UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark one)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarterly period ended December 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from _______________ to ______________
Commission file number 0-25424
Semitool, Inc.
(Exact Name of Registrant as Specified in Its Charter)
Montana 81-0384392
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
655 West Reserve Drive
Kalispell, Montana 59901
(Address of principal executive offices, zip code)
Registrant's telephone number, including area code: (406)752-2107
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES X NO __
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practical date:
Title Outstanding as of January 31, 2000
Common Stock 13,917,960
<PAGE>
Part I. Financial Information
Item 1. Financial Statements
<TABLE>
<CAPTION>
SEMITOOL, INC.
CONSOLIDATED BALANCE SHEETS
(Amounts in Thousands, Except for Share Amounts)
December 31, September 30,
ASSETS 1999 1999
--------------- ---------------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 3,795 $ 4,789
Trade receivables, less allowance for doubtful accounts
of $223 and $271 48,675 38,366
Inventories 39,559 41,667
Income tax refund receivable 3,944 3,944
Prepaid expenses and other current assets 1,550 2,607
Deferred income taxes 5,928 5,928
--------------- ---------------
Total current assets 103,451 97,301
Property, plant and equipment, net 29,104 30,336
Intangibles, less accumulated amortization of $3,999 and $3,574 3,410 3,406
Other assets, net 748 841
--------------- ---------------
Total assets $ 136,713 $ 131,884
=============== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Note payable to bank and other short-term debt $ 9,617 $ 10,160
Accounts payable 13,695 14,602
Accrued commissions 1,757 1,018
Accrued warranty and installation 10,288 9,045
Accrued payroll and related benefits 3,957 3,691
Other liabilities 4,422 3,974
Customer advances 1,747 2,119
Long-term debt, due within one year 339 381
Payable to shareholder 1 3
--------------- ---------------
Total current liabilities 45,823 44,993
Long-term debt, due after one year 3,933 3,911
Deferred income taxes 1,955 1,955
--------------- ---------------
Total liabilities 51,711 50,859
--------------- ---------------
Contingencies (Note 5)
Shareholders' equity:
Preferred stock, no par value, 5,000,000 shares authorized,
no shares issued and outstanding -- --
Common stock, no par value, 30,000,000 shares authorized,
13,828,538 and 13,814,498 shares issued and outstanding 41,468 41,464
Retained earnings 42,740 39,009
Accumulated other comprehensive income 794 552
--------------- ---------------
Total shareholders' equity 85,002 81,025
--------------- ---------------
Total liabilities and shareholders' equity $ 136,713 $ 131,884
=============== ===============
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SEMITOOL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Amounts in Thousands, Except for Per Share Amounts)
Three Months Ended
December 31,
--------------------------
<S> <C> <C>
1999 1998
----------- -----------
Net sales $ 49,555 $ 30,422
Cost of sales 23,738 15,685
----------- -----------
Gross profit 25,817 14,737
----------- -----------
Operating expenses:
Selling, general and administrative 14,955 11,657
Research and development 5,312 5,549
----------- -----------
Total operating expenses 20,267 17,206
----------- -----------
Income (loss) from operations 5,550 (2,469)
Other income, net 18 741
----------- -----------
Income (loss) before income taxes 5,568 (1,728)
Income taxes 1,837 (587)
----------- -----------
Net income (loss) $ 3,731 $ (1,141)
=========== ===========
Earnings (loss) per share:
Basic $ 0.27 $ (0.08)
=========== ===========
Diluted $ 0.27 $ (0.08)
=========== ===========
Weighted average common shares:
Basic 13,815 13,792
Diluted 13,930 13,792
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SEMITOOL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Amounts in Thousands)
Three Months Ended
December 31,
----------------------------
1999 1998
------------ ------------
<S> <C> <C>
Operating activities:
Net income (loss) $ 3,731 $ (1,141)
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
(Gain) loss on sale of equipment 105 275
Depreciation and amortization 2,106 2,561
Provision for losses on accounts receivable (48) (49)
Change in:
Trade receivables (8,804) 5,843
Inventories 2,148 3,774
Prepaid expenses and other current assets 1,114 (263)
Other assets (8) (15)
Accounts payable (1,375) (5,161)
Accrued commissions 739 53
Accrued warranty and installation 1,239 (1,427)
Accrued payroll and related benefits 262 (883)
Other liabilities 400 279
Customer advances (372) (770)
Shareholder payable (2) (62)
------------ ------------
Net cash provided by operating activities 1,235 3,014
------------ ------------
Investing activities:
Purchases of property, plant and equipment (230) (1,405)
Increase in intangible assets (390) (103)
