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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended September 30, 1997
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.)
Semitool, Inc.
655 West Reserve Drive, Kalispell, Montana 59901
(406) 752-2107
(Address, including zip code, and telephone number, including area
code, of registrant's principal executive offices)
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
-------------------------- ------------------------
Common Stock, no par value Nasdaq National Market
Securities registered pursuant to Section 12(g) of the Act: None
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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The approximate aggregate market value of the voting stock held by
non-affiliates of the registrant on December 9, 1997 (based on the last reported
sale price on the Nasdaq National Market as of such date) was $105,841,379.
The number of shares of the registrant's Common Stock, no par value, outstanding
as of December 9, 1997 was 13,770,923.
DOCUMENTS INCORPORATED BY REFERENCE
There is incorporated by reference in Part III of this Annual Report on Form
10-K the information contained in the registrant's definitive proxy statement
for its annual meeting of shareholders to be held February 9, 1998.
PART I
Item 1. Business
Introduction
Statements contained in this Report on Form 10-K 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 trends in the semiconductor industry, future product
development, strategic business development, pursuit of new and growing markets,
competition, patent filings, results from operations, and the adequacy of
manufacturing facilities, and are subject to the safe harbor provisions created
by that statute. A forward-looking statement may contain words such as "will
continue to be," "will be," "continue to," "expect to," "anticipates that," "to
be" or "can impact." Management cautions that forward-looking statements are
subject to risks and uncertainties that could cause the Company's actual results
to differ materially from those projected in such forward-looking statements.
These risks and uncertainties include, but are not limited to, the cyclical
nature of the semiconductor industry in general, lack of market acceptance for
new products, decreasing demand for the Company's existing products, impact of
competitive products and pricing, product development, commercialization and
technological difficulties, capacity and supply constraint difficulties and
other risks detailed under the heading "Risk Factors" and elsewhere herein. The
Company's future results will depend on its ability to continue to enhance its
existing products and to develop and manufacture new products and to finance
such activities. There can be no assurance that the Company will be successful
in the introduction, marketing and cost-effective manufacture of any new
products or that the Company will be able to develop and introduce in a timely
manner new products or enhancements to its existing products and processes which
satisfy customer needs or achieve widespread market acceptance.
The Company undertakes no obligation to release revisions to forward-looking
statements to reflect subsequent events, changed circumstances, or the
occurrence of unanticipated events.
The Company
Semitool, Inc., (Semitool or the Company) a Montana corporation organized in
1979, designs, manufactures, markets and services equipment used in the
fabrication of semiconductors. The Company's products include batch and single
substrate chemical processing tools, thermal processing equipment, including
thermal process control systems, wafer carrier cleaning systems and
electrochemical deposition (ECD) systems. Many of these systems include the
Company's own proprietary robotics. These products incorporate proprietary
designs and technologies to enable customers to perform advanced semiconductor
fabrication processes. The process steps performed by the Company's products
occur repeatedly throughout the fabrication cycle, and constitute an integral
part of the manufacturing process for virtually every semiconductor produced
today. The Company's products are also used to manufacture materials and devices
fabricated with similar processes, including thin film heads, flat panel
displays, multichip modules, ink jet print heads, compact disc masters, and hard
disk media. The Company's products are designed to provide improved yields
through higher process uniformity and reduced contamination, increased
throughput through advanced processes which reduce cycle times, and lower direct
costs through reduced consumables usage and smaller footprints, thereby
providing lower overall cost of ownership. The Company's ECD systems are
designed to allow the semiconductor industry to make the transition from
aluminum to copper interconnects in order to improve performance and cost. The
Company markets and sells its products to customers worldwide.
Industry Background
Overview
The fabrication of semiconductor devices is a complex process involving several
distinct phases repeated numerous times during the fabrication process. As the
semiconductor industry makes the transition to copper interconnects, some of
these processing steps will by necessity change. Each production phase requires
different processing technology and equipment, and no one semiconductor
equipment supplier currently produces an entire state-of-the-art fabrication
system. Rather, semiconductor device manufacturers typically construct
fabrication facilities by combining manufacturing equipment produced by several
different suppliers, each of which performs specific functions in the
manufacturing process.
The thin film head, flat panel display, multichip module and ink jet print head
fabrication processes utilize many of the same basic technological building
blocks as does the semiconductor manufacturing industry, in that certain
production equipment provides the same basic function or applications for a
substrate as semiconductor manufacturing equipment does for a silicon wafer. The
flat panel display and thin film head markets, while not as large as the
semiconductor device market, have over the past few years experienced
significant growth.
Industries that use semiconductors are demanding increasingly complex, higher
performance devices. Fabrication of these devices requires increasing the number
of process steps and reducing feature sizes, necessitating narrower process
tolerances which makes it more difficult to maintain acceptable yields. These
factors, together with the industry migration to larger wafer sizes, have led to
a substantial increase in the manufacturers' per wafer investment, which in turn
has caused these manufacturers to intensify their efforts to maintain acceptable
yields. As a result, manufacturers demand equipment that provides superior
process results and yields and can accommodate larger wafers and new materials.
The Company believes that semiconductor device manufacturers are asking
equipment suppliers to take an increasingly active role in meeting the
manufacturers' technology requirements and cost constraints by developing and
supporting the products and processes required to fabricate advanced products.
Certain manufacturers are seeking strategic relationships with equipment
suppliers for specific process steps on existing and new products. As a result,
equipment companies are being asked to provide advanced process expertise,
superior product performance, reduced overall cost of ownership, and worldwide
customer support to better meet the needs of manufacturers.
Electrochemical Deposition
Traditionally, semiconductors have used aluminum to connect the millions of
transistors on a micro chip. As line geometries become smaller to accommodate
the ever shrinking chip, aluminum becomes increasing less efficient to use.
Copper has long been known to have superior electrical properties when compared
to aluminum, but due to its high mobility, copper will migrate through the
device and poison the transistor. Recent barrier layer technology has overcome
this hurdle thus allowing the use of copper interconnects on devices. The use of
copper interconnects will require major changes in how future micro chips are
manufactured. Existing equipment used with aluminum cannot be retrofitted to
economically deposit interconnect layers of copper with acceptable quality.
Different methods will be used for copper and will require different processing
tools.
Other applications for electrochemical deposition are emerging such as the
deposition of gold interconnects on gallium arsenide in the manufacture of high
speed communication devices. The process can also be used to automate the
soldering required on devices utilizing flip chip technology and the manufacture
of thin-film heads and ink-jet print heads can also be enhanced by ECD.
Chemical Processing
The fabrication of semiconductors involves numerous distinct processes which
can, depending on the complexity of the device, exceed 250 steps. The chemical
processing steps involved can include cleaning, developing, stripping, etching,
milling, plating, and coating. Such chemical processes have traditionally been
performed using wet-benches which consist of open chemical and rinse tanks, into
which cassettes of wafers are immersed, either manually or automatically.
Multiple process steps are performed by transferring wafers from one chemical
bath to another. There are significant disadvantages relating to process
uniformity and contamination control inherent in wet-bench processing, which are
becoming increasingly problematic as process tolerances narrow. Wet-benches also
lack the flexibility to readily change processes, and are relatively costly to
operate because they consume large amounts of process chemicals and have large
footprints that use valuable clean room space.
Thermal Processing
Thermal processing generally addresses the oxidation/diffusion and low pressure
chemical vapor deposition (LPCVD) steps of the semiconductor fabrication
process. Conventional vertical furnaces require loading a batch of wafers into a
rack which is then lifted into an open, heated process chamber. The inability to
control and vary the environment within the process chamber prior to exposing
the wafers to heat can result in unintended oxide growth. Moreover, conventional
vertical furnaces are not capable of performing multiple processes in a single,
continuously controlled environment, making it necessary to move wafers from
furnace to furnace to perform sequential processing. This requires purchasing
and operating multiple furnaces, which constrains throughput and increases the
risk of wafer contamination. Conventional vertical furnaces also create
variances in process exposure times of individual wafers (the first wafer into
the furnace is the last wafer out), causing non-uniformity of process among
wafers. In addition, the vibration caused by loading the rack of wafers into the
process chamber can create particulate contamination that reduces yield.
Cost of Ownership
As a result of the increasing cost of equipping fabrication facilities,
semiconductor manufacturers are placing greater importance on the overall cost
of ownership of each piece of process equipment. The principal elements of cost
of ownership are yield, throughput and direct costs. Yield, or the number of
good die per wafer, is primarily determined by contamination levels and process
uniformity. Achieving high yields becomes more critical to manufacturers as
their per wafer investment increases. Throughput, or the number of wafers
processed by a particular tool in a given period, is primarily a function of the
time required to complete a process cycle and the handling time between process
steps. Major components of direct cost include the amount of consumables used in
the manufacturing process, the cost of the clean room space occupied by the
equipment (i.e., the "footprint") and the purchase price of the equipment and
other operating costs. The ability to maintain acceptable cost of ownership
levels becomes increasingly challenging as manufacturing processes become more
complex and process tolerances narrow.
The Semitool Solution
The Company has developed a broad range of products that enables its customers
to perform advanced fabrication processes. The Company's products are designed
to provide improved yields through higher process uniformity and reduced
contamination, increased throughput through advanced processes which reduce
cycle times, and lower direct costs through reduced usage of consumables and
smaller footprints, thereby providing lower overall cost of ownership. The
process steps performed by the Company's products occur repeatedly throughout
the fabrication cycle and constitute an integral part of the manufacturing
process for virtually every semiconductor produced today. The Company's products
include chemical processing tools, thermal processing equipment and wafer
carrier cleaning systems.
Chemical Processing Equipment
The Company's batch and single substrate processing equipment employs chemical
spray multi-processing within a self-cleaning, enclosed process chamber. These
tools enable customers to conduct sequential chemical processing steps, and then
rinse and centrifugally dry substrates, within the same chamber, thereby
reducing contamination during and between process steps. Spray technology avoids
non-uniformity of process inherent in traditional wet-bench immersion processing
by applying the process chemicals via spray manifolds. This technique enhances
chemical reaction on the substrate surface, which increases process reliability
and shortens process cycle times. The enclosed process chamber technology also
allows for more efficient use and disposal of process chemicals (through
reclamation, filtration and recirculation) as well as increased operator safety.
The Company's spin rinser/dryer also utilizes the spray and centrifugal drying
technologies to remove chemical residue from the wafer surface. The Company has
developed fully automated platforms that cluster multiple chemical processing
modules for both silicon wafers and the glass substrates used in the fabrication
of flat panel displays, thereby further increasing yield and throughput, and
providing a total process solution in a single unit with a smaller footprint
than conventional wet-benches.
Electrochemical Processing Equipment
The Company's single wafer processing platform is also configured to perform
copper ECD. Copper has several advantages over the aluminum that has
traditionally been used for device interconnects. Copper will significantly
minimize the number of metal layers required, will reduce heat dissipation, will
reduce manufacturing cost, and will increase chip speed. Copper has a resistance
of 1.2 micro ohm/cm, while aluminum has a resistance of 3.1 micro ohm/cm, so
much smaller lines of copper have the same current-carrying capability as
today's aluminum interconnects. Using copper for interconnects has been
discussed for years, but the process required a few recently discovered
technological innovations to occur before it was feasible. Coupled with the
roadblock that aluminum is facing below .25mm, a number of semiconductor
manufacturers have announced that copper will be used on their devices with line
widths of .18mm and below. Although, electroplating technology has been in use
for a long time, until now, it has not been considered for use in the
semiconductor industry. The basic process is fairly simple, with a cathod
drawing the copper in solution from a solid anode. Semitool, utilizing its
single wafer processing platform, adds value by providing the industry's first
semiconductor production-ready, fully automated plating tool. The tool has been
designed specifically for optimizing the clean room space required.
Thermal Processing Equipment
The Company's vertical furnace employs a patented "double lift" process chamber
design which provides a continuously controlled process environment that allows
for sequential processing steps to be performed in the same enclosed chamber.
This design enables the customer to control and vary the environment within the
sealed process chamber, thereby avoiding unintended oxide growth and minimizing
the non-uniformity of process resulting from varying exposure times of
individual wafers. In addition, the Company's vertical furnace reduces
contamination by employing a fixed quartz process tower that remains stationary
throughout loading and processing. The double lift design permits the heating
element to be lifted away from the sealed process chamber, allowing wafers to
cool more rapidly in a controlled environment, thereby improving the overall
cycle time of the thermal process. The Company has developed a vertical furnace
with fast ramp, model-based temperature control technology which provides a
shortened period to reach desired processing temperature thereby allowing
increased throughput.
Wafer Carrier Cleaning System
The Company has developed sophisticated cleaning systems for the cassettes and
boxes used to carry and store finished and in-process substrates. The Company's
wafer carrier cleaning systems allow customers to increase yields by reducing
particulate contamination. In contrast to traditional cleaning and drying
methods, the Company's cleaning systems employ centrifugal drying technology,
which eliminates the carrier deformation that can result from conventional
drying and reduces the contamination that results from residues left on heat
dried surfaces. The double door design allows contaminated carriers to be loaded
outside the clean room. Once cleaned and dried, the carriers are then moved into
the clean room environment. In this manner, neither the clean room nor the
carriers are contaminated.
The Semitool Strategy
The key elements of the Company's business strategy are as follows:
Develop Innovative Solutions. The Company is committed to developing
new products, new applications for existing products and enhancing existing
products to address evolving process requirements. Accordingly, the Company
devotes substantial resources to product innovation and collaborative
development efforts.
Offer a Broad Range of Products to Customers in Diverse Markets. The
Company focuses on offering a broad range of products, including chemical
processing tools, electrochemical deposition systems, thermal processing
equipment and wafer carrier cleaning systems, to semiconductor manufacturers for
use in diverse process applications. The Company leverages its technology and
expertise to provide solutions to manufacturers of other products that are
fabricated using similar processes, such as thin film heads, flat panel
displays, multichip modules, ink jet print heads, compact disc masters, and hard
disk media. Some of these other applications involve substrates with surfaces
larger than the current typical semiconductor substrates. By providing solutions
for applications involving larger substrates, the Company believes it gains
valuable expertise which can be later applied to the semiconductor industry as
semiconductor substrates continue to increase in size. By addressing diverse
markets, the Company seeks to increase its product sales and reduce its reliance
on the semiconductor industry.
Capitalize on Manufacturing Expertise. The Company's manufacturing
strategy is to identify and perform internally those manufacturing functions
which add value to the Company's products. The Company believes it achieves a
number of competitive advantages from its vertically integrated manufacturing
operations, including the ability to achieve cost and quality benefits, to
quickly bring new products and product enhancements to market and the ability to
produce sophisticated component parts not available from other sources.
Focus on Overall Cost of Ownership. The Company designs and
manufactures equipment solutions designed to provide its customers with low
overall cost of ownership. The technologies employed by the Company's chemical
processing tools provide higher yield, greater throughput, more efficient use of
consumables and smaller footprints than conventional wet-benches. The Magnum and
Centurium cluster multiple process modules into a single automated tool, thereby
providing further cost of ownership advantages. The Company's thermal processing
equipment also provides cost of ownership advantages by enhancing process
uniformity and reducing contamination that results in corresponding increases in
yields. Additionally, the Company believes its ECD systems will provide
significant cost of ownership advantages over conventional equipment used for
aluminum.
Address Worldwide Markets. The Company markets and sells its products
worldwide with emphasis on Europe and Asia as its principal international
markets. The Company believes the strength of its international sales and
service organizations is important to its continued success in these markets. To
facilitate its worldwide marketing strategy, the Company has dedicated European
sales and support organizations in England, France, Germany and Italy. The
Company intends to continue to aggressively pursue the Asian market and
therefore, the company has augmented its offices in Japan, Korea and Taiwan. See
Note 10 of Notes to the Consolidated Financial Statements for a breakdown
between domestic and foreign sales.
Products
The Company designs, manufactures and sells batch and single substrate chemical
processing tools, electrochemical deposition systems, thermal processing
equipment and wafer carrier cleaning systems.
