<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 4, 2000
[ ] 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 0-26784
SPEEDFAM-IPEC, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
ILLINOIS 36-2421613
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
305 NORTH 54TH STREET, CHANDLER, ARIZONA 85226
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (480) 705-2100
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 [ ]
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date (April 11, 2000).
Common Stock, no par value: 29,673,845 shares
<PAGE> 2
SPEEDFAM-IPEC, INC.
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
March 4, 2000 and May 31, 1999................................................... 2
Condensed Consolidated Statements of Operations
Three and Nine Months Ended March 4, 2000 and February 28, 1999.................. 3
Condensed Consolidated Statements of Cash Flows
Nine Months Ended March 4, 2000 and February 28, 1999........................ 4
Notes to Condensed Consolidated Financial Statements............................. 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations........................................................... 10
Item 3. Quantitative and Qualitative Disclosures about Market Risk.......................... 17
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.................................................... 18
SIGNATURE............................................................................................... 19
EXHIBIT INDEX
Exhibit-27 Financial Data Schedule
Exhibit-99 Audit Committee Charter
</TABLE>
1
<PAGE> 3
PART I - FINANCIAL INFORMATION
SPEEDFAM-IPEC, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
March 4, May 31,
2000 1999
--------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ............................................................... $ 73,881 $ 97,003
Short-term investments .................................................................. 54,787 50,020
Trade accounts receivable, net .......................................................... 84,239 76,808
Inventories ............................................................................. 79,296 80,744
Other current assets .................................................................... 8,962 9,790
--------- ---------
Total current assets .................................................................. 301,165 314,365
Investments in affiliates .................................................................. 19,929 25,360
Property, plant and equipment, net ......................................................... 84,610 88,997
Other assets ............................................................................... 13,542 15,056
--------- ---------
Total assets .......................................................................... $ 419,246 $ 443,778
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt ....................................................... $ 1,255 $ 1,275
Accounts payable and due to affiliates .................................................. 31,934 25,101
Customer deposits ....................................................................... 2,185 1,490
Accrued expenses ........................................................................ 27,227 42,764
--------- ---------
Total current liabilities ............................................................. 62,601 70,630
--------- ---------
Long-term liabilities:
Long-term debt .......................................................................... 115,367 116,129
Other liabilities ....................................................................... 7,412 10,269
--------- ---------
Total long-term liabilities............................................................ 122,779 126,398
--------- ---------
Stockholders' equity:
Common stock, no par value, 96,000 shares authorized, 29,644 and 29,392 shares
issued and outstanding at March 4, 2000
and May 31, 1999, respectively ....................................................... 1 1
Additional paid-in capital .............................................................. 430,318 427,290
Accumulated deficit ..................................................................... (197,646) (180,311)
Accumulated comprehensive income (loss) ................................................. 1,193 (230)
--------- ---------
Total stockholders' equity ............................................................ 233,866 246,750
--------- ---------
Total liabilities and stockholders' equity .......................................... $ 419,246 $ 443,778
========= =========
</TABLE>
See Accompanying Notes to Condensed Consolidated Financial Statements.
2
<PAGE> 4
SPEEDFAM-IPEC, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three and Nine Months Ended March 4, 2000 and February 28, 1999
(dollars and shares in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 4, February 28, March 4, February 28,
--------- ------------ --------- -----------
2000 1999 2000 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenue:
Net sales ............................................... $ 72,678 $ 52,498 $ 178,359 $ 165,595
Commissions from affiliate .............................. 380 781 803 1,518
--------- --------- --------- ---------
Total revenue ......................................... 73,058 53,279 179,162 167,113
Cost of sales .............................................. 48,589 40,730 121,485 126,390
--------- --------- --------- ---------
Gross margin .......................................... 24,469 12,549 57,677 40,723
--------- --------- --------- ---------
Operating expenses:
Research and development ................................ 13,115 14,498 39,304 46,124
Selling, general and administrative ..................... 12,813 16,662 37,737 47,888
--------- --------- --------- ---------
Total operating expenses .............................. 25,928 31,160 77,041 94,012
Operating loss ............................................. (1,459) (18,611) (19,364) (53,289)
Other income, net ......................................... 109 390 5,437 3,724
--------- --------- --------- ---------
Loss before income taxes and equity earnings (loss)......... (1,350) (18,221) (13,927) (49,565)
Income tax benefit ......................................... -- (2,332) -- (8,009)
--------- --------- --------- ---------
Loss before equity earnings (loss).......................... (1,350) (15,889) (13,927) (41,556)
Equity in net earnings (loss) of affiliates ................ (532) 211 (3,408) 1,640
--------- --------- --------- ---------
Net loss ................................................... $ (1,882) $ (15,678) $ (17,335) $ (39,916)
Cumulative dividend on preferred stock ..................... -- (51) -- (123)
--------- --------- --------- ---------
Net loss attributable to common stockholders .............. $ (1,882) $ (15,729) $ (17,335) $ (40,039)
========= ========= ========= =========
Net loss per share:
Basic and diluted ...................................... $ (0.06) $ (0.54) $ (0.59) $ (1.39)
========= ========= ========= =========
Weighted average number of shares:
Basic and diluted ...................................... 29,501 28,884 29,447 28,789
========= ========= ========= =========
</TABLE>
See Accompanying Notes to Condensed Consolidated Financial Statements.