Proceeds from sale of property 16 6
------------ ------------
Net cash used in investing activities (604) (1,502)
------------ ------------
Financing activities:
Proceeds from exercise of stock options 4 --
Borrowings under line of credit and short-term debt 23,828 1,000
Repayments under line of credit and short-term debt (25,350) (3,413)
Repayments of long-term debt (133) (114)
------------ ------------
Net cash used in financing activities (1,651) (2,527)
------------ ------------
Effect of exchange rate changes on cash and cash equivalents 26 277
------------ ------------
Net decrease in cash and cash equivalents (994) (738)
Cash and cash equivalents at beginning of period 4,789 7,287
------------ ------------
Cash and cash equivalents at end of period $ 3,795 $ 6,549
============ ============
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
SEMITOOL, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Amounts in Thousands)
Three Months Ended
December 31,
--------------------------
<S> <C> <C>
1999 1998
----------- -----------
Net income (loss) $ 3,731 $ (1,141)
Foreign currency translation adjustment 242 722
----------- -----------
Other comprehensive income (loss) $ 3,977 $ (419)
=========== ===========
</TABLE>
<PAGE>
SEMITOOL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Basis of Presentation
The consolidated financial statements included herein have been prepared by
Semitool, Inc., (the "Company") without audit, pursuant to the rules and
regulations of the United States Securities and Exchange Commission (the "SEC").
Certain information and note disclosures, normally included in financial
statements prepared in accordance with generally accepted accounting principles,
have been condensed or omitted as permitted by such rules and regulations. The
Company believes the disclosures included herein are adequate; however, these
consolidated statements should be read in conjunction with the consolidated
financial statements and the notes thereto for the year ended September 30, 1999
previously filed with the SEC on Form 10-K.
Financial information as of September 30, 1999 has been derived from the audited
financial statements of the Company. In the opinion of management, the
accompanying unaudited financial statements contain all of the adjustments
(normal and recurring in nature) necessary to present fairly the consolidated
financial position of the Company and subsidiaries and the consolidated results
of their operations and their cash flows. The results of operations for the
periods presented may not be indicative of those which may be expected for the
full year.
In June 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.
The Securities and Exchange Commission (the "Commission") issued Staff
Accounting Bulletin ("SAB") 101, "Revenue Recognition in Financial Statements"
in December 1999. The SAB summarized the Commission's view in applying generally
accepted accounting principles to revenue recognition in financial statements.
Adoption is required by the first fiscal quarter of 2001, and early adoption is
permitted. The Company is currently evaluating the effect of the SAB on its
revenue recognition practices and results of operations.
Note 2. Principles of Consolidation
The consolidated financial statements include the accounts of Semitool, Inc. and
its wholly-owned subsidiaries. All significant intercompany and affiliated
accounts and transactions are eliminated in consolidation. The Company has two
reportable segments, Semiconductor Equipment and Software Control Systems.
<PAGE>
Note 3. Inventories
Inventories are summarized as follows (in thousands):
December 31, 1999 September 30, 1999
------------------- --------------------
Parts and raw materials $ 22,977 $ 23,930
Work-in-process 11,315 11,852
Finished goods 5,267 5,885
------------------- --------------------
$ 39,559 $ 41,667
=================== ====================
During the three months ended December 31, 1999 and 1998, $84,000 and
$1,444,000, respectively, of finished goods inventory was transferred to
property, plant and equipment.
Note 4. Income Taxes
The components of the Company's income tax provision (benefit) are as follows,
(in thousands):
Three Months Ended
December 31,
-------------------------
1999 1998
---------- ----------
Federal $ 903 $ (525)
State 187 (62)
Foreign 747 --
---------- ----------
Total $ 1,837 $ (587)
========== ==========
Note 5. Contingencies
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-98-3089DLJ), 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, 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. In
December 1999, Novellus filed a motion for summary judgement of non-infringement
and the court has set a hearing on the motion for February 18, 2000. We believe
the motion to be without merit.
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.
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 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.
