(Mark one)
Semitool, Inc.
(Exact Name of Registrant as Specified in Its Charter)
| Montana | 81-0384392 |
| (State or other jurisdiction of incorporation or organization) |
I.R.S. Employer Identification No.) |
655 West Reserve Drive
Kalispell, Montana 59901
(Address of principal executive offices, zip code)
Registrant's telephone number, including area code: (406)752-2107
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO __
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). YES __ NO X
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practical date:
| Title | Outstanding as of February 10, 2003 |
| Common Stock | 28,427,677 |
Part I. Financial Information
Item I. Condensed Consolidated Financial Statements
Consolidated Balance Sheets as of December 31, 2002 and September 30, 2002.
Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Critical Accounting Policies and Estimates
Liquidity and Capital Resources
Item 3. Quantitative and Qualitative Disclosures About Market Risks
Part II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders
December 31, September 30,
ASSETS 2002 2002
---------------- ---------------
Current assets:
Cash and cash equivalents $ 26,071 $ 34,265
Marketable securities 8,145 6,575
Trade receivables, less allowance for doubtful accounts of $365 and $394 31,600 33,908
Inventories 47,838 47,085
Income tax refund receivable 13,673 12,650
Prepaid expenses and other current assets 1,747 1,804
Deferred income taxes 11,718 11,713
---------------- ---------------
Total current assets 140,792 148,000
Property, plant and equipment, net 27,371 29,310
Intangibles, less accumulated amortization of $825 and $753 6,276 6,067
Other assets, net 295 286
---------------- ---------------
Total assets $ 174,734 $ 183,663
================ ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Note payable to bank and other short-term debt $ 28 $ 51
Accounts payable 12,707 15,894
Accrued commissions 3,357 3,323
Accrued warranty and installation 5,641 6,186
Accrued payroll and related benefits 4,860 5,944
Customer advances 2,686 3,037
Deferred profit 19,454 20,387
Income taxes payable -- 179
Other accrued liabilities 1,582 1,618
Long-term debt and capital leases, due within one year 335 384
---------------- ---------------
Total current liabilities 50,650 57,003
Long-term debt and capital leases, due after one year 2,537 2,912
Deferred income taxes 2,327 2,326
---------------- ---------------
Total liabilities 55,514 62,241
---------------- ---------------
Shareholders' equity:
Preferred stock, no par value, 5,000,000 shares authorized,
no shares issued and outstanding -- --
Common stock, no par value, 75,000,000 shares authorized,
28,427,677 shares issued and outstanding 47,376 47,376
Retained earnings 72,410 74,810
Accumulated other comprehensive loss (566) (764)
---------------- ---------------
Total shareholders' equity 119,220 121,422
---------------- ---------------
Total liabilities and shareholders' equity $ 174,734 $ 183,663
================ ===============
The accompanying notes are an integral part of the consolidated financial statements.
Three Months Ended
December 31,
--------------------------
2002 2001
----------- -----------
Net sales $ 30,291 $ 26,754
Cost of sales 17,217 14,309
----------- -----------
Gross profit 13,074 12,445
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Operating expenses:
Selling, general and administrative 12,425 12,917
Research and development 4,940 5,761
----------- -----------
Total operating expenses 17,365 18,678
----------- -----------
Loss from operations (4,291) (6,233)
Other income, net 420 262
----------- -----------
Loss before income taxes (3,871) (5,971)
Benefit from income taxes 1,471 2,269
----------- -----------
Net loss $ (2,400) $ (3,702)
=========== ===========
Loss per share:
Basic $ (0.08) $ (0.13)
=========== ===========
Diluted $ (0.08) $ (0.13)
=========== ===========
Average common shares outstanding:
Basic 28,428 28,386
=========== ===========
Diluted 28,428 28,386
=========== ===========
The accompanying notes are an integral part of the consolidated financial statements.
Three Months Ended
December 31,
---------------------------------
2002 2001
--------------- ----------------
Operating activities:
Net loss $ (2,400) $ (3,702)
Adjustments to reconcile net loss to net cash provided
by (used in) operating activities:
Depreciation and amortization 2,120 2,198
(Gain) loss on disposition of assets (2) 857
Change in:
Trade receivables 2,392 19,660
Inventories (668) (2,661)
Income tax refund receivable (1,024) (4,074)
Prepaid expenses and other current assets 60 (1,513)
Other assets, net (7) 109
Accounts payable (3,206) (856)
Accrued commissions 34 (407)
Accrued warranty and installation (550) (1,259)
Accrued payroll and related benefits (1,096) (659)
Customer advances (351) 528
Deferred profit (946) (7,083)
Income taxes payable (179) 1,861
Other accrued liabilities (43) (1,328)
--------------- ----------------
Net cash provided by (used in) operating activities (5,866) 1,671
--------------- ----------------
Investing activities:
Purchases of marketable securities $ (9,981) $ --
Proceeds from sale and maturities of marketable securities 8,415 5,000
Purchases of property, plant and equipment (152) (1,658)
Increases in intangible assets (284) (341)
Proceeds from sale of property, plant and equipment 41 --
--------------- ----------------
Net cash provided by (used in) investing activities (1,961) 3,001
--------------- ----------------
Financing activities:
Proceeds from exercise of stock options -- 131
Borrowings under line of credit and short-term debt -- 323
Repayments under line of credit and short-term debt (24) (1,016)
Repayments of long-term debt and capital leases (428) (87)
--------------- ----------------
Net cash used in financing activities (452) (649)
--------------- ----------------
Effect of exchange rate changes on cash and cash equivalents 85 (214)
--------------- ----------------
Net increase (decrease) in cash and cash equivalents (8,194) 3,809
Cash and cash equivalents at beginning of period 34,265 39,890
--------------- ----------------
Cash and cash equivalents at end of period $ 26,071 $ 43,699
=============== ================
The accompanying notes are an integral part of the consolidated financial statements.