3
<PAGE> 5
SPEEDFAM-IPEC, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended March 4, 2000 and February 28, 1999
(dollars in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
-----------------------------
March 4, February 28,
--------- ---------
2000 1999
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss ................................................................................ $ (17,335) $ (39,916)
Adjustments to reconcile net loss to net cash used in
operating activities:
June 1998 IPEC net income ........................................................... -- (2,232)
Equity in net earnings (loss) of affiliates ......................................... 3,408 (1,640)
Depreciation and amortization ....................................................... 12,877 14,359
Dividend from affiliate ............................................................. -- 521
Gain on the sale of Fujimi Corporation .............................................. (5,603) --
Other ............................................................................... (91) 887
Changes in assets and liabilities:
(Increase) decrease in trade accounts receivable .................................. (7,600) 14,735
Decrease in inventories ........................................................... 1,879 13,766
(Increase) decrease in other current assets ....................................... 875 (2,860)
Increase (decrease) in accounts payable and due to affiliates ..................... 7,231 (18,304)
Decrease in customer deposits, accrued expenses and other liabilities ............ (19,385) (5,124)
--------- ---------
Net cash used in operating activities ................................................... (23,744) (25,808)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of short-term investments ...................................................... (60,361) (46,260)
Maturities of short-term investments .................................................... 55,405 55,639
Proceeds from the sale of short-term investments ........................................ -- 35,849
Proceeds from the sale of Fujimi Corporation ............................................ 10,000 --
Proceeds from licensing technology and transfer of associated assets .................... 2,335 --
Proceeds from sales of assets ........................................................... 202 600
Redemption of cash surrender value of life insurance .................................... 1,024 --
Capital expenditures .................................................................... (8,995) (26,889)
Other investing activities .............................................................. (1,108) (562)
--------- ---------
Net cash provided by (used in) investing activities ..................................... (1,498) 18,377
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from exercise of stock options and employee stock plan purchases ............... 3,028 3,447
Principal payments on long-term debt .................................................... (765) (1,286)
--------- ---------
Net cash provided by financing activities ............................................... 2,263 2,161
--------- ---------
Effects of foreign currency rate changes on cash ........................................ (143) (463)
--------- ---------
Net decrease in cash and cash equivalents ............................................... (23,122) (5,733)
Cash and cash equivalents at beginning of year .......................................... 97,003 104,482
--------- ---------
Cash and cash equivalents at March 4, 2000 and February 28, 1999 ........................ $ 73,881 $ 98,749
========= =========
Cash paid for:
Interest .............................................................................. $ 3,753 $ 3,809
========= =========
Income taxes .......................................................................... $ 0 $ 313
========= =========
</TABLE>
See Accompanying Notes to Condensed Consolidated Financial Statements.
4
<PAGE> 6
SPEEDFAM-IPEC, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollars and shares in thousands, except per share amounts)
(1) BASIS OF PRESENTATION
The condensed consolidated financial statements included herein have been
prepared by management without audit. Certain information and note disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted, although
management believes that the disclosures made are adequate to make the
information presented not misleading. These condensed consolidated financial
statements should be read in conjunction with the consolidated financial
statements of the Company for the year ended May 31, 1999, as filed with the
Securities and Exchange Commission on August 30, 1999 as part of its Annual
Report on Form 10-K. In the opinion of management the information furnished
herein reflects all adjustments (consisting of normal recurring adjustments)
necessary for a fair statement of results for the interim periods presented.
Results of operations for the three and nine months ended March 4, 2000, are not
necessarily indicative of results to be expected for the full fiscal year.
(2) LOSS PER SHARE
Basic loss per common share is based upon the weighted average number of
common shares outstanding. Diluted loss per common share also assumes the
exercise of all options which are dilutive, whether exercisable or not. The
dilutive effect of stock options is measured under the treasury stock method.
Employee stock options outstanding during the nine months ended March 4, 2000
and February 28, 1999 were not included in the computation of diluted loss per
share because the effect would be antidilutive.
(3) INVENTORIES
The components of inventory were:
<TABLE>
<CAPTION>
March 4, May 31,
2000 1999
-------- -------
<S> <C> <C>
Raw materials .................................................... $54,265 $48,082
Work-in-process .................................................. 15,955 23,428
Finished goods ................................................... 9,076 9,234
------- -------
$79,296 $80,744
======= =======
</TABLE>
(4) SHORT-TERM INVESTMENTS
In August, 1998 the Company recorded a realized gain of $46 from the sale
of tax exempt short-term investments, classified as held-to-maturity securities,
with a carrying value of $35,803. The proceeds of $35,849 were re-invested. The
Company sold investments originally intended to be held-to-maturity to take
advantage of more favorable rates of return available on taxable securities. The
Company's short-term investments are now classified as available-for-sale. The
short-term investments are recorded at fair market value and an unrealized loss
of $441 and $252 is included as part of accumulated other comprehensive income
(loss) within stockholders' equity at March 4, 2000 and May 31, 1999,
respectively.
5
<PAGE> 7
(5) INVESTMENTS IN AFFILIATES
The Company owns a 50% interest in SpeedFam-IPEC Co., Ltd. The
Company's equity interest in SpeedFam-IPEC Co., Ltd. was $19,929 and $21,764 at
March 4, 2000 and at May 31, 1999, respectively, based on the balance sheet of
SpeedFam-IPEC Co., Ltd. at January 31, 2000 and April 30, 1999, respectively.