Chemical Processing
Batch Chemical Processing. The Company's batch chemical processing tools
incorporate centrifugal spray technology to process wafers and substrates by
exposing them to a user-programmable, sequenced spray of chemicals inside an
enclosed chamber. Utilizing these tools, cassettes filled with wafers are loaded
into a rotating fixture mounted in a process chamber. The process chamber is
then sealed and chemicals are sequentially dispensed into the chamber via spray
manifolds in a closed-loop system. As the rotating fixture turns the cassette, a
chemical spray is applied to the wafer surfaces. This technique enhances
chemical reaction on the substrate surface, which increases process reliability
and shortens process cycle times. After application of the process chemicals,
deionized ("DI") water can be sprayed into the chamber to stop the chemical
reaction and to remove chemical residues. The wafers, cassette and chamber are
then dried by centrifugal spinning coupled with a flow of warm nitrogen, either
in the same process chamber or in an adjacent rinser/dryer module. The Company
believes its batch spray chemical processing tools offer significant advantages
over conventional wet-benches. These advantages include higher yields (by
providing better process uniformity and lower particulate contamination),
increased throughput (by providing shorter process cycle times) and reduced
direct costs (by providing more effective use of chemicals and smaller
footprints), thereby providing lower overall cost of ownership. All batch
chemical processing tools are 300mm ready.
The Company's manually loaded batch spray chemical processing products include
the Spray Acid Tool and the Spray Solvent Tool. The surfaces of the Spray Acid
Tool that are exposed to acids are made entirely of teflon and other
acid-resistant materials. This tool addresses applications that include
resist-stripping, pre-diffusion cleaning, oxide etching, polymer removal and
chemical milling. The Company's Spray Solvent Tool is primarily made out of
stainless steel and addresses processes which use solvents to dissolve and strip
the lithographic media from substrate surfaces, remove polymer residues and
develop lithographic images on substrate surfaces. In addition to customary
semiconductor applications, the Spray Acid Tools and Spray Solvent Tools are
being used to manufacture a variety of other products including flat panel
displays and thin film heads, and are used with substrates as large as 500
millimeters square. The closed-loop/closed-chamber system of the Company's batch
spray processing tools allows for reclamation, filtration and recirculation of
chemicals, resulting in reduced chemical consumption, better environmental
control and enhanced operator safety. The purchase prices of the Company's batch
chemical processing tools range from $150,000 to $750,000, depending on
configuration. Both tools types have been upgraded for 300mm substrates.
The Company's manually loaded Spin Rinser/Dryer is used primarily for removing
chemical residues from substrate surfaces with DI water, and utilizes the same
enclosed chamber, spray processing and centrifugal drying technologies employed
in the Company's Spray Acid Tools and Spray Solvent Tools. The Spin Rinser/Dryer
incorporates a DI water resistivity monitor to ensure the required level of
cleanliness. The Company introduced the Spin Rinser/Dryer in 1979 and, as of
September 30, 1997, had delivered over 22,000 units to customers. The purchase
price of the Spin Rinser/Dryer ranges from $10,000 to $150,000, depending on
configuration. The Spin Rinser/Dryer has been upgraded to handle 300mm
substrates.
The Magnum and Magnum 3000 are multimodule chemical processing tools which
cluster the Company's solvent, acid and spin rinser/dryer capabilities into
single automated unit. The tools incorporate Company-designed advanced robotics
which employ fiber optic communications, absolute positioning and linear motor
tracking to ensure precise, reliable and particle-free automated wafer handling.
Both offer standard mechanical interface ("SMIF") loading capabilities and a
touch screen computer interface customized for ease of operation. The tools
provide customers with the flexibility to mix and match process modules,
including immersion modules as appropriate, thereby providing them with a
complete chemical processing solution to meet their particular process
requirements. The Magnums possess significant competitive advantages over both
stand-alone tools and other automated products, including the ability to replace
two or more wet-benches with a single, smaller footprint tool as well as
increased yields and increased throughput per square foot of clean room space.
Magnum's latest innovations include the Magnum 3000 designed for the new
state-of-the-art 300mm wafer fabs currently planned by customers. The Company
believes that the installed base of its widely accepted chemical processing
tools has facilitated market acceptance of the Magnums. The purchase price of
the Magnum and Magnum 3000 ranges from $900,000 to over $2.4 million, depending
on configuration.
Single Substrate Processing
Electrochemical Deposition. Semitool offers two styles of fully automated single
wafer processing tools that are designed for electrochemical deposition. The
first generation tool utilizes a radial configuration and is designed for
research and development, preproduction and production applications. The second
generation, LT-210, uses a linear configuration designed for high through-put
manufacturing. The LT-210 employs two track robots to feed process chambers and
has automatic electrolyte dosing systems to ensure constant solution strength
for repeatability of deposition, and various proprietary systems ensure
uniformity of plating across the wafer. The LT-210 consistently deposits copper
films with superior step coverage, lower electrical resistance, at a lower price
and at a rate faster than is possible with conventional vacuum deposition
systems. Both models plate copper for device interconnects, gold or solder for
bonding bumps, copper for ink jet devices and copper for magneto resistive heads
used in hard drives.
Cleaning. The Company's Equinox addresses the needs of customers employing
single substrate processing for specialized applications. The Equinox utilizes a
variety of processes, including immersion, spray, hydrofluoric acid vapor and
infrared heating, to address cleaning, stripping, etching and developing. All
such processes are performed with the substrate suspended device side down in an
enclosed process chamber. This face down positioning allows for enhanced liquid
or gas delivery of the process chemicals to the substrate, and results in
greater process uniformity and reduced contamination. The Equinox is a flexible
platform which may contain multiple process chambers, allowing customers to
cluster multiple process technologies into a single tool to perform sequential
processes. The Equinox has been used to process ceramic substrates, thin film
heads and photo masks in addition to its customary silicon and gallium arsenide
wafer applications. In addition to offering complete Equinox tools, the Company
also offers Equinox technologies to original equipment manufacturers for
integration into other upstream or downstream process equipment, including
thermal technologies. The price of the Equinox ranges from $150,000 to $2.0
million, depending on configuration.
Thermal Processing
The Company's VTP 1500 and EXPRESS vertical furnaces employ a patented design
which provides a continuously controlled process environment that allows for
oxidation/diffusion and LPCVD processing steps such as gate oxide/poly,
oxide/nitride and oxide/nitride/oxide to be performed sequentially in the same
processing chamber. The Company's furnaces feature a stationary base plate and
quartz process tower with a patented double lift system which allows the process
chamber and heating element to each be raised and lowered independently over the
process tower. The furnace's quartz tower is loaded with wafers by a simple pick
and place robot (thereby avoiding the risk of particle contamination caused by
loading the wafers in batches) and the process chamber is then lowered over the
wafers. The atmosphere within the process chamber is removed by vacuum purging,
creating an inert environment. The heating element is then lowered over the
sealed process chamber. The inert environment prevents chemical reactions from
occurring until the heating element is fully in place, at which time processing
can be conducted by injecting the process tube with the appropriate active gas.
This design avoids variances in process exposure times of individual wafers,
preventing the non-uniformity inherent in traditional vertical furnace
processing. Because the process tube may be purged and alternative active gases
introduced in a sequential manner, wafers can remain in a continuously
controlled environment for multiple discrete thermal processing steps. The
Company believes that this sequential, or "in situ," processing capability is a
significant competitive advantage of its furnaces. The double lift design also
permits the heating element to be lifted away from the sealed process chamber,
allowing wafers to cool more rapidly in a controlled environment, thereby
improving overall thermal processing cycle time of the thermal process. In
addition, the furnaces have the flexibility to be quickly reconfigured for
varying processes and can be easily upgraded to accommodate larger wafer sizes.
The Company believes its furnaces produce higher quality film with fewer
impurities and increased electrical properties, and have been designed to meet
manufacturers' requirements for the production of semiconductor devices with
line geometries as small as .18 micron. The prices of the VTP 1500 and EXPRESS
range from $600,000 to $1.5 million, depending on configuration. The EXPRESS has
been upgraded to handle 300mm wafers.
The Company, through its Semy Engineering, Inc. subsidiary, manufactures
equipment supervisory workstations that upgrade diffusion and low pressure
chemical deposition furnaces with state-of-the-art control features. The Company
has also recently introduced equipment supervisory workstations that provide
data collection, analysis and control for a wide variety of process tools and
fab supervisory workstations that work in concert with the equipment supervisory
workstations and provide fab wide process information.
Wafer Carrier Cleaning
Silicon wafers are stored, handled and processed in cassettes. Cassettes filled
with wafers are placed in plastic boxes for transportation and storage.
Significant increases in yields may be attained through effective cleaning of
these cassettes and boxes. Wafer carriers have commonly been cleaned using
commercial dishwasher or conveyor type methods in which they are spray washed
and then dried using hot compressed gases. Because boxes and cassettes are made
of plastics, the drying process can distort the boxes and cassettes and result
in subsequent wafer damage or contamination. The Company's Storm wafer carrier
cleaning system cleans and dries the wafer carriers in a unique rinsing/spinning
process that occurs inside an enclosed chamber. Solution is sprayed, cleaning
both the boxes and cassettes and the inside of the chamber, followed by a DI
water rinse. The boxes and cassettes are then dried using centrifugal force and
warm filtered ambient air. The Storm monitors the humidity inside the enclosed
process chamber to ensure consistent drying results. The Company believes the
Storm removes particles more effectively than conventional technology and has
the lowest cost of ownership of any commercially available cleaning system. The
Storm also has a patented loading feature that allows through-the-wall
installation whereby unwashed boxes and cassettes can be loaded into the Storm
from outside the clean room and then unloaded directly into the clean room after
the cleaning cycle has been completed. This feature enables customers to avoid
bringing contaminated boxes and cassettes into the clean room. The price of a
Storm ranges from $190,000 to $400,000, depending on configuration.
Spare Parts and Service
The Company sells spare part kits and spare part components for its equipment.
The Company employs customer service and process engineers to assist and train
the Company's customers in performing preventive maintenance and service on
Semitool equipment and developing process applications for the equipment. The
Company generally provides a one year parts and labor warranty on equipment and
a 90-day warranty on parts. The Company offers a variety of process, service,
and maintenance programs that may be purchased for a fee. A number of customers
have purchased maintenance contracts whereby the Company's service employees
work full-time at the customer's facility, and provide service and maintenance
support for Semitool equipment.
Customers, Sales and Marketing
The Company's customers include leading semiconductor manufacturers worldwide as
well as major manufacturers of thin film heads, flat panel displays, multichip
modules, ink jet print heads, compact disc masters, and hard disk media. The
following is a representative list of the Company's largest United States and
international end-user customers, which had purchases in excess of $2,000,000 in
fiscal 1997:
Advanced Micro Devices LSI Oliver Design
Atmel Lucent Technologies Seagate
Fujitsu MASCA / Matsushita Semi. SGS-Thomson
Hewlett-Packard Micro Chip Corporation Siemens
Hyundai Electronics Motorola Texas Instruments
IBM National Semiconductor TRW
Intel Newport Wafer VLSI Technology
The Company believes that its sales, service and customer support organizations
are important to the long-term success of its customer relationships.
International sales, primarily in Europe and Asia accounted for approximately
36%, 44% and 40% of total sales for fiscal years 1997, 1996 and 1995,
respectively. The Company markets and sells its products in North America
through its sales organization which includes direct sales personnel and
independent sales representatives. The Company currently has sales and service
offices located throughout the United States. In Europe, the Company has direct
sales personnel. In Asia, the Company sells through direct sales personnel and
independent sales representatives as well as through Tokyo Electron, Limited
("TEL") pursuant to a non-exclusive distribution agreement, whereby TEL sells
the Company's stand-alone batch and single substrate spray chemical processing
products (except electrochemical deposition products) in Japan. To supplement
TEL's sales efforts, the Company has a direct sales operation in Japan. To
enhance its sales capabilities, the Company maintains a demonstration and
process development laboratory and a clean room at its Kalispell, Montana
facility.
The Company currently provides a one year warranty on equipment and a 90-day
warranty on parts. The Company has field service personnel and application
engineers servicing customers in the United States, Europe and Asia, who
directly provide warranty service, post-warranty service and equipment
installations. Field service engineers are located in nine sites throughout the
United States, including dedicated site-specific engineers in place at certain
customer locations pursuant to contractual arrangements. To further ensure
customer satisfaction, the Company also provides service and maintenance
training as well as process application training for its customers' personnel on
a fee basis. The Company maintains an extensive inventory of spare parts which
allows the Company to provide overnight delivery for many parts. The Company's
vertically integrated manufacturing allows the Company to quickly manufacture
parts to address customers' service needs.
Backlog
Backlog decreased to approximately $63.8 million at September 30, 1997, from
approximately $85.9 million at September 30, 1996. The Company's automated batch
chemical processing tool, first shipped in fiscal 1995, now represents the
largest single component of the backlog with the spray solvent tool second. The
Company includes in its backlog those customer orders for which it has received
purchase orders or purchase order numbers and for which shipment is scheduled
within the next twelve months. 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
schedules, cancellations of orders and delays in product shipments, the
Company's backlog at any particular date is not necessarily indicative of actual
sales for any succeeding period.
Manufacturing
Most of the Company's manufacturing is conducted at its facilities located in
Kalispell, Montana. The Company's vertically integrated manufacturing operations
include state-of-the-art metals and plastics fabrication and finishing
capabilities; component part, circuit board and final product assembly; and
extensive product testing capabilities. The Company's manufacturing personnel
work closely with its product development personnel to ensure its products are
engineered for manufacturability, affording a smooth transition from prototype
to full scale production. Component and product prototyping is performed
internally, and design engineers often receive prototypes of newly designed
parts from manufacturing within 24 hours. The Company believes it achieves a
number of competitive advantages from its vertically integrated manufacturing
operations, including the ability to achieve cost and quality advantages, to
quickly bring new products and product enhancements to market, and the ability
to produce sophisticated component parts not available from other sources.
Research and Development
The market for semiconductor equipment is characterized by rapid technological
change and product innovation. The Company believes that continued timely
development of products for both existing and new markets is necessary to remain
competitive. The Company devotes significant resources to programs directed at
developing new and enhanced products, as well as new applications for existing
products. The Company maintains an extensive demonstration and process
development laboratory at its facilities in Montana, including a clean room for
testing and developing its products. Company research and development (R&D)
personnel work directly with customers to provide process solutions, develop new
processes and to design and evaluate new pieces of equipment.
The Company developed new models of its vertical furnace, automated batch
chemical processor and single substrate processor during fiscal 1997. The major
R&D project completed during fiscal 1997 was the introduction of the LT-210 ECD
single wafer processor. The LT-210 provides advanced electrochemical deposition
to deliver copper with high purity and uniformity to the surface of the wafer.
The tool is designed for high-throughput manufacturing and is fully automated to
provide consistent, hands-free processing. The new Magnum 3000 is capable of
processing 300mm wafers in a total automated ultra clean environment. Other new
versions of Magnums include a standard mechanical interface (SMIF), increased
batch size of fifty 200mm wafers, a vision system for the robotics and an ozone
injection system designed to decrease operating expenses and enhance
performance. The Express vertical furnace was enhanced to handle 300mm wafers.
It received an improved, proprietary version of a model-based temperature
controller that was optimized through the use of sophisticated modeling tools.
The 200mm version of Express includes as an option a fully-automated WIP stocker
for SMIF pods, an industry first.
Expenditures for R&D, which are expensed as incurred, during fiscal 1997, 1996
and 1995 were approximately $21.2 million, $19.5 million and $11.4 million and
represented 10.9%, 11.2% and 8.9% of net sales, respectively.
Competition
The industry in which the Company competes is highly competitive. The Company
faces substantial competition from both established competitors and from
potential new market entrants. Significant competitive factors in the markets in
which the Company competes include system performance and flexibility, cost of
ownership, the size of each manufacturer's installed customer base, customer
support capabilities and breadth of product line. The primary competition to the
Company's batch chemical spray products is currently from wet-bench chemical
processing equipment. The Company is aware of at least two other manufacturers
of spray chemical processors. As the demand for more precise and reliable
chemical processing increases, the Company anticipates greater competition in
the centrifugal spray technology area. The Company is aware of vertical furnaces
produced by at least four other manufacturers which compete with the Company's
thermal processing equipment. The single substrate processing market in which
the Company's Equinox competes and the wafer carrier cleaning market in which
the Company's Storm competes are highly fragmented markets. The Company is aware
of at least two other companies competing in the plating market and expects
other major equipment companies to enter next year. In these fragmented markets,
the Company believes that it competes primarily with alternative technologies.
The Company expects its competitors to continue to improve the design and
performance of their products. There can be no assurance that the Company's
competitors will not develop enhancements to or future generations of
competitive products that will offer superior price or performance features or
that new processes or technologies will not emerge that render the Company's
products less competitive or obsolete. As a result of the substantial investment
required to integrate capital equipment into a production line, the Company
believes that once a manufacturer has selected certain capital equipment from a
particular vendor, the manufacturer generally relies upon that vendor to provide
equipment for the specific production line application and may seek to rely upon
that vendor to meet other capital equipment requirements. Accordingly, the
Company may be at a competitive disadvantage with respect to a particular
customer if that customer utilizes a competitor's manufacturing equipment.
