who effected transactions in our securities. Through
our attorneys, we are cooperating with the NASD's review.
39
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information with respect to our
executive officers and directors as of May 1, 2000.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- -------- --------
<S> <C> <C>
Raymon F. Thompson........................ 58 Chairman, President and Chief Executive
Officer
Timothy C. Dodkin......................... 50 Director and Senior Vice President,
Managing Director of Semitool Europe, Ltd.
William A. Freeman........................ 57 Senior Vice President and Chief Financial
Officer
Gregory L. Perkins........................ 56 Vice President, Operations
Larry A. Viano............................ 46 Treasurer, Controller and Secretary
Howard E. Bateman(1)...................... 65 Director
Richard A. Dasen(2)....................... 57 Director
Daniel J. Eigeman(2)...................... 65 Director
</TABLE>
------------
(1) Member of the Compensation and Stock Option Committee.
(2) Member of the Audit Committee.
RAYMON F. THOMPSON founded Semitool in 1979 and serves as our Chairman,
President and Chief Executive Officer. In 1979, Mr. Thompson designed, patented
and introduced the first on-axis spin rinser/dryer for the semiconductor
industry. Mr. Thompson serves on the Boards of Directors of Semitool
Europe, Ltd. and Semitool Japan KK.
TIMOTHY C. DODKIN has been employed by us since 1985 and has served on our
Board of Directors since 1998. Mr. Dodkin served as our European Sales Manager
from 1985 to 1986 when he became Senior Vice President, Managing Director of
Semitool Europe, Ltd. Prior to joining us, Mr. Dodkin worked at Cambridge
Instruments, a semiconductor equipment manufacturer, for ten years in national
and international sales.
WILLIAM A. FREEMAN has been employed by us since 1998 and is our Senior Vice
President and Chief Financial Officer. Prior to joining us and since 1995,
Mr. Freeman was an independent management consultant. Prior to 1995, he worked
for 22 years at Zurn Industries, Inc., a diversified manufacturing, engineering,
and construction company. At Zurn, Mr. Freeman served in division management
positions before being appointed Senior Vice President and Chief Financial
Officer in 1986, and President in 1991. Mr. Freeman is also a director of NPC
International, Inc.
GREGORY L. PERKINS joined us in 1990 as Vice President, Manufacturing and,
since 1994, has served as our Vice President, Operations. Prior to joining us,
Mr. Perkins served as General Manager for Modulair, Inc., a manufacturer of
clean rooms, from 1987 to 1990.
LARRY A. VIANO joined us in 1985 and serves as our Treasurer, Controller and
Secretary. Mr. Viano serves on the Board of Directors of Semitool Europe, Ltd.
and Semitool Japan KK. Mr. Viano is a Certified Public Accountant.
HOWARD E. BATEMAN has served on our Board of Directors since 1990.
Mr. Bateman formerly owned and operated Entech, a Pennsylvania company that was
an independent sales representative for our products from 1979 to 1996.
40
<PAGE>
RICHARD A. DASEN has served on our Board of Directors since 1984. From 1974
to 1992, Mr. Dasen owned and managed Evergreen Bancorporation, a multi-bank
holding company. Since 1992, Mr. Dasen has been an independent businessman.
DANIEL J. EIGEMAN has served on our Board of Directors since 1985. From 1971
to 1993, Mr. Eigeman was President of Eigeman, Hanson & Co., P.C., an accounting
firm, and since 1993 has been a shareholder of Junkermier, Clark, Campanella,
Stevens, P.C., CPAs. Mr. Eigeman serves as a director of CPA Mutual Insurance of
America, Inc.
RELATED PARTY TRANSACTIONS
We lease airplanes from Raymon F. Thompson, our Chairman, President and
Chief Executive Officer. Under these lease agreements, we made rental payments
to Mr. Thompson of $474,000 during the fiscal year ended September 30, 1999. We
currently lease two airplanes from Mr. Thompson with a total monthly rental
charge of approximately $57,000. The lease term is month-to-month. The terms of
the lease agreement were based on quotes from independent aircraft leasing
dealers for the same type of aircraft. In addition, we lease a hangar from
Mr. Thompson for a monthly rent in the amount of $3,333. This lease began on
October 1, 1999 and has a three-year term. We believe that these lease
agreements are on terms no less favorable to us than could have been obtained
from an unaffiliated party.
Periodically, we advance funds to Mr. Thompson and pay certain expenses for
the benefit of Mr. Thompson. These advances are offset by amounts payable to
Mr. Thompson under the agreements described in the preceding paragraph. Net
advances to (from) Mr. Thompson are charged interest at our borrowing rate for
short-term funds. Associated with these advances, Mr. Thompson paid us interest
of $3,932 in fiscal 1998.
We purchased raw materials approximating $720,000 and $441,000 for the
fiscal years ended September 30, 1997 and 1998, respectively, from a company
previously owned by Mr. Thompson. Mr. Thompson sold his holdings of this company
in December 1997.
41
<PAGE>
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth certain information known to us regarding the
beneficial ownership of common stock as of March 31, 2000, and as adjusted to
reflect the sale of common stock offered hereby, by:
- each of our directors;
- the chief executive officer and our four most highly compensated executive
officers other than our chief executive officer;
- all directors and executive officers as a group; and
- each person known to us to be the beneficial owner of more than 5% of our
outstanding shares of common stock.
The beneficial ownership is calculated based on 28,265,420 shares of our
common stock outstanding as of March 31, 2000 and 31,301,420 shares of common
stock after completion of this offering. Beneficial ownership is determined in
accordance with the rules of the Securities and Exchange Commission. In
computing the number of shares beneficially owned by a person and the percentage
ownership of that person, shares of common stock subject to options held by that
person that are currently exercisable or exercisable within 60 days of
March 31, 2000 are deemed outstanding. Such shares, however, are not deemed
outstanding for the purpose of computing the percentage ownership of each other
person. To our knowledge, except as indicated in the footnotes to this table and
pursuant to applicable community property laws, the persons named in the table
have sole voting and investment power with respect to the shares set forth
opposite such person's name. The address of each of the directors and executive
officers is c/o Semitool, Inc., 655 West Reserve Drive, Kalispell,
Montana 59901. Each individual below has agreed not to sell any of our common
stock during the period ended 90 days after the effective date of this offering
without the prior written consent of Bear, Stearns & Co. Inc., subject to
specified exceptions, and except as set forth below.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED OWNED
PRIOR TO OFFERING NUMBER OF AFTER OFFERING(2)
--------------------- SHARES -----------------------
DIRECTORS, EXECUTIVE OFFICERS AND 5% NUMBER OF BEING NUMBER OF
SHAREHOLDERS SHARES PERCENT OFFERED SHARES PERCENT(2)
------------------------------------ ---------- -------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Raymon F. Thompson(1).......................... 12,632,368 44.7% 1,000,000 11,632,368 37.2%
Howard E. Bateman(2)........................... 31,000 * 14,000 17,000 *
Richard A. Dasen(2)(3)......................... 29,000 * 14,000 15,000 *
Timothy C. Dodkin(4)........................... 41,500 * -- 41,500 *
Daniel J. Eigeman(2)........................... 24,800 * 14,000 10,800 *
William A. Freeman(5).......................... 38,000 * 18,000 20,000 *
Gregory L. Perkins(6).......................... 4,700 * -- 4,700 *
Larry A. Viano(7).............................. 18,000 * 4,000 14,000 *
All directors and officers as a group (8
persons)(8).................................. 12,819,368 45.4 1,064,000 11,755,368 37.6%
</TABLE>
------------
* Less than 1%.
(1) Includes 10,115,868 shares held in the name of the Raymon F. Thompson
Revocable Trust dated June 13, 1994, 1,775,760 shares held in the name of
the Ladeine A. Thompson Revocable Trust dated June 13, 1994 (Mrs. Thompson
is Mr. Thompson's wife), 425,000 shares held in the name of the Gina
Thompson Trust of which Mr. Thompson is the trustee, and 189,400 shares held
in the name of the Floyd Foundation Trust of which Mr. Thompson is the
trustee. Of the 1,000,000 shares offered by Mr. Thompson, 500,000 shares are
being offered by the Raymon F. Thompson Revocable Trust, dated June 13,
1994, and 500,000 shares are being offered by the Ladeine A.
42
<PAGE>
Thompson Revocable Trust dated June 13, 1994. Excludes up to 500,000 shares
that may be sold by the Raymon F. Thompson Revocable Trust dated June 13,
1994, pursuant to the exercise of the over-allotment option.
(2) Includes 23,000 shares issuable pursuant to options which are exercisable
within 60 days of March 31, 2000.
(3) Includes 850 shares held by the Richard Boyd Roth Trust of which Mr. Dasen
is a co-trustee with shared voting power and shared dispositive power.
Mr. Dasen disclaims beneficial ownership to these 850 shares. Also includes
23,000 shares issuable pursuant to options which are exercisable within 60
days of March 31, 2000.
(4) Includes 38,500 shares issuable pursuant to options which are exercisable
within 60 days of March 31, 2000.
(5) Includes 38,000 shares issuable pursuant to options which are exercisable
within 60 days of March 31, 2000.
(6) Includes 4,700 shares issuable pursuant to options which are exercisable
within 60 days of March 31, 2000.
(7) Includes 18,000 shares issuable pursuant to options which are exercisable
within 60 days of March 31, 2000.
(8) Includes 172,200 shares issuable pursuant to options which are exercisable
within 60 days of March 31, 2000.
43
<PAGE>
UNDERWRITING
The underwriters named below, acting through their representatives, Bear,
Stearns & Co. Inc., Needham & Company, Inc., Wit SoundView Corporation and Ragen
MacKenzie Incorporated, have severally agreed with us and the selling
shareholders, subject to the terms and conditions of the underwriting agreement,
to purchase from us and the selling shareholders the number of shares of common
stock set forth below opposite their respective names. The underwriters are
committed to purchase and pay for all shares if any are purchased.