Condensed consolidated financial statements of SpeedFam-IPEC Co., Ltd., which
are consolidated on a fiscal year that ends April 30, are as follows:
BALANCE SHEETS
<TABLE>
<CAPTION>
January 31, April 30,
2000 1999
----------- ---------
<S> <C> <C>
Assets
Total current assets ........................................................... $ 77,763 $ 81,760
Property, plant and equipment, net ............................................. 36,099 36,003
Other assets ................................................................... 15,590 10,759
-------- --------
Total assets .......................................................... $129,452 $128,522
======== ========
Liabilities and Stockholders' Equity
Total current liabilities ...................................................... $ 58,092 $ 57,789
Long-term debt ................................................................. 23,265 19,607
Other long-term liabilities .................................................... 8,237 7,599
Stockholders' equity ........................................................... 39,858 43,527
-------- --------
Total liabilities and stockholders' equity ............................... $129,452 $128,522
======== ========
</TABLE>
6
<PAGE> 8
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
January 31, January 31,
---------------------------- ----------------------------
2000 1999 2000 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net sales .............................................. $ 22,610 $ 32,344 $ 67,329 $ 105,382
Costs and operating expenses ........................... 24,345 32,432 79,763 101,838
--------- --------- --------- ---------
Earnings (loss) before income taxes .................... (1,735) (88) (12,434) 3,544
Income taxes ........................................... (589) 169 (4,763) 2,269
--------- --------- --------- ---------
Net earnings (loss) before minority interest ........... (1,146) (257) (7,671) 1,275
Minority interest ...................................... (83) (204) (255) (549)
--------- --------- --------- ---------
Net earnings (loss) .................................... (1,063) (53) (7,416) 1,824
Beginning retained earnings ............................ 33,973 41,997 40,326 41,162
Dividends .............................................. -- -- -- (1,042)
========= ========= ========= =========
Ending retained earnings ............................... $ 32,910 $ 41,944 $ 32,910 $ 41,944
========= ========= ========= =========
</TABLE>
The Company pays a commission to SpeedFam-IPEC Co., Ltd. on sales of
equipment produced by the Company in the U. S. and exported to Pacific Rim
customers through SpeedFam-IPEC Co., Ltd. As of March 4, 2000, the Company had
accrued $4,509 of commission expense to SpeedFam-IPEC Co., Ltd.
In the second quarter of fiscal year 2000, the Company sold its 50%
interest in a joint venture, Fujimi Corporation, to its 50% partner, Fujimi
Incorporated. Total proceeds from the sale were $10,000. The gain on the sale of
$5.6 million is classified as other income, net in the accompanying condensed
consolidated statements of income for the nine months ended March 4, 2000.
(6) DERIVATIVE FINANCIAL INSTRUMENTS
The Company uses derivative financial instruments to offset exposure to
market risks arising from changes in foreign exchange rates. Derivative
financial instruments currently utilized by the Company include foreign currency
forward contracts. The Company evaluates and monitors consolidated net exposures
by currency and maturity, and external derivative financial instruments
correlate with those net exposures in all material respects. Gains and losses on
hedges of existing assets and liabilities are included in the carrying amounts
of those assets or liabilities and are ultimately recognized in income when
those carrying amounts are converted. Gains or losses related to hedges of firm
commitments are deferred and included in the bases of the transactions when they
are completed. Gains or losses on unhedged foreign currency transactions, if
any, are included in income as part of cost of sales. Gains and losses on
derivative financial instruments which protect the Company from exposure in a
particular currency, but do not currently have a designated underlying
transaction, are also included in income as part of cost of sales. If a hedged
item matures, or is sold, extinguished, terminated, or is related to an
anticipated transaction that is no longer likely to take place, the derivative
financial instrument is closed and the related gain or loss is included in
income as part of cost of sales.
7
<PAGE> 9
(7) COMPREHENSIVE LOSS
The Company's comprehensive loss was as follows:
COMPREHENSIVE LOSS
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 4, February 28, March 4, February 28,
-------- ----------- -------- -----------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net loss ............................................... $ (1,882) $(15,729) $(17,335) $(40,039)
Other comprehensive income (loss):
Foreign currency translation adjustments ............. (1,439) (531) 1,612 1,889
Unrealized holding losses on securities .............. 3 0 (189) (7)
======== ======== ======== ========
Comprehensive loss ..................................... $ (3,318) $(16,260) $(15,912) $(38,157)
======== ======== ======== ========
</TABLE>
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
<TABLE>
<CAPTION>
Unrealized Accumulated Other
Foreign Currency Losses on Comprehensive
Translation Securities Income (Loss)
---------------- ------------- -----------------
<S> <C> <C> <C>
Balance at May 31, 1999 ............................... $ 22 $ (252) $ (230)
Nine month period change .............................. 1,612 (189) 1,423
------- ------- -------
Balance at March 4, 2000 .............................. $ 1,634 $ (441) $ 1,193
======= ======= =======
</TABLE>
(8) MERGER, INTEGRATION, AND RESTRUCTURING COSTS
In connection with the merger of SpeedFam International, Inc. and
Integrated Process Equipment Corp. in April 1999, the Company recorded various
merger, integration and restructuring costs. Direct merger costs primarily
consist of professional fees, such as investment banking, legal and accounting
for services rendered through the date of the merger. The Company recorded
integration and restructuring costs for lease terminations, the write-off of
duplicative equipment previously used for demonstration purposes, the write-down
of inventory and equipment related to product lines that would no longer be
supported, and severance costs resulting from workforce reductions. The
following table summarizes the components of the merger, integration, and
restructuring costs:
<TABLE>
<CAPTION>
Nine Month's
Activity
------------
Accrued at Cash Accrued at
May 31, 1999 Expenditures March 4. 2000
------------ ------------ -------------
<S> <C> <C> <C>
Direct merger costs ..................................... $ 3,600 $ 3,600 --
Lease termination costs ................................. 14,600 5,803 8,797
Discontinued product lines .............................. 100 100 --
Severance costs ......................................... 4,200 2,917 1,283
Other costs ............................................. 500 -- 500
------- ------- -------
$23,000 $12,420 $10,580
======= ======= =======
</TABLE>
8
<PAGE> 10
(9) BUSINESS SEGMENT INFORMATION
The Company classifies its products into three core business segments: (i)
the CMP Group, which is comprised of the Company's development and production of
chemical mechanical planarization systems; (ii) the Surface Technology Group,
which is comprised of the sales and support of high-throughput precision surface
processing equipment used in thin film memory disk media and silicon wafer
industries; and (iii) the Industrial Applications Group, which is comprised of
the development and production of high-throughput precision surface processing
equipment used in general industrial applications. Information concerning the
Company's business segments in the three and nine months ended March 4, 2000 and
February 28, 1999 is as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 4, February 28, March 4, February 28,
--------- ------------ --------- ------------
2000 1999 2000 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenue:
Sales to unaffiliated customers:
CMP Group ....................................... $ 62,082 $ 37,704 $ 147,462 $ 122,351
Surface Technology Group ........................ 6,889 11,919 20,890 33,689
Industrial Applications Group ................... 3,707 2,875 10,007 9,555
--------- --------- --------- ---------
Total net sales to unaffiliated
customers ..................................... 72,678 52,498 178,359 165,595
--------- --------- --------- ---------
Commissions from affiliate:
Surface Technology Group ........................ 702 781 1,125 1,458
Industrial Applications Group ................... (322) -- (322) 60
--------- --------- --------- ---------
Total revenue ................................. $ 73,058 $ 53,279 $ 179,162 $ 167,113
========= ========= ========= =========
Segment operating profit (loss):
CMP Group ....................................... $ 2,395 $ (12,691) $ (7,373) $ (34,656)
Surface Technology Group ........................ (407) (1,861) (1,016) (6,896)
Industrial Applications Group ................... 386 (58) 1,550 892
--------- --------- --------- ---------
Total segment operating profit (loss) ......... (2,374) (14,610) (6,839) (40,660)
General corporate expense, net ..................... (3,576) (3,855) (6,316) (10,355)
Interest income (expense), net ..................... (148) 244 (772) 1,450
--------- --------- --------- ---------
Loss before income taxes and
equity earnings (loss) ............................. $ (1,350) $ (18,221) $ (13,927) $ (49,565)
========= ========= ========= =========
</TABLE>
(10) RECLASSIFICATIONS
Certain reclassifications have been made in the financial
statements for the three and nine months ended February 28, 1999 to conform to
the fiscal 2000 presentation.