Increased competitive pressure could lead to lower prices for the Company's
products, thereby adversely affecting the Company's business and results of
operations. There can be no assurance that the Company will be able to compete
successfully in the future.
Patents and Other Intellectual Property
The Company currently holds numerous United States patents, some with pending
foreign counterparts, has several United States patent applications pending and
intends to file additional patent applications as appropriate. There can be no
assurance that patents will issue from any of the Company's pending applications
or that existing or future patents will be sufficiently broad to protect the
Company's technology. The Company believes that patents and trademarks are of
less significance in its industry than such factors as product innovation,
technical expertise and its ability to quickly adapt its products to evolving
processing requirements and technologies. While the Company attempts to protect
its intellectual property rights through patents, copyrights and non-disclosure
agreements, there can be no assurance that the Company will be able to protect
its technology, or that competitors will not be able to develop similar
technology independently. In addition, the laws of certain foreign countries may
not protect the Company's intellectual property to the same extent as the laws
of the United States. Moreover, there can be no assurance that the Company's
existing or future patents will not be challenged, invalidated or circumvented,
or that the rights granted thereunder will provide meaningful competitive
advantages to the Company.
There has been substantial litigation regarding patent and other intellectual
property rights in semiconductor-related industries. Although the Company is not
aware of any infringement by its products of any patents or proprietary rights
of others, further commercialization of the Company's products could provoke
claims of infringement from third parties. In the future, litigation may be
necessary to enforce patents issued to the Company, to protect trade secrets or
know-how owned by the Company or to defend the Company against claimed
infringement of the rights of others and to determine the scope and validity of
the proprietary rights of others. Any such litigation could result in
substantial cost and diversion of effort by the Company, which by itself could
have a material adverse effect on the Company's financial condition and
operating results. Further, adverse determinations in such litigation could
result in the Company's loss of proprietary rights, subject the Company to
significant liabilities to third parties, require the Company to seek licenses
from third parties or prevent the Company from manufacturing or selling its
products, any of which could have a material adverse effect on the Company's
business and results of operations.
Employees
At September 30, 1997, the Company had 1,363 full time employees and 189
temporary contract employees worldwide. This includes 814 in manufacturing, 373
in marketing, sales and field service, 257 in research and development, and 108
in general administration. The Company believes that the use of temporary
employees allows the Company to respond more rapidly to fluctuations in
manufacturing and product demand and enables the Company to better control the
labor component of its manufacturing costs. None of the Company's employees are
represented by a labor union and the Company has never experienced a work
stoppage or strike. The Company considers its employee relations to be good.
Risk Factors
Introduction
The risks detailed in this section as well as risks and uncertainties discussed
elsewhere in this annual report on Form 10-K and in the Company's other SEC
filings constitute some of the risks common in the semiconductor equipment
industry or risks specific to Semitool. Shareholders or potential shareholders
should read these risks carefully to better understand the potential volatility
of the Company's results and volatility in the Company's share price. The fact
that some of the risk factors may be the same or similar to the Company's past
filings means only that the risks are present in multiple periods. The Company
believes that many of the risks detailed are part of doing business in the
semiconductor equipment industry and will likely be present in all periods
reported. The fact that certain risks are endemic to the industry does not
lessen the significance of the risk.
Cyclical Nature of the Semiconductor Industry
The Company's business depends primarily on the capital expenditures of
semiconductor manufacturers, who correspondingly depend on the demand for final
products or systems that use such devices. The semiconductor industry is
cyclical and has historically experienced periodic downturns characterized by
oversupply and weak demand, which often have had a material adverse effect on
capital expenditures by semiconductor manufacturers. These downturns generally
have adversely affected the business and operating results of semiconductor
equipment suppliers, including the Company. The semiconductor device industry is
presently experiencing a slowdown in terms of product demand and volatility in
terms of product pricing. In 1997, the average selling price of memory chips and
certain other semiconductor devices significantly decreased. This has resulted
in semiconductor device manufacturers announcing delays in their expansion
plans. This slowdown and volatility has caused the semiconductor industry to
reduce its demand for semiconductor processing equipment and, in some instances,
to delay capital equipment decisions. In some cases this has resulted in order
cancellations or delays of orders and delays of delivery dates for the Company's
products. No assurance can be given that the Company's revenues and operating
results will not be adversely affected during this and possible future downturns
in the semiconductor industry. In addition, the need for continued investment in
research and development, marketing and customer support may limit the Company's
ability to reduce expenses in response to this and future downturns in the
semiconductor industry.
Fluctuations in Future Operating Results
The Company's business and results of operations have fluctuated significantly
in the past and the Company expects them to fluctuate significantly on a
quarterly or annual basis in the future. During a particular quarter, a
significant portion of the Company's revenues is often derived from the sale of
a relatively small number of high selling price systems. The number of such
systems sold in, and the results for, a particular quarter or year can vary
significantly due to a variety of factors, including the timing of significant
orders, the timing of new product announcements by the Company or its
competitors, patterns of capital spending by customers, market acceptance of new
and enhanced versions of the Company's products, changes in pricing by the
Company, its competitors or suppliers, the mix of products sold and cyclicality
in the semiconductor industry and other industries served by the Company. In
addition, the cancellation or rescheduling of customer orders or any production
difficulty could adversely impact shipments which would negatively impact the
Company's business and results of operations for the period or periods in which
such cancellation or rescheduling occurs. In light of these factors and the
cyclical nature of the semiconductor industry, the Company expects to continue
to experience significant fluctuations in quarterly and annual operating
results. Moreover, many of the Company's expenses are fixed in the short-term
which, combined with the need for continued investment in research and
development, marketing and customer support, limits the Company's ability to
reduce expenses quickly. As a result, shortfalls in net revenues could have a
material adverse effect on the Company's business and results of operations.
Dependence on Product Development
Semiconductor equipment is subject to rapid technological change as well as
evolving industry standards. The Company believes that its future success will
depend in part upon its ability to continue to enhance its existing products and
their process capabilities, to continue to decrease the overall cost of
ownership of such products, and to continue to develop and manufacture new
products with improved process capabilities which conform to evolving industry
standards. As a result, the Company expects to continue to make significant
investments in research and development. Although historically the Company has
had adequate funds from its operations to devote to research and development,
there can be no assurance that such funds will be available in the future or, if
available, that they will be adequate. The Company also must manage product
transitions successfully, since announcements or introductions of new products
by the Company or its competitors could adversely affect sales of existing
Company products. There can be no assurance that the Company will be able to
develop and introduce new products or enhancements to its existing products on a
timely basis or in a manner which satisfies customer needs or achieves
widespread market acceptance. The failure to do so could adversely affect the
Company's business and results of operations.
Market Acceptance of New Products
The Company believes that its growth prospects depend in large part upon its
ability to gain customer acceptance of its products and technology. Market
acceptance of new products depends upon numerous factors, including
compatibility with existing manufacturing processes and products, perceived
advantages over competing products and the level of customer service available
to support such products. Moreover, manufacturers often rely on a limited number
of equipment vendors to meet their manufacturing equipment needs. As a result,
market acceptance of the Company's new products may be adversely affected to the
extent potential customers utilize a competitor's manufacturing equipment. There
can be no assurance that growth in sales of new products will continue or that
the Company will be successful in obtaining broad market acceptance of its
systems and technology.
Competition
The industries in which the Company competes are highly competitive. The Company
faces substantial competition from established competitors, certain of which
have greater financial, marketing, technical and other resources, broader
product lines, more extensive customer support capabilities, and larger and more
established sales organizations and customer bases than the Company. The Company
may also face competition from new domestic and overseas market entrants.
Significant competitive factors in the semiconductor equipment market and other
markets in which the Company competes include system performance and
flexibility, cost of ownership, the size of each manufacturer's installed
customer base, customer service and support and breadth of product line. The
Company believes that it competes favorably on the basis of these factors. In
order to remain competitive, the Company must maintain a high level of
investment in research and development, marketing, and customer service while
controlling operating expenses. There can be no assurance that the Company will
have sufficient resources to continue to make such investments or that the
Company's products will continue to be viewed as competitive as a result of
technological advances by competitors or changes in semiconductor processing
technology. The Company's competitors may also increase their efforts to gain
and retain market share through competitive pricing. Such competitive pressures
may necessitate significant price reductions by the Company or result in lost
orders which could adversely affect the Company's business and results of
operations.
The Company expects its competitors to continue to improve the design and
performance of their products. There can be no assurance that the Company's
competitors will not develop enhancements to, or future generations of,
competitive products that will offer superior price or performance features, or
that new processes or technologies will not emerge that render the Company's
products less competitive or obsolete. As a result of the substantial investment
required to integrate capital equipment into a production line, the Company
believes that once a manufacturer has selected certain capital equipment from a
particular vendor, the manufacturer generally relies upon that vendor to provide
equipment for the specific production line application and may seek to rely upon
that vendor to meet other capital equipment requirements. Accordingly, the
Company may be at a competitive disadvantage with respect to a particular
customer if that customer utilizes a competitor's manufacturing equipment. There
can be no assurance that the Company will be able to compete successfully in the
future.
Environmental Regulations
The Company is subject to a variety of governmental regulations related to the
discharge or disposal of toxic, volatile or otherwise hazardous chemicals used
on the Company's premises. The Company believes that it is in material
compliance with these regulations and that it has obtained all necessary
environmental permits to conduct its business. Nevertheless, current or future
regulations could require the Company to purchase expensive equipment or to
incur other substantial expenses to comply with environmental regulations. Any
failure by the Company to control the use of, or adequately restrict the
discharge or disposal of, hazardous substances could subject the Company to
future liabilities, result in fines being imposed on the Company, or result in
the suspension of production or cessation of the Company's manufacturing
operations.
International Business
Approximately 36%, 44% and 40% of the Company's sales for fiscal 1997, 1996 and
1995, respectively, were attributable to customers outside the United States.
The Company expects sales outside the United States to continue to represent a
significant portion of its future sales. Sales to customers outside the United
States are subject to various risks, including exposure to currency
fluctuations, the imposition of governmental controls, the need to comply with a
wide variety of foreign and United States export laws, political and economic
instability, trade restrictions, changes in tariffs and taxes, and longer
payment cycles typically associated with international sales. The Company's
international sales activities are also subject to the difficulties of managing
overseas distributors or representatives, and difficulties of staffing and
managing foreign subsidiary operations. In addition, because a majority of the
Company's international sales are denominated in United States dollars, the
Company's ability to compete overseas could be adversely affected by a
strengthening United States dollar. Moreover, although the Company endeavors to
meet technical standards established by foreign standards setting organizations,
there can be no assurance that the Company will be able to comply with changes
in foreign standards in the future. The inability of the Company to design
products to comply with foreign standards or any significant or prolonged
decline in the Company's international sales could have a material adverse
effect on the Company's business and results of operations.
Patents and Other Intellectual Property
The Company's success depends in significant part on the technically innovative
features of its products. While the Company attempts to protect its intellectual
property rights through patents, copyrights and non-disclosure agreements, it
believes that its success will depend to a greater degree upon innovation,
technological expertise and its ability to quickly adapt its products to new
technology. There can be no assurance that the Company will be able to protect
its technology or that competitors will not be able to independently develop
similar technology. In addition, the laws of certain foreign countries may not
protect the Company's intellectual property to the same extent as do the laws of
the United States. No assurance can be given that the Company's patents will be
sufficiently broad to protect the Company's technology, nor that any existing or
future patents will not be challenged, invalidated or circumvented, or that the
rights granted thereunder will provide meaningful competitive advantages to the
Company. In any of such events, the Company's business and operating results
could be adversely affected.
There has been substantial litigation regarding patent and other intellectual
property rights in semiconductor-related industries. Although the Company is not
aware of any infringement by its products of any patents or proprietary rights
of others, there can be no assurance that such infringements do not exist or
will not occur in the future. Litigation may be necessary in the future to
enforce patents issued to the Company, to protect trade secrets or know-how
owned by the Company, to defend the Company against claimed infringement of the
rights of others or to determine the scope and validity of the proprietary
rights of others. Any such litigation could result in substantial cost and
diversion of effort by the Company, which by itself could adversely affect the
Company's business and results of operations. Moreover, adverse determinations
in such litigation could result in the Company's loss of proprietary rights,
subject the Company to significant liabilities to third parties, require the
Company to seek licenses from third parties or prevent the Company from
manufacturing or selling its products, any of which could adversely affect the
Company's business and results of operations. The Company knows of no threatened
litigation that would adversely affect the Company's intellectual property
rights.
Dependence on Key Personnel
The Company's success depends to a significant extent upon the efforts of
certain senior management and technical personnel, particularly Raymon F.
Thompson, the Company's Chairman, Chief Executive Officer and President. The
Company's future success will depend in large part upon its ability to attract
and retain highly skilled technical, managerial, and marketing personnel.
Competition for such personnel is high and, while to date the Company does not
believe that its geographic location has hindered it in recruiting qualified
personnel, no assurance can be given that the Company's location will not
adversely affect future recruiting of key personnel. The loss of the services of
Mr. Thompson or of one or more other key management or technical personnel, or
the inability to attract and retain additional qualified personnel, could
adversely affect the Company's business and results of operations. The Company
maintains a $2.0 million "key man" life insurance policy on Mr. Thompson.
Dependence on Key Customers
The Company's ten largest customers accounted for 52%, 42% and 55% of the
Company's net sales in fiscal 1997, 1996 and 1995, respectively. Although the
composition of Semitool's largest customers has changed from year to year, the
loss of, or a significant curtailment of purchases by one or more of the
Company's key customers could adversely affect the Company's business and
results of operations.
Dependence on Key Suppliers
Certain components and subassemblies included in the Company's products are
obtained from a single source or a limited group of suppliers. Although the
Company has vertically integrated much of its manufacturing operations, the loss
of, or disruption in shipments from, certain sole or limited source suppliers
could in the short-term adversely affect the Company's business and results of
operations. The Company believes that it could either manufacture components or
secure an alternate supplier with no long-term material adverse effect on the
Company's business or operations. Further, a significant increase in the price
of one or more of these components could adversely affect the Company's business
and results of operations.
Effect of Certain Anti-Takeover Provisions
The Company's Articles of Incorporation authorize the Company's Board of
Directors to issue Preferred Stock in one or more series and to fix the rights,
preferences, privileges and restrictions granted to or imposed upon any wholly
unissued shares of Preferred Stock and to fix the number of shares constituting
any series and the designations of such series, without further vote or action
by the shareholders. Although the Company has no present plans to issue any
Preferred Stock, and views the authorized Preferred Stock as a potential
financing vehicle for the Company, the Board of Directors may issue Preferred
Stock with voting and conversion rights which could adversely affect the voting
power of the holders of Common Stock. Any issuance of Preferred Stock may have
the effect of delaying, deferring or preventing a change in control of the
Company.
Volatility of Stock Price
The Company's Common Stock has experienced in the past, and could experience in
the future, substantial price volatility as a result of a number of factors,
including quarter to quarter variations in the actual or anticipated financial
results, announcements by the Company, its competitors or its customers,
government regulations, developments in the industry and general market
conditions. In addition, the stock market has experienced extreme price and
volume fluctuations which have affected the market price of many technology
companies in particular and which have at times been unrelated to the operating
performance of the specific companies whose stock is traded. Broad market
fluctuations, as well as economic conditions generally and in the semiconductor
industry specifically, may adversely affect the market price of the Company's
Common Stock.
Securities Litigation
A class action lawsuit brought by Dr. Stanley Bierman, IRA (Case No. DV-96-124A)
was filed February 26, 1996, in the Montana Eleventh Judicial District Court,
Flathead County, Kalispell, Montana against the Company and certain of its
officers and directors. The complaint includes allegations that the Company
issued misleading statements concerning its business and prospects. The suit
seeks injunctive relief, damages, costs and other relief as the court may find
appropriate. The Company believes the lawsuit to be without merit and intends to
contest the action vigorously. However, given the inherent uncertainty of
litigation, insurance issues, and the early stage of discovery, there can be no
assurance that the ultimate outcome will be in the Company's favor, or that if
the ultimate outcome is not in the Company's favor, that such an outcome, the
diversion of management's attention, and any costs associated with the lawsuit,
will not have a material adverse effect on the Company's financial condition or
results of operations.