<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF SHARES
----------- ----------------
<S> <C>
Bear, Stearns & Co. Inc.....................................
Needham & Company, Inc......................................
Wit SoundView Corporation...................................
Ragen MacKenzie Incorporated................................
----------
Total................................................... 4,100,000
==========
</TABLE>
The representatives have advised us that the underwriters propose to offer
the shares of common stock to the public at the public offering price set forth
on the cover page of this prospectus and to certain dealers at that price less a
concession of not in excess of $ per share, of which $ may be reallowed to
other dealers. After this offering, the public offering price, concession and
reallowance to dealers may be reduced by the representatives. No such reduction
shall change the amount of proceeds to be received by us as set forth on the
cover page of this prospectus. The common stock is offered by the underwriters
as stated herein, subject to receipt and acceptance by them and subject to their
right to reject any order in whole or in part.
We and one selling shareholder have granted to the underwriters an option,
exercisable during the 30-day period after the date of this prospectus, to
purchase up to 115,000 and 500,000 shares, respectively, for an aggregate of
615,000 additional shares of common stock to cover over-allotments, if any, at
the public offering price less the underwriting discount set forth on the cover
page of this prospectus. If the underwriters exercise their over-allotment
option to purchase any of the additional 615,000 shares of common stock, the
underwriters have severally agreed, subject to certain conditions, to purchase
approximately the same percentage thereof as the number of shares to be
purchased by each of them bears to the total number of shares of common stock
offered in this offering. If purchased, these additional shares will be sold by
the underwriters on the same terms as those on which the shares offered hereby
are being sold. We and the selling shareholders will be obligated, pursuant to
the over-allotment option, to sell shares to the underwriters to the extent the
over-allotment option is exercised. The underwriters may exercise the
over-allotment option only to cover over-allotments made in connection with the
sale of the shares of common stock offered in this offering.
The following table summarizes the compensation to be paid to the
underwriters by us and the selling shareholders. Such amounts are shown assuming
both no exercise and full exercise of the underwriters' option to purchase
additional shares.
<TABLE>
<CAPTION>
TOTAL
-------------------------------
WITHOUT WITH
PER SHARE OVER-ALLOTMENT OVER-ALLOTMENT
--------- -------------- --------------
<S> <C> <C> <C>
Underwriting discounts and commissions payable by us....
Underwriting discounts and commissions payable by the
selling shareholders..................................
</TABLE>
44
<PAGE>
We estimate expenses payable by us in connection with this offering, other
than the underwriting discounts and commissions referred to above, will be
approximately $600,000.
The underwriting agreement contains covenants of indemnity among the
underwriters, us and the selling shareholders against certain civil liabilities,
including liabilities under the Securities Act, and liabilities arising from
breaches of representations and warranties contained in the underwriting
agreement.
Each of our executive officers and directors, including without limitation,
the selling shareholders, have agreed, subject to specified exceptions, not to
offer to sell, contract to sell, or otherwise sell, dispose of, loan, pledge or
grant any rights with respect to any shares of common stock or any options or
warrants to purchase any shares of common stock, or any securities convertible
into or exchangeable for shares of common stock owned as of the date of this
prospectus or thereafter acquired directly by those holders or with respect to
which they have the power of disposition, without the prior written consent of
Bear, Stearns & Co. Inc. This restriction terminates after the close of trading
of the common stock on and including the 90th day after the registration
statement relating to the offering has been declared effective by the staff of
the Securities and Exchange Commission. However, Bear, Stearns & Co. Inc. may,
in its sole discretion and at any time or from time to time before the
termination of the 90 day period, without notice, release all or any portion of
the securities subject to lock-up agreements. There are no existing agreements
between the representatives and any of our shareholders who have executed a
lock-up agreement, other than the selling shareholders, providing consent to the
sale of shares prior to the expiration of the lock-up period.
In addition, we have agreed that, subject to certain exceptions, during the
lock-up period we will not, without the prior written consent of Bear,
Stearns & Co. Inc. consent to the disposition of any shares held by shareholders
subject to lock-up agreements prior to the expiration of the lock-up periods, or
issue, sell, contract to sell, or otherwise dispose of, any shares of common
stock, any options or warrants to purchase any shares of common stock or any
securities convertible into, exercisable for or exchangeable for shares of
common stock other than our sale of shares in this offering, the issuance of our
common stock upon the exercise of outstanding options or warrants, and the
issuance of options under existing stock option and incentive plans provided
that those options do not vest prior to the expiration of the lock-up period.
Our common stock is traded on the Nasdaq National Market under the symbol
"SMTL."
A prospectus in electronic format may be made available on the Internet
sites or through other online services maintained by one or more of the
underwriters of this offering, or by their affiliates. In those cases,
prospective investors may view offering terms online and, depending upon the
particular underwriter, prospective investors may be allowed to place orders
online. The underwriters may agree with us to allocate a specific number of
shares for sale to online brokerage account holders. Any such allocation for
online distributions will be made by the representatives on the same basis as
other allocations.
In particular, a prospectus in electronic format is being made available on
Internet web sites maintained by Wit SoundView Corporation's affiliate, Wit
Capital Corporation, and may be made available on web sites maintained by other
underwriters. In addition, other dealers purchasing shares from Wit SoundView in
this offering have agreed to make a prospectus in electronic format available on
web sites maintained by each of these dealers. Other than the prospectus in
electronic format, the information on any underwriter's web site and any
information contained in any other web site maintained by an underwriter is not
part of the prospectus or the registration statement of which this prospectus
forms a part, has not been approved and/or endorsed by us or any underwriter in
its capacity as underwriter and should not be relied upon by investors.
45
<PAGE>
The representatives have advised us that, pursuant to Regulation M under the
Securities Exchange Act, some participants in the offering may engage in
transactions, including stabilizing bids, syndicate covering transactions or the
imposition of penalty bids, that may have the effect of stabilizing or
maintaining the market price of the shares of common stock at a level above that
which might otherwise prevail in the open market. A "stabilizing bid" is a bid
for or the purchase of shares of common stock on behalf of the underwriters for
the purpose of fixing or maintaining the price of the common stock. A "syndicate
covering transaction" is the bid for or purchase of common stock on behalf of
the underwriters to reduce a short position incurred by the underwriters in
connection with the offering. A "penalty bid" is an arrangement permitting the
representatives to reclaim the selling concession otherwise accruing to an
underwriter or syndicate member in connection with this offering if the common
stock originally sold by such underwriter or syndicate member is purchased by
the representatives in a syndicate covering transaction and has therefore not
been effectively placed by such underwriter or syndicate member. The
representatives have advised us that such transactions may be effected on the
Nasdaq National Market or otherwise and, if commenced, may be discontinued at
any time.
In connection with this offering and before the commencement of offers or
sales of the common stock, certain underwriters who are qualified market makers
on the Nasdaq National Market may engage in passive market making transactions
in the common stock on the Nasdaq National Market in accordance with Rule 103 of
Regulation M under the Securities Exchange Act, during the business day prior to
the pricing of the offering. Passive market makers must comply with applicable
volume and price limitations and must be identified as such. In general, a
passive market maker must display its bid at a price not in excess of the
highest independent bid for such security; if all independent bids are lowered
below the passive market maker's bid, however, such bid must then be lowered
when certain purchase limits are exceeded.
Some of the underwriters may in the future perform financial advisory
services for us.
LEGAL MATTERS
The validity of the common stock offered hereby, as well as legal matters
pertaining to the laws of the State of Montana, will be passed upon for us by
Crowley, Haughey, Hanson, Toole & Dietrich, P.L.L.P., Kalispell, Montana.
Morrison & Foerster LLP, Palo Alto, California is acting as our counsel in
connection with certain matters relating to the offering. Morrison & Foerster
LLP will rely on the opinion of Crowley, Haughey, Hanson, Toole & Dietrich with
respect to the laws of the State of Montana. Certain legal matters in connection
with the offering will be passed upon for the underwriters by O'Melveny & Myers
LLP, San Francisco, California.
EXPERTS
The consolidated financial statements as of September 30, 1998 and 1999 and
for each of the three years in the period ended September 30, 1999 included in
this prospectus have been so included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
46
<PAGE>
AVAILABLE INFORMATION
We are subject to the informational requirements of the Exchange Act, which
means we are required to file annual, quarterly and special reports, proxy
statements and other information with the Securities and Exchange Commission.
These reports, proxy statements and other information filed can be inspected and
copied at the Securities and Exchange Commission's Public Reference Section, 450
Fifth Street, N.W., Washington, D.C. 20549, and at the following regional
offices of the Securities and Exchange Commission: Seven World Trade Center,
13th Floor, New York, New York 10048 and 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511. Copies of such material can be obtained from the
Public Reference Section of the Securities and Exchange Commission, 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates. The Securities and
Exchange Commission maintains a web site (http://www.sec.gov) containing
reports, proxy and information statements and other information of registrants,
including ours, that file electronically with the Securities and Exchange
Commission. In addition, our common stock is listed on the Nasdaq National
Market and similar information concerning us can be inspected and copied at the
offices of the National Association of Securities Dealers, Inc., 9513 Key West
Avenue, Rockville, Maryland 20850.
We have filed with the Securities and Exchange Commission a registration
statement on Form S-3 (of which this prospectus is a part) under the Securities
Act, with respect to the shares of our common stock being offered by this
prospectus. This prospectus does not contain all of the information set forth in
this registration statement, some portions of which have been incorporated by
reference as permitted by the rules and regulations of the Securities and
Exchange Commission. Statements contained in this prospectus as to the contents
of any contract or other documents are not necessarily complete, and in each
instance reference is made to the copy of such contract or other document filed
as an exhibit to the registration statement. Each of these statements are
qualified in all respects by this reference and the exhibits and schedules
thereto. For further information regarding us and the shares of our common stock
being offered by this prospectus, reference is hereby made to the registration
statement and such exhibits and schedules which may be obtained from the
Securities and Exchange Commission at its principal office in Washington, D.C.
upon payment of the fees prescribed by the Securities and Exchange Commission.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Securities and Exchange Commission allows us to "incorporate by
reference" the information we have filed with it, which means we can disclose
information to you by referring you to those documents. The information
incorporated by reference is considered to be part of this prospectus. We
incorporate by reference the documents listed below.