<PAGE>
Note 6. Earnings Per Common Share
The following table sets forth the computation of basic and diluted earnings
(loss) per share (in thousands):
<TABLE>
<CAPTION>
Three Months Ended
December 31,
----------------------
<S> <C> <C>
1999 1998
--------- ---------
Numerator:
Net income (loss) for basic and diluted
earnings (loss) per share $ 3,731 $ (1,141)
========= =========
Denominator:
Weighted average common shares used for basic
earnings (loss) per share 13,815 13,792
Effect of dilutive stock options 115 --
--------- ---------
Denominator for diluted earnings per share 13,930 13,792
========= =========
</TABLE>
The effect of stock options are not included in the calculation of the diluted
earnings (loss) per share to the extent that their inclusion would be
anti-dilutive. Anti-dilutive stock options totaled 756,530 and 859,375 at
December 31, 1999 and 1998, respectively.
Note 7. Comprehensive Income (Loss).
Accumulated other comprehensive income (loss) presented in the accompanying
consolidated balance sheets consists of the cumulative foreign currency
translation adjustment.
Note 8. 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 products 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 segment'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.
The accounting policies of the segments are the same as those described in the
"Summary of Significant Accounting Policies". 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.
<TABLE>
<CAPTION>
Total
Equipment Software Software Elim-
Segment Segment Segment inations Consolidated
<S> <C> <C> <C> <C> <C> <C>
Net sales External External Internal
First quarter fiscal 2000 $45,777 $3,778 $236 $4,014 $(236) $49,555
First quarter fiscal 1999 27,204 3,218 3,218 30,422
Income (loss) from
operations
First quarter fiscal 2000 5,062 659 171 5,550
First quarter fiscal 1999 (2,570) 101 (2,469)
</TABLE>
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
CAUTION
Statements contained in this "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and elsewhere in this report on Form 10-Q
which are not historical facts are forward-looking statements within the meaning
of Section 21E of the Securities Exchange Act of 1934, as amended, including
without limitation, statements regarding gross margins, research and
development, costs of manufacturing, future balances, acquisitions, equity and
debt financings, effects of interest rate changes, and effects of new accounting
standards, and are subject to the safe harbor provisions created by that
statute. A forward-looking statement may contain words such as "will continue to
be," "will be," "continue to," "expect to," "anticipates that," "to be" or "can
impact." Management cautions that forward-looking statements are subject to
risks and uncertainties that could cause the Company's actual results to differ
materially from those projected in such forward-looking statements. These risks
and uncertainties include, but are not limited to, the cyclical nature of the
semiconductor industry in general, lack of market acceptance for new products,
decreasing demand for our existing products, impact of competitive products and
pricing, product development, commercialization and technological difficulties,
capacity and supply constraint difficulties and other risks detailed herein. Our
future results will depend on our ability to continue to enhance our existing
products and to develop and manufacture new products and to finance such
activities. There can be no assurance that we will be successful in the
introduction, marketing and cost-effective manufacture of any new products or
that we will be able to develop and introduce in a timely manner new products or
enhancements to our existing products and processes which satisfy customer needs
or achieve widespread market acceptance.
We undertake no obligation to provide revisions to forward-looking statements to
reflect subsequent events, changed circumstances, or the occurrence of
unanticipated events.
RESULTS OF OPERATIONS
FIRST QUARTER OF FISCAL 2000 COMPARED WITH FIRST QUARTER OF FISCAL 1999
Net Sales. Net sales consist of revenues from sales of equipment, spare parts,
software and service contracts. Net sales increased 62.9% to $49.6 million in
the first quarter of fiscal 2000 from $30.4 million for the same period in
fiscal 1999. Sales in the first quarter of fiscal 2000 were up in all product
categories principally due to a recovery in the semiconductor industry. Sales
consisted of both capacity and technology buys.
The Semiconductor Equipment segment's net sales were $45.8 million in the first
quarter of fiscal 2000, up $18.6 million or 68.3% from $27.2 million net sales
for fiscal 1999 first quarter. First quarter 2000 net sales of surface
preparation equipment and ECD equipment were up 77.8% and 42.4% respectively as
compared to first quarter 1999.
The Software Control Systems segment's net sales were $3.8 million in the first
fiscal quarter of 2000 compared with $3.2 million in the first fiscal quarter of
1999.
Gross Profit. Gross margin was 52.1% of net sales in the first quarter of fiscal
2000 compared to 48.4% of net sales for the same period in fiscal 1999. The
increase in gross margin was primarily due to a higher level of cost absorption
caused by increased manufacturing activity and other cost reductions. 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 the cost
to manufacture, service and support new and enhanced products.