Three Months Ended
December 31,
--------------------------
2002 2001
----------- -----------
Net loss $ (2,400) $ (3,702)
Net gain (loss) on cash flow hedges (8) 223
Unrealized gain on available-for-
sale securities, net of tax 2 640
Foreign currency translation adjustment 204 (793)
----------- -----------
Total comprehensive loss $ (2,202) $ (3,632)
=========== ===========
The accompanying notes are an integral part of the consolidated financial statements.
Note 1. Basis of Presentation
The Company prepared the consolidated financial statements included herein, without audit, pursuant to the rules and regulations of the United States Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures, normally included in financial statements prepared in accordance with generally accepted accounting principles, have been condensed or omitted as permitted by such rules and regulations. We believe the disclosures included herein are adequate; however, these consolidated statements should be read in conjunction with the consolidated financial statements and the notes thereto for the year ended September 30, 2002 previously filed with the SEC on Form 10-K.
The financial information presented as of any date other than September 30, 2002 has been prepared from the books and records without audit. Financial information as of September 30, 2002 has been derived from the audited financial statements of the Company, but does not include all disclosures required by generally accepted accounting principles. In our opinion these unaudited financial statements contain all of the adjustments (normal and recurring in nature) necessary to present fairly our consolidated financial position as of December 31, 2002, the consolidated results of operations for the three month period ended December 31, 2002 and 2001 and the consolidated cash flows for the three month period ended December 31, 2002 and 2001. The results of operations for the periods presented may not be indicative of those you may expect for the full year.
New Accounting Pronouncements
In June of 2001, the FASB issued SFAS No. 143, “Accounting for Asset Retirement Obligations.” The statement provides accounting and reporting standards for recognizing obligations related to asset retirement costs associated with the retirement of tangible long-lived assets. Under this statement, obligations associated with the retirement of long-lived assets are to be recognized at their fair value in the period in which they are incurred if a reasonable estimate of fair value can be made. The fair value of the asset retirement costs is capitalized as part of the carrying amount of the long-lived asset and subsequently allocated to expense using a systematic and rational method over the assets’ useful life. Any subsequent changes to the fair value of the liability due to passage of time or changes in the amount or timing of estimated cash flows is recognized as an accretion expense. The Company will be required to adopt this statement on October 1, 2003. The Company does not expect the adoption of this statement to have a significant impact on its results of operations, financial position and cash flows.
In December 2002, the FASB issued SFAS No. 148. This statement amends the transition and disclosure provisions of SFAS No. 123, Accounting for Stock-Based Compensation. Specifically, SFAS No. 148 provides more transition alternatives for companies that wish to adopt the fair-value based provisions of SFAS No. 123 and increases the disclosure required of companies that continue to account for their stock-based compensation under the intrinsic-value method prescribed under APB No. 25, Accounting for Stock Issued to Employees. The annual disclosure and transition provisions of SFAS No. 148 are effective for interim periods beginning after December 15, 2002 (for us, effective for 2003 and thereafter). We will implement the disclosure provisions of this statement in the second quarter of 2003.
In November 2002, the FASB issued FIN No. 45. FIN No. 45 establishes the accounting and disclosure requirements for a guarantor related to its obligations under certain guarantees that it has issued. The interpretation requires the recognition of a liability, based upon fair value, for any non-contingent obligation. In addition, the interpretation enhances the disclosures that were required under SFAS No. 5, Accounting for Contingencies, and FIN No. 34, Disclosure of Indirect Guarantees of Indebtedness of Others (An Interpretation of FASB Statement No. 5), related to guarantees. The recognition and measurement provisions of this interpretation are effective for all guarantees issued or modified after December 31, 2002. We have adopted FIN No. 45 for the first quarter of our fiscal 2003 in the Quarterly Report on Form 10-Q. See Footnote No. 7 to the Consolidated Financial Statements. This adoption of FIN 45 has no effect on our financial position, results of operations or cash flows.
In January 2003, the FASB issued Interpretation Number 46, “Consolidation of Variable Interest Entities” (FIN 46). This interpretation addresses consolidation by business enterprises of variable interest entities. The interpretation is not expected to have a material effect on the Company’s consolidated financial statements.
Reclassifications
Certain reclassifications have been made to prior periods to conform to current presentations.