The documents we incorporate by reference are:
- our Annual Report on Form 10-K for the year ended September 30, 1999;
- our Quarterly Reports on Form 10-Q for the quarters ended December 31,
1999 and March 31, 2000;
- our Proxy Statement on Schedule 14A for our 2000 Annual Meeting of
Shareholders;
- our Current Reports on Form 8-K dated July 6, 2000, July 7, 2000 and
July 10, 2000; and
- the description of our common stock contained in our registration
statement on Form 8-A filed with the Securities and Exchange Commission on
January 27, 1995 (File No. 0-25424).
Copies of all documents which are incorporated herein by reference (not
including the exhibits to such information, unless such exhibits are
specifically incorporated by reference in such information) will be provided
without charge to each person, including any beneficial owner, to whom this
prospectus is delivered upon written or oral request. Requests should be
directed to William A. Freeman, Semitool, Inc., 655 West Reserve Drive,
Kalispell, Montana 59901, telephone number (406) 752-2107.
47
<PAGE>
SEMITOOL, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Report of PricewaterhouseCoopers LLP, Independent
Accountants............................................... F-2
Consolidated Balance Sheets................................. F-3
Consolidated Statements of Operations....................... F-4
Consolidated Statements of Changes in Shareholders'
Equity.................................................... F-5
Consolidated Statements of Cash Flow........................ F-6
Consolidated Statements of Comprehensive Income (Loss)...... F-7
Notes to Consolidated Financial Statements.................. F-8
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors and Shareholders
Semitool, Inc.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, shareholders' equity, cash flows and
comprehensive income (loss) present fairly, in all material respects, the
financial position of Semitool, Inc. and its subsidiaries at September 30, 1998
and September 30, 1999, and the results of their operations and their cash flows
for each of the three years in the period ended September 30, 1999 in conformity
with accounting principles generally accepted in the United States. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States, which require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
PricewaterhouseCoopers LLP
Boise, Idaho
November 3, 1999, except for Note 10, as to which the date is March 28, 2000
F-2
<PAGE>
SEMITOOL, INC.
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------- MARCH 31,
1998 1999 2000
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 7,287 $ 4,789 $ 7,717
Trade receivables, less allowance for doubtful accounts of
$1,542, $271 and $222 (unaudited)....................... 34,855 38,366 53,736
Inventories............................................... 36,435 41,667 50,327
Income tax refund receivable.............................. -- 3,944 2,405
Prepaid expenses and other current assets................. 2,052 2,607 2,353
Deferred income taxes..................................... 6,379 5,928 5,928
-------- -------- --------
Total current assets.................................... 87,008 97,301 122,466
Property, plant and equipment, net.......................... 36,302 30,336 28,647
Intangibles, less accumulated amortization of $2,399, $3,574
and $4,127 (unaudited).................................... 3,965 3,406 3,443
Other assets, net........................................... 715 841 1,117
-------- -------- --------
Total assets............................................ $127,990 $131,884 $155,673
======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Note payable to bank...................................... $ 3,000 $ 10,160 $ 8,911
Accounts payable.......................................... 8,987 14,602 23,384
Accrued commissions....................................... 935 1,018 1,926
Accrued warranty and installation......................... 11,970 9,045 11,460
Accrued payroll and related benefits...................... 4,240 3,691 5,079
Other accrued liabilities................................. 2,414 3,974 4,208
Customer advances......................................... 2,380 2,119 1,360
Long-term debt and capital leases, due within one year.... 596 381 343
Payable to shareholder.................................... 78 3 60
-------- -------- --------
Total current liabilities................................. 34,600 44,993 56,731
Long-term debt and capital leases, due after one year....... 3,836 3,911 3,843
Deferred income taxes....................................... 2,860 1,955 1,955
-------- -------- --------
Total liabilities......................................... 41,296 50,859 62,529
-------- -------- --------
Commitments and contingencies (Note 9)
Shareholders' equity:
Preferred stock, no par value, 5,000 shares authorized, no
shares issued and outstanding........................... -- --
Common stock, no par value, 30,000 shares authorized as of
September 30, 1998 and 1999, 75,000 shares authorized as
of March 31, 2000, 27,584 and 27,628 shares issued and
outstanding in 1998 and 1999 and 28,265 (unaudited) as
of March 31, 2000....................................... 41,248 41,464 44,497
Retained earnings......................................... 45,754 39,009 47,928
Accumulated other comprehensive income (loss)............. (308) 552 719
-------- -------- --------
Total shareholders' equity................................ 86,694 81,025 93,144
-------- -------- --------
Total liabilities and shareholders' equity................ $127,990 $131,884 $155,673
======== ======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-3
<PAGE>
SEMITOOL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
FOR THE YEAR ENDED ENDED
SEPTEMBER 30, MARCH 31,
------------------------------ --------------------
1997 1998 1999 1999 2000
-------- -------- -------- --------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales................................ $193,952 $180,501 $122,528 $56,238 $103,863
Cost of sales............................ 102,862 89,522 64,880 29,574 48,579
-------- -------- -------- ------- --------
Gross profit............................. 91,090 90,979 57,648 26,664 55,284
-------- -------- -------- ------- --------
Operating expenses:
Selling, general and administrative.... 49,479 58,356 49,515 23,078 30,933
Research and development............... 21,179 24,536 20,874 10,749 11,193
-------- -------- -------- ------- --------
Total operating expenses............. 70,658 82,892 70,389 33,827 42,126
-------- -------- -------- ------- --------
Income (loss) from operations............ 20,432 8,087 (12,741) (7,163) 13,158
-------- -------- -------- ------- --------
Other income (expense):
Interest income........................ 97 64 243 125 47
Interest expense....................... (499) (559) (401) (207) (521)
Other, net............................. 168 (312) 1,954 1,021 432
-------- -------- -------- ------- --------
(234) (807) 1,796 939 (42)
-------- -------- -------- ------- --------
Income (loss) before income taxes........ 20,198 7,280 (10,945) (6,224) 13,116
Income taxes............................. 7,675 2,475 (4,200) (2,116) 4,197
-------- -------- -------- ------- --------
Net income (loss)........................ $ 12,523 $ 4,805 $ (6,745) $(4,108) $ 8,919
======== ======== ======== ======= ========
Earnings (loss) per share:
Basic.................................... $ 0.46 $ 0.17 $ (0.24) $ (0.15) $ 0.32
Diluted.................................. $ 0.45 $ 0.17 $ (0.24) $ (0.15) $ 0.31
Weighted average common shares:
Basic.................................... 27,352 27,566 27,594 27,584 27,838
Diluted.................................. 27,666 27,808 27,594 27,584 28,639
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
<PAGE>
SEMITOOL, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK
------------------- ACCUMULATED
NUMBER OTHER
OF RETAINED COMPREHENSIVE
SHARES AMOUNT EARNINGS INCOME (LOSS) TOTAL
-------- -------- -------- ------------- --------
<S> <C> <C> <C> <C> <C>
Balance October 1, 1996..................... 27,312 $39,577 $28,426 $ -- $68,003
Net income................................ -- -- 12,523 -- 12,523
Exercise of stock options................. 200 1,013 -- -- 1,013
Other comprehensive income................ -- -- -- 41 41
------ ------- ------- ----- -------
Balance September 30, 1997.................. 27,512 40,590 40,949 41 81,580
Net income................................ -- -- 4,805 -- 4,805
Exercise of stock options................. 72 342 -- -- 342
Income tax effect of nonqualified stock
options................................. -- 316 -- -- 316
Other comprehensive loss.................. -- -- -- (349) (349)
------ ------- ------- ----- -------
Balance September 30, 1998.................. 27,584 41,248 45,754 (308) 86,694
Net income................................ -- -- (6,745) -- (6,745)
Exercise of stock options................. 44 216 -- -- 216
Other comprehensive income................ -- -- -- 860 860
------ ------- ------- ----- -------
Balance September 30, 1999.................. 27,628 41,464 39,009 552 81,025
Net income................................ -- -- 8,919 -- 8,919
Exercise of stock options................. 637 3,033 -- -- 3,033
Other comprehensive income................ -- -- -- 167 167
------ ------- ------- ----- -------
Balance March 31, 2000 (unaudited).......... 28,265 $44,497 $47,928 $ 719 $93,144
====== ======= ======= ===== =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-5
<PAGE>
SEMITOOL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE SIX
FOR THE YEAR ENDED MONTHS ENDED
SEPTEMBER 30, MARCH 31,
------------------------------ -------------------
1997 1998 1999 1999 2000
-------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Operating activities:
Net income (loss)......................................... $ 12,523 $ 4,805 $(6,745) $(4,108) $ 8,919
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
(Gain) loss on disposition of assets.................... 6 623 (157) 157 106
Depreciation and amortization........................... 6,077 10,423 10,351 5,078 4,160
Provisions for losses on accounts receivable............ (9) 1,318 51 58 (49)
Deferred income tax..................................... (719) 308 (454) -- --
Change in:
Trade receivables..................................... (1,653) 3,993 (1,902) 10,802 (13,971)
Inventories........................................... (10,649) 2,593 (7,995) 2,301 (8,626)
Income tax refund receivable.......................... -- -- (3,944) -- 1,539
Prepaid expenses and other current assets............. 552 (282) (353) (2,501) 308
Shareholder payable................................... (26) 71 (75) (78) 57
Other assets, net..................................... (262) 113 (422) (69) (479)
Accounts payable...................................... (442) (7,234) 3,760 (1,439) 8,300
Accrued commissions................................... 99 (915) 83 70 908
Accrued warranty and installation..................... 1,823 2,150 (2,939) (3,126) 2,410
Accrued payroll and related benefits.................. 1,132 (1,924) (589) (610) 1,384
Other accrued liabilities............................. 435 972 1,788 (140) (1,841)
Customer advances..................................... (2,035) 660 (264) (1,081) (759)
Income taxes payable.................................. 1,652 (2,670) -- -- 2,049
-------- -------- ------- ------- --------
Net cash provided by (used in) operating activities... 8,504 15,004 (9,806) 5,314 4,415
-------- -------- ------- ------- --------
Investing activities:
Purchases of property, plant and equipment................ (6,174) (9,759) (1,988) (1,640) (1,485)