Item 2. Properties
The Company's 170,000 and 21,000 square-foot facilities are located on
Company-owned sites in Kalispell, Montana. The headquarters for the Company's
European sales and customer service is located in Cambridge, England and is also
owned by the Company. The Company believes that its existing manufacturing
facilities, will be adequate to meet its requirements for the foreseeable future
and that suitable additional or substitute space will be available as needed.
The Company also leases various other smaller facilities worldwide which are
used as sales and customer service centers.
The Company is subject to a variety of governmental regulations related to the
discharge or disposal of toxic, volatile, or otherwise hazardous chemicals used
on the Company's premises. The Company believes that it is in material
compliance with these regulations and that it has obtained all necessary
environmental permits to conduct its business. Nevertheless, current or future
regulations could require the Company to purchase expensive equipment or to
incur other substantial expenses to comply with environmental regulations. Any
failure by the Company to control the use of, or adequately restrict the
discharge or disposal of, hazardous substances could subject the Company to
future liabilities, result in fines being imposed on the Company, or result in
the suspension of production or cessation of the Company's manufacturing
operations.
Item 3. Legal Proceedings
A class action lawsuit brought by Dr. Stanley Bierman, IRA (Case No. DV-96-124A)
was filed on February 26, 1996, in the Montana Eleventh Judicial District Court,
Flathead County, Kalispell, Montana against the Company and certain of its
officers and directors. The complaint includes allegations that the Company
issued misleading statements concerning its business and prospects. The suit
seeks injunctive relief, damages, costs and other relief as the court may find
appropriate. The Company believes the lawsuit to be without merit and intends to
contest the action vigorously. However, given the inherent uncertainty of
litigation, insurance issues, and the early stage of discovery, there can be no
assurance that the ultimate outcome will be in the Company's favor, or that if
the ultimate outcome is not in the Company's favor, that such an outcome, the
diversion of management's attention, and any costs associated with the lawsuit,
will not have a material adverse effect on the Company's financial condition or
results of operations.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to the shareholders for a vote during the fourth
quarter of the fiscal year.
Part II
Item 5. Market for Semitool's Common Stock and Related Shareholder Matters
The Company's common stock is traded under the symbol "SMTL" principally on the
Nasdaq National Market. The approximate number of shareholders of record at
December 9, 1997 was 214 and the reported last sale price of the Company's
common stock on the Nasdaq National Market was $14.47. The high and low sales
prices for the Company's common stock reported by the Nasdaq National Market are
shown below.
Common Stock Price Range
Fiscal Year
Ended September 30,
1997 1996
------------------- ----------------------
High Low High Low
First Quarter $11.63 $8.38 $24.50 $12.50
Second Quarter $14.88 $9.50 $17.75 $12.50
Third Quarter $13.50 $9.50 $17.00 $13.00
Fourth Quarter $26.88 $12.88 $13.50 $10.25
The Company, prior to its initial public offering of common stock in February
1995 (the "Initial Public Offering"), made distributions to shareholders for
their share of income taxes related to the Company's S Corporation status. The
Company also made a final distribution of S Corporation retained earnings prior
to the initial public offering. The Company intends to retain its earnings to
fund the development and growth of its business and therefor, does not
anticipate paying any cash dividends in the foreseeable future.
Item 6. Selected Financial Data
This summary should be read in conjunction with the consolidated financial
statements and related notes included elsewhere herein.
Summary Consolidated Financial Information
(in thousands, except per share data)
Year Ended September 30,
1997 1996 1995 1994 1993
Statement of Operations Data:
Net sales $193,952 $174,204 $128,326 $62,597 $48,532
Gross profit 91,090 84,631 65,858 31,957 24,070
Income from operations 20,432 24,182 20,927 3,020 356
Net income (loss) 12,523 15,136 14,885 2,170 (445)
Pro forma Statement of Operations Data:
Income from operations (1) 20,432 24,182 22,599 6,509 3,126
Net income (2) 12,523 15,136 14,403 3,723 1,579
Net income per share (3) 0.91 1.09 1.15 0.37
Shares used in per share computation (4) 13,833 13,858 12,563 9,946
Balance Sheet Data:
Working capital 50,047 43,797 37,209 6,109 6,223
Total assets 131,725 114,954 88,067 39,807 30,744
Short-term debt 4,393 4,374 924 7,409 5,164
Long-term debt 3,364 3,637 4,011 6,089 1,940
Shareholders' equity 81,580 68,003 52,813 12,487 2,741
(1) Pro forma income from operations has been determined by eliminating for each
period presented payments for technology rights that ceased in February 1995,
upon closing of the initial public offering of the Company's common stock.
(2) Between October 1, 1986 and February 1, 1995, the Company elected to be
taxed under the provisions of Subchapter S of the Code. Under those provisions,
the Company had not been subject to federal corporate income taxation. In
connection with the closing of the Company's initial public offering, the
Company terminated its S corporation status. Pro forma net income has been
determined by assuming that the Company had been taxed as a C corporation for
federal income tax purposes for each period presented. The pro forma provision
for income taxes has been calculated by using statutory rates for federal and
state taxes applied to pro forma income before income taxes, net of actual
research and development credits generated in each year. The pro forma effective
tax rates in fiscal 1993 through 1997 were 33.0%, 36.4%, 37.1%, 37.0%, and 38.0%
respectively.
(3) In accordance with Staff Accounting Bulletin No. 55 issued by the Securities
and Exchange Commission, pro forma net income per share data is not presented
prior to fiscal year 1994. Also, prior to the termination of S corporation
status, dividends were paid by the Company only in amounts sufficient to cover
shareholders' tax liabilities other than the final distribution of prior
accumulated S Corporation earnings. The per share dividend information has
therefore not been presented.
(4) See Note 1 of Notes to Consolidated Financial Statements for an explanation
of the determination of the number of shares used in computing pro forma net
income per share.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
CAUTION
Statements contained in this "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and elsewhere in this report which are not
historical facts are forward-looking statements within the meaning of Section
21E of the Securities Exchange Act of 1934, as amended, including without
limitation, statements regarding use of sales, service and support
organizations, gross margins, research and development, costs of manufacturing,
future balances, and effects of new accounting standards, and are subject to the
safe harbor provisions created by that statute. A forward-looking statement may
contain words such as "will continue to be," "will be," "continue to," "expect
to," "anticipates that," "to be" or "can impact." Management cautions that
forward-looking statements are subject to risks and uncertainties that could
cause the Company's actual results to differ materially from those projected in
such forward-looking statements. These risks and uncertainties include, but are
not limited to, the cyclical nature of the semiconductor industry in general,
lack of market acceptance for new products, decreasing demand for the Company's
existing products, impact of competitive products and pricing, product
development, commercialization and technological difficulties, capacity and
supply constraint difficulties and other risks detailed herein. The Company's
future results will depend on its ability to continue to enhance its existing
products and to develop and manufacture new products and to finance such
activities. There can be no assurance that the Company will be successful in the
introduction, marketing and cost-effective manufacture of any new products or
that the Company will be able to develop and introduce in a timely manner new
products or enhancements to its existing products and processes which satisfy
customer needs or achieve widespread market acceptance.
The Company undertakes no obligation to release revisions to forward-looking
statements to reflect subsequent events, changed circumstances, or the
occurrence of unanticipated events.
OVERVIEW
The Company was incorporated in 1979 to develop, manufacture and market
innovative manufacturing equipment for the semiconductor industry, and shipped
its first product, a spin rinser/dryer, that year. During the 1980s, the Company
introduced several generations of its acid and solvent spray chemical processing
tools and vertical furnaces, and began to market its products to manufacturers
outside the semiconductor industry. Since 1990, the Company has developed its
Equinox single substrate chemical processing system, its Storm wafer carrier
cleaning system, and its Magnum automated multimodule chemical processing
system. In the last year the Company has completed development of its 300mm
tools, the Magnum 3000, and Express furnace. The Company has also developed the
industry's first production-ready copper plating tool, the Equinox LT-210. In
response to increased demand for the Company's established and recently
introduced products, the Company expanded its Montana facility in 1994 and 1995
from approximately 65,000 square feet at the beginning of fiscal 1994 to
approximately 170,000 square feet at the end of fiscal 1995. The Company built a
separate 21,000 square foot facility, also in Montana, in fiscal 1996. In
addition, during fiscal 1997 the Company increased its production capacity by
completing a 14,000 square foot facility in Cambridge, England.
The unit selling prices for the Company's products range from $15,000 to
$150,000 for a spin rinser/dryer, to $900,000 to over $2.0 million for the
Magnum and LT-210 linear copper plating tool. Due to these relatively high unit
selling prices, a significant portion of the Company's revenue in any given
period is often derived from the sale of a relatively small number of units.
From time to time, the Company has experienced, and expects to continue to
experience, significant fluctuations in its results of operations, particularly
on a quarterly basis. The Company's expense levels are based in part on
expectations of future sales. If sales levels in a particular period do not meet
expectations, operating results will be adversely affected. A variety of factors
have an influence on the Company's operating results in a particular period.
These factors include specific economic conditions in the semiconductor
industry, the timing of the receipt of orders from major customers, customer
cancellations or delays of shipments, specific feature requests by customers,
production delays or manufacturing inefficiencies, management decisions to
commence or discontinue product lines, the Company's ability to design,
introduce and manufacture new products on a cost-effective and timely basis, the
introduction of new products by the Company or its competition, the selection of
the Company's or its competitors' products by semiconductor manufacturers for
new generations of fabrication facilities, the timing of research and
development expenditures, exchange rate fluctuations, and expenses attendant to
acquisitions, strategic alliances and the further development of marketing and
service capabilities.
The Company markets and sells its products worldwide with an emphasis on Europe
and Asia as its principal international markets. During fiscal 1997,
approximately 35.9% of the Company's revenues were derived from sales to
customers outside the United States. The Company anticipates that international
sales will continue to account for a significant portion of net sales, although
the percentage of international sales may fluctuate from period to period. The
Company believes its sales, service and support organizations are important to
the long-term success of its customer relationships. The Company provides sales,
service and support worldwide, primarily through direct employees in the United
States, Europe, Japan, Korea, and through distributors elsewhere in the world.
RESULTS OF OPERATIONS
The following table sets forth the Company's actual and pro forma results of
operations for the periods indicated expressed as a percentage of net sales:
Year Ended September 30,
1997 1996 1995
Statement of Operations Data:
Net sales 100.0% 100.0% 100.0%
Cost of sales 53.0 51.4 48.7
----- ----- -----
Gross profit 47.0 48.6 51.3
----- ----- -----
Operating expenses:
Selling, general and administrative 25.5 23.5 24.8
Research and development 10.9 11.2 8.9
Cost of technology rights -- -- 1.3
----- ----- -----
Total operating expenses 36.4 34.7 35.0
----- ----- -----
Income from operations 10.6 13.9 16.3
Other income (expense), net (0.1) (0.1) 0.2
----- ----- -----
Income before income taxes 10.5 13.8 16.5
Provision for income taxes 4.0 5.1 4.9
----- ----- -----
Net income 6.5% 8.7% 11.6%
===== ===== =====
Pro Forma Statement of Operations Data:
Income from operations before
pro forma adjustments 10.6% 13.9% 16.3%
Elimination of cost of technology
rights -- -- 1.3
----- ----- -----
Income from operations 10.6 13.9 17.6
Other income (expense), net (0.1) (0.1) 0.2
----- ----- -----
Income before income taxes 10.5 13.8 17.8
Provision for income taxes 4.0 5.1 6.6
----- ----- -----
Net income 6.5% 8.7% 11.2%
===== ===== =====
YEARS ENDED SEPTEMBER 30, 1997 AND 1996
Net Sales. Net sales consist of revenues from sales of equipment, spare parts
and service contracts. Net sales increased $19.7 million (11.3%) to $194.0
million in fiscal 1997 from $174.2 million in fiscal 1996. Net sales of the
Company's automated batch chemical processing tools accounted for the majority
of the increase.
The Company shipped a number of new tool models during 1997. The first 50 wafer
batch size Magnum with a newly designed work-in-process (WIP) station was
delivered during the fiscal year. New versions of Magnum also include vision
systems to guide the robotics and an ozone injection system designed to decrease
operating expenses and enhance performance. In addition to our own proprietary,
newly designed model-based temperature controller which decreases cycle time,
the Express furnace received new robotics and a fully standard mechanical
interface (SMIF) compatible WIP station. The adoption of any of these tools for
future widespread production use is dependent on a number of factors including,
but not limited to, performance and pricing competition from other equipment
manufacturers.
International sales, predominantly to customers based in Europe and Asia,
accounted for 35.9% of net sales in fiscal 1997 compared to 43.9% in the prior
year. The Company anticipates that international sales will continue to account
for a significant portion of net sales, although the percentage may fluctuate
from period to period.
Gross Profit. Gross margin decreased to 47.0% in fiscal 1997 from 48.6% in the
prior year. The Company's gross margin has been, and will continue to be,
affected by a variety of factors, including the costs to manufacture, service
and support new and enhanced products, as well as the mix and average selling
prices of products sold. The Company believes that the largest single factor in
the 1997 gross margin decline is costs and inefficiencies related to recently
developed products. The Company anticipates that the cost to manufacture and
support the newer tool models will improve over time, but that it will continue
to design and sell additional models of its existing tools and additional tool
types, which may somewhat offset the anticipated improvement in gross margins.
Selling, General and Administrative. Selling, general and administrative (SG&A)
expenses were $49.5 million or 25.5% of net sales in fiscal 1997 compared to
$40.9 million or 23.5% of net sales in the prior year. The $8.6 million increase
in SG&A expense in 1997 as compared to 1996 reflects higher costs associated
with increased sales volumes, a broader range of equipment to market and
service, and costs associated with additional sales and service personnel
supporting the domestic and Asian marketplaces. A substantial portion of the
Company's SG&A expense is fixed in the short-term. While it is the Company's
goal to reduce SG&A expense as a percentage of net sales during periods of
rising sales, a decline in net sales would cause the Company's selling, general
and administrative expense to increase as a percentage of net sales and could
have an adverse effect on the Company's business and results of operations.
Research and Development. Research and development (R&D) expenses consist of
salaries, project materials, laboratory costs, consulting fees and other costs
associated with the Company's research and development efforts. R&D expenses
were $21.2 million or 10.9% of net sales in fiscal 1997 compared to $19.5
million or 11.2% of net sales in the prior year. Major projects during the year
include development of the Equinox LT-210 linear copper plating tool and the
completion of development of the 300mm Magnum 3000 and 300mm Express products.
Spending on R&D increased 8.6% or $1.7 million in absolute dollars over the
prior year due to the number and complexity of projects undertaken. The Company
is committed to technology leadership in the semiconductor equipment industry
and expects to continue to fund research and development expenditures with a
multiyear perspective. Such funding has resulted in fluctuations in R&D expenses
from period to period in the past. The Company expects such fluctuations to
continue in the future, both in absolute dollars and as a percentage of net
sales, primarily due to the timing of expenditures and changes in the level of
net sales.
Other Income (Expense). Interest income on short-term investments declined from
$173,000 in fiscal 1996 to $97,000 in 1997.
Provision for Income Taxes. The provisions for income taxes for 1997 and 1996
were $7.7 million and $8.9 million, respectively. The effective tax rates for
1997 and 1996 were 38% and 37%, respectively.
YEARS ENDED SEPTEMBER 30, 1996 AND 1995
Net Sales. Net sales consist of revenues from sales of equipment, spare parts
and service contracts. Net sales increased $45.9 million (35.8%) to $174.2
million in fiscal 1996 from $128.3 million in fiscal 1995. Net sales of the
Company's automated batch chemical processing tools and its single substrate
processor accounted for the majority of the increase. Aggregate sales for these
two tool types increased from $15.4 million in fiscal 1995 to $45.8 million in
fiscal 1996.
The Company shipped a number of new tool models during 1996. New automated batch
chemical processing tools included two models for processing glass substrates
used in the manufacture of flat panel displays and multichip modules, an
immersion tool for processing silicon wafers, and a carrierless spray processing
tool. New single substrate processor models were introduced for plating,
including multilevel interconnect processes for advanced integrated circuit
devices. A vertical furnace with much faster thermal ramp capabilities was
shipped to three different customers. The Company also shipped a new model of
its carrier cleaning system developed late in 1995 and a chemical delivery unit
to interface between bulk chemical storage and the Company's batch and single
substrate chemical processing tools. The adoption of any of these tools for
future widespread production use is dependent on a number of factors including,
but not limited to, performance and pricing competition from other equipment
manufacturers.