The Semiconductor Equipment segment's gross margin was 51.3% in the first
quarter of fiscal 2000 compared to 47.5% in the first quarter of fiscal 1999.
Cost reductions and higher cost absorption due to higher operating levels
contributed to the increase in margins.
The Software Control Systems segment's gross margin was 61.9% in the first
fiscal quarter 2000. This compares with 56.4% in the same quarter of fiscal
1999. Gross margin increased as a result of reduced manufacturing costs.
Selling, General and Administrative. Selling, general and administrative (SG&A)
expenses were 30.2% of net sales in the first quarter of fiscal 2000 compared to
38.3% of net sales for the same period in fiscal 1999. The decline as a
percentage of net sales is a result of increased sales volume. A substantial
portion of our SG&A expenses are fixed in the short-term.
SG&A for the Semiconductor Equipment segment was $14.1 million or 30.8% of
fiscal 2000 first quarter segment sales. This compares with the year ago
quarter's $10.8 million or 39.6% of net segment sales. SG&A expenses increased
in absolute dollars primarily as a result of higher commissions and customer
support. Higher sales volume reduced SG&A as a percent of first quarter net
sales when compared to the year ago quarter as most SG&A expenses of this
segment, with the exception of sales commissions, are fixed in the short-term.
First quarter fiscal year 2000 SG&A expenses for the Software Control Systems
segment were $873,000 or 21.8% of net segment sales compared to $877,000 or
27.2% of net sales in the corresponding year ago quarter.
Research and Development. Research and development (R&D) expenses consist of
salaries, project materials, laboratory costs, consulting fees and other costs
associated with the Company's research and development efforts. R&D expense was
$5.3 million or 10.7% of net sales in the first quarter of fiscal 2000 as
compared to $5.5 million or 18.2% of net sales for the same period in fiscal
1999. The decline as a percentage of sales in fiscal 2000 first quarter is a
result of increased sales volume and slightly lower expenses.
Semiconductor Equipment segment R&D was 9.6% of fiscal 2000 first quarter
segment net sales. This compares with R&D of 17.3% of segment net sales in first
quarter of fiscal 1999. The decrease as a percent of sales is attributed to the
sales volume increase and a slight decrease in expenses.
R&D expenses for the software control systems segment were nearly $1.0 million
for the first quarter of fiscal 2000 which is 23.7% of net segment sales. The
year ago quarter's R&D expenses for this segment were $837,000 or 26.0% of
segment net sales.
We are committed to technology leadership in the semiconductor equipment
industry and expect to continue to fund R&D expenditures with a multiyear
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.
Other Income (Expense), Net. Other income (expense), net was net other income of
$18,000 in the first quarter of fiscal 2000, which includes interest expense of
$273,000, compared to net other income of $741,000, which includes a foreign
exchange gain of $816,000, for the same period in fiscal 1999.
Income Taxes. Income taxes for the first quarter of fiscal 2000 were a $1.8
million tax provision and a $587,000 benefit for the first quarter of fiscal
1999. Income tax provisions and benefits are made based on the blended estimate
of federal, state and foreign effective income tax rates which were estimated to
be 33% in the first fiscal quarter of 2000 and 34% in fiscal 1999.
Backlog. We include in our backlog those customer orders for which we have
written 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. As the result of systems ordered and
shipped in the same quarter, possible changes in customer delivery schedule,
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. Order backlog was approximately $70.4
million at December 31, 1999 compared to $22.2 million at December 31, 1998.
This is an increase of 217.1% from backlog of $22.2 million reported at December
31, 1998.
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.
The Securities and Exchange Commission (the "Commission") issued Staff
Accounting Bulletin ("SAB") 101, "Revenue Recognition in Financial Statements"
in December 1999. The SAB summarized the Commission's view in applying generally
accepted accounting principles to revenue recognition in financial statements.
Adoption is required by the first fiscal quarter of 2001, and early adoption is
permitted. The Company is currently evaluating the effect of the SAB on its
revenue recognition practices and results of operations.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operating activities was $1.2 million during the first three
months of fiscal 2000, compared to $3.0 million provided in the same period in
fiscal 1999. Cash provided by operations was lower primarily due to increases in
receivables of $8.8 million partially offset by decreases in inventory of $2.1
million and increases in accounts payable of $1.4 million. We expect future
working capital balances to fluctuate based on net sales and the average cycle
time of the specific equipment types being manufactured.