Note 2. Principles of Consolidation
The Company's consolidated financial statements include the accounts of Semitool, Inc. and its wholly-owned subsidiaries. All significant intercompany accounts and transactions are eliminated in consolidation.
Note 3. Inventories
The Company’s inventories are summarized as follows (in thousands):
December 31, 2002 September 30, 2002
--------------------- ----------------------
Parts and raw materials $ 24,679 $ 22,740
Work-in-process 18,015 20,213
Finished goods 5,144 4,132
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$ 47,838 $ 47,085
============= =============
During the three months ended December 31, 2002, a net $22,000 of finished goods inventory was transferred to property, plant and equipment.
Note 4. Income Taxes
The components of the Company’s income tax provision (benefit) are as follows, (in thousands):
Three Months Ended
December 31,
---------------------------
2002 2001
----------- -----------
Federal $ (1,533) $ (2,302)
State (131) (209)
Foreign 193 242
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Total $ (1,471) $ (2,269)
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Note 5. Contingencies
On January 16, 2002, we filed suit against Tokyo Electron, Ltd. and its subsidiaries, Tokyo Electron Kyushu Ltd. and Tokyo Electron America, Inc., referred to collectively as TEL, in the United States District Court for the Northern District of California (Case No. C-02-0288 EMC). The suit alleges infringement of our U.S. Patent 5,784,797 entitled “Carrierless Centrifugal Semiconductor Processing System (‘797 Patent), relating to the centrifugal cleaning and processing of semiconductor wafers. The suit seeks injunctive relief, damages for past infringement and increased damages for willful infringement. The defendants answered the complaint denying the claim and seeking to have the patent declared invalid. In addition, on April 16, 2002 the defendants asserted counterclaims alleging our infringement of three patents: U.S. Patent 4,985,722 entitled “Apparatus for Coating a Photo-Resist Film and/or Developing it After Being Exposed”; U.S. Patent 5,446,416 entitled “Resist Processing Method”; and U.S. Patent 5,740,053 entitled “Method of Controlling Monitor Used in Cleaning Machine and Object Processing Machine and Monitor Apparatus”. On July 12, 2002, the defendants withdrew with prejudice their counterclaim alleging infringement of U.S. Patent 5,740,053. The remaining counterclaims seek injunctive relief, damages for past infringement, increased damages for willful infringement and attorneys’ fees. We believe that the counterclaims are without merit and we are contesting the action vigorously. However, given the inherent uncertainty of litigation, there can be no assurance that the ultimate outcome will be in our favor. If TEL were to prevail in its counterclaims, it could have a material adverse effect on our business, financial condition, results of operations and cash flows. Further, regardless of the ultimate outcome, there can be no assurance that the diversion of management’s attention, and any costs associated with any of the lawsuits, will not have a material adverse effect on our business, financial condition, results of operations and cash flows. Trial is scheduled for April 2004.
In June 2001, we filed separate suits against Applied Materials, Inc., (Case No. CV-01-1066 AS), Novellus Systems, Inc. Case No. (CV-01-874 KI) and Ebara Corporation and Ebara Technologies, Inc. (Case No. CV-01-873 BR). The suits against all three parties are in the United States District Court for the District of Oregon. The suits allege infringement of Semitool’s U.S. Patent 6,197,181 (Chen) “Apparatus and Method for Electrolytically Depositing a Metal on a Microelectronic Workpiece” (‘181 Patent) and seek injunctive relief, damages for past infringement and increased damages for willful infringement. Each defendant has answered our complaints denying the claims and seeking to have the patent declared invalid. In addition, Novellus has counterclaimed for infringement of four of their patents: viz., U.S. Patent 6,179,983 “Method and Apparatus for Treating Surface Including Virtual Anode”; U.S. Patent 6,074,544 “Method of Electroplating Semiconductor Wafer Using Variable Currents and Mass Transfer to Obtain Uniform Plated Layer”; U.S. Patent 6,110,346 “Method of Electroplating Semiconductor Wafer Using Variable Currents and Mass Transfer to Obtain Uniform Plated Layer”; and U.S. Patent 6,162,344 “Method of Electroplating Semiconductor Wafer Using Variable Currents and Mass Transfer to Obtain Uniform Plated Layer”. On July 22, 2002, the District Court dismissed with prejudice Novellus’ counterclaim for infringement of U.S. Patent 6,179,983. The remaining counterclaims seek injunctive relief, damages for past infringement, increased damages for willful infringement and attorneys’ fees. We believe that the remaining counterclaims are without merit and we are contesting the actions vigorously. Trial dates in February 2004 have been set for the claims and counterclaims. Given the inherent uncertainty of litigation, there can be no assurance that the ultimate outcome will be in our favor. If Novellus were to prevail in its counterclaims, it could have a material adverse effect on our business, financial condition, results of operations and cash flows. Further, regardless of the ultimate outcome, there can be no assurance that the diversion of management’s attention, and any costs associated with any of the lawsuits, will not have a material adverse effect on our business, financial condition, results of operations and cash flows.