In February of 1996, the Company merged with Semy Engineering, Inc. (Semy) in a
transaction accounted for as a pooling-of-interests and consequently, the
Company's financial statements prior to the merger have been restated to include
Semy. Semy accounted for 10.2% of 1995 sales and 8.6% of 1996 sales after
eliminating intercompany transactions.
International sales, predominantly to customers based in Europe and Asia,
accounted for 43.9% of net sales in fiscal 1996 compared to 40.4% in the prior
year. The Company anticipates that international sales will continue to account
for a significant portion of net sales, although the percentage may fluctuate
from period to period.
Gross Profit. Gross margin decreased to 48.6% in fiscal 1996 from 51.3% in the
prior year. The Company's gross margin has been, and will continue to be,
affected by a variety of factors, including the costs to manufacture, service
and support new and enhanced products, as well as the mix and average selling
prices of products sold. The Company believes that the largest single factor in
the 1996 gross margin decline is costs and inefficiencies related to the
manufacturing and servicing of recently developed products. The number of new
tool models introduced in fiscal 1996 was unprecedented in the Company's
history, both as to number and complexity. The Company anticipates that the cost
to manufacture and support the newer tool models will improve over time, but
that it will continue to design and sell additional models of its existing tools
and additional tool types, which may somewhat offset the anticipated improvement
in gross margins.
Selling, General and Administrative. Selling, general and administrative (SG&A)
expenses were $40.9 million or 23.5% of net sales in fiscal 1996 compared to
$31.8 million or 24.8% of net sales in the prior year. The $9.1 million increase
in SG&A expense in 1996 as compared to 1995 reflects higher costs associated
with increased sales volumes, a broader range of equipment to market and
service, costs associated with additional sales and service personnel supporting
the Asian marketplace, and employee severance cost accruals provided at year end
in response to a decline in the Company's fourth quarter bookings, partially
offset by reduced employee bonus costs. The decline in these expenses, as a
percentage of net sales, was primarily due to improved overhead absorption. A
substantial portion of the Company's SG&A expense is fixed in the short term.
While it is the Company's goal to continue to reduce SG&A expense as a
percentage of net sales during periods of rising sales, a decline in net sales
would cause the Company's selling, general and administrative expense to
increase as a percentage of net sales and could have an adverse effect on the
Company's business and results of operations.
Research and Development. Research and development (R&D) expenses consist of
salaries, project materials, laboratory costs, consulting fees and other costs
associated with the Company's research and development efforts. R&D expenses
were $19.5 million or 11.2% of net sales in fiscal 1996 compared to $11.4
million or 8.9% of net sales in the prior year.
Spending on R&D increased 70.8% or $8.1 million in absolute dollars over the
prior year due to the number and complexity of projects undertaken. The Company
is committed to technology leadership in the semiconductor equipment industry
and expects to continue to fund research and development expenditures with a
multiyear perspective. Such funding has resulted in fluctuations in R&D expenses
from period to period in the past. The Company expects such fluctuations to
continue in the future, both in absolute dollars and as a percentage of net
sales, primarily due to the timing of expenditures and changes in the level of
net sales.
Cost of Technology Rights. In 1979, the Company acquired certain technology
rights from Raymon F. Thompson for installment payments equal to 8% of revenues
from the sale of certain of the Company's products that embody the technology.
All expense recognized in fiscal 1995 relates to the period from October 1, 1994
to February 2, 1995. All payments for technology rights ceased in conjunction
with the Company's initial public offering, resulting in no cost to the Company
from that point forward, including all of fiscal 1996.
Other Income (Expense). Interest income on short-term investments declined from
$428,000 in fiscal 1995 to $173,000 in 1996 as the funds raised in the Company's
initial public offering have been invested in receivables, inventory and fixed
assets. The Company realized a net loss of $17,000 on the sale of fixed assets
in 1996 compared to a net gain of $191,000 the year before.
Provision for Income Taxes. The provisions for income taxes for 1996 and 1995
were $8.9 million and $6.4 million, respectively. Effective in 1986, the Company
elected to have its United States income taxed under Subchapter S of the Code.
The Company, however, remained a taxpaying entity for Montana state income tax
purposes. Income tax provisions recognized by the Company after 1986 and before
February 1, 1995 relate to state income taxes and taxes imposed by foreign
governments on the Company's foreign operations. The Company terminated its
Subchapter S election as of the close of business on January 31, 1995 and
subsequent to that date became subject to federal income taxation at the
corporate level.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its growth since its February 1995 initial public
offering primarily through amounts raised in conjunction with that offering,
operations and borrowings on its revolving line of credit. Cash generated by
operating activities in fiscal 1997 was $8.5 million as compared to $4.2 million
used by operations in fiscal 1996. Substantial investments in accounts
receivable and inventory and a decrease in customer advances in 1997 were more
than offset by net income and non-cash expenses. As of September 30, 1997, the
Company had $40.9 million of accounts receivable and $41.1 million of inventory,
compared to $39.2 million of accounts receivable and $36.9 million of inventory
at September 30, 1996. As is customary in the semiconductor manufacturing
equipment industry, products are generally built to fill specific customer
orders, with typical order fulfillment times ranging from four to six weeks for
certain products to six months or more for more complex products. Accordingly,
while the Company's finished goods inventory accounts for slightly over 10% of
total inventory, overall inventory levels tend to fluctuate with the level and
type of orders received. Currently, the tools with the longest average cycle
times are the automated batch chemical tools and the single substrate processor.
The Company expects future receivable and inventory balances to fluctuate with
net sales.
Cash used in investing activities in fiscal 1997 was $7.3 million as compared to
$7.8 million in fiscal 1996. Investing activities consisted primarily of
acquisitions of property and equipment and intangible assets in fiscal 1997.
Property and equipment purchases used cash of $6.2 million in fiscal 1997 and
$10.2 million in fiscal 1996. During fiscal 1996, the Company constructed and
put into service a separate satellite facility in Kalispell totaling
approximately 21,000 square feet and refurbished one of the several buildings on
the Cambridge, England site for use as office space and an inventory storage
depot. In connection with the merger of Semy, the Company invested $1.2 million
in a covenant not to compete with certain of the principals of Semy.
Financing activities consisted primarily of $1.0 million in proceeds from the
exercise of stock options and $0.4 million of long-term debt repayments.
As of September 30, 1997, the Company's principal sources of liquidity consisted
of approximately $5.1 million of cash and cash equivalents, $6.0 million
available under the Company's $10 million revolving line of credit, and $15
million under a long-term facility renewed during the fourth quarter of fiscal
1997. Both credit facilities are with Seafirst Bank and bear interest at the
bank's prime lending rate. The revolving line of credit expires on March 31,
1999 when all principal amounts owing are due. The long-term credit facility
expires on December 31, 1999 with principal amounts outstanding repayable in
monthly principal and interest payments over a five-year period ending December
2004.
The Company believes that cash and cash equivalents, funds generated from
operations, and funds available under its bank lines will be sufficient to meet
the Company's planned capital requirements during the next twelve months
including the spending of approximately $10 million to purchase property, plant
and equipment. The Company believes that success in its industry requires
substantial capital in order to maintain the flexibility to take advantage of
opportunities as they arise. The Company may, from time to time, as market and
business conditions warrant, invest in or acquire complementary businesses,
products or technologies. The Company may effect additional equity or debt
financings to fund such activities or to fund greater than anticipated growth.
The sale of additional equity securities or the issuance of equity securities in
a business combination could result in dilution to the Company's shareholders.
LITIGATION
A class action lawsuit brought by Dr. Stanley Bierman, IRA (Case No. DV-96-124A)
was filed on February 26, 1996, in the Montana Eleventh Judicial District Court,
Flathead County, Kalispell, Montana against the Company and certain of its
officers and directors. The complaint includes allegations that the Company
issued misleading statements concerning its business and prospects. The suit
seeks injunctive relief, damages, costs and other relief as the court may find
appropriate. The Company believes the lawsuit to be without merit and intends to
contest the action vigorously. However, given the inherent uncertainty of
litigation, insurance issues, and the early stage of discovery, there can be no
assurance that the ultimate outcome will be in the Company's favor, or that if
the ultimate outcome is not in the Company's favor, that such an outcome, the
diversion of management's attention, and any costs associated with the lawsuit,
will not have a material adverse effect on the Company's financial condition or
results of operations.
NEW ACCOUNTING PRONOUNCEMENTS
In February 1997, Statement of Financial Accounting Standards No. 128 (SFAS
128), "Earnings per Share" was issued. SFAS 128 established standards for
computing and presenting earnings per share (EPS) and simplifies the existing
standards. This standard will replace the presentation of primary EPS with a
presentation of basic EPS. It also requires the dual presentation of basic and
diluted EPS on the face of the income statement for all entities with complex
capital structures and will require a reconciliation of the numerator and
denominator of the basic EPS computation to the numerator and denominator of the
diluted EPS computation. SFAS 128 is effective for financial statements issued
for periods ending after December 15, 1997, including interim periods and
requires restatement of all prior-period EPS data presented. The Company does
not believe the application of this standard will have a material effect on its
earnings per share.
In June 1997, Statement of Financial Accounting Standards No. 130 (SFAS 130),
"Comprehensive Income," was issued. SFAS 130 establishes standards for reporting
and display of comprehensive income and its components in a full set of general
purpose financial statements. SFAS 130 is effective for fiscal years beginning
after December 15, 1997, and requires restatement of earlier periods presented.
The Company does not believe the application of this standard will have a
material effect on the results of operations or financial condition of the
Company.
In June 1997, Statement of Financial Accounting Standards No. 131 (SFAS 131),
"Disclosures about Segments of an Enterprise and Related Information," was
issued. SFAS 131 establishes standards for the way that a public enterprise
reports information about operating segments in annual financial statements and
requires that those enterprises report selected information about operating
segments in interim financial reports issued to shareholders. SFAS 131 is
effective for fiscal years beginning after December 15, 1997, and requires
restatement of earlier periods presented. The Company does not believe the
application of this standard will have a material effect on the results of
operations or financial condition of the Company.
FOREIGN EXCHANGE CONTRACTS
The Company conducts its Japanese business in Japanese yen. The Company enters
into forward foreign exchange contracts primarily as an economic hedge against
the short-term impact of foreign currency fluctuations of its Japanese
subsidiary. In 1997, these contracts were denominated in the Japanese yen. The
maturities of the forward foreign exchange contracts are generally short-term in
nature. The impact of movements in currency exchange rates on forward foreign
exchange contracts offsets the related impact on anticipated transactions
denominated in yen. Net foreign currency gains and losses have not been
material.
Item 8. Financial Statements and Supplementary Data
The financial statements and supplementary data listed in the Index to
Consolidated Financial Statements at Item 14 of this Form 10-K are incorporated
by reference into this Item 8 of Part II of this Form 10-K.
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosures
None.
PART III
Item 10. Executive Officers and Directors
The following table sets forth certain information with respect to the executive
officers and directors of the Company:
Name Age Position
Raymon F. Thompson 56 Chairman, President and Chief Executive Officer
Timothy C. Dodkin 48 Senior Vice President
Managing Director, Semitool Europe, Ltd.
Thomas Sulzbacher 29 Vice President, Sales and Customer Service
Gregory L. Perkins 54 Vice President, Operations and General Manager
Larry A. Viano 43 Treasurer, Principal Financial Officer and
Controller
Howard E. Bateman (1) 63 Director
Richard A. Dasen (2) 55 Director
Daniel J. Eigeman (2) 63 Director
John Osborne (1) 53 Director
Calvin S. Robinson (1) 77 Director and Secretary
- -----------
(1) Member of the Compensation and Stock Option Committee.
(2) Member of the Audit Committee.
The following sets forth the background of each of the Company's executive
officers and directors, including the principal occupation of those individuals
for the past five years:
Raymon F. Thompson founded the Company and has served as Chairman, Chief
Executive Officer and President since its inception in 1979. In 1979, Mr.
Thompson designed, patented and introduced the first on-axis rinser/dryer for
the semiconductor industry.
Timothy C. Dodkin joined the Company in 1985 and served as the Company's
European Sales Manager from 1985 to 1986. Since 1986, Mr. Dodkin has served as
Managing Director of Semitool Europe, Ltd. Prior to joining the Company, Mr.
Dodkin worked at Cambridge Instruments, a semiconductor equipment manufacturer,
for ten years in national and international sales.
Thomas Sulzbacher is Semitool's Vice President of Sales and Customer Service.
Mr. Sulzbacher has been with Semitool for nine years; his experience in the
semiconductor industry was developed through Service and Sales positions in
Semitool's Bad Reichenhall, Germany office. Upon relocating to the United States
in 1994, Mr. Sulzbacher managed the Magnum sales force prior to his current
position. Mr. Sulzbacher is Raymon F. Thompson's son-in-law.
Gregory L. Perkins joined the Company in 1990 as Vice President, Manufacturing
and, since August 1994, has served as the Company's Vice President and General
Manager. Prior to joining the Company, Mr. Perkins served as General Manager for
Modulair, Inc., a manufacturer of clean rooms, from 1987 to 1990.
Larry A. Viano joined the Company in 1985 and serves as the Company's treasurer,
principal financial officer and controller. Mr. Viano serves on the Board of
Directors of Semitool Europe, Ltd. Mr. Viano, a Certified Public Accountant,
also serves on the Accounting Advisory Board of the University of Montana.
Howard E. Bateman has served on the Company's Board of Directors since 1990. Mr.
Bateman formerly owned and operated Entech, a Pennsylvania company that has been
an independent sales representative for the Company's products since 1979.
Richard A. Dasen has served on the Company's Board of Directors since 1984. From
1974 to 1992, Mr. Dasen owned and managed Evergreen Bancorporation, a multi-bank
holding company. Since 1992, Mr. Dasen has been an independent businessman.
Daniel J. Eigeman has served on the Company's Board of Directors since 1985.
From 1971 to 1993, Mr. Eigeman was President of Eigeman, Hanson & Co., P.C., an
accounting firm, and since 1993 has been Vice President of Junkermier, Clark,
Campanella, Stevens, P.C., CPAs. Mr. Eigeman served as President of the Montana
Society of Certified Public Accountants in 1993.
John Osborne has served on the Company's Board of Directors since July of 1997
and has thirty years of experience in the semiconductor industry, including 20
years in microchip manufacturing and ten years in the capital equipment
industry. During the past ten years, Mr. Osborne had held senior management
positions at Lam Research in Fremont, CA. These positions included Vice
President of Lam's Worldwide Customer Support. Mr. Osborne holds seven patents,
has numerous technical and business publications, and has served on the Board of
Directors of four companies.
Calvin S. Robinson has served as a director of the Company since 1982. Mr.
Robinson has been of counsel to Crowley, Haughey, Hanson, Toole & Dietrich,
P.L.L.P. since 1989. This firm has provided legal services to the Company since
1979. Mr. Robinson is also a director of Winter Sports, Inc.
The executive officers are elected each year by the Board of Directors to serve
for a one-year term of office.
The information concerning compliance with Section 16(a) of the Securities and
Exchange Act of 1934, as amended, required under this item is contained in the
Company's Proxy Statement to be filed in connection with its 1998 Annual Meeting
of Shareholders under the caption "Other Matters" and is incorporated herein by
reference.
Item 11. Executive Compensation
The information concerning compensation of executive officers and directors
required under this item is contained in the Company's Proxy Statement to be
filed in connection with its 1998 Annual Meeting of Shareholders under the
caption "Executive Compensation," and is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information concerning certain principal holders of securities and security
ownership of executive officers and directors required under this item is
contained in the Company's Proxy Statement to be filed in connection with its
1998 Annual Meeting of Shareholders under the caption "Security Ownership of
Certain Beneficial Owners and Management" and is incorporated herein by
reference.