9
<PAGE> 11
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SEGMENTS
The Company sells its products and services to three market
segments: (1) semiconductor device manufacturers (CMP Group), (2) thin film
memory disk media and silicon wafer manufacturers (Surface Technology Group),
and (3) manufacturers of general industrial components (Industrial Applications
Group).
RESULTS OF OPERATIONS
The following table sets forth certain consolidated statements of
earnings data for the periods indicated as a percentage of total revenue:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 4, February 28, March 4, February 28,
------------------------ ------------------------
2000 1999 2000 1999
------ ------ ------ ------
<S> <C> <C> <C> <C>
Revenue:
Net sales ............................................... 99.5% 98.5% 99.6% 99.1%
Commissions from affiliate .............................. 0.5 1.5 0.4 0.9
------ -------- ------ ------
Total revenue ......................................... 100.0 100.0 100.0 100.0
Cost of sales .............................................. 66.5 76.4 67.8 75.6
------ -------- ------ ------
Gross margin ............................................. 33.5 23.6 32.2 24.4
------ -------- ------ ------
Operating expenses:
Research and development ................................ 18.0 27.2 21.9 27.6
Selling, general and administrative ..................... 17.5 31.3 21.1 28.7
------ -------- ------ ------
Total operating expenses ............................ 35.5 58.5 43.0 56.3
------ -------- ------ ------
Operating loss ............................................. (2.0) (34.9) (10.8) (31.9)
Other income, net ....................................... 0.2 0.7 3.0 2.2
------ -------- ------ ------
Loss from before income taxes and equity earnings (loss) ... (1.8) (34.2) (7.8) (29.7)
Income tax benefit ......................................... 0.0 (4.4) 0.0 (4.8)
------ -------- ------ ------
Loss before equity earnings (loss) ......................... (1.8) (29.8) (7.8) (24.9)
Equity in net earnings (loss) of affiliates ................ (0.8) 0.4 (1.9) 1.0
------ -------- ------ ------
Net loss ................................................... (2.6)% (29.4)% (9.7)% (23.9)%
====== ======== ====== ======
</TABLE>
Net Sales. Net sales for the third quarter of fiscal 2000 were
$72.7 million, up 38.4% from net sales of $52.5 million in the third quarter of
fiscal 1999. Net sales for the nine months ended March 4, 2000, were $178.4
million, up 7.7% from net sales of $165.6 million in the first nine months of
fiscal 1999. Sales of CMP systems totaled $62.1 million, or 85.4% of net sales,
up 64.7% from the $37.7 million, or 71.8% of net sales, in the third quarter of
fiscal 1999. Sales of CMP systems increased in the third quarter of fiscal 2000
from the prior year due to an increase in demand for semiconductor manufacturing
equipment, driven primarily by manufacturers in the Far East and Europe. Sales
of CMP systems for the first nine months of fiscal year 2000 were $147.5
million, or 82.7% of net sales, compared to $122.4 million, or 73.9% of net
sales, for the first nine months of fiscal 1999.
10
<PAGE> 12
Sales of the Surface Technology Group in the third quarter of fiscal 2000
accounted for $6.9 million, or 9.5% of net sales, as compared to $11.9 million,
or 22.7% of net sales in the third quarter of fiscal 1999. Sales of the Surface
Technology Group in the first nine months of fiscal 2000 were $20.9 million, or
11.7% of net sales, compared to $33.7 million, or 20.3% of net sales, for the
first nine months of fiscal 1999. During the third quarter and first nine months
of fiscal 2000, thin film memory disk manufacturers continued to experience
manufacturing over-capacity which in turn reduced capital spending. In addition,
this over-capacity situation has created a larger market for used equipment
making it even more difficult to sell the new equipment the Company markets.
While the Company continues to actively pursue niche consumable sales, the
Company does not foresee a return of volume equipment sales to the Thin Film
Memory Disk market in the near term. The decline in sales from the Surface
Technology Group was also due to continued slowdown in the silicon wafer market.
This slowdown was due to the ongoing manufacturing over-capacity caused by
various factors including die shrink and increased production efficiencies.
However, the Company is seeing signs that over-capacities in the Silicon Wafer
market segment are ending and the Company may see improved sales in this market
over the next twelve months.