We are subject to other legal proceedings and claims which have arisen in the ordinary course of our business and have not been finally adjudicated. Although there can be no assurance as to the ultimate disposition of these matters, it is the opinion of our management, based upon the information available at this time, that the currently expected outcome of these matters, individually or in the aggregate, will not have a material adverse effect on our business, financial condition, results of operations and cash flows.
Note 6. Earnings (Loss) Per Common Share
The following table sets forth the computation of basic and diluted earnings (loss) per share (in thousands):
Three Months Ended
December 31,
---------------------------
2002 2001
----------- -----------
Numerator:
Net loss used for basic and diluted
loss per share $ (2,400) $ (3,702)
=========== ===========
Denominator:
Average common shares used for basic
loss per share 28,428 28,386
Effect of dilutive stock options -- --
----------- -----------
Denominator for diluted loss per share 28,428 28,386
=========== ===========
Diluted earnings per share excludes the effects of 1,328,535 and 1,281,320 antidilutive stock options at December 31, 2002 and 2001.
Note 7. Warranty Obligations
With the exception of product warranties we have not issued any guarantees or any indirect guarantee for the indebtedness of others.
Our obligations for warranty are accrued concurrently with the revenue recognized. We make provisions for our warranty 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 our warranty obligations, including changing product designs and specifications, the ultimate amount incurred for warranty costs could change in the near term from our current estimate.
The following table shows the fiscal 2003 first quarter’s activity for our warranty accrual (in thousands):
Accrued warranty balance as of September 30, 2002 $ 6,186
Accruals for new warranties issued during the quarter 1,754
Accruals related to pre-existing warranties (including changes in estimates) (206)
Warranty labor and materials provided during the quarter (2,093)
-------
Accrued warranty balance as of December 31, 2002 $ 5,641
=======
Statements contained in this Quarterly Report on Form 10-Q which are not purely historical facts are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934. In some cases, you can identify forward-looking statements by the use of terminology such as “may,” “will,” “expects,” “plans,” “anticipates,” “estimates,” “potential,” “believes,” “can impact,” “continue,” or the negative thereof or other comparable terminology.
These forward-looking statements include without limitation, statements regarding:
° gross margins,
° research and development,
° the ability to finance activities,
° cost of manufacturing,
° interest expense,
° tax rates,
° future balances,
° the sufficiency of funds, and
° effects of new accounting standards.
Management cautions that forward-looking statements are subject to risks and uncertainties that could cause our actual results to differ materially from those projected in such forward-looking statements. These risks and uncertainties include, but are not limited to, the cyclical nature of the semiconductor industry in general, lack of market acceptance for new products, decreasing demand for our existing products, impact of competitive products and pricing, product development, commercialization and technological difficulties, capacity and supply constraint difficulties and other risks.
Our future results will depend on our ability to continue to enhance our existing products, to develop and manufacture new products and to finance such activities. There can be no assurance that we will be successful in the introduction, marketing and cost-effective manufacture of any new products or that we will be able to develop and introduce in a timely manner new products or enhancements to our existing products and processes which satisfy customer needs or achieve widespread market acceptance. Further, backlog is not necessarily indicative of future revenue. We undertake no obligation to update forward-looking statements to reflect subsequent events, changed circumstances, or the occurrence of unanticipated events.
Our discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including those related to revenue recognition, bad debts, inventories, investments, intangible assets, income taxes, financing operations, warranty obligations, contingencies and litigation. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements.
Our revenue recognition policy is significant because revenue is a key component of our results of operations. In addition, revenue recognition determines the timing of certain expenses, such as cost of sales, commissions and warranty and installation expenses. We follow specific and detailed guidelines in measuring revenue; however, certain judgments may be required in the application of our revenue policy.
We provide for the estimated cost of product warranties at the time revenue is recognized. While we engage in extensive product quality programs and processes, including actively monitoring and evaluating the quality of our component suppliers, our warranty obligation is affected by product failure rates, material usage and service delivery costs incurred in correcting a product failure. Should actual product failure rates, material usage or service delivery costs differ from our estimates, revisions to the estimated warranty liability would be required.
We maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. If the financial condition of our customers were to deteriorate, due to the cyclicallity of the industries we serve or for other reasons, resulting in an impairment of their ability to make payments, additional allowances may be required.
We write down the carrying value of inventories for estimated obsolescence and marketability based upon assumptions about future demand and market conditions. If actual market conditions are less favorable than those projected by us, additional inventory valuation write-downs may be required.
We record an investment impairment charge when we believe an investment has experienced a decline in value that is other than temporary. Future adverse changes in market conditions or poor operating results of underlying investments could result in losses or an inability to recover the carrying value of the investments that may not be reflected in an investment’s current carrying value, thereby possibly requiring an impairment charge in the future.
We make estimates to determine our deferred tax assets in the amount that we believe is more likely than not to be realized. While we consider future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for the valuation allowance, in the event we were to determine that we were able to realize deferred tax assets in the future in excess of the net recorded amount, an increase in the deferred tax asset would increase net income in the period such determination was made. Likewise, should we determine that we will not be able to realize all or part of our net deferred tax asset in the future, a decrease in the deferred tax asset would decrease net income in the period such determination was made.