Item 13. Certain Relationships and Related Transactions
The information concerning certain relationships and related transactions
required under this item is contained in the Company's Proxy Statement to be
filed in connection with its 1998 Annual Meeting of Shareholders under the
caption "Certain Transactions," and is incorporated herein by reference.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) The following documents are filed as a part of this report:
1. Financial Statements:
--------------------
Report of Independent Accountants
Consolidated Balance Sheets at September 30, 1997 and
September 30, 1996
Consolidated Statements of Income for the Years Ended
September 30, 1997, September 30, 1996, and
September 30, 1995
Consolidated Statements of Changes in Shareholders' Equity for the
Years Ended September 30, 1997, September 30, 1996 and
September 30, 1995
Consolidated Statements of Cash Flows for the Years Ended September 30,
1997, September 30, 1996 and September 30, 1995
Notes to Consolidated Financial Statements
2. Financial Statement Schedules:
-----------------------------
Report of Independent Accountants
II - Valuation and Qualifying Accounts
3. Exhibits:
--------
(a) The exhibits listed below are filed as part of this Annual Report on
Form 10-K or are incorporated herein by reference:
Exhibit No. Description
- ---------- -----------
2.1 Asset Purchase Agreement and Plan of Reorganization, dated
February 19, 1996 between the Compan and Semy Engineering, Inc (1)
3.1 Restated Articles of Incorporation of the Company (2)
3.2 By-laws of the Company dated August 1, 1979 and related amendments
to these By-laws (2)
3.3 Amended Bylaws of Semitool, Inc. (5)
3.4 Amended Bylaws of Semitool, Inc. (6)
10.1 Form of Semitool, Inc. S Corporation Termination, Tax Allocation
and Indemnification Agreement between the Company and its current
shareholders (2)
10.2 Form of Indemnification Agreement between the Company and each of
its officers and directors (2)
10.3 Form of Semitool, Inc. 1994 Stock Option Plan (2)
10.4 Form of Agreement and Plan of Merger between the Company and
Semitherm, Inc. (2)
10.5 Aircraft Lease Agreement, dated September 9, 1994, between the
Company and Mr. Thompson (2)
10.6 Aircraft Lease Agreement, dated November 1, 1994, between the
Company and Mr. Thompson (2)
10.7 Agreement, dated June 7, 1983, between the Company and Entech (2)
10.8 Form of Agreement of Cancellation of Sale Agreement between the
Company and Mr. Thompson (2)
10.9 Agreement of Sale of Centrifugal Wafer Processor Invention, dated
August 1, 1979, between the Company and Mr. Thompson (2)
10.10 Articles of Merger, dated September 1, 1993, of Semitool,
Inc., a California corporation, with and into the Company (2)
10.11 Agreement, dated June 1994, among Robert G. Massey, Donald W,
Heidt, Steven R. Thompson, Semitherm, Inc., Semitherm Partnership,
Mr. Thompson and the Company (2)
10.12 Agreement between the Company and the Semitool European
Companies (2)
10.13 Aircraft Lease Agreement, dated April 1, 1996, between the Company
and Mr. Thompson (3)
10.14 Business Loan Agreement, dated September 30, 1996, between the
Company and the Bank of America NW, N.A. doing business as
Seafirst Bank (3)
10.15 Promissory Note, dated September 30, 1996, between the Company and
the Bank of America NW, N.A doing business as Seafirst Bank (3)
10.16 Business Loan Agreement, dated September 30, 1997, between the
Company and the Bank of America NT & SA doing business as Seafirst
Bank (6)
10.17 Promissory Note, dated September 29, 1997, between the Company and
the Bank of America National Trust and Savings Association doing
business as Seafirst Bank (6)
10.18 Loan Modification Agreement, dated September 29, 1997 between the
Company and The Bank of America National Trust And Savings
Association doing business as Seafirst Bank (6)
10.19 Loan Modification Agreement, dated October 2, 1997 between the
Company and the Bank of America National Trust And Savings
Association doing business as Seafirst Bank (6)
10.20 Loan Modification Agreement, dated October 2, 1997 between the
Company and the Bank of America National Trust And Savings
Association doing business as Seafirst Bank (6)
11.1 Statement Re Computation of Pro Forma per share Earnings (6)
21.1 Subsidiaries of Registrant (6)
27 Financial data schedule (6)
99.1 Amended and Restated Semitool, Inc. 1994 Stock Option Plan (4)
(1) Incorporated herein by reference to the identically numbered exhibits to the
Company's Current Report on Form 8-K, date of report February 29, 1996.
(2) Incorporated herein by reference to the identically numbered exhibits to the
Company's Registration Statement on Form S-1 (File No. 33-87548), which became
effective on February 2, 1995.
(3) Incorporated herein by reference to the identically numbered exhibits to the
Company's Annual Report on Form 10-K, date of report September 30, 1996.
(4) Incorporated herein by reference to the identically numbered exhibit to the
Company's Quarterly Report on Form 10-Q, date of report March 31, 1997.
(5) Incorporated herein by reference to the identically numbered exhibit to the
Company's Quarterly Report on form 10-Q, date of report June 30, 1997.
(6) Filed herewith.
(b) Reports on Form 8-K. During the fourth quarter of fiscal 1997, there were
no Form 8-K's filed by the Company.
(c) Exhibits. The Exhibits listed in Item 14(a)(3)(a) hereof are filed as part
of this Annual Report on Form 10-K or incorporated herein by reference.
(d) Financial Statement Schedules. See Item 14(a)(2) above.
Signatures
Pursuant to the requirements of Section 13 or 15(d) 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.
Dated: December 22, 1997 SEMITOOL, INC.
By:/s/Raymon F. Thompson
--------------------------------
Raymon F. Thompson
Chairman of the Board, President
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated:
Signature Title Date
/s/Raymon F. Thompson
- ----------------------
Raymon F. Thompson Chairman of the Board, December 22, 1997
President and Chief Executive
Officer
(Principal Executive Officer)
/s/Larry A. Viano
- ----------------------
Larry A. Viano Treasurer, Controller and December 22, 1997
Principal Financial Officer
/s/Howard E. Bateman
- ----------------------
Howard E. Bateman Director December 22, 1997
/s/Richard A. Dasen
- ----------------------
Richard A. Dasen Director December 22, 1997
/s/Daniel J. Eigeman
- ----------------------
Daniel J. Eigeman Director December 22, 1997
/s/John Osborne
- ----------------------
John Osborne Director December 22, 1997
/s/Calvin S. Robinson
- ----------------------
Calvin S. Robinson Director and Secretary December 22, 1997
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors and Shareholders
Semitool, Inc.
We have audited the accompanying consolidated balance sheets of Semitool, Inc.
and subsidiaries as of September 30, 1997 and 1996, and the related consolidated
statements of income, changes in shareholders' equity and cash flows for each of
the three years in the period ended September 30, 1997. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Semitool, Inc. and subsidiaries as of September 30, 1997 and 1996, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended September 30, 1997, in conformity with generally
accepted accounting principles.
Coopers & Lybrand L.L.P.
Spokane, Washington
October 30, 1997
SEMITOOL, INC.
CONSOLIDATED BALANCE SHEETS
September 30, 1997 and 1996
(Amounts in Thousands, Except for Share Amounts)
ASSETS
1997 1996
Current assets:
Cash and cash equivalents $ 5,060 $ 3,058
Trade receivables, less allowance for doubtful accounts
of $224 and $233 40,896 39,183
Inventories 41,124 36,909
Prepaid expenses and other current assets 1,771 2,323
Deferred income taxes 5,902 4,373
----------- -----------
Total current assets 94,753 85,846
Property, plant and equipment, net 33,685 26,337
Intangibles, less accumulated amortization of $1,460 and $899 2,142 1,581
Other assets, net 1,145 1,190
----------- -----------
Total assets $ 131,725 $ 114,954
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Note payable to bank $ 4,000 $ 4,000
Accounts payable 16,735 17,177
Accrued commissions 1,850 1,751
Accrued warranty and installation 9,820 7,997
Accrued payroll and related benefits 6,164 5,032
Other accrued liabilities 1,029 594
Customer advances 1,722 3,757
Income taxes payable 2,986 1,334
Long-term debt, due within one year 393 374
Payable to shareholders 7 33
----------- -----------
Total current liabilities 44,706 42,049
Long-term debt, due after one year 3,364 3,637
Deferred income taxes 2,075 1,265
----------- -----------
Total liabilities 50,145 46,951
----------- -----------
Commitments and contingencies (Note 9)
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,
13,755,514 and 13,655,577 shares issued and outstanding
in 1997 and 1996 40,590 39,577
Retained earnings 40,949 28,426
Foreign currency translation adjustment 41 --
----------- -----------
Total shareholders' equity 81,580 68,003
----------- -----------
Total liabilities and shareholders' equity $ 131,725 $ 114,954
=========== ===========
The accompanying notes are an integral part of the consolidated financial statements.
SEMITOOL, INC.
CONSOLIDATED STATEMENTS OF INCOME
for the years ended September 30, 1997, 1996 and 1995
(Amounts in Thousands, Except for Per Share Amounts)
1997 1996 1995
Net sales $ 193,952 $ 174,204 $ 128,326
Cost of sales 102,862 89,573 62,468
--------- --------- ---------
Gross profit 91,090 84,631 65,858
--------- --------- ---------
Operating expenses:
Selling, general and administrative 49,479 40,946 31,843
Research and development 21,179 19,503 11,416
Cost of technology rights -- -- 1,672
--------- --------- ---------
Total operating expenses 70,658 60,449 44,931
--------- --------- ---------
Income from operations 20,432 24,182 20,927
--------- --------- ---------
Other income (expense):
Interest income 97 173 428
Interest expense (499) (540) (571)
Other, net 168 211 456
--------- --------- ---------
(234) (156) 313
--------- --------- ---------
Income before income taxes 20,198 24,026 21,240
Provision for income taxes 7,675 8,890 6,355
--------- --------- ---------
Net income $ 12,523 $ 15,136 $ 14,885
========= ========= =========
Unaudited pro forma information (Notes 1 and 13):
Income from operations before pro forma
adjustments $ 20,432 $ 24,182 $ 20,927
Elimination of cost of technology rights -- -- 1,672
--------- --------- ---------
Income from operations 20,432 24,182 22,599
Other income (expense), net (234) (156) 313
--------- --------- ---------
Income before income taxes 20,198 24,026 22,912
Provision for income taxes 7,675 8,890 8,509
--------- --------- ---------
Net income $ 12,523 $ 15,136 $ 14,403
========= ========= =========
Net income per share $ 0.91 $ 1.09 $ 1.15
========= ========= =========
Shares used in pro forma calculation 13,833 13,858 12,563
========= ========= =========
The accompanying notes are an integral part of the consolidated financial statements.
SEMITOOL, INC.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
for the years ended September 30, 1997, 1996 and 1995
(Amounts in Thousands, Except for Per Share Amount)
Common Stock
-----------------------------------------
Semitool
Semitool European Semitherm
Inc. Companies Inc.
-----------------------------------------
Number Foreign
of Retained Currency
Shares Amount Amount Amount Earnings Translation Total
Balance September 30, 1994 8,657 $ 1,038 $ 36 $ 8,650 $ 2,763 $ -- $12,487
Net income -- -- -- -- 14,885 -- 14,885
Dividends on common stock ($1.08 per share) -- -- -- -- (8,665) -- (8,665)
Proceeds from initial public offering 4,242 33,414 -- -- -- -- 33,414
Purchase and merger of Semitherm, Inc.
for Semitool, Inc. stock 692 -- -- (8,650) 8,650 -- --
Purchase of the Combined Group of
Semitool European Companies
by Semitool, Inc. -- -- (36) -- (170) -- (206)
Contribution of S corporation retained
earnings with change to C corporation
status -- 4,173 -- -- (4,173) -- --
Exercise of stock options 59 509 -- -- -- -- 509
Stock compensation -- 18 -- -- -- -- 18
Income tax effect of nonqualified
stock options -- 371 -- -- -- -- 371
------ ------- ----- ------- -------- ------ -------
Balance September 30, 1995 13,650 39,523 -- -- 13,290 -- 52,813
Net income -- -- -- -- 15,136 -- 15,136
Exercise of stock options 6 54 -- -- -- -- 54
------ ------- ----- ------- -------- ------ -------
Balance September 30, 1996 13,656 39,577 -- -- 28,426 -- 68,003
Net income -- -- -- -- 12,523 -- 12,523
Exercise of stock options 100 1,013 -- -- -- -- 1,013
Translation adjustment -- -- -- -- -- 41 41
------ ------- ----- ------- -------- ------ -------
Balance September 30, 1997 13,756 $40,590 $ -- $ -- $ 40,949 $ 41 $81,580
====== ======= ===== ======= ======== ====== =======
The accompanying notes are an integral part of the consolidated financial statements.
SEMITOOL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the years ended September 30, 1997, 1996 and 1995
(Amounts in Thousands)
1997 1996 1995
Operating activities:
Net income $ 12,523 $ 15,136 $ 14,885
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
(Gain) loss on sale of equipment 6 17 (191)
Depreciation and amortization 6,077 4,002 2,392
Reduction in patent costs -- 42 50
Deferred income tax benefit (719) (1,093) (2,138)
Stock compensation -- -- 18
Change in:
Trade receivables (1,662) (10,700) (15,155)
Inventories (10,649) (18,837) (8,343)
Prepaid expenses and other current assets 552 (989) (921)
Shareholders receivable/payable (26) (44) (668)
Other assets (262) 134 (268)
Accounts payable (442) 11,115 (262)
Accrued commissions 99 (341) 846
Accrued warranty and installation 1,823 3,746 3,502
Accrued payroll and related benefits 1,132 (4,149) 6,429
Other accrued liabilities 435 (1,427) 1,276
Customer advances (2,035) 808 2,019
Income taxes payable 1,652 (1,648) 3,175
--------- --------- --------
Net cash provided by (used in) operating
activities 8,504 (4,228) 6,646
--------- --------- --------
Investing activities:
Purchases of marketable securities -- -- (10,015)
Proceeds from the sale of marketable securities -- 4,010 6,005
Purchases of property, plant and equipment (6,174) (10,194) (8,069)
Increase in intangible assets (1,122) (796) (841)
Increase in covenant not to compete -- (1,200) --
Proceeds from sale of equipment 42 397 192
--------- --------- --------
Net cash used in investing activities (7,254) (7,783) (12,728)
--------- --------- --------
Financing activities:
Net proceeds from initial public offering -- -- 33,414
Proceeds from exercise of stock options 1,013 54 509
Borrowings under line of credit 61,835 49,170 12,805
Repayments under line of credit (61,835) (45,170) (19,045)
Proceeds from long-term debt 131 -- 71
Repayments of long-term debt (385) (924) (2,394)
Dividends distributed -- -- (8,871)
--------- --------- --------
Net cash provided by financing activities 759 3,130 16,489
--------- --------- --------
Effect of exchange rate changes on cash and cash equivalents (7) -- --
--------- --------- --------
Net increase (decrease) in cash and cash equivalents 2,002 (8,881) 10,407
Cash and cash equivalents at beginning of year 3,058 11,939 1,532
--------- --------- --------
Cash and cash equivalents at end of year $ 5,060 $ 3,058 $ 11,939
========= ========= ========
SEMITOOL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
for the years ended September 30, 1997, 1996 and 1995
(Amounts in Thousands)
1997 1996 1995
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest, net of amounts capitalized $ 497 $ 582 $ 579
Income taxes 6,748 10,699 5,711
Supplemental disclosures of noncash financing and investing activity:
Inventory transferred to equipment $ 6,434 $ 1,191 $ 994
The accompanying notes are an integral part of the consolidated financial statements.
SEMITOOL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Company Organization and Summary of Significant Accounting Policies:
Semitool, Inc. (Semitool) designs, manufactures, markets and services
equipment used in the manufacture of semiconductors as well as other
products requiring similar processes including thin film heads, compact
disc masters, flat panel displays and hard disk media. Semitool has
various subsidiaries which operate as sales and service offices in their
respective geographic areas.
Significant accounting policies followed by Semitool, Inc. and its
subsidiaries (the Company) are:
Principles of Consolidation
The 1997 consolidated financial statements include the accounts of
Semitool and its wholly-owned subsidiaries: Semitool Europe Ltd.,
(United Kingdom); Semitool Halbleitertechnik Vertriebs GmbH, (Germany);
Semitool France SARL; Semitool Italia SRL; Semitool KK, Japan;
Semitool, Inc., Korea; Semitool, Inc., FSC; Semy Engineering, Inc.
(Semy) and Rhetech, Inc. (Rhetech). The British, German, and French
Companies (the "Combined Group of Semitool European Companies") were
acquired by Semitool in connection with the initial public offering
(Offering) in February 1995. Semitool also acquired all the outstanding
common shares of Semitherm, Inc. (Semitherm) in exchange for its common
stock in connection with the Offering and concurrently merged Semitherm
into Semitool (see Note 12) in February 1995.
On February 29, 1996, the Company acquired substantially all of the
assets and assumed certain liabilities of Semy, in exchange for 600,000
shares of the Company's common stock. This transaction was accounted
for using the pooling-of-interests method and accordingly all periods
presented are restated to show the effects of this transaction as if it
had occurred at the beginning of each period presented.
All significant intercompany accounts and transactions are eliminated
in consolidation.