As of December 31, 1999, our principal sources of liquidity consisted of
approximately $3.8 million of cash and cash equivalents, and $18.3 million
available under the Company's $25 million revolving line of credit. The credit
facility is with Bank of America and bears interest at the bank's prime lending
rate or LIBOR plus 1.5%. The revolving line of credit expires on April 1, 2001
and all principal amounts owing are due by April 1, 2004. The revolving line of
credit agreement 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.
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 the spending of
approximately $5.0 million to purchase property, plant and equipment. We believe
that success in our industry requires substantial capital in order to maintain
flexibility and 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 businesses, products or technologies. We may also effect
additional equity or debt financings to fund such activities or to fund greater
than anticipated growth. The sale of additional equity securities or the
issuance of equity securities in a business combination could result in dilution
to our shareholders.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Market Risks
Market risks relating to the Company's operations result primarily from changes
in interest rate and changes in foreign currency exchange rates.
Interest Rate Sensitivity
The Company as of December 31, 1999 has approximately $4.3 million in long-term
debt and approximately $9.6 million in short-term debt. The Company's long-term
debt bears interest at a fixed rate. As a result, changes in the fixed rate
interest market would change the estimated fair value of its fixed rate
long-term debt. We believe that a 10% change in the long-term interest rate
would not have a material effect on the Company's financial condition, results
of operations or cash flows. The Company's short-term debt bears interest at
variable and fixed rates. The fixed rate payables have short maturities and
therefore the nominal rate is not materially different from the market rate.
Based on the $9.6 million of short-term debt outstanding as of September 30,
1999, a 10% change in interest rates would not have a material affect on the
Company's financial condition, results of operations, or cash flows.
Foreign Currency Exchange Rate Sensitivity
All of our non-U.S. 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 December 31, 1999 we
held forward contracts to purchase Japanese Yen with a face value of $7.9
million, a market value of $8.4 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
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 the Company's financial condition, results
of operations or cash flows. The Company does not hold or issue derivative
financial instruments for trading or speculative purposes.
LITIGATION
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-98-3089DLJ), 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, 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. In
December 1999, Novellus filled a motion for summary judgement of
non-infringement and the court has set a hearing on the motion for February 18,
2000. We believe the motion to be without merit.
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.
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.
<PAGE>
SEMITOOL, INC.
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
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-98-3089DLJ), 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, 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. In
December 1999, Novellus filled a motion for summary judgement of
non-infringement and the court has set a hearing on the motion for February 18,
2000. We believe the motion to be without merit.
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.
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.
Item 6.Exhibits and Reports on Form 8-K
(a) Exhibits:
(27) Financial Data Schedule for Form 10-Q dated December 31, 1999.
(b) Reports on Form 8-K:
There were no reports on Form 8-K filed during the three months ended
December 31, 1999.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SEMITOOL, INC.
--------------
(Registrant)
Date: February 7, 2000 By /s/Larry A. Viano
----------------------------------------
Larry A. Viano
Chief Accounting Officer
By /s/William A. Freeman
----------------------------------------
William A. Freeman
Vice President and Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Exhibit 27
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM
10-Q AS OF DECEMBER 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-2000
<PERIOD-END> DEC-31-1999
<CASH> 3,795
<SECURITIES> 0
<RECEIVABLES> 48,898
<ALLOWANCES> 223
<INVENTORY> 39,559
<CURRENT-ASSETS> 103,451
<PP&E> 59,712
<DEPRECIATION> 30,608
<TOTAL-ASSETS> 136,713
<CURRENT-LIABILITIES> 45,484
<BONDS> 4,272
0
0
<COMMON> 41,468
<OTHER-SE> 43,534
<TOTAL-LIABILITY-AND-EQUITY> 136,713
<SALES> 47,689
<TOTAL-REVENUES> 49,555
<CGS> 23,422
<TOTAL-COSTS> 23,738
<OTHER-EXPENSES> 5,312
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 273
<INCOME-PRETAX> 5,596
<INCOME-TAX> 1,847
<INCOME-CONTINUING> 3,749
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,749
<EPS-BASIC> 0.27
<EPS-DILUTED> 0.27
</TABLE>