Sales in the third quarter of fiscal 2000 of the Industrial Applications
Group were $3.7 million, or 5.1% of net sales, compared to $2.9 million, or 5.5%
of net sales in the third quarter of fiscal 1999. Sales of the Industrial
Applications Group in the first nine months of fiscal 2000 were $10.0 million,
or 5.6% of net sales, compared to $9.6 million, or 5.8% of net sales, for the
first nine months of fiscal 1999.
Commissions from Affiliate. Commissions from affiliate in the third quarter
and first nine months of fiscal 2000 were $380,000 and $803,000, respectively,
compared to $781,000 and $1.5 million recorded in the third quarter and first
nine months of fiscal 1999, respectively. The decrease in the third quarter and
first nine months compared to prior year was due to the continued slowdown in
the thin film memory disk and silicon wafer markets.
Gross Margin. In the third quarter of fiscal 2000, gross margin was $24.5
million, or 33.5% of total revenue, compared to $12.5 million, or 23.6% of total
revenue, in the third quarter of fiscal 1999. Gross margin dollars and gross
margin percentages increased due to an increase in total revenue in the third
quarter of fiscal 2000 compared to the prior year period, as well as increased
production efficiencies as a merged company. For the first nine months of fiscal
2000, gross margin was $57.7 million, or 32.2% of total revenue, compared to
$40.7 million, or 24.4% of total revenue in the first nine months of fiscal
1999. The increase in the gross margin dollars and gross margin percentages is
due to increased production efficiencies as a merged company. The Company
believes that gross margin percentages in the fourth quarter of fiscal 2000 are
not expected to increase over the gross margin percentages in the third quarter
of fiscal 2000, but will increase compared to the prior year rates.
Research and Development. In the third quarter of fiscal 2000, research
and development expense decreased to $13.1 million, or 18.0% of total revenue,
compared to $14.5 million, or 27.2% of total revenue, in the third quarter of
fiscal 1999. In the nine months ended March 4, 2000, research and development
expense decreased to $39.3 million, or 21.9% of total revenue, compared to $46.1
million, or 27.6% of total revenue, in the same period of fiscal 1999. The
decrease in both the three and nine month periods ended March 4, 2000, was due
to management's efforts to realign the Company's research and development
efforts around critical and key programs while eliminating duplicate projects.
11
<PAGE> 13
Selling, General and Administrative. In the third quarter of fiscal 2000,
selling, general and administrative expense decreased to $12.8 million, or 17.5%
of total revenue, from $16.7 million, or 31.3% of total revenue, in the third
quarter of fiscal 1999. Selling, general and administrative expense decreased to
$37.7 million, or 21.1% of total revenue, in the first nine months of fiscal
2000, from $47.9 million, or 28.7% of total revenue, in the first nine months of
fiscal 1999. The decrease in selling, general and administrative expense in the
three and nine months ended March 4, 2000, compared to the prior year resulted
primarily from management's efforts to reduce costs and eliminate functional
duplications throughout the merged company.
Other Income, Net. Other income decreased to $109,000 in the third
quarter of fiscal 2000 from $390,000 of other income in the same period of
fiscal 1999. In the first nine months of fiscal 2000, other income was $5.4
million, compared to $3.7 million recorded in the same period of fiscal 1999.
The increase in other income in the first nine months of fiscal 2000 over the
prior year resulted from a $5.6 million gain recorded in the second quarter on
the sale of the Company's 50% interest in its joint venture, Fujimi Corporation.
In the first quarter of fiscal 1999, the Company recorded a gain arising from
the collection of insurance proceeds for a CMP tool, which was destroyed in
transit.
Provision for Income Taxes. At the end of fiscal 1999, as well as at the
end of the third quarter of fiscal 2000, the Company established a valuation
allowance for deferred tax assets generated by its operating losses and is in a
net operating loss carry-forward position. As a result, the effective tax rate
for the third quarter and first nine months of fiscal 2000 was zero.
Equity in Net Earnings (Loss) of Affiliates. For the third quarter of
fiscal 2000, equity in net earnings (loss) of affiliates decreased to a loss of
$532,000, compared to $211,000 of net earnings in the third quarter of fiscal
1999. For the first nine months of fiscal 2000, equity in the net earnings
(loss) of affiliates decreased to a loss of $3.4 million, compared to $1.6
million of earnings in the first nine months of fiscal 1999. This decline in
both the three and nine month periods compared to the prior year was due to
significantly decreased sales revenue of the Far East Joint Venture. Investments
by manufacturers of both silicon wafers and thin film memory disks continue to
be weak in fiscal 2000. Also during the second quarter of fiscal 2000, the Far
East Joint Venture recorded a charge for certain asset impairments, severance
costs and other reorganization charges to account for the slowdown in the thin
film memory disk media market and the transition of CMP research and development
operations to the Company. The Company's share of this charge was approximately
$1.4 million, net of tax. The Company believes that the results of the Far East
Joint Venture will be adversely affected in fiscal year 2000 by both a slowdown
in demand for equipment sold into the thin film memory disk and silicon wafer
markets.
LIQUIDITY AND CAPITAL RESOURCES
As of March 4, 2000, the Company had $128.7 million in cash, cash
equivalents and short-term investments, compared to $147.0 million at May 31,
1999. The Company used $23.7 million of cash in operating activities during the
first nine months of fiscal 2000. Cash used in operations included the net loss
of $17.3 million adjusted for non-cash items of $10.6 million. Non-cash positive
adjustments included $12.9 million for depreciation and amortization expense and
$3.4 million in equity in the net loss of the Far East Joint Venture. These
adjustments were offset by a $5.6 million gain on the sale of Fujimi Corporation
and other items. In addition, $19.4 million in cash was used to pay down accrued
expenses and other liabilities primarily due to the payment of liabilities for
merger, integration and restructuring costs. Cash also decreased due to a $7.6
million increase in accounts receivable, as a result of the revenue growth in
the third quarter of fiscal year 2000. Changes in other working capital accounts
provided cash of $10.0 million.