Increase in intangible assets............................. (1,122) (2,826) (654) (197) (708)
Proceeds from sale of property............................ 42 63 3,381 1,008 47
-------- -------- ------- ------- --------
Net cash provided by (used in) investing activities... (7,254) (12,522) 739 (829) (2,146)
-------- -------- ------- ------- --------
Financing activities:
Proceeds from exercise of stock options................... 1,013 342 216 -- 3,014
Borrowings under line of credit........................... 61,835 75,440 15,845 1,000 49,470
Repayments under line of credit........................... (61,835) (76,440) (8,685) (4,413) (51,633)
Proceeds from long-term debt.............................. 131 1,100 -- -- --
Repayments of long-term debt and capital leases........... (385) (410) (636) (222) (217)
Repayments of short-term debt............................. -- (255) (413) -- --
-------- -------- ------- ------- --------
Net cash provided by (used in) financing activities... 759 (223) 6,327 (3,635) 634
-------- -------- ------- ------- --------
Effect of exchange rate changes on cash and cash
equivalents............................................... (7) (32) 242 203 25
-------- -------- ------- ------- --------
Net increase (decrease) in cash and cash equivalents........ 2,002 2,227 (2,498) 1,053 2,928
Cash and cash equivalents at beginning of period............ 3,058 5,060 7,287 7,287 4,789
-------- -------- ------- ------- --------
Cash and cash equivalents at end of period.................. $ 5,060 $ 7,287 $ 4,789 $ 8,340 $ 7,717
======== ======== ======= ======= ========
Supplemental disclosures of cash flow information:
Cash paid (received) during the year for:
Interest.................................................. $ 497 $ 569 $ 370
Income taxes.............................................. 6,748 5,263 (431)
Supplemental disclosures of non-cash financing and investing
activity:
Inventory transferred to equipment........................ $ 6,434 $ 2,033 $ 3,367
Assets acquired by incurring debt and capital leases...... -- 668 501
Income tax effect of nonqualified stock options........... -- 316 --
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-6
<PAGE>
SEMITOOL, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE SIX MONTHS
SEPTEMBER 30, ENDED MARCH 31,
------------------------------ -------------------
1997 1998 1999 1999 2000
-------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net income (loss)................................. $12,523 $4,805 $(6,745) $(4,108) $8,919
Foreign currency translation adjustment........... 41 (349) 860 524 167
------- ------ ------- ------- ------
Total comprehensive income (loss)......... $12,564 $4,456 $(5,885) $(3,584) $9,086
======= ====== ======= ======= ======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-7
<PAGE>
SEMITOOL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. COMPANY ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Semitool, Inc. (Semitool) and subsidiaries (the Company) designs,
manufactures, markets and services equipment and software control products used
in the manufacture of semiconductors as well as other products requiring similar
processes including thin film heads, compact disc masters, flat panel displays
and hard disk media. The Company has two reportable segments, Semiconductor
Equipment and Software Control Systems. Semitool has various subsidiaries which
operate various sales and service offices in certain geographic areas.
Significant accounting policies followed by the Company are:
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Semitool and
its wholly-owned subsidiaries: Semitool Europe Ltd., (United Kingdom); Semitool
Halbleitertechnik Vertriebs GmbH, (Germany); Semitool France SARL; Semitool
Italia SRL; Semitool Japan KK; Semitool Korea, Inc.; Semitool (Asia) Pte Ltd.,
(Singapore); Semitool FSC, Inc.; Semy Engineering, Inc. (Semy) and
Rhetech, Inc. (Rhetech). All significant intercompany accounts and transactions
are eliminated in consolidation.
The accompanying unaudited financial statements as of March 31, 2000 and for
the six months ended March 31, 2000 and 1999 were derived from the Company's
books and records without audit and in the opinion of management include all of
the adjustments (normal and recurring in nature) necessary to present fairly the
Company's consolidated financial position as of March 31, 2000 and the
consolidated results of operations and consolidated cash flows for the six
months ended March 31, 2000 and 1999. The results of operations for the six
months ended March 31, 2000 and 1999 may not be indicative of those you may
expect for the full year.
ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the dates of the financial
statements and the reported amounts of net sales and expenses during the
reporting periods. Actual results inevitably will differ from those estimates,
and such differences may be material to the consolidated financial statements.
CASH EQUIVALENTS
The Company considers cash equivalents to consist of short-term, highly
liquid investments with remaining maturities at time of purchase of three months
or less. Substantially all of its cash and cash equivalents are held by major
financial institutions. At times such balances may be in excess of the federal
insurance limit.
INVENTORIES
Inventories are carried at the lower of first-in, first-out (FIFO) cost or
market. The Company periodically reviews its inventories to identify slow moving
and obsolete inventories to record such inventories at net realizable values. It
is reasonably possible that the Company's estimates of net realizable values
could change in the near term due to technological and other changes.
F-8
<PAGE>
SEMITOOL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. COMPANY ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
(CONTINUED)
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is stated at cost. Depreciation and
amortization is provided using the straight-line method with estimated useful
lives as follows:
<TABLE>
<S> <C>
Buildings and improvements.................................. 10-40 years
Machinery and equipment..................................... 2-5 years
Furniture, fixtures and leasehold improvements.............. 3-7 years
Vehicles and aircraft....................................... 5-10 years
</TABLE>
Major additions and betterments are capitalized. Costs of maintenance and
repairs which do not improve or extend the lives of the respective assets are
expensed currently. When items are disposed of, the related costs and
accumulated depreciation are removed from the accounts and any gain or loss is
recognized.
INTANGIBLE ASSETS
Intangible assets include, among other things, the cost of internally
developed software and legal costs associated with obtaining patents.
Costs incurred for internally developed software products and enhancements
after technological feasibility and marketability have been established for the
related product are capitalized and are stated at the lower of cost or net
realizable value. Amortization is provided based on the greater of the amount
computed using (a) the ratio that current gross revenues for a product bears to
the total of current and anticipated future gross revenues for that product, or
(b) the straight-line method over the remaining economic life of the product,
estimated at three years. Net capitalized software costs were $2.4 million and
$1.3 million as of September 30, 1998 and 1999 and amortization of such costs
was $491,000, $877,000 and $1,105,000 for the years ended September 30, 1997,
1998 and 1999, respectively.
The cost of patents is amortized on a straight-line basis over the lesser of
17 years or the estimated product life.
It is reasonably possible that estimates of future gross revenues for
software products, the estimated remaining product life, or both could change in
the near term due to technological and other changes which would result in a
reduction in the carrying value of capitalized software development costs and
patents.
REVENUE RECOGNITION
Revenue from sales of products is generally recognized at the time the
product is shipped. Service contract revenue is recognized ratably over the
period of the related contract. Software revenue is recognized when there is
persuasive evidence of an arrangement, the software has been delivered, the
price is fixed, and determinable and collectibility is probable in accordance
with the AICPA's Statement of Position 97-2 "Software Revenue Recognition".
ACCRUED WARRANTY AND INSTALLATION
The Company's obligations at time of shipment for installation and warranty
are accrued concurrently with the revenue recognized. The Company has made a
provision for its warranty and
F-9
<PAGE>
SEMITOOL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. COMPANY ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
(CONTINUED)
installation obligations based upon historical costs incurred for such
obligations adjusted, as necessary, for current conditions and factors. Due to
the significant uncertainties and judgments involved in estimating the Company's
warranty and installation obligations, including changing product designs and
specifications, the ultimate amount incurred for warranty and installation costs
could change in the near term from the Company's current estimate.
FOREIGN CURRENCY
Except for Semitool Japan KK, where the functional currency was changed to
the yen during the fourth quarter of 1997, the functional currency for the
Company's foreign operations is the U.S. Dollar, in which most of the sales and
purchases are denominated. For these foreign operations, realized gains and
losses from foreign currency transactions and unrealized gains and losses from
re-measurement of the financial statements of the foreign operations into the
functional currency are included in the consolidated statements of operations.
In July 1997, Semitool Japan KK, commenced invoicing its customers in yen,
and therefore, the Company changed the functional currency from the U.S. Dollar
to the yen. The change in the functional currency has been accounted for
prospectively commencing in the fourth quarter of 1997. Gains and (losses) of
$(3,600), $(44,000) and $1.2 million in 1997, 1998, and 1999 are included in
Other Income (Expense) in the Consolidated Statements of Operations and
unrealized gains and losses from re-measurement of the financial statements are
reflected as a component of Other Comprehensive Income (Loss).
FOREIGN CURRENCY EXCHANGE CONTRACTS
The Company uses foreign currency exchange contracts, which typically mature
within one year, as part of an overall risk-management strategy. These
instruments are used as an economic hedge of receivables denominated in yen.
Transaction gains and losses on these contracts and the related receivables are
recognized in the consolidated statements of operations. The impact of movements
in currency exchange rates on forward foreign exchange contracts generally
offsets the related impact on the underlying items being hedged, and therefore
net foreign currency gains and losses on these transactions historically have
not been material. However, during fiscal 1999, significant receivables were not
hedged which resulted in net foreign currency gains of $1.2 million. In entering
into these contracts, the Company has assumed the risk that might arise from the
possible inability of counterparties to meet the terms of their contracts. The
Company does not expect any losses as a result of counterparty defaults. The
Company does not hold or issue derivative financial instruments for trading or
speculative purposes.