Net Sales. Net sales consist of revenues from sales of semiconductor equipment, spare parts and service. Fiscal 2003 first quarter net sales were $30.3 million up 13.2% from $26.8 million in net sales for the same period of fiscal 2002. First quarter net sales were higher as a result of normal quarterly business fluctuations. The semiconductor equipment industry continues to be depressed from previous levels.
Gross Profit. Fiscal 2003‘s first quarter gross margin was 43.2% of net sales, compared to 46.5% for the same period in fiscal 2002. Gross margin was down period over period due to a change in sales mix as installation revenue, which has higher average gross margins, was a smaller component of revenue in this year’s first quarter. Our gross margin has been, and will continue to be, affected by a variety of factors, including sales volume, sales mix, average selling price of products sold, and the cost of manufacturing, servicing and supporting new and enhanced products. Our margins will also fluctuate based on the relative amount of equipment revenue compared to installation revenue.
Selling, General and Administrative. Selling, general and administrative (“SG&A”) expenses were $12.4 million or 41.0% of net sales for the first quarter of fiscal 2003 compared to $12.9 million or 48.3% of net sales for the same period in fiscal 2002. SG&A expenses for fiscal 2003 first quarter were lower in fiscal first quarter 2003 compared to fiscal first quarter 2002 due to lower staffing costs and travel expenses, partially offset by increased intellectual property litigation costs.
Research and Development. Research and development (“R&D”) expense consists of salaries, project materials, laboratory costs, consulting fees, and other costs associated with our product development efforts. R&D expense was $4.9 million or 16.3% of net sales compared to $5.8 million or 21.5% of net sales for the same period in fiscal 2002. The decrease from fiscal 2003 to fiscal 2002 is primarily attributable to reduced staffing levels and related costs.
Our research and development expense has fluctuated from quarter to quarter in the past. We expect 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 fluctuations in the level of net sales in a given quarter. We expect to continue to fund R&D expenditures with a multi-year perspective and are committed to technology leadership in our sector of the semiconductor equipment industry.
Other Income (Expense), Net. Net other income was approximately $420,000 in the first quarter of fiscal 2003 and included, among others, interest income of approximately $155,000 and interest expense of $45,000. Other income also includes the proceeds from a settlement we received in connection with a patent claim that we pursued against a German manufacturer, Dynamic Micro Systems Semiconductor Equipment GmbH. This compares to net other income of $262,000 in the same period of fiscal 2002, which included, among others, interest income of approximately $286,000 and interest expense of approximately $55,000.
Income Taxes. The benefit from income taxes for the first quarter of fiscal 2003 was $1.5 million compared to an income tax benefit of $2.3 million for the same period of fiscal 2002. Income tax benefits and provisions are made based on the blended estimate of federal, state and foreign effective income tax rates which was estimated to be 38.0% in both the first quarter of fiscal 2003 and fiscal 2002.
Backlog. Consolidated orders backlog decreased 56.3% to $21.1 million at December 31, 2002, from approximately $48.3 million at December 31, 2001.
We include in backlog those customer orders for which we have written customer authorization and for which shipment is scheduled within the next twelve months. Orders are generally subject to cancellation or rescheduling by customers with limited or no cancellation fees. As the result of systems ordered and shipped in the same quarter, possible changes in customer delivery dates, cancellations and shipment delays, the backlog at any particular date and the new orders bookings for any particular period are not necessarily indicative of actual revenue for any succeeding period. In particular, during periods of downturns in the semiconductor industry we have experienced cancellations and significant delays.
Deferred profit included in our current liabilities is derived from deferred revenue, which relates to equipment shipped to customers, which has not been accepted by the customer. December 31, 2002 deferred revenue was $36.7 million, an increase of 30.1% as compared to deferred revenue of $38.3 million at December 31, 2001. Deferred revenue is not included in orders backlog.
Net cash used in operations was $5.9 million during the first three months of fiscal 2003, which compares to $1.7 million cash generated by operations in the same period of fiscal 2002. In the first fiscal quarter of 2003, the primary uses of cash for operating activities includes a $3.2 million decrease in accounts payable, an increase in income tax refund receivable of $1.0 million and $1.0 million reduction in accrued payroll and related benefits related to staff reductions which was partially offset by a $2.4 million decrease in accounts receivable. The decrease in accounts receivable and accounts payable are primarily attributable to declining sales volume related to the semiconductor equipment industry downturn.
During the first three months of fiscal 2003 investing activities included net cash used for marketable securities of $1.6 million. Financing activities consist primarily of long-term debt repayments of $428,000 during the first three months of fiscal 2003, which included the repayment of the commercial bank portion of our mortgage on our Coopersburg, Pennsylvania facility. The lower interest rate mortgage loan provided by the Pennsylvania Industrial Development Authority remains in place.