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
dates of the financial statements and the reported amounts of revenues
and expenses during the reporting periods. Actual results could differ
from those estimates.
Cash Equivalents
The Company considers cash equivalents to consist of short-term, highly
liquid investments with remaining maturities at time of purchase of
three months or less. Substantially all of its cash and cash
equivalents are held by major financial institutions. At times such
investments may be in excess of the federal insurance limit.
Inventories
Inventories are carried at the lower of first-in, first-out (FIFO) cost
or net realizable value. The Company periodically reviews its
inventories to identify slow moving and obsolete inventories to record
such inventories at net realizable values. It is reasonably possible
that the Company's estimates regarding net realizable values could
change in the near term due to technological changes.
Property, Plant and Equipment
Property, plant and equipment is stated at cost. Depreciation and
amortization is provided using the straight-line method with
estimated useful lives as follows:
Buildings and improvements 10-40 years
Machinery and equipment 2-5 years
Furniture, fixtures and leasehold improvements 3-7 years
Vehicles and aircraft 5-10 years
Major additions and betterments are capitalized. Costs of maintenance
and repairs which do not improve or extend the lives of the respective
assets are expensed currently. When items are disposed of, the related
costs and accumulated depreciation are removed from the accounts and
any gain or loss is recognized in operations.
Interest Capitalization
The Company capitalizes interest costs during the construction period
for qualifying assets. During the years ended September 30, 1997, 1996
and 1995, the Company capitalized $0, $9,000 and $18,000 of interest
costs, respectively.
Intangible Assets
Intangible assets include, among other things, the cost of internally
developed software and legal costs associated with obtaining
patents.
Costs incurred for internally developed software products and
enhancements after technological feasibility and marketability have
been established for the related product are capitalized and are stated
at the lower of cost or net realizable value. Amortization is provided
based on the greater of the amount computed using (a) the ratio that
current gross revenues for a product bears to the total of current and
anticipated future gross revenues for that product, or (b) the
straight-line method over the remaining economic life of the product,
estimated at three years.
The cost of patents is amortized on a straight-line basis over the
lesser of the statutory life of 17 years or estimated product life.
It is reasonably possible that estimates of future gross revenues for
software products, the estimated remaining product life, or both could
change in the near term due to technological advances which would
result in a reduction in the carrying value of capitalized software
development costs and patents.
Accrued Payroll and Related Benefits
The Company records the estimated costs of employee severance at the
date management implements a plan of termination.
Foreign Currency
Except for Semitool KK, Japan where the functional currency was changed
to the yen during the fourth quarter of 1997, the functional currency
for the Company's foreign operations is the U.S. dollar, in which
substantially all sales and purchases are denominated. For these
foreign operations, realized gains and losses from foreign currency
transactions and unrealized gains and losses from re-measurement of the
financial statements of the foreign operations into the functional
currency are included in the consolidated statements of income.
In July 1997, Semitool KK, Japan commenced invoicing its customers in
yen, and therefore, the Company changed the functional currency from
the U.S. dollar to the yen. The change in the functional currency has
been accounted for prospectively commencing in the fourth quarter of
1997. Realized gains and losses are included in the consolidated
statements of income and unrealized gains and losses from
re-measurement of the financial statements of Semitool KK, Japan are
reflected as a component of shareholders' equity.
Revenue Recognition
Revenue from sales of products is generally recognized at the time the
product is shipped.
Accrued Warranty and Installation
The Company's remaining obligations at time of shipment for
installation and warranty are accrued concurrently with the revenue
recognized. The Company has made a provision for its warranty and
installation obligations based upon historical costs incurred for such
obligations adjusted, as necessary, for current conditions and factors.
Due to the significant uncertainties and judgments involved in
estimating the Company's warranty and installation obligations,
including changing product designs and specifications, the ultimate
amount incurred for all warranty and installation costs could change in
the near term from the Company's currently recorded accrual.
Foreign Currency Exchange Contracts
The Company uses foreign currency exchange contracts as part of an
overall risk-management strategy. These instruments are used as a means
of mitigating exposure to foreign currency risk connected to
anticipated sales or existing assets. In entering into these contracts,
the Company has assumed the risk which might arise from the possible
inability of counterparties to meet the terms of their contracts. The
Company does not expect any losses as a result of counterparty
defaults. The Company does not hold or issue derivative financial
instruments for trading purposes.
The foreign currency exchange contracts are accounted for based on
whether the contract is speculative or serves as a hedge. A speculative
transaction is marked to market, with unrealized gains or losses
recognized currently. Unrealized gains or losses on a hedged
transaction are determined based on changes in the underlying spot
rate. The difference between the spot rate and the contract price on
the date of the transaction is accounted for as a premium or discount
and amortized over the life of the contract. For hedged transactions,
unrealized gains and losses and amortization of the initial discount or
premium are deferred and included in the basis of the related foreign
currency transaction. Cash flows from foreign currency exchange
contracts are recognized in the statement of cash flows and are
reported in the same category as that of the hedged item.
Research and Development Costs
Costs of research and development are expensed as incurred.
Net Income Per Common Share
Historical net income per common share for the years ended September
30, 1997, 1996 and 1995 has not been presented as it is not meaningful
in the presentation of these consolidated financial statements.
Pro forma net income per common share equals pro forma net income
divided by the weighted average common shares outstanding, after giving
effect to dilutive stock options and common shares issued for the
acquisition of Semy. Pro forma net income per share in fiscal 1997 and
1996 is the same as historical amounts due to the lack of any pro forma
adjustments.
In July 1995, the Board of Directors of Semitool adopted a resolution
to split all common shares of Semitool on a 3-for-2 basis. All share
amounts and per share data presented herein reflect the common stock
split.
New Accounting Pronouncements
In February 1997, Statement of Financial Accounting Standards No. 128
(SFAS 128), "Earnings per Share" was issued. SFAS 128 established
standards for computing and presenting earnings per share (EPS) and
simplifies the existing standards. This standard will replace the
presentation of primary EPS with a presentation of basic EPS. It also
requires the dual presentation of basic and diluted EPS on the face of
the income statement for all entities with complex capital structures
and will require a reconciliation of the numerator and denominator of
the basic EPS computation to the numerator and denominator of the
diluted EPS computation. SFAS 128 is effective for financial statements
issued for periods ending after December 15, 1997, including interim
periods and requires restatement of all prior-period EPS data
presented. The Company does not believe the application of this
standard will have a material effect on its earnings per share.
In June 1997, Statement of Financial Accounting Standards No. 130 (SFAS
130), "Comprehensive Income," was issued. SFAS 130 establishes
standards for reporting and display of comprehensive income and its
components in a full set of general purpose financial statements. SFAS
130 is effective for fiscal years beginning after December 15, 1997,
and requires restatement of earlier periods presented. The Company does
not believe the application of this standard will have a material
effect on the results of operations or financial condition of the
Company.
In June 1997, Statement of Financial Accounting Standards No. 131 (SFAS
131), "Disclosures about Segments of an Enterprise and Related
Information," was issued. SFAS 131 establishes standards for the way
that a public enterprise reports information about operating segments
in annual financial statements and requires that those enterprises
report selected information about operating segments in interim
financial reports issued to shareholders. SFAS 131 is effective for
fiscal years beginning after December 15, 1997, and requires
restatement of earlier periods presented. The Company does not believe
the application of this standard will have a material effect on the
results of operations or financial condition of the Company.
2. Inventories:
Inventories at September 30, 1997 and 1996 are summarized as follows (in
thousands):
1997 1996
Parts and raw materials $ 22,028 $ 18,157
Work-in-process 14,869 15,702
Finished goods 4,227 3,050
---------- ----------
$ 41,124 $ 36,909
========== ==========
3. Property, Plant and Equipment:
Property, plant and equipment at September 30, 1997 and 1996 is summarized
as follows (in thousands):
1997 1996
Buildings and improvements $ 13,892 $ 12,504
Machinery and equipment 16,638 10,055
Furniture, fixtures and leasehold improvements 10,206 7,892
Vehicles and aircraft 5,577 5,478
--------- ---------
46,313 35,929
Less accumulated depreciation and amortization (15,460) (12,072)
--------- ---------
30,853 23,857
Land and land improvements 2,832 2,480
--------- ---------
$ 33,685 $ 26,337
========= =========
4. Note Payable to Bank:
The Company has two uncollateralized lines of credit totaling $25 million
under an agreement with Seafirst Bank (Seafirst). Borrowings under both of
the lines of credit bear interest at the bank's prime lending rate (8.50%
at September 30, 1997) with the first line of $10 million expiring on
March 31, 1999 and the second line of $15 million expiring on December 31,
1999. The lines of credit require monthly interest payments only, with the
$10 million line principal amount due in full on expiration and the $15
million line principal amount repayable in monthly principal and interest
payments over a five-year period ending December 2004. At September 30,
1997, there were $4 million of advances outstanding on the first line of
credit. The Company has the option with the second line of credit to fix
the interest rate for specific periods of time ranging from 30 days to
five years in amounts of $500,000 or more. The option, if exercised, would
fix the interest rate at the London Interbank Offered Rate (LIBOR) plus
1.75%. The agreement for both lines of credit provides for a quarterly
commitment fee on any unused portion of the lines of credit. Additionally,
the agreement includes various restrictive covenants, the most significant
of which relates to 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.
5. Long-Term Debt:
Long-term debt at September 30, 1997 is summarized as follows (in
thousands):
Mortgage term note payable in monthly installments
of $23 including interest at a blended rate of 5.5%,
maturing on September 1, 2014 (A) $ 2,994
Mortgage term note payable in monthly installments of
$25 including interest at a blended rate of 4.7%,
maturing on December 1, 1999 (A) 643
Japanese yen term note payable in a single payment of
14,470,500 Japanese yen due on April 5, 1999.
Interest accrues at a fixed rate of 2.9% per annum
and is payable in arrears, on various dates,
until repaid in full 120
----------
3,757
Less current portion 393
----------
$ 3,364
==========
(A)The mortgage term notes payable are collateralized by a first lien deed
of trust on the Kalispell office and manufacturing facility and by
all fixtures and personal property of Semitool necessary for the
operation of the facility. The Montana State Board of Investments
provided 80% of the financing with Seafirst providing the remaining
20%. The notes are personally guaranteed by Raymon F. Thompson, the
Company's chief executive officer, and are subject to the restrictive
covenants described in Note 4.
Principal maturities for long-term debt outstanding at September 30, 1997,
are summarized by year as follows (in thousands):
Year Ending
September 30,
1998 $ 393
1999 532
2000 198
2001 134
2002 141
Thereafter 2,359
--------
$ 3,757
========
6. Employee Benefit and Stock Option Plans:
Semitool maintains a profit-sharing plan and trust under Section 401(k) of
the Internal Revenue Code. Under the terms of the plan, the U.S. employees
of Semitool, Semy and Rhetech may make voluntary contributions to the
plan. Semitool contributes a matching amount equal to 50% of the
employee's voluntary contribution up to 5% of the employee's compensation.
Semitool may also make non-matching contributions to the plan, which are
determined annually by the Board of Directors. Total profit sharing
contribution expense to this plan was approximately $1,115,000, $639,000
and $377,000 for the years ended September 30, 1997, 1996 and 1995,
respectively.
Semitool Europe Ltd. maintains a defined contribution pension agreement.
This pension agreement is open to all employees with more than three
months of service. The employer and employee contributions are invested in
each individual member's personal pension plan with a United Kingdom
insurance company. The employer has an obligation to make contributions at
one-half of the contribution rate paid by the employee, subject to a rate
between 2.5% and 5.0% of the employee's salary. However, there is no upper
limit on the contributions payable by the employee. The total pension cost
under this plan for the years ended September 30, 1997, 1996 and 1995
approximated $37,000, $23,000 and $15,000, respectively. The pension
agreement does not impose any obligation on the employer to make
contributions for the periods after an individual retires or terminates
employment.
The Company's other foreign subsidiaries do not operate their own pension
plans, but retirement benefits are provided to employees through
government plans operated in their respective countries.
In December 1994, the Board of Directors adopted and the shareholders
approved the Semitool, Inc. 1994 Stock Option Plan (the Option Plan). A
total of 900,000 shares of common stock were reserved for issuance under
the Option Plan. In February 1997, the Option Plan was amended to increase
the number of shares of common stock available for issuance thereunder by
200,000 shares from 900,000 to 1,100,000 shares. Options granted under the
Option Plan generally become exercisable at a rate of 5% per quarter
commencing three months after the grant date. Semitool may grant options
which qualify as incentive stock options to employees and nonqualified
stock options to employees, officers, directors, independent contractors
and consultants. The Option Plan also provides for automatic grants of
nonqualified stock options to independent directors. The Option Plan will
terminate in December 2004, unless terminated earlier at the discretion of
the Board of Directors. At September 30, 1997, 337,350 shares were
available for future issuance under the Option Plan.
The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123 (SFAS No. 123) "Accounting for
Stock-Based Compensation." Accordingly, no compensation cost has been
recognized for the Option Plan. Had compensation cost for the Option Plan
been determined based on the fair value at the grant date for awards in
fiscal 1997 and 1996 consistent with the provisions of SFAS No. 123, the
Company's net income and earnings per share would have been reduced to the
pro forma amounts shown below (in thousands, except for per share
amounts):
1997 1996
Net income:
As reported $ 12,523 $ 15,136
Pro forma $ 12,275 $ 15,021
Earnings per share:
As reported $ 0.91 $ 1.09
Pro forma $ 0.89 $ 1.08
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option-pricing model with the following
weighted-average assumptions used for grants in 1997 and 1996,
respectively: dividend yield of 0% for both years; expected volatility of
67.8% for both years; risk-free interest rates of 6.31% and 6.07%; and
expected lives of 5.2 years for both years.
The following summary shows stock option activity for the three years
ended September 30, 1997:
Number of Weighted-
Shares Optioned Average
But Not Exercise Price
Stock Option Activity Exercised per Share
--------------------- --------------- --------------
September 30, 1994 -- --
Granted 576,000 $8.73
Exercised (58,715) $8.67
Forfeited (4,800) $8.67
--------------- --------------
September 30, 1995 512,485 $8.73
Granted 179,000 $14.26
Exercised (5,675) $8.93
Forfeited (50,000) $10.90
--------------- --------------
September 30, 1996 635,810 $10.12
Granted 163,000 $10.54
Exercised (99,937) $10.14
Forfeited (100,550) $10.66
--------------- --------------
September 30, 1997 598,323 $10.14
=============== ==============
The weighted-average fair value of stock options granted during the years
ended September 30, 1997 and 1996, calculated using the Black-Scholes
option-pricing model, was $6.31 and $8.46, respectively.
The following tables summarize information about stock options outstanding
at September 30, 1997:
Options Outstanding
---------------------------------------------------
Weighted-
Average Weighted-
Remaining Average
Number Contractual Exercise
Range of Outstanding at Life Price
Exercise Prices September 30, 1997 (in years) per Share
------------------- ------------------ ----------- ---------
$8.67 - $8.88 335,023 7.1 $8.67
$9.75 - $11.17 121,800 9.5 $9.77
$12.00 - $13.88 104,500 8.5 $13.53
$14.63 - $16.25 37,000 9.3 $15.06
------------------ ----------- ---------
598,323 8.0 $10.14
================== =========== =========
Options Exercisable
---------------------------------------------------
Weighted-
Average
Number Exercise
Range of Exercisable at Price
Exercise Prices September 30, 1997 per Share
------------------- ------------------ ---------
$8.67 - $8.88 154,387 $8.67
$9.75 - $11.17 6,300 $9.86
$12.00 - $13.88 19,700 $13.45
$14.63 - $16.25 16,250 $15.11
------------------ ---------
196,637 $9.72
================== =========
The exercise and sale of certain qualified options resulted in the
treatment of those options as nonqualified options. As a result, the
Company received a tax benefit associated with those options of $371,000
in 1995, which has been recorded as additional contributed capital.