The Company made capital expenditures of $9.0 million in the first nine
months of fiscal 2000. The majority of the cash was used to fund building
improvements, software and equipment purchases. Cash of $2.3 million was
provided from the licensing of certain technologies and transferring associated
assets. Cash was also used to purchase short-term investments of $60.4 million,
offset by proceeds of maturing investments totaling $55.4 million.
12
<PAGE> 14
During the second quarter of fiscal year 2000, the Company sold its 50%
interest in its joint venture, Fujimi Corporation, to its 50% partner, Fujimi
Incorporated. Proceeds from the sale of the investment in Fujimi Corporation
were $10.0 million.
The Company believes that its current cash, cash equivalents and
short-term investments will be sufficient to meet the Company's cash needs
during the next 12 months.
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities" is effective for financial years beginning after June 15, 2000. SFAS
No. 133 establishes accounting and reporting standards for derivative
instruments and hedging activities. The Company is evaluating the new
Statement's provisions and has not yet determined its impact. The Company will
adopt SFAS No. 133 effective June 1, 2002.
Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial
Statements" summarizes certain of the Securities and Exchange Commission's views
in applying generally accepted accounting principles to revenue recognition in
financial statements, and is effective in the Company's first quarter of fiscal
year 2001. The Company is evaluating the provisions of the new Staff Accounting
Bulletin and has not yet determined its impact.
CERTAIN FACTORS AFFECTING THE COMPANY'S BUSINESS
The Company's business is subject to numerous risks, including those
discussed below. If any of the events described in these risks occurs, the
Company's business, financial condition and results of operations could be
seriously harmed.
The Company's growth depends on continued and increased acceptance of CMP
among semiconductor manufacturers. Continued and increased acceptance of CMP
systems depends on many factors considered by potential customers, including the
CMP product's
- cost of ownership
- throughput
- process flexibility
- performance, including reliability
- customer support
Failure to adequately meet potential customers' needs with respect to one
or more of these factors will result in decreased acceptance of CMP and,
therefore, the Company's CMP systems, which will in turn negatively impact the
Company's profitability.
The Company's Business is Highly Cyclical. The Company's business depends
substantially on the capital expenditures of semiconductor manufacturers and, to
a lesser extent, thin film memory disk and silicon wafer manufacturers. These
industries are highly cyclical and have historically experienced periodic
downturns, which often have a material adverse effect on the acquisition of
capital equipment and other products used in the manufacturing process,
including products offered by the Company. These downturns have in the past and
are expected in the future to materially adversely affect the business and
operating results of the Company. The semiconductor device industry has recently
experienced a slowdown and the memory disk and silicon wafer industries are
currently experiencing a slowdown. These events have negatively impacted the
Company's results of operations.
13
<PAGE> 15
The Company, and its predecessors, have had losses recently. In the first
nine months of fiscal 2000, the Company recorded a net loss of $17.3 million. In
fiscal 1999, the Company had a net loss of $139.9 million. This loss included
$53.9 million of various merger, integration and restructuring costs. Direct
merger costs primarily consist of professional fees, such as investment banking,
legal and accounting for services rendered through the date of the merger. The
Company recorded integration and restructuring costs for lease terminations, the
write-off of duplicative equipment previously used for demonstration purposes,
the writedown of inventory and equipment related to products lines that will no
longer be supported, and severance costs resulting from workforce reductions.
IPEC had net losses of $42.3 million in fiscal 1998 and $33.7 million in
fiscal 1997. In fiscal 1998, IPEC incurred net charges of $25.9 million to
increase the valuation allowance for its deferred tax assets and $10.6 million
for an additional writedown of assets in connection with the closure of IPEC
Clean, a subsidiary of IPEC.
The Company faces intense competition, including from companies with
greater resources. Several companies currently market CMP systems that directly
compete with the Company's products, including Applied Materials, Inc. and Ebara
Corporation. For several reasons, the Company may not compete effectively with
competitors. These reasons include:
- Some competitors may have greater financial resources than the
Company. They also may have more extensive engineering,
manufacturing, marketing and customer service and support
capabilities.
- Some competitors may supply a broader range of semiconductor
capital equipment than the Company. As a result, these
competitors may have better relationships with semiconductor
manufacturers, including current and potential customers of
the Company.
- The Company expects competitors to continue to improve their
existing technology and introduce new products. This could
cause a decline in the Company's sales or lead to intensified
price based competition.
- Other capital equipment manufacturers not currently involved
in the development of CMP systems may enter the market or
develop technology that reduces the need for the Company's
products.
The Company may not develop products in time to meet changing technologies.
Semiconductor manufacturing equipment and processes are subject to rapid
technological changes and product obsolescence. Developing new products in the
rapidly evolving industry in which the company operates involves a number of
risks:
- products may be introduced behind schedule or after customers
have made buying decisions
- products may not be accepted in the marketplace
Competitive pressures require the Company to continue to enhance
performance for finer geometrics in oxide and tungsten applications, while
developing new process capabilities for emerging STI, copper and 300mm
applications. The Company will also continue to develop with the Far East Joint
Venture products and processes for thin film memory disk manufacturers and to
enhance the plasma-assisted chemical etch processes.
Product or process development problems could harm the Company's results of
operations. The Company's products are complex, and from time to time have
defects or bugs that are difficult and costly to fix. This can harm results of
operations for the Company, in two ways:
(1) The Company incurs substantial costs to ensure the
functionality and reliability of products earlier in their
life cycle. This can reduce orders, increase manufacturing
costs, adversely impact working capital and increase service
and warranty expenses.
(2) The Company requires significant lead-times between product
introduction and commercial shipment. As a result, the Company
may have to write off inventory and other assets related to
products and could lose customers and revenue.