The following commitments as of December 31, 2002 have been included in the consolidated financial statements, with the exception of purchase order commitments and operating lease obligations which are properly excluded under general accepted accounting principles. They are disclosed in the following table in order to provide a consolidated picture of our financial position and liquidity. We do not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. As such, we are not exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in such relationships.
Payments Due by Period (amounts in thousands)
------------------------------------------------------------------------
Less than 1 - 3 4 - 5 After
Total 1 year Years Years 5 Years
---------- --------- ---------- --------- ----------
Long-term debt $ 2,682 $ 206 $ 685 $ 514 $ 1,277
Capital lease obligations 197 136 61 -- --
Operating leases 1,886 1,142 506 238 --
Purchase order commitments 5,337 4,387 950 -- --
---------- --------- ---------- --------- ----------
Total commitments $ 10,102 $ 5,871 $ 2,202 $ 752 $ 1,277
========== ========= ========== ========= ==========
We do not have any other commercial commitments such as lines of credit, standby letters of credit, guarantees, standby repurchase obligations or other commercial commitments.
Semitool has agreements with Mr. Raymon F. Thompson, the Company’s chairman, to lease aircraft and an aircraft hangar. The rental rate for fiscal 2003 is approximately $175,000 per month for both the aircraft and the hangar; the lease terms are month-to-month. Since these operating lease commitments are month to month, they are not included in the table above.
As of December 31, 2002, our principal sources of liquidity consisted of approximately $26.1 million of cash and cash equivalents and $8.1 million in marketable securities.
We believe that at our current operating level, cash and cash equivalents and funds generated from future operations will be sufficient to meet our operating and planned capital requirements for the next twelve months and into the foreseeable future including the spending of approximately $1 to $3 million to purchase property, plant and equipment. Since the semiconductor equipment industry is cyclical, our liquidity requirements need to be sufficient to not only meet our needs during an industry downturn, but also to handle our working capital needs in an upturn. We believe that success in our industry requires substantial capital in order to maintain flexibility and to take advantage of opportunities as they arise. We may, from time to time, as market and business conditions warrant, invest in or acquire complementary businesses, products or technologies. We may sell additional equity or debt to fund such activities or to fund greater than anticipated needs and currently have a common stock shelf registration in place with an aggregate public offering price of $75 million. The sale of additional equity securities or the issuance of equity securities in a business combination could result in dilution to our shareholders.
In June of 2001, the FASB issued SFAS No. 143, “Accounting for Asset Retirement Obligations.” The statement provides accounting and reporting standards for recognizing obligations related to asset retirement costs associated with the retirement of tangible long-lived assets. Under this statement, obligations associated with the retirement of long-lived assets are to be recognized at their fair value in the period in which they are incurred if a reasonable estimate of fair value can be made. The fair value of the asset retirement costs is capitalized as part of the carrying amount of the long-lived asset and subsequently allocated to expense using a systematic and rational method over the assets’ useful life. Any subsequent changes to the fair value of the liability due to passage of time or changes in the amount or timing of estimated cash flows is recognized as an accretion expense. The Company will be required to adopt this statement on October 1, 2003. The Company does not expect the adoption of this statement to have a significant impact on its results of operations, financial position and cash flows.
In December 2002, the FASB issued SFAS No. 148. This statement amends the transition and disclosure provisions of SFAS No. 123, Accounting for Stock-Based Compensation. Specifically, SFAS No. 148 provides more transition alternatives for companies that wish to adopt the fair-value based provisions of SFAS No. 123 and increases the disclosure required of companies that continue to account for their stock-based compensation under the intrinsic-value method prescribed under APB No. 25, Accounting for Stock Issued to Employees. The annual disclosure and transition provisions of SFAS No. 148 are effective for interim periods beginning December 15, 2002 (for us, effective for 2003 and thereafter). We will implement the disclosure provisions of this statement in the second quarter of 2003.
In November 2002, the FASB issued FIN No. 45. FIN No. 45 establishes the accounting and disclosure requirements for a guarantor related to its obligations under certain guarantees that it has issued. The interpretation requires the recognition of a liability, based upon fair value, for any non-contingent obligation. In addition, the interpretation enhances the disclosures that were required under SFAS No. 5, Accounting for Contingencies, and FIN No. 34, Disclosure of Indirect Guarantees of Indebtedness of Others (An Interpretation of FASB Statement No. 5), related to guarantees. The recognition and measurement provisions of this interpretation are effective for all guarantees issued or modified after December 31, 2002. We have adopted FIN No. 45 for the first quarter of our fiscal 2003 in the Quarterly Report on Form 10-Q. See Footnote No. 7 to the Consolidated Financial Statements. This adoption of FIN 45 has no effect on our financial position, results of operations or cash flows.
In January 2003, the FASB issued Interpretation Number 46, “Consolidation of Variable Interest Entities” (FIN 46). This interpretation addresses consolidation by business enterprises of variable interest entities. The interpretation is not expected to have a material effect on the Company’s consolidated financial statements.
Market risks relating to our operations result primarily from changes in interest rates and changes in foreign currency exchange rates.
