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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, 1996
Commission File Number 0-25424
SEMITOOL, INC.
(Exact name of registrant as specified in its charter)
Montana 81-0384392
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
655 West Reserve Drive, Kalispell, Montana 59901
(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 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. [ ]
The aggregate market value of the voting stock held by non-affiliates of the
registrant on December 11, 1996 (based on the last reported sale price on the
Nasdaq National Market as of such date) was $75,888,198.
The number of shares of the registrant's Common Stock, no par value, outstanding
as of December 11, 1996 was 13,659,777.
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 13, 1997.
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, 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 Semitool, Inc.'s ("Semitool" or the "Company") 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, 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, and
wafer carrier cleaning systems. 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 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. 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.
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.
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. 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 for both silicon wafers and the glass
substrates used in the fabrication of flat panel displays, that cluster multiple
chemical processing modules, thereby further increasing yield and throughput,
and providing a total process solution in a single unit with a smaller footprint
than conventional wet-benches.
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 recently developed a vertical
furnace with fast ramp 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 its 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. Recent products developed through independent innovation efforts
include the Magnum and Centurium, fully automated tools which cluster multiple
process modules into a single unit to provide a total chemical processing
solution. Products developed through collaborative efforts include the Company's
EXPRESS vertical furnace, which provides faster thermal ramping , and the
Company's wafer carrier cleaning system, which increases yields by reducing
contamination.
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, 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. The Company
encourages an entrepreneurial atmosphere by maintaining semi-autonomous business
units that are empowered to respond quickly and directly to customer needs.
Focus on Overall Cost of Ownership. The Company designs and manufactures
equipment solutions that 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.
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. In addition
to its office in Japan, the Company recently opened an office in Korea and
stationed service personnel in 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, thermal processing equipment and wafer carrier cleaning
systems.
The mix of products sold by the Company may vary significantly from year to
year. The following table sets forth, for the periods indicated, the amount of
net sales and approximate percentages of the Company's total net sales
contributed by the Company's principal products (dollars in thousands):
Fiscal Year Ended September 30, 1996 September 30, 1995 September 30, 1994
------------------ ------------------ ------------------
$ % $ % $ %
Chemical Processing:
Manual Batch ....... 68,469 39.3% 59,340 46.2% 34,877 55.7%
Automated Batch .... 24,664 14.2% 9,124 7.1% -- --
Single Substrate ... 21,119 12.1% 6,263 4.9% 2,814 4.5%
Thermal Processing ... 35,822 20.6% 34,300 26.8% 15,696 25.1%
Wafer Carrier Cleaning 8,141 4.6% 6,343 4.9% 802 1.3%
Spare Parts & Service 15,989 9.2% 12,956 10.1% 8,408 13.4%
------- ----- ------- ----- ------ -----
Total ................ 174,204 100.0% 128,326 100.0% 62,597 100.0%
======= ===== ======= ===== ====== =====
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.
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.
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, 1996 had delivered over 21,000 units to customers. The purchase
price of the Spin Rinser/Dryer ranges from $10,000 to $150,000, depending on
configuration.