14
<PAGE> 16
The Company's quarterly operating results will fluctuate for reasons not in
its control. The Company's quarterly operating results will fluctuate due to a
variety of factors, including:
- Industry demand for capital equipment, which depends on
economic conditions in the semiconductor, memory disk and
silicon wafer markets.
- Timing, cancellation or delay of customer orders and
shipments. The Company continues to derive a significant
portion of revenue from the sale of a relatively small number
of machines during a given quarter. Order and delivery delays
and cancellations, even of one or two systems, may cause the
company to miss quarterly revenue and profit expectations.
- Unexpected costs associated with sales and service of the CMP
tools and processes.
- The quarterly operating results of the company's joint
ventures, which are accounted for on the equity method.
- Foreign currency exchange rates.
Results of operations in any period are not an indication of future
results. Fluctuations in the Company's operating results may also result in
fluctuations in the Company's common stock price. Operating results may not meet
the expectations of public market analysts or investors and the trading price of
the common stock could decline.
Orders in backlog may not result in future revenue if customers cancel or
reschedule orders. The Company includes in backlog only those customer orders
for which it has accepted purchase orders. Expected revenue may be lower if
customers cancel or reschedule orders, which they can generally do without
penalty. For example, the Company removed from its backlog orders of
approximately $5.3 million in the fourth quarter of fiscal 1999, primarily due
to reduced capacity requirements and increased funding constraints of certain
customers.
The Company depends on key personnel. The Company's success is dependent
upon its ability to attract and retain qualified management, technical, sales
and support personnel. Competition for qualified personnel in the industry
served by the Company, particularly in the Phoenix metropolitan area, is
intense.
The Company depends on a small number of major customers. Currently, and
for the foreseeable future, the Company expects that it will sell machines to a
limited number of major customers. To date, the CMP process has been used
primarily to fabricate advanced semiconductors, which accounts for only a
portion of the overall semiconductor market.
The Company's success depends on international sales, particularly in Asia
and Europe. International sales accounted for 64.0%, 38.1% and 34.3% of
SpeedFam-IPEC's total revenue for the first nine months ended March 4, 2000 and
fiscal years ended May 31, 1999 and 1998, respectively. The Company expects that
international sales will continue to account for a significant portion of total
revenue in future periods.
International sales are subject to risks, including:
- foreign exchange issues
- political, economic and regulatory environment of the
countries where customers are located
- collectibility of accounts receivable
- inadequate intellectual property protection
Foreign exchange issues also affect the value of the Company's foreign
subsidiaries and equity interest in its Far East joint venture. The Company does
not manage this balance sheet risk through currency transactions known as
hedging, which are designed to minimize this risk. The Company does try to
manage near term currency risks through hedging. However, efforts may not be
enough to decrease the risks involved.
If the Company is unable to protect its intellectual property, its business
could suffer. The company's intellectual property portfolio is very important to
its success. However, the Company may not be able to protect its technology
because:
15
<PAGE> 17
- pending and new patent applications may not be approved in a
timely manner or approved at all
- third parties may try to challenge or invalidate existing
patents and new patents
- policing unauthorized use of intellectual property is
difficult and expensive
- the laws of some foreign countries do not protect intellectual
property rights as much as U.S. laws
- competitors may independently develop similar technology or
design around intellectual property owned by the company
Third parties may prevent the Company from selling products that allegedly
infringe on those third parties' intellectual property rights. The Company
cannot be certain that third parties will not in the future claim that its
products infringe their intellectual property rights. Third parties may
- bring claims of patent, copyright or trademark infringement
- obtain patents or other intellectual property rights that
limit the Company's ability to do business or require the
Company to license or cross-license technology o bring costly,
time consuming lawsuits
Third parties hold many patents relating to CMP machines and processes. The
Company licenses the right to manufacture CMP machines employing an orbital
motion in its Avant Gaard 676, 776 and 876 from a semiconductor manufacturer.
The Company may be subject to risks associated with acquisitions and
dispositions. The Company continually evaluates strategic acquisitions of other
businesses and dispositions of portions of its business that it determines are
not complementary to it strategy. In November 1999, the Company sold its 50%
interest in its joint venture Fujimi Corporation, to its 50% partner Fujimi
Incorporated. If the Company were to consummate an acquisition, the Company
would be subject to a number risks, including the following:
- Difficulty in assimilating the acquired operations and
retaining acquired personnel;
- Limits on the Company's ability to retain acquired
distribution channels and customers
- Disruption of the Company's ongoing business; and
- Limits on the Company's ability to successfully incorporate
acquired technology and rights into its service offerings and
maintain uniform standards , controls, procedures and
policies.
16
<PAGE> 18
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
For financial market risks related to changes in interest rates and
foreign currency exchange rates, refer to Part II, Item 7A, Quantitative and
Qualitative Disclosures About Market Risk, in the Company's Annual Report on
Form 10-K for the year ended May 31, 1999.
17
<PAGE> 19
SPEEDFAM-IPEC, INC.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
Exhibit - 27 Financial Data Schedule
Exhibit - 99 Audit Committee Charter
(b) Reports on Form 8-K.
Form 8-K was filed on December 7, 1999, relating to
the sale of the company's 50% interest in its Joint
Venture, Fujimi Corporation.
Form 8-K was filed on January 25, 2000, relating to
the Company's change in fiscal year.
18
<PAGE> 20
SPEEDFAM-IPEC, INC.
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.
SPEEDFAM-IPEC, INC.
/s/ J. Michael Dodson
--------------------------------------
Date: April 18, 2000 By J. Michael Dodson
Treasurer and Chief Financial Officer
(As Chief Accounting Officer and
Duly Authorized Officer of
SpeedFam-IPEC, Inc.)