As of September 30, 1998 and 1999, the Company had foreign currency exchange
contracts to sell 571.0 million yen (US $4.2 million) and 1,191.6 million yen
(US $11.2 million), respectively, at contracted forward rates maturing at
various dates in fiscal 1999 and 2000.
RESEARCH AND DEVELOPMENT COSTS
Costs of research and development are expensed as incurred.
F-10
<PAGE>
SEMITOOL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. COMPANY ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
(CONTINUED)
EARNINGS PER SHARE
Basic earnings per share is computed using the weighted average number of
common shares outstanding. Diluted earnings per share is computed using the
weighted average number of common shares outstanding and common share
equivalents. Common equivalent shares result from the assumed exercise of
outstanding stock options. Diluted earnings per share excludes the effects of
antidilutive stock options of 271,000, 346,000 and 1,778,900 in fiscal 1997,
1998 and 1999, respectively, and 882,325 for the six months ended March 31,
1999.
The following table sets forth the computation of basic and diluted earnings
(loss) per common share (in thousands):
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
SEPTEMBER 30, ENDED MARCH 31,
------------------------------ -------------------
1997 1998 1999 1999 2000
-------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Numerator:
Net income (loss) used for
basic and diluted earnings
(loss) per share........... $12,523 $ 4,805 $(6,745) $(4,108) $ 8,919
======= ======= ======= ======= =======
Denominator:
Average common shares used
for basic earnings (loss)
per share.................. 27,352 27,566 27,594 27,584 27,838
Effects of dilutive stock
options.................... 314 242 -- -- 801
------- ------- ------- ------- -------
Denominator for diluted
earnings (loss) per share.... 27,666 27,808 27,594 27,584 28,639
======= ======= ======= ======= =======
</TABLE>
COMPREHENSIVE INCOME
In fiscal 1999, the Company adopted SFAS No. 130 (SFAS 130), "Reporting
Comprehensive Income." This statement requires the Company to disclose
accumulated other comprehensive income or loss as a separate component of
shareholders' equity. Prior period financial statements have been reclassified
to reflect application of this statement.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, Statement of Financial Accounting Standards No. 133
(SFAS 133), "Accounting for Derivative Instruments and Hedging Activities" was
issued. SFAS No. 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 No. 133 is effective for the Company in fiscal
2001. The Company has not yet determined the effect the adoption of this
standard will have on the financial condition or results of operations of the
Company.
F-11
<PAGE>
SEMITOOL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. COMPANY ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
(CONTINUED)
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, or SAB 101, REVENUE RECOGNITION IN FINANCIAL
STATEMENTS. SAB 101 provides guidance on applying generally accepted accounting
principles to revenue recognition issues in financial statements. When the
Company adopts SAB 101 in the first quarter of fiscal 2001, the Company will
recognize revenue when it substantially completes the terms of the applicable
sales arrangement, which generally occurs upon the customers' acceptance of the
Company's product. While the Company has not fully assessed the impact on it of
the adoption of SAB 101, it believes that it may require a significant amount of
its first quarter of fiscal 2001 net sales to be deferred, which could be
partially or totally offset by the recognition of net sales for products shipped
in prior periods, as required by SAB 101. Any change in the Company's revenue
recognition policy resulting from the implementation of SAB 101 would be
reported as a change in accounting principle in the quarter ending December 31,
2000 with a cumulative adjustment in that quarter to reflect the effect of the
change. The Company is also considering potential changes to its standard
contracts for equipment sales that could mitigate the impact of SAB 101. In
addition, the Company may need to renegotiate the financial covenants under its
line of credit agreement. As a result, while SAB 101 would not affect the
fundamental aspects of the Company's operations as measured by its shipments and
cash flows, implementation of SAB 101 could have an adverse effect on its
reported results of operations for the first quarter of fiscal 2001 when
SAB 101 will be implemented.
In April 2000, Financial Accounting Standards Board Interpretation No. 44,
or FIN 44, ACCOUNTING FOR CERTAIN TRANSACTIONS INVOLVING STOCK COMPENSATION--AN
INTERPRETATION OF APB OPINION NO. 25, was issued. FIN 44 clarifies and modifies
APB Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES. FIN 44 is
effective for the Company in the fourth quarter of fiscal 2000. The Company has
not yet determined the effect, if any, the implementation of the Interpretation
will have on the financial condition or results of operation of the Company.
2. INVENTORIES:
Inventories are summarized as follows (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------- MARCH 31,
1998 1999 2000
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Parts and raw materials........................ $22,334 $23,930 $27,924
Work-in-process................................ 8,344 11,852 18,567
Finished goods................................. 5,757 5,885 3,836
------- ------- -------
$36,435 $41,667 $50,327
======= ======= =======
</TABLE>
F-12
<PAGE>
SEMITOOL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment at September 30, 1998 and 1999 is summarized
as follows (in thousands):
<TABLE>
<CAPTION>
1998 1999
-------- --------
<S> <C> <C>
Buildings and improvements.............................. $ 15,337 $ 16,340
Machinery and equipment................................. 20,955 23,396
Furniture, fixtures and leasehold improvements.......... 11,534 10,812
Vehicles and aircraft................................... 6,702 5,406
-------- --------
54,528 55,954
Less accumulated depreciation and amortization.......... (24,240) (29,849)
-------- --------
30,288 26,105
Land and land improvements.............................. 6,014 4,231
-------- --------
$ 36,302 $ 30,336
======== ========
</TABLE>
Equipment under capital leases and accumulated amortization thereon were
approximately $501,000 and $51,000, respectively, as of September 30, 1999.
4. NOTE PAYABLE TO BANK:
The Company has an uncollateralized line of credit totaling $25 million
under an agreement with Bank of America. Borrowings under the line of credit
bear interest at the bank's prime lending rate (8.25% at September 30, 1999) or
at LIBOR plus 1.5% with the line of credit expiring on April 1, 2001. The line
of credit requires monthly interest payments only, until April 1, 2001 with the
then outstanding balance repayable in monthly principal and interest payments
over a three-year period ending April 1, 2004. At September 30, 1999, there were
$10.2 million of advances outstanding on the line of credit. The line of credit
agreement provides for a quarterly commitment fee on any unused portion.
Additionally, the 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.
F-13
<PAGE>
SEMITOOL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. LONG-TERM DEBT AND CAPITAL LEASES:
Long-term debt and capital leases at September 30, 1999 are summarized as
follows (in thousands):
<TABLE>
<S> <C>
Mortgage term note payable in monthly installments of $23
including interest at a blended rate of 5.5%, maturing on
September 1, 2014 (A)..................................... $2,762
Mortgage term note payable in monthly installments of $25
including interest at a blended rate of 4.7%, maturing on
December 1, 1999 (A)...................................... 71
Mortgage term note payable to First Union National Bank in
monthly installments of $6, including interest at 7.5%
until March 30, 2005 and thereafter at the Bank's national
commercial rate plus 1.0% per annum, maturing on March 30,
2008. (B)................................................. 483
Mortgage term note payable to the Pennsylvania Industrial
Development Authority (PIDA) in monthly installments of
$6, including interest at 4.25%, maturing on December 1,
2008. (B)................................................. 522
Capitalized lease obligation payable in monthly installments
of 779 yen (US $7), including interest at 3.2% and
property taxes at 1.4%, maturing on April 1, 2004.
Collateralized by equipment............................... 361
Capitalized lease obligation payable in monthly installments
of 215 yen (US $2), including interest at 2.2% and
property taxes at 1.4%, maturing on November 1, 2003.
Collateralized by equipment............................... 93
------
4,292
Less current portion........................................ 381
------
$3,911
======
</TABLE>
------------
(A) The mortgage term notes payable are collateralized by a first lien deed of
trust on the Kalispell office and manufacturing facility and by all fixtures
and personal property of the Company necessary for the operation of the
facility. The Montana State Board of Investments provided 80% of the
financing with Bank of America providing the remaining 20%. The notes are
personally guaranteed by Raymon F. Thompson, the Company's chairman, and are
subject to the restrictive covenants described in Note 4.
(B) The mortgage term note payable to First Union National Bank is
collateralized by a first lien deed of trust on the Coopersburg,
Pennsylvania office and manufacturing facility and by all fixtures and
personal property of Rhetech, Inc. necessary for the operation of the
facility. The mortgage term note payable to PIDA is collateralized by a
second lien upon the premises in Coopersburg, Pennsylvania upon which the
Rhetech, Inc. office and manufacturing facility resides, and is subordinate
only to the $540,000 mortgage, dated March 26, 1998, between Rhetech, Inc.
and First Union National Bank. The net book value of assets pledged under
the agreements was $2.3 million at September 30, 1999.
F-14
<PAGE>
SEMITOOL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. LONG-TERM DEBT AND CAPITAL LEASES: (CONTINUED)
Principal maturities for long-term debt and capital leases at September 30,
1999, are summarized as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING NOTES CAPITAL
SEPTEMBER 30, PAYABLE LEASES
------------- -------- --------
<S> <C> <C>
2000...................................................... $ 287 $112
2001...................................................... 224 112
2002...................................................... 242 112
2003...................................................... 256 112
2004...................................................... 271 55
Thereafter.................................................. 2,558 --
Less interest and property taxes............................ -- (49)
------ ----
$3,838 $454
====== ====
</TABLE>
6. EMPLOYEE BENEFIT AND STOCK OPTION PLANS:
Semitool maintains a profit-sharing plan and trust under Section 401(k) of
the Internal Revenue Code. Under the terms of the plan, U.S. employees may make
voluntary contributions to the plan. Semitool contributes a matching amount
equal to 50% of the employee's voluntary contribution up to 5% of the employee's
compensation. Semitool may also make non-matching contributions to the plan,
which are determined annually by the Board of Directors. Total profit sharing
contribution cost for this plan was approximately $1,115,000, $1,080,000 and
$1,216,000 for the years ended September 30, 1997, 1998 and 1999, respectively.
Semitool Europe Ltd. maintains a defined contribution pension agreement.