As of December 31, 2002, we had approximately $2.9 million in fixed-rate long-term debt. Changes in market interest rates would change the estimated fair value of our long-term debt. We believe that a 10% change in long-term interest rates would not have a material effect on our business, financial condition, results of operations or cash flows.
All of our international operations are subject to inherent risks in conducting business abroad, including fluctuation in the relative value of currencies. As the Yen is our functional currency in Japan, we use short-term forward exchange contracts to reduce our foreign currency exchange risk related to forecasted sales. At December 31, 2002, we held forward contracts to sell Japanese Yen with a face value of $388,000, a market value of $387,000 and an unrealized gain of $1,000. Additionally, the impact of movements in currency exchange rates on forward contracts are offset to the extent of intercompany receivables denominated in Japanese Yen. We believe the effect of a 10% change in foreign exchange rates on hedged transactions involving Japanese Yen forward exchange contracts and the underlying transactions would not be material to our financial condition, results of operations or cash flows. We do not hold or issue derivative financial instruments for trading or speculative purposes.
(a) Evaluation of disclosure controls and procedure. Based on their evaluation of Semitool, Inc., disclosure controls and procedures (as defined in Rules 13a-14(c) and 15d-14(c) under the Securities and Exchange Act of 1934) as of a date within 90 days of the filing date of this Quarterly Report on Form 10-Q, Semitool’s Chief Executive Officer and Chief Financial Officer have concluded that Semitool’s disclosure controls and procedures are designed to ensure that information required to be disclosed by Semitool in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and are operating in an effective manner.
(b) Changes in internal controls. There were no significant changes in Semitool’s internal controls or in other factors that could significantly affect these controls subsequent to the date of their most recent evaluation.
On January 16, 2002, we filed suit against Tokyo Electron, Ltd. and its subsidiaries, Tokyo Electron Kyushu Ltd. and Tokyo Electron America, Inc., referred to collectively as TEL, in the United States District Court for the Northern District of California (Case No. C-02-0288 EMC). The suit alleges infringement of our U.S. Patent 5,784,797 entitled “Carrierless Centrifugal Semiconductor Processing System (‘797 Patent), relating to the centrifugal cleaning and processing of semiconductor wafers. The suit seeks injunctive relief, damages for past infringement and increased damages for willful infringement. The defendants answered the complaint denying the claim and seeking to have the patent declared invalid. In addition, on April 16, 2002 the defendants asserted counterclaims alleging our infringement of three patents: U.S. Patent 4,985,722 entitled “Apparatus for Coating a Photo-Resist Film and/or Developing it After Being Exposed”; U.S. Patent 5,446,416 entitled “Resist Processing Method”; and U.S. Patent 5,740,053 entitled “Method of Controlling Monitor Used in Cleaning Machine and Object Processing Machine and Monitor Apparatus”. On July 12, 2002, the defendants withdrew with prejudice their counterclaim alleging infringement of U.S. Patent 5,740,053. The remaining counterclaims seek injunctive relief, damages for past infringement, increased damages for willful infringement and attorneys’ fees. We believe that the counterclaims are without merit and we are contesting the action vigorously. However, given the inherent uncertainty of litigation, there can be no assurance that the ultimate outcome will be in our favor. If TEL were to prevail in its counterclaims, it could have a material adverse effect on our business, financial condition, results of operations and cash flows. Further, regardless of the ultimate outcome, there can be no assurance that the diversion of management’s attention, and any costs associated with any of the lawsuits, will not have a material adverse effect on our business, financial condition, results of operations and cash flows. Trial is scheduled for April 2004.
In June 2001, we filed separate suits against Applied Materials, Inc., (Case No. CV-01-1066 AS), Novellus Systems, Inc. Case No. (CV-01-874 KI) and Ebara Corporation and Ebara Technologies, Inc. (Case No. CV-01-873 BR). The suits against all three parties are in the United States District Court for the District of Oregon. The suits allege infringement of Semitool’s U.S. Patent 6,197,181 (Chen) “Apparatus and Method for Electrolytically Depositing a Metal on a Microelectronic Workpiece” (‘181 Patent) and seek injunctive relief, damages for past infringement and increased damages for willful infringement. Each defendant has answered our complaints denying the claims and seeking to have the patent declared invalid. In addition, Novellus has counterclaimed for infringement of four of their patents: viz., U.S. Patent 6,179,983 “Method and Apparatus for Treating Surface Including Virtual Anode”; U.S. Patent 6,074,544 “Method of Electroplating Semiconductor Wafer Using Variable Currents and Mass Transfer to Obtain Uniform Plated Layer”; U.S. Patent 6,110,346 “Method of Electroplating Semiconductor Wafer Using Variable Currents and Mass Transfer to Obtain Uniform Plated Layer”; and U.S. Patent 6,162,344 “Method of Electroplating Semiconductor Wafer Using Variable Currents and Mass Transfer to Obtain Uniform Plated Layer”. On July 22, 2002, the District Court dismissed with prejudice Novellus’ counterclaim for infringement of U.S. Patent 6,179,983. The remaining counterclaims seek injunctive relief, damages for past infringement, increased damages for willful infringement and attorneys’ fees. We believe that the remaining counterclaims are without merit and we are contesting the actions vigorously. Trial dates in February 2004 have been set for the claims and counterclaims. Given the inherent uncertainty of litigation, there can be no assurance that the ultimate outcome will be in our favor. If Novellus were to prevail in its counterclaims, it could have a material adverse effect on our business, financial condition, results of operations and cash flows. Further, regardless of the ultimate outcome, there can be no assurance that the diversion of management’s attention, and any costs associated with any of the lawsuits, will not have a material adverse effect on our business, financial condition, results of operations and cash flows.