19
<PAGE> 21
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ -----------
<S> <C> <C>
27 Financial Data Schedule
99 Audit Committee Charter
</TABLE>
20
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-03-2000
<PERIOD-START> JUN-01-1999
<PERIOD-END> MAR-04-2000
<EXCHANGE-RATE> 1
<CASH> 73,881
<SECURITIES> 54,787
<RECEIVABLES> 84,239
<ALLOWANCES> 0
<INVENTORY> 79,296
<CURRENT-ASSETS> 301,165
<PP&E> 84,610
<DEPRECIATION> 0
<TOTAL-ASSETS> 419,246
<CURRENT-LIABILITIES> 62,601
<BONDS> 115,367
0
0
<COMMON> 1
<OTHER-SE> 233,865
<TOTAL-LIABILITY-AND-EQUITY> 419,246
<SALES> 178,359
<TOTAL-REVENUES> 179,162
<CGS> 121,485
<TOTAL-COSTS> 198,526
<OTHER-EXPENSES> (5,437)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (13,927)
<INCOME-TAX> 0
<INCOME-CONTINUING> (17,335)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (17,335)
<EPS-BASIC> (0.59)
<EPS-DILUTED> (0.59)
</TABLE>
<PAGE> 1
EXHIBIT 99
SpeedFam-IPEC, Inc.
Audit Committee of the Board of Directors'
Charter
I. PURPOSE
The primary function of the Audit Committee is to assist the Board of Directors
in fulfilling its oversight responsibilities by reviewing: the financial reports
and other financial information provided by the Corporation to any governmental
body or the public; the Corporation's systems of internal controls regarding
finance, accounting, legal compliance and ethics that management and the Board
have established; and the Corporation's auditing, accounting and financial
reporting processes. Consistent with this function, the Audit Committee should
encourage continuous improvement of, and should foster adherence to, the
corporation's policies, procedures and practices at all levels. The Audit
Committee's primary duties and responsibilities are to:
- - Serve as an independent and objective party to monitor the
Corporation's financial reporting process and internal control system.
- - Review and appraise the audit efforts of the Corporation's independent
auditors.
- - Provide an open avenue of communication among the independent auditors,
financial and senior management, and the Board of Directors.
The Audit Committee will primarily fulfill these responsibilities by carrying
out the activities enumerated in Section IV of this Charter.
II. COMPOSITION
Corporation or an outside consultant. The Audit Committee shall be comprised of
three or more directors as determined by the Board, each of whom shall be
independent directors, and free from any relationship that, in the opinion of
the Board, would interfere with the exercise of his or her independent judgment
as a member of the Committee. All members of the Committee shall have a working
familiarity with basic finance and accounting practices. Committee members may
enhance their familiarity with finance and accounting by participating in
educational programs conducted by the Corporation or an outside consultant.
The members of the Committee shall be elected by the Board at the annual
organizational meeting of the Board or until their successors shall be duly
elected and qualified. Unless a Chair is elected by the full Board, the members
of the Committee may designate a Chair by majority vote of the full Committee
membership.
<PAGE> 2
III. MEETINGS
The Committee shall meet at least four times annually, or more frequently as
circumstances dictate. As part of its job to foster open communication, the
Committee should meet at least annually with management and the independent
auditors in separate executive sessions to discuss any matters that the
Committee or each of these groups believe should be discussed privately.
IV. RESPONSIBILITIES AND DUTIES
To fulfill its responsibilities and duties the Audit Committee shall:
Documents/Reports Review
- Review and update this Charter periodically, at least
annually, as conditions dictate.
- Review the organization's annual financial statements and any
reports or other financial information submitted to any
governmental body, or the public, including any certification,
report, opinion, or review rendered by the independent
auditors.
- Review with financial management the quarterly financials
prior to the release of earnings. The Chair of the Committee
may represent the entire Committee for purposes of this
review.
Independent auditors
- Recommend to the Board of Directors the selection of the
independent auditors, considering independence and
effectiveness and approve the fees and other compensation to
be paid to the independent auditors. On an annual basis, the
Committee should review and discuss with the auditors all
significant relationships the auditors have with the
Corporation to determine the auditors' independence.
- Review the performance of the independent auditors and approve
any proposed discharge of the independent auditors when
circumstances warrant.
- Periodically consult with the independent auditors out of the
presence of management about internal controls and the
fullness and accuracy of the organization's financial
statements.
Financial Reporting Process
- In consultation with the independent auditors, review the
integrity of the organization's financial reporting processes,
both internal and external.
- Consider the independent auditors' judgments about the quality
and appropriateness of the Corporation's accounting principles
as applied in its financial reporting.
- Consider and approve, if appropriate, major changes to the
Corporation's accounting principles and practices as suggested
by the independent auditors or management.
<PAGE> 3
Process Improvement
- Establish regular and separate systems of reporting to the
Audit Committee by management and the independent auditors
regarding any significant judgments made in management's
preparation of the financial statements and the view of each
as to the appropriateness of such judgments.
- Following completion of the annual audit, review separately
with management and the independent auditors any significant
difficulties encountered during the course of the audit,
including any restrictions on the scope of work or access to
required information.
- Review any significant disagreements among management and the
independent auditors in connection with the preparation of the
financial statements.
- Review with the independent auditors and management the extent
to which changes or improvements in financial or accounting
practices, as approved by the Audit Committee, have been
implemented.
Ethical and Legal Compliance
- Establish, review and update periodically a Code of Ethical
Conduct and ensure that management has established enforcement
of this code.
- Review management's monitoring of the Corporation's compliance
with the organization's Ethical Code, and ensure that
management has the proper review system in place to ensure
that the Corporation's financial statements, reports and other
financial information disseminated to governmental
organizations, and the public satisfy legal requirements.
- Review with management, and if necessary, the organization's
counsel, legal compliance matters including corporate
securities trading policies.
- Review with management, and if necessary, the organization's
counsel, any legal matter that could have a significant impact
on the organization's financial statements.
- Perform any other activities consistent with this Charter, the
Corporation's by-laws and governing law, that the Committee
or the Board of Directors deems necessary or appropriate.