This pension agreement is open to all employees with more than three months of
service. The employer and employee contributions are invested in each individual
member's personal pension plan with a United Kingdom insurance company. The
employer has an obligation to make contributions at one-half of the contribution
rate paid by the employee, subject to a rate between 2.5% and 5.0% of the
employee's salary. The total pension cost for this plan for the years ended
September 30, 1997, 1998 and 1999 approximated $37,000, $59,000 and $23,000,
respectively.
The Company's other foreign subsidiaries do not operate their own pension
plans, but retirement benefits are generally provided to employees through
government plans operated in their respective countries.
In December 1994, the Board of Directors adopted and the shareholders
approved the Semitool, Inc. 1994 Stock Option Plan (the Option Plan). A total of
1,800,000 shares of common stock were reserved for issuance under the Option
Plan. In February 1997 and again in 1998 and 1999, the Option Plan was amended
to increase the number of shares of common stock available for issuance
thereunder by 400,000 shares per amendment for a total increase of 1,200,000.
The total shares reserved for the Option Plan is 3,000,000 at September 30,
1999. Options granted under the Option Plan generally become exercisable at a
rate of 5% per quarter commencing three months after the grant date. Semitool
may grant options that qualify as incentive stock options to employees and
nonqualified stock options to employees, officers, directors, independent
contractors and consultants. The Option Plan also provides for automatic grants
of nonqualified stock options to independent directors. The Option Plan will
terminate in December 2004 unless terminated earlier at the discretion of the
Board of Directors. At September 30, 1999, 774,478 shares were available for
future issuance under the Option Plan. Options are granted at an exercise price
equal to the market price of the common stock and no compensation expense has
been recognized in 1997, 1998 or 1999 under the Option Plan.
F-15
<PAGE>
SEMITOOL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. EMPLOYEE BENEFIT AND STOCK OPTION PLANS: (CONTINUED)
The following summary shows stock option activity for the three years ended
September 30, 1999:
<TABLE>
<CAPTION>
WEIGHTED-
AVERAGE
NUMBER OF EXERCISE PRICE
STOCK OPTION ACTIVITY SHARES PER SHARE
--------------------- --------- --------------
<S> <C> <C>
October 1, 1996...................................... 1,271,620 $5.06
Granted.............................................. 326,000 $5.27
Exercised............................................ (199,874) $5.07
Forfeited............................................ (201,100) $5.33
--------- -----
September 30, 1997................................... 1,196,646 $5.07
Granted.............................................. 859,000 $5.64
Exercised............................................ (73,018) $4.68
Forfeited............................................ (251,280) $5.87
--------- -----
September 30, 1998................................... 1,731,348 $5.26
Granted.............................................. 291,000 $4.59
Exercised............................................ (44,950) $4.81
Forfeited............................................ (198,498) $5.75
--------- -----
September 30, 1999................................... 1,778,900 $5.10
========= =====
</TABLE>
The following tables summarize information about stock options outstanding
at September 30, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
--------------------------------------------
WEIGHTED- WEIGHTED-
AVERAGE AVERAGE
REMAINING EXERCISE
NUMBER CONTRACTUAL PRICE
RANGE OF OUTSTANDING AT LIFE PER
EXERCISE PRICES SEPTEMBER 30, 1999 (IN YEARS) SHARE
--------------- ------------------ ----------- ---------
<S> <C> <C> <C>
$3.16--$4.63............................ 821,350 6.6 $4.21
$4.88--$7.32............................ 917,550 8.4 $5.79
$7.50--$8.13............................ 40,000 7.2 $7.56
--------- --- -----
1,778,900 7.5 $5.10
========= === =====
</TABLE>
<TABLE>
<CAPTION>
OPTIONS EXERCISABLE
--------------------------------------------
WEIGHTED- WEIGHTED-
AVERAGE AVERAGE
REMAINING EXERCISE
NUMBER CONTRACTUAL PRICE
RANGE OF EXERCISABLE AT LIFE PER
EXERCISE PRICES SEPTEMBER 30, 1999 (IN YEARS) SHARE
--------------- ------------------ ----------- ---------
<S> <C> <C> <C>
$3.16--$4.63............................ 528,636 6.6 $4.31
$4.88--$7.32............................ 284,900 8.4 $6.04
$7.50--$8.13............................ 26,300 7.2 $7.58
--------- --- -----
839,836 7.5 $5.00
========= === =====
</TABLE>
F-16
<PAGE>
SEMITOOL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. EMPLOYEE BENEFIT AND STOCK OPTION PLANS: (CONTINUED)
The number and weighted-average exercise prices of options exercisable at
September 30, 1997, 1998 and 1999 are summarized as follows:
<TABLE>
<CAPTION>
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Number exercisable............................ 393,274 598,934 839,836
Weighted-average exercise price per share..... $ 4.86 $ 5.04 $ 5.00
</TABLE>
The exercise and sale of certain qualified options resulted in the treatment
of those options as nonqualified options for tax purposes. As a result, the
Company received a tax benefit associated with those options of $316,000 in 1998
which has been recorded as additional capital.
The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123 (SFAS No. 123) "Accounting for
Stock-Based Compensation." Had compensation cost for the Option Plan been
determined based on the fair value consistent with the provisions of SFAS
No. 123, the Company's net income (loss) and earnings (loss) per share would
have been changed to the pro forma amounts shown below (in thousands, except for
per share amounts):
<TABLE>
<CAPTION>
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Net income (loss):
As reported..................................... $12,523 $4,805 $(6,745)
Pro forma....................................... $12,275 $4,526 $(7,199)
Diluted earnings (loss) per share:
As reported..................................... $ 0.46 $ 0.17 $ (0.24)
Pro forma....................................... $ 0.44 $ 0.16 $ (0.26)
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 1997, 1998 and 1999, respectively: dividend yield
of 0% for all years; expected volatility of 67.8%, 66.0% and 70.0%; risk-free
interest rates of 6.31%, 5.49% and 5.44%; and expected lives of 4.6, 4.9 and
4.6 years. The weighted-average fair value of stock options granted during the
years ended September 30, 1997, 1998 and 1999, was $3.16, $3.35 and $2.77,
respectively.
7. INCOME TAXES:
The provision for income taxes for the years ended September 30, 1997, 1998
and 1999 consists of the following (in thousands):
<TABLE>
<CAPTION>
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Federal:
Current.......................................... $7,643 $1,487 $(3,973)
Deferred......................................... (643) 231 (446)
State:
Current.......................................... 899 489 (374)
Deferred......................................... (76) 77 (483)
Foreign:
Current.......................................... (148) 191 601
Deferred......................................... -- -- 475
------ ------ -------
$7,675 $2,475 $(4,200)
====== ====== =======
</TABLE>
F-17
<PAGE>
SEMITOOL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. INCOME TAXES: (CONTINUED)
The provision (benefit) for income taxes for the six months ended March 31,
1999 and 2000 consist of the following (in thousands)
<TABLE>
<CAPTION>
1999 2000
-------- --------
(UNAUDITED)
<S> <C> <C>
Federal.................................................... $(1,888) $2,562
State...................................................... (228) 505
Foreign.................................................... -- 1,130
------- ------
Total...................................................... $(2,116) $4,197
======= ======
</TABLE>
Domestic and foreign components of income (loss) before income taxes for the
years ended September 30, 1997, 1998 and 1999 are as follows (in thousands):
<TABLE>
<CAPTION>
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Domestic......................................... $22,245 $6,897 $(12,074)
Foreign.......................................... (2,047) 383 1,129
------- ------ --------
$20,198 $7,280 $(10,945)
======= ====== ========
</TABLE>
The components of the deferred tax assets and liabilities as of
September 30, 1999 and 1998 are as follows (in thousands):
<TABLE>
<CAPTION>
1998 1999
-------- --------
<S> <C> <C>
Deferred tax assets:
Accrued warranty and installation......................... $3,900 $2,786
Net operating loss carryforwards.......................... 708 1,451
Research and experimentation credit carryforward.......... -- 626
Other accrued liabilities................................. 700 596
Inventory................................................. 939 991
Covenant not to compete................................... 216 300
Other..................................................... 149 125
------ ------
Total deferred tax assets................................... 6,612 6,875
Less valuation allowance.................................... (233) (947)
------ ------
Net deferred tax assets..................................... 6,379 5,928
------ ------
Deferred tax liabilities:
Depreciation and amortization............................. (2,820) (1,547)
Other..................................................... (40) (408)
------ ------
Total deferred tax liabilities.............................. (2,860) (1,955)
------ ------
Net deferred tax asset...................................... $3,519 $3,973
====== ======
</TABLE>
The Company has established a valuation allowance of $233,000 at
September 30, 1998 and $947,000 at September 30, 1999 to reduce the deferred tax
asset related to the net operating loss carryforwards in its Japanese and Asian
subsidiaries.
F-18
<PAGE>
SEMITOOL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. INCOME TAXES: (CONTINUED)
The Company has net operating loss carryforwards of $1,397,000 in Japan that
expire in fiscal years 2001 and 2002, $1,388,000 in Singapore that have no
expiration, and $7,302,000 in various states that expire between 2004 and 2019.
The Company has a research and experimentation credit carryforward of $626,000
that expires in 2019.
Cumulative undistributed earnings of foreign subsidiaries, for which no U.S.
income or foreign withholding taxes have been recorded, was approximately
$1,748,000 at September 30, 1999. Such earnings are expected to be reinvested
indefinitely. Determination of the amount of unrecognized deferred tax liability
with respect to such earnings is not practicable. The additional taxes payable
on the earnings of foreign subsidiaries, if remitted, would be substantially
offset by U.S. tax credits for foreign taxes already paid.