We are subject to other legal proceedings and claims which have arisen in the ordinary course of our business and have not been finally adjudicated. Although there can be no assurance as to the ultimate disposition of these matters, it is the opinion of our management, based upon the information available at this time, that the currently expected outcome of these matters, individually or in the aggregate, will not have a material adverse effect on our business, financial condition, results of operations and cash flows.
At the Company’s Annual Meeting of Shareholders held on February 11, 2003, the following proposals were adopted:
1. To elect seven directors of the Company to serve until the 2004 Annual Meeting of Shareholders or until their successors are elected and qualified. All director nominees received votes which exceeded the minimum number of votes to be elected. The table below summarizes voting results:
Votes Votes
For Withheld
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Raymon F. Thompson 25,269,179 1,749,945
Howard E. Bateman 26,931,486 87,638
Robert G. Chamberlain 26,934,420 84,704
Richard A. Dasen 26,932,720 86,404
Timothy C. Dodkin 26,932,220 86,904
Daniel J. Eigeman 26,930,586 88,538
L. Peter Larson 26,930,420 88,704
2. To ratify the appointment of PricewaterhouseCoopers, LLP as the Company’s independent auditors for the fiscal year ending September 30, 2003.
For Against Abstain
------------ -------- ---------
26,910,492 94,579 14,053
(a) Exhibits
99.3 Certification of Raymon F. Thompson, Chief Executive Officer, pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
99.4 Certification of William A. Freeman, Chief Financial Officer, pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(b) Reports on Form 8-K
None.
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
SEMITOOL,
INC.
(Registrant)
Date: February 12, 2003 By: /s/ WILLIAM A. FREEMAN
-------------------------------------------------
William A. Freeman
Senior Vice President and Chief Financial Officer
By: /s/ LARRY A. VIANO
----------------------------
Larry A. Viano
Principal Accounting Officer
I, Raymon F. Thompson, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Semitool, Inc.
2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
| a) | designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; |
| b) | evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and |
| c) | presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; |
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):
| a) | all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and |
| b) | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and |
6. The registrant’s other certifying officer and I have indicated in this quarterly report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
Dated: February 12, 2003 By: /s/ RAYMON F. THOMPSON
-----------------------------------------------
Raymon F. Thompson
Chairman, President and Chief Executive Officer
I, William A. Freeman, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Semitool, Inc.
2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
| a) | designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; |
| b) | evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and |
| c) | presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; |
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):
| a) | all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and |
| b) | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and |
6. The registrant’s other certifying officer and I have indicated in this quarterly report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
Dated: February 12, 2003 By: /s/ WILLIAM A. FREEMAN
-------------------------------------------------
William A. Freeman
Senior Vice President and Chief Financial Officer
Exhibit 99.3
In connection with the quarterly report of Semitool, Inc. (the “Company”) on Form 10-Q for the fiscal quarter ended December 31, 2002 as filed with the Securities and Exchange Commission (the “Report”), I, Raymon F. Thompson, Chief Executive Officer of the Company, hereby certify as of the date hereof, solely for purposes of Title 18, Chapter 63, Section 1350 of the United States Code, that to my knowledge:
| 1. | the Report fully complies with the requirements of Section 13 (a) or 15(d), as applicable, of the Securities Exchange Act of 1934, and |
| 2. | the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company at the dates and for the periods indicated. |
This Certification has not been, and shall not be deemed, “filed” with the Securities and Exchange Commission.
Dated: February 12, 2003 By: /s/ RAYMON F. THOMPSON
-----------------------------------------------
Raymon F. Thompson
Chairman, President and Chief Executive Officer
Exhibit 99.4
In connection with the quarterly report of Semitool, Inc. (the “Company”) on Form 10-Q for the fiscal quarter ended December 31, 2002 as filed with the Securities and Exchange Commission (the “Report”), I, William A. Freeman, Senior Vice President and Chief Financial Officer of the Company, hereby certify as of the date hereof, solely for purposes of Title 18, Chapter 63, Section 1350 of the United States Code, that to my knowledge:
| 1. | the Report fully complies with the requirements of Section 13 (a) or 15(d), as applicable, of the Securities Exchange Act of 1934, and |
| 2. | the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company at the dates and for the periods indicated. |
This Certification has not been, and shall not be deemed, “filed” with the Securities and Exchange Commission.
Dated: February 12, 2003 By: /s/ WILLIAM A. FREEMAN
-------------------------------------------------
William A. Freeman
Senior Vice President and Chief Financial Officer