7. Income Taxes:
The provision for income taxes for the years ended September 30, 1997,
1996 and 1995 consists of the following (in thousands):
1997 1996 1995
Federal:
Current $ 7,643 $ 7,882 $ 6,354
Deferred (643) (551) (1,966)
State:
Current 899 1,776 1,545
Deferred (76) (67) (172)
Foreign:
Current (148) 325 594
Deferred -- (475) --
-------- -------- --------
$ 7,675 $ 8,890 $ 6,355
======== ======== ========
Domestic and foreign components of income (loss) before income taxes for
the years ended September 30, 1997, 1996 and 1995 are as follows
(in thousands):
1997 1996 1995
Domestic $ 22,245 $ 24,277 $ 19,793
Foreign (2,047) (251) 1,447
-------- -------- --------
$ 20,198 $ 24,026 $ 21,240
======== ======== ========
Prior to February 1, 1995, Semitool and Semitherm were treated for federal
and state (excluding Montana) income tax purposes as S corporations under
Subchapter S of the Internal Revenue Code. As a result, the companies'
earnings for such period were taxed at the shareholder level. Effective
February 1, 1995, Semitherm was merged into Semitool and Semitool
terminated its S corporation status (see Notes 1 and 12). From February 1,
1995, Semitool's earnings have been taxed as a C corporation and
provisions for income taxes have been reflected in the consolidated
financial statements. Semitool recorded a nonrecurring net deferred tax
benefit of approximately $890,000 associated with the recognition of a
related deferred tax asset due to the termination of the S corporation
status in 1995.
The Company's foreign subsidiaries are subject to the tax regulations that
exist in their respective countries. These subsidiaries provide for
deferred taxation at current rates to take into account temporary
differences between the treatment of certain items for financial statement
purposes and the treatment of those items for corporation tax purposes.
The components of the deferred tax assets and liabilities as of September
30, 1997 and 1996 are as follows (in thousands):
September 30, 1997 Assets Liabilities Total
Accrued liabilities, principally vacation,
health insurance and profit sharing $ 1,127 $ -- $ 1,127
Accrued reserves, principally bad debt, warranty
and inventory 3,608 -- 3,608
Inventory capitalization 485 -- 485
Depreciation and software amortization -- (2,075) (2,075)
Covenant not to compete 132 -- 132
Foreign net operating loss carryforward 475 -- 475
Other 75 -- 75
-------- --------- --------
$ 5,902 $ (2,075) $ 3,827
======== ========= ========
September 30, 1996 Assets Liabilities Total
Accrued liabilities, principally vacation and
health insurance $ 709 $ -- $ 709
Accrued reserves, principally bad debt, warranty
and inventory 2,669 -- 2,669
Inventory capitalization 433 -- 433
Depreciation and software amortization -- (1,265) (1,265)
Covenant not to compete 49 -- 49
Foreign net operating loss carryforward 475 -- 475
Other 38 -- 38
-------- --------- --------
$ 4,373 $ (1,265) $ 3,108
======== ========= ========
The Company does not believe a valuation allowance is necessary at
September 30, 1997 to reduce the deferred tax asset as this asset will more
likely than not be realized through the generation of future taxable
income.
The differences between the consolidated provision for income taxes and
income taxes computed using income before income taxes and the U.S.
federal income tax rate for the years ended September 30, 1997, 1996
and 1995 are as follows (in thousands):
1997 1996 1995
Amount computed using the statutory rate $ 7,069 $ 8,409 $ 7,434
Increase (decrease) in taxes resulting from:
Benefit of recognition of deferred tax asset in
connection with S corporation termination -- -- (890)
State taxes, net of federal benefit 959 1,155 893
Tax effect of income not subject to federal tax
due to Subchapter S election -- -- (793)
Effect of foreign taxes 569 (62) 119
Research and experimentation credit (863) (355) (140)
Foreign sales corporation benefit (822) (695) --
Other, net 763 438 (268)
-------- -------- --------
$ 7,675 $ 8,890 $ 6,355
======== ======== ========
8. Related Party Transactions:
In August 1979, Semitool entered into an agreement with Raymon F.
Thompson, the Company's chief executive officer and majority shareholder,
to acquire all rights, title to and interest in a centrifugal wafer
processor invention. The agreement called for payments to Mr. Thompson
through September 30, 1999 amounting to 8% of all sales of the centrifugal
wafer processor, equipment using the processor's technology and
replacement parts. This agreement was terminated effective with the
Offering in February 1995 (see Note 12). Total costs, pursuant to this
agreement, were approximately $1,672,000 for the year ended September 30,
1995.
Semitool also has agreements with Mr. Thompson to lease aircraft. The
current rental rate is $106,100 per month. Under these agreements, rent
expense was approximately $1,276,600, $1,158,000 and $835,000 for the
years ended September 30, 1997, 1996 and 1995, respectively.
Periodically, Semitool advances funds to Mr. Thompson and pays certain
expenses for the benefit of Mr. Thompson. These advances are offset by
amounts payable to Mr. Thompson under the agreements described in the
preceding paragraphs. Net advances to (from) Mr. Thompson are charged
interest at the federal funds short-term rate. Associated with these
advances, Mr. Thompson received approximately $2,000 of interest income in
1996, and paid the Company interest of $31,000 in 1995.
Semitool purchased raw materials approximating $720,000, $651,000, and
$570,000 for the years ended September 30, 1997, 1996 and 1995,
respectively, from a company owned by Mr. Thompson.
9. Commitments and Contingencies:
The Company has various operating lease agreements for equipment and
office space that expire through the year 2003. Total rent expense for the
years ended September 30, 1997, 1996 and 1995, exclusive of amounts paid
to a related party as described in Note 8, was approximately $1,305,000,
$950,000, and $648,000, respectively. At September 30, 1997, future rental
payments under these agreements and the aircraft leases described in Note
8 are as follows (in thousands):
Year Ending
September 30, Total
1998 $ 2,099
1999 1,726
2000 936
2001 364
2002 273
Thereafter 273
--------
$ 5,671
========
A class action lawsuit brought by Dr. Stanley Bierman, IRA (Case No.
DV-96-124A) was filed on February 26, 1996, in the Montana Eleventh
Judicial District Court, Flathead County, Kalispell, Montana against
the Company and certain of its officers and directors. The complaint
includes allegations that the Company issued misleading statements
concerning its business and prospects. The suit seeks injunctive
relief, damages, costs and other relief as the court may find
appropriate. The Company believes the lawsuit to be without merit and
intends to contest the action vigorously. However, given the inherent
uncertainty of litigation, insurance issues, and the early stage of
discovery, there can be no assurance that the ultimate outcome will be
in the Company's favor, or that if the ultimate outcome is not in the
Company's favor, that such an outcome, the diversion of management's
attention, and any costs associated with the lawsuit, will not have a
material adverse effect on the Company's financial condition or results
of operations.
10. Concentration of Credit Risk and Foreign Operations:
At September 30, 1997 and 1996, the trade receivables of the Company were
primarily from companies in the semiconductor industry, and included
approximately $11.7 million and $20.5 million, respectively, of foreign
receivables. Accordingly, the Company is exposed to concentrations of
credit risk. The Company routinely assesses the financial strength of its
customers and, as a consequence, believes that its trade accounts
receivable credit risk exposure is limited.
Consolidated sales to major customers, represented as a percentage of
total consolidated sales, for the years ended September 30, 1997, 1996
and 1995 are as follows:
1997 1996 1995
Customer A 10.9% 0.3% --%
Customer B 3.9% 3.1% 13.1%
Summarized data for the Company's foreign operations (principally Europe)
for the years ended September 30, 1997, 1996 and 1995 are as
follows (in thousands):
1997 1996 1995
Net sales - unaffiliated customers $ 41,011 $ 49,197 $ 38,091
Income (loss) from operations (2,046) 332 1,677
Identifiable assets 21,144 23,472 13,232
Export sales from the Company's United States operations were approximate-
ly $27.9 million (14%), $27.2 million (16%) and $13.7 million (11%) for
the years ended September 30, 1997, 1996 and 1995, respectively.
11. Preferred Stock:
The Board of Directors has the authority to issue preferred stock of
Semitool in one or more series and to fix the rights, privileges,
preferences and restrictions granted to or imposed upon any unissued
shares of preferred stock, without further vote or action by the common
shareholders.
12. Transactions Associated with the Offering:
In February 1995, the Company completed its initial public stock offering
through the sale of 4,241,815 shares of its common stock. As a result of
the Offering, the Company received net proceeds of approximately $33.4
million. Approximately $9.4 million and $8.7 million of the net proceeds
were used to repay debt of the Company and make distributions of dividends
to shareholders, respectively. Also, in connection with the completion of
the Company's initial public offering, payments for technology rights to
Mr. Raymon F. Thompson described in Note 8 ceased.
13. Unaudited Pro Forma Statement of Income Information:
The pro forma information included in the consolidated statements of
income reflects the effects of certain transactions that occurred as a
result of the Offering which are more completely described in Notes 7 and
12.
The consolidated pro forma statement of income for the year ended
September 30, 1995 presents the pro forma effects on the historical
financial information to eliminate the cost of technology rights and to
recognize a provision for income taxes at statutory rates applied to pro
forma income before income taxes, net of actual research and development
credits generated.
14. Financial Instruments:
The Company has estimated the fair value of its financial instruments
including cash and cash equivalents, payable to shareholder, note payable
to bank and long-term debt. The fair value estimates are made at a
discrete point in time based on relevant market information and
information about the financial instruments. Fair value estimates are
based on judgments regarding current economic conditions, risk
characteristics of various financial instruments, and other factors. These
estimates are subjective in nature and involve uncertainties and matters
of significant judgment and, therefore, cannot be determined with
precision. Changes in assumptions could significantly affect the
estimates. Accordingly, the estimates are not necessarily indicative of
what the Company could realize in a current market exchange.
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments at September 30, 1997 and 1996 for
which it is practicable to estimate that value:
Cash and Cash Equivalents - The carrying value of cash and cash
equivalents approximates fair value due to the nature of the cash
investments.
Payable to Shareholder - The carrying value of the shareholder payable
approximates fair value.
Note Payable to Bank - The carrying value of the note payable to bank
approximates fair value due to the fact that the note bears a
negotiated variable interest rate.
Long-Term Debt - The fair value of notes payable is based on the
discounted value of contractual cash flows using a discount rate which
the Company could currently obtain for debt with similar remaining
maturities.
Foreign Currency Exchange Contracts - The fair value of foreign
currency exchange contracts is estimated based on quoted market
prices from financial institutions.
The estimated fair value of financial instruments at September 30, 1997
and 1996, consisted of the following (in thousands):
1997 1996
Carrying Fair Carrying Fair
Amount Value Amount Value
---------------------- ----------------------
Cash and cash equivalents $ 5,060 $ 5,060 $ 3,058 $ 3,058
Payable to shareholder 7 7 33 33
Note payable to bank 4,000 4,000 4,000 4,000
Long-term debt 3,757 3,182 4,011 3,412
Foreign currency exchange contracts 2,564 2,521 -- --
Foreign Currency Exchange Risk Management
In the normal course of business, the Company is party to foreign currency
exchange contracts and borrowings in foreign currency to reduce its
exposure to fluctuations in exchange rates. These instruments involve, to
varying degrees, elements of credit and/or exchange rate risk in excess of
the amount recognized in the financial statements.
The Company selectively uses foreign currency exchange contracts and
borrowings in foreign currency to offset the effects of exchange rate
changes on cash flow exposures denominated in foreign currencies. These
exposures include firm and anticipated sales. The primary exposure is
denominated in yen. The Company normally hedges cash flow exposures for
periods up to one year.
As of September 30, 1997, the Company had foreign currency exchange
contracts maturing at various dates in 1998 to sell 304,300,265 yen at
contracted forward rates. These forward contracts do not qualify as hedges
for financial reporting purposes. The Company had no outstanding foreign
currency exchange contracts at September 30, 1996.
Exhibit Index
Exhibit No. Description
- ----------- -----------
2.1 Asset Purchase Agreement and Plan of Reorganization, dated as
of February 19, 1996 between the Company and Semy Engineering,
Inc. (1)
3.1 Restated Articles of Incorporation of the Company (2)
3.2 By-laws of the Company dated August 1, 1979 and related
amendments to these By-laws (2)
3.3 Amended Bylaws of Semitool, Inc. (5)
3.4 Amended Bylaws of Semitool, Inc. (6)
10.1 Form of Semitool, Inc. S Corporation Termination, Tax Allocation
and Indemnification Agreement between the Company and its
current shareholders (2)
10.2 Form of Indemnification Agreement between the Company and
each of its officers and directors (2)
10.3 Form of Semitool, Inc. 1994 Stock Option Plan (2)
10.4 Form of Agreement and Plan of Merger between the Company and
Semitherm, Inc. (2)
10.5 Aircraft Lease Agreement, dated September 9, 1994, between the
Company and Mr. Thompson (2)
10.6 Aircraft Lease Agreement, dated November 1, 1994, between the
Company and Mr. Thompson (2)
10.7 Agreement, dated June 7, 1983, between the Company and Entech(2)
10.8 Form of Agreement of Cancellation of Sale Agreement between
the Company and Mr. Thompson (2)
10.9 Agreement of Sale of Centrifugal Wafer Processor Invention,
dated August 1, 1979, between the Company and Mr. Thompson (2)
10.10 Articles of Merger, dated September 1, 1993, of Semitool, Inc.,
a California corporation, with and into the Company (2)
10.11 Agreement, dated June 1994, among Robert G. Massey, Donald W,
Heidt, Steven R. Thompson, Semitherm, Inc., Semitherm
Partnership, Mr. Thompson and the Company (2)
10.12 Agreement between the Company and the Semitool European
Companies (2)
10.13 Aircraft Lease Agreement, dated April, 1996, between the Company
and Mr. Thompson (3)
10.14 Business Loan Agreement, dated September 30, 1996, between the
Company and the Bank of America NW,N.A. doing business as
Seafirst Bank (3)
10.15 Promissory Note, dated September 30, 1996, between the Company
and the Bank of America NW,N.A. doing business as
Seafirst Bank (3)
10.16 Business Loan Agreement, dated September 30, 1997, between the
Company and the Bank of America NT & SA doing business as
Seafirst Bank (6)
10.17 Promissory Note, dated September 29, 1997, between the Company
and the Bank of America National Trust and Savings Association
doing business as Seafirst Bank (6)
10.18 Loan Modification Agreement, dated September 29, 1997 between
the Company and the Bank of America National Trust And Savings
Association doing business as Seafirst Bank (6)
10.19 Loan Modification Agreement, dated October 2, 1997 between the
Company and the Bank of America National Trust And Savings
Association doing business as Seafirst Bank (6)
10.20 Loan Modification Agreement, dated October 2, 1997 between the
Company and the Bank of America National Trust And Savings
Association doing business as Seafirst Bank (6)
11.1 Statement Re Computation of Pro Forma per share Earnings (6)
21.1 Subsidiaries of Registrant (6)
27 Financial data schedule (6)
99.1 Amended and Restated Semitool, Inc. 1994 Stock Option Plan (4)
(1) Incorporated herein by reference to the identically
numbered exhibits to the Company's Current Report on Form
8-K, date of report February 29, 1996.
(2) Incorporated herein by reference to the identically
numbered exhibits to the Company's Registration Statement on
Form S-1 (File No. 33-87548), which became effective on
February 2, 1995.
(3) Incorporated herein by reference to the identically
numbered exhibits to the Company's Annual Report on Form
10-K, date of report September 30, 1996.
(4) Incorporated herein by reference to the identically
numbered exhibit to the Company's Quarterly Report on Form
10-Q, date of report March 31, 1997.
(5) Incorporated herein by reference to the identically
numbered exhibit to the Company's Quarterly Report on Form
10-Q, date of report June 30, 1997.
(6) Filed herewith.
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE
Board of Directors and Shareholders
Semitool, Inc.
Our report on the consolidated financial statements of Semitool, Inc. is
included elsewhere in this Form 10-K. In connection with our audits of such
financial statements, we have also audited the related financial statement
schedule listed under Item 14(a) of this Form 10-K.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.
Coopers & Lybrand L.L.P.
Spokane, Washington
October 30, 1997
SCHEDULE II ---- VALUATION AND QUALIFYING ACCOUNTS
Three Years Ended September 30, 1997
(Amounts in Thousands)
Additions
-----------------------
Balance at Charged to Charged Balance
beginning Costs and to Other at end
of Period Expenses Accounts Deductions of Period
--------- ---------- --------- ---------- ---------
Year ended September 30, 1997:
Deducted from asset accounts:
Allowance for doubtful accounts $ 233 $ -- $ -- $ 9 $ 224
Allowance for inventory obsolescence 548 328 -- -- 876
Year ended September 30, 1996:
Deducted from asset accounts:
Allowance for doubtful accounts 213 20 -- -- 233
Allowance for inventory obsolescence 817 31 -- 300 548
Year ended September 30, 1995:
Deducted from asset accounts:
Allowance for doubtful accounts 81 132 -- -- 213
Allowance for inventory obsolescence 267 550 -- -- 817