The differences between the consolidated provision for income taxes and
income taxes computed using income before income taxes and the U.S. federal
income tax rate for the years ended September 30, 1997, 1998 and 1999 are as
follows (in thousands):
<TABLE>
<CAPTION>
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Amount computed using the statutory rate........... $7,069 $2,475 $(3,721)
Increase (decrease) in taxes resulting from:
State taxes, net of federal benefit.............. 959 374 (747)
Effect of foreign taxes.......................... 569 73 196
Research and experimentation credit.............. (863) (790) (626)
Foreign sales corporation benefit................ (822) (272) (97)
Increase in valuation allowance.................. -- 233 714
Other, net....................................... 763 382 81
------ ------ -------
$7,675 $2,475 $(4,200)
====== ====== =======
</TABLE>
8. RELATED PARTY TRANSACTIONS:
Semitool has agreements with Mr. Raymon F. Thompson, the Company's chairman
and a shareholder, to lease aircraft. Under these agreements, rent expense was
approximately $1,276,600, $1,273,200 and $474,000 for the years ended
September 30, 1997, 1998 and 1999, respectively. The rental rate for fiscal 2000
will be $57,000 per month, and the lease term is month-to-month.
Periodically, the Company advances funds to Mr. Thompson and pays certain
expenses for the benefit of Mr. Thompson. These advances are offset by amounts
payable to Mr. Thompson under the agreements described in the preceding
paragraph. Net advances to (from) Mr. Thompson are charged interest at our
borrowing rate for short-term funds. Associated with these advances,
Mr. Thompson paid us interest of $3,932 in 1998.
The Company purchased raw materials approximating $720,000 and $441,000 for
the years ended September 30, 1997 and 1998, respectively, from a company
previously owned by Mr. Thompson. Mr. Thompson sold his holdings of this company
in December 1997.
F-19
<PAGE>
SEMITOOL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. COMMITMENTS AND CONTINGENCIES:
The Company has various operating lease agreements for equipment and office
space that expire through the year 2004. Total rent expense for the years ended
September 30, 1997, 1998 and 1999, exclusive of amounts paid to a related party
as described in Note 8, was approximately $2,011,000, $2,099,000, and
$1,632,000, respectively. At September 30, 1999, future rental payments under
these agreements are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING
SEPTEMBER 30, TOTAL
------------- --------
<S> <C>
2000.................................................... $1,258
2001.................................................... 824
2002.................................................... 596
2003.................................................... 421
2004.................................................... 75
------
$3,174
======
</TABLE>
In August, 1998, the Company filed suit against Novellus Systems, Inc. in
the United States District Court for the Northern District of California (Case
No. C-98-3089DLJ), alleging infringement of two of its patents relating to
single substrate processing tools used in electrochemical deposition of copper
onto semiconductor wafers. The Company seeks damages for past infringement, a
permanent injunction, treble damages for willful infringement, pre-judgment
interest and attorneys fees. Novellus answered the complaint by denying all
allegations, counterclaiming for declaratory judgment of invalidity and
non-infringement. Discovery is continuing and no trial date has been set. During
the six months ended March 31, 2000, Novellus filed a motion for summary
judgment of noninfringement, which motion was granted on March 17, 2000 and
judgment was subsequently entered on May 12, 2000 dismissing the case. The
Company intends to appeal to the United States Court of Appeals for the Federal
Circuit, seeking review of the ruling on the motion for summary judgment.
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 us. The
lawsuit alleges breach of warranties and seeks damages and attorney's fees in
excess of $5 million. We believe the lawsuit to be without merit and are
contesting the action vigorously. However, given the inherent uncertainty of
litigation and the stage of discovery, there can be no assurance that the
ultimate outcome will be in our favor. Further, regardless of the ultimate
outcome, there can be no assurance that the diversion of management's attention,
and any costs associated with the lawsuit, will not have a material adverse
effect on our 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 our 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 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 our
results of operations, financial condition or cash flows.
F-20
<PAGE>
SEMITOOL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. SHAREHOLDERS' EQUITY:
The Board of Directors has the authority to issue preferred stock of
Semitool in one or more series and to fix the rights, privileges, preferences
and restrictions granted to or imposed upon any unissued shares of preferred
stock, without further vote or action by the common shareholders.
The authorized shares of the Company's capital stock were increased from
30,000,000 to 75,000,000 at the February 8, 2000 Annual Meeting of Shareholders.
The Company completed a two-for-one stock split in the form of a 100% stock
dividend on March 28, 2000. All references in the consolidated financial
statements to the number of shares, per share amounts and market prices of the
Company's common stock have been retroactively restated to reflect the increased
number of common shares outstanding.
11. FINANCIAL INSTRUMENTS AND CERTAIN CONCENTRATIONS:
The Company has estimated the fair value of its financial instruments
including cash and cash equivalents, payable to shareholder, note payable to
bank and long-term debt. The fair value estimates are made at a discrete point
in time based on relevant market information and information about the financial
instruments. Fair value estimates are based on judgments regarding current
economic conditions, risk characteristics of various financial instruments, and
other factors. These estimates are subjective in nature and involve
uncertainties and matters of significant judgment and, therefore, cannot be
determined with precision. Changes in assumptions could significantly affect the
estimates. Accordingly, the estimates are not necessarily indicative of what the
Company could realize in a current market exchange.
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments at September 30, 1998 and 1999 for which
it is practicable to estimate that value:
Cash and Cash Equivalents--The carrying value of cash and cash equivalents
approximates fair value due to the nature of the cash investments.
Payable to Shareholder--The carrying value of the shareholder payable
approximates fair value due to the fact that the note carries a variable
interest rate.
Note Payable to Bank--The carrying value of the note payable to bank
approximates fair value due to the fact that the note bears a negotiated
variable interest rate.
Long-Term Debt--The fair value of notes payable is based on the discounted
value of contractual cash flows using an estimated discount rate of 8.25%
which the Company could currently obtain for debt with similar remaining
maturities.
The estimated fair value of financial instruments at September 30, 1998 and
1999, consisted of the following (in thousands):
<TABLE>
<CAPTION>
1998 1999
------------------- -------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Cash and cash equivalents................ $7,287 $7,287 $ 4,789 $ 4,789
Payable to shareholder................... 78 78 3 3
Note payable to bank..................... 3,000 3,000 10,160 10,160
Long-term debt........................... 4,432 3,927 3,838 3,321
</TABLE>
F-21
<PAGE>
SEMITOOL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. FINANCIAL INSTRUMENTS AND CERTAIN CONCENTRATIONS: (CONTINUED)
At September 30, 1998 and 1999, trade receivables of the Company were
primarily from companies in the semiconductor industry, and included
approximately $15.9 million and $24.5 million, respectively, of foreign
receivables. Accordingly, the Company is exposed to concentrations of credit
risk. The Company routinely assesses the financial strength of its customers.
12. OPERATING SEGMENT AND GEOGRAPHIC INFORMATION:
The Company adopted Statement of Financial Accounting Standards No. 131
(SFAS 131), "Disclosures about Segments of an Enterprise and Related
Information" in 1999. SFAS 131 supersedes SFAS 14, "Financial Reporting for
Segments of a Business Enterprise," replacing the "industry segment" approach
with the "management" approach. The management approach designates the internal
organization that is used by management for making operating decisions and
assessing performance as the source of the Company's reportable segments.
SFAS 131 also requires disclosures about product and services, geographic areas
and major customers.
The Company's reportable segments have been determined based on the nature
of its operations, products offered to customers and information used by the
chief operating decision maker as defined by SFAS 131. The Company's two
reportable segments are Semiconductor Equipment and Software Control Systems.
The Semiconductor Equipment segment's primary products perform cleaning and
electroplating processes. The Software Control Systems segment's primary
products are designed to provide a communication interface to monitor and
control most of the front-end process equipment in a fab. The Semiconductor
Equipment's current product offerings qualify for aggregation under SFAS 131 as
the products are manufactured and distributed in the same manner, have similar
economic characteristics and are sold to the same customer base.
Consolidated sales to one major customer of the Company's Semiconductor
Equipment segment represented 10.9% of total consolidated net sales for the year
ended September 30, 1997. No other customer represented more than 10% of total
consolidated net sales for any period presented.
The accounting policies of the segments are the same as those described in
the "Summary of Significant Accounting Policies" note. Segment operating results
are measured based on income (loss) from operations. Intersegment sales are
based on internal transfer prices. Intersegment sales reflect sales of products
from the Software Control Systems segment to the Semiconductor Equipment
segment. Segment assets consist of assets that are identified to reportable
segments.
F-22
<PAGE>
SEMITOOL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. OPERATING SEGMENT AND GEOGRAPHIC INFORMATION: (CONTINUED)
Financial information by operating segment for 1997, 1998 and 1999 is
summarized as follows (amounts in thousands):
<TABLE>
<CAPTION>
EQUIPMENT
CONSOLIDATED SEGMENT SOFTWARE SEGMENT
------------ --------- ------------------------------
EXTERNAL EXTERNAL EXTERNAL INTERNAL TOTAL ELIMINATIONS
------------ --------- -------- -------- -------- ------------
<S> <C> <C> <C> <C> <C> <C>
Net Sales
1997................................... $193,952 $184,421 $ 9,531 $984 $10,515 $ (984)
1998................................... 180,501 168,902 11,599 181 11,780 (181)
1999................................... 122,528 109,646 12,882 413 13,295 (413)
Income (Loss) from Operations
1997................................... 20,432 18,346 2,736 (650)
1998................................... 8,087 8,587 (381) (119)
1999................................... (12,741) (12,996) 572 (317)
Segment Assets
1997................................... 131,725 128,030 5,501 (1,806)
1998................................... 127,990 120,082 9,986 (2,078)
1999................................... 131,884 125,162 8,767 (2,045)
Capital Expenditures for Long-Lived
Assets
1997................................... 13,730 12,395 1,335
1998................................... 15,286 10,171 5,115
1999................................... 6,510 5,404 1,106
Depreciation and Amortization Expense
1997................................... 6,077 5,215 862
1998................................... 10,423 9,010 1,413
1999................................... 10,351 8,657 1,694
</TABLE>
Financial information (unaudited) by operating segment for the six months
ended March 31, 1999 and 2000 is summarized as follows (amounts in thousands):
<TABLE>
<CAPTION>
EQUIPMENT
SEGMENT SOFTWARE SEGMENT
--------- ------------------------------
CONSOLIDATED EXTERNAL EXTERNAL INTERNAL TOTAL ELIMINATIONS
------------ --------- -------- -------- -------- ------------
<S> <C> <C> <C> <C> <C> <C>
Net sales
1999................................... $ 56,238 $ 49,602 $ 6,636 $ 90 $ 6,726 $ (90)
2000................................... 103,863 96,987 6,876 891 7,767 (891)
Income (loss) from operations
1999................................... (7,163) (7,504) 341 43 384 (43)
2000................................... 13,158 12,909 249 642 891 (642)
</TABLE>
F-23
<PAGE>
SEMITOOL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. OPERATING SEGMENT AND GEOGRAPHIC INFORMATION: (CONTINUED)
Financial information by geographic location for 1997, 1998 and 1999 is
summarized as follows (amounts in thousands):
<TABLE>
<CAPTION>
UNITED ASIA &
STATES EUROPE JAPAN OTHER CONSOLIDATED
-------- -------- -------- ------------------
<S> <C> <C> <C> <C> <C>
Net Sales, by customer location
1997......................................... $124,378 $39,564 $14,028 $15,982 $193,952
1998......................................... 111,282 47,788 15,529 5,902 180,501
1999......................................... 57,784 29,346 22,963 12,435 122,528
Property, Plant and Equipment, Net
1997......................................... 30,054 3,370 221 40 33,685
1998......................................... 31,512 4,275 198 317 36,302
1999......................................... 24,742 3,640 1,695 259 30,336
</TABLE>
F-24
<PAGE>
INSIDE BACK COVER
Centered Company logo
<PAGE>
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
YOU SHOULD RELY ONLY UPON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE
HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION DIFFERENT FROM THAT
CONTAINED IN THIS PROSPECTUS. WE ARE OFFERING TO SELL, AND SEEKING OFFERS TO
BUY, SHARES OF COMMON STOCK ONLY IN JURISDICTIONS WHERE OFFERS AND SALES ARE
PERMITTED. THE INFORMATION CONTAINED IN THIS PROSPECTUS IS ACCURATE ONLY AS OF
THE DATE OF THIS PROSPECTUS, REGARDLESS OF THE TIME OF DELIVERY OF THIS
PROSPECTUS OR OF ANY SALE OF OUR COMMON STOCK. IN THIS PROSPECTUS, REFERENCES TO
"SEMITOOL," "WE," "OUR" AND "US" REFER TO SEMITOOL, INC. AND OUR SUBSIDIARIES.
--------------------------
TABLE OF CONTENTS
------------------------
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Prospectus Summary....................... 1
Risk Factors............................. 4
Special Note Regarding Forward-Looking
Statements............................. 15
Use of Proceeds.......................... 15
Dividend Policy.......................... 15
Price Range of Our Common Stock.......... 16
Capitalization........................... 17
Selected Consolidated Financial Data..... 18
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................. 20
Business................................. 29
Management............................... 39
Related Party Transactions............... 40
Principal and Selling Shareholders....... 41
Underwriting............................. 43
Legal Matters............................ 45
Experts.................................. 45
Available Information.................... 46
Incorporation of Certain Documents by
Reference.............................. 46
Index to Consolidated Financial
Statements............................. F-1
</TABLE>
4,100,000 SHARES
[LOGO]
COMMON STOCK
---------------------
PROSPECTUS
---------------------
BEAR, STEARNS & CO. INC.
NEEDHAM & COMPANY, INC.
WIT SOUNDVIEW
RAGEN MACKENZIE INCORPORATED
, 2000
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by Semitool, Inc. (the
"Company") in connection with the sale of common stock being registered. All
amounts are estimates except the SEC registration fee and the NASD filing fee.
<TABLE>
<S> <C>
SEC registration fee........................................ $ 22,406
NASD filing fee............................................. 8,987
Nasdaq National Market listing fee.......................... 17,500
Printing and engraving costs................................ 100,000
Legal fees and expenses..................................... 250,000
Accounting fees and expenses................................ 150,000
Blue sky fees and expenses.................................. 5,000
Transfer agent and registrar fees and expenses.............. 5,000
Miscellaneous expenses...................................... 41,107
--------
Total..................................................... $600,000
========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Sections 35-1-451 through 35-1-459 of the Montana Code Annotated authorize a
court to award, or a corporation to provide, indemnification to directors and
officers on terms sufficiently broad to permit indemnification under certain
circumstances for liabilities arising under the Securities Act of 1933, as
amended. Section 35-1-452 of the Montana Code Annotated authorizes a corporation
to indemnify a director against liability incurred because he is or was a
director of the registrant, provided that certain standards are met, except in
connection with a proceeding by or in the right of the corporation in which the
director is adjudged liable to the corporation or in connection with any other
proceeding in which the director is adjudged liable on that basis that personal
benefit was improperly received by the director. Article VII, Section B of the
Company's Articles of Incorporation provides for indemnification of the
Company's directors, officers, employees and agents to an extent not
inconsistent with Montana law.
Directors of the Company may also be indemnified pursuant to a liability
insurance policy maintained by the Company for such purposes. The Underwriting
Agreement (Exhibit 1.1 hereto) provides for indemnification by the underwriters
of the registrant and its executive officers and directors, and by the
registrant of the underwriters, for certain liabilities, including liabilities
arising under the Securities Act, in connection with matters specifically
provided by the underwriters for inclusion in this Registration Statement.
Section 35-1-216(2)(d) authorizes a corporation to include in its articles
of incorporation a provision eliminating or limiting the liability of a director
to the corporation or its shareholders for money damages for any actions or
omissions by a director, except liability for the amount of a financial benefit
received by a director to which the director is not entitled, an intentional
infliction of harm on the corporation or the shareholders, an intentional
violation of criminal law, or if the director participates in making an unlawful
distribution. Article VII, Section A of the Company's Articles of Incorporation
contains provisions implementing, to the fullest extent permitted by Montana
law, such limitations on a director's liability to the registrant and its
shareholders.
The Company entered into agreements with its directors and executive
officers that require the Company to indemnify such persons against expenses,
judgments, fines, settlements and other amounts actually and reasonably incurred
(including expenses of a derivative action) in connection with any
II-1
<PAGE>
proceeding, whether actual or threatened, to which any such person may be made a
party by reason of the fact that such person is or was a director or officer of
the Company or any of its affiliated enterprises, provided such person acted in
good faith and in a manner such person reasonably believed to be in or not
opposed to the best interests of the Company and also sets forth certain
procedures that will apply in the event of a claim for indemnification
thereunder.
ITEM 16. EXHIBITS
The Exhibits are as set forth on the Exhibit Index hereto.
ITEM 17. UNDERTAKINGS
Insofar as indemnification by the Company for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the Company pursuant to the provisions referenced in Item 15 of this
Registration Statement or otherwise, the Company has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act, and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Company of expenses incurred or paid
by a director, officer, or controlling person of the Company in the successful
defense of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered
hereunder, the Company will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned Company hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Company pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial BONA FIDE offering thereof.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Company certifies
that it has reasonable grounds to believe that it meets all of the requirements
for filing on Form S-3 and has duly caused this Amendment No. 2 to the
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Kalispell, State of Montana, on July 26, 2000.
<TABLE>
<S> <C> <C>
SEMITOOL, INC.
By /s/ RAYMON F. THOMPSON
-----------------------------------------
Raymon F. Thompson
CHAIRMAN OF THE BOARD, PRESIDENT AND CHIEF
EXECUTIVE OFFICER
</TABLE>
Pursuant to the requirements of the Securities Act, this Amendment No. 2 to
the Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ RAYMON F. THOMPSON
------------------------------------------- Chairman of the Board, President July 26, 2000
(Raymon F. Thompson) and Chief Executive Officer
/s/ WILLIAM A. FREEMAN
------------------------------------------- Senior Vice President and Chief July 26, 2000
(William A. Freeman) Financial Officer
/s/ LARRY A. VIANO Controller, Treasurer,
------------------------------------------- Secretary, and Principal July 26, 2000
(Larry A. Viano) Accounting Officer
/s/ HOWARD E. BATEMAN*
------------------------------------------- Director July 26, 2000
(Howard E. Bateman)
/s/ RICHARD A. DASEN*
------------------------------------------- Director July 26, 2000
(Richard A. Dasen)
/s/ TIMOTHY C. DODKIN Director and Senior Vice
------------------------------------------- President, Managing Director, July 26, 2000
(Timothy C. Dodkin) Semitool Europe, Ltd.
/s/ DANIEL J. EIGEMAN*
------------------------------------------- Director July 26, 2000
(Daniel J. Eigeman)
</TABLE>
<TABLE>
<S> <C>
*By: /s/ RAYMON F. THOMPSON
----------------------------------------
Raymon F. Thompson
ATTORNEY-IN-FACT
</TABLE>
II-3
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
---------------------
<C> <S>
1.1* Form of Underwriting Agreement
5.1* Opinion of Crowley, Haughey, Hanson, Toole & Dietrich,
P.L.L.P.
23.1 Consent of PricewaterhouseCoopers LLP
23.2 Consent of Crowley, Haughey, Hanson, Toole & Dietrich,
P.L.L.P. (included in Exhibit 5.1)
24.1* Power of Attorney (included on signature page to
Registration Statement)
27.1 Financial Data Schedule (1)
99.2 Amended and Restated Semitool, Inc. 1994 Stock Option Plan
(2)
</TABLE>
------------
* Previously provided.
(1) Incorporated herein by reference to the identically numbered exhibit to the
Company's Annual Report on Form 10-K, date of report September 30, 1999.
(2) Incorporated herein by reference to the identically numbered exhibit to the
Company's Quarterly Report on Form 10-Q, date of report March 31, 1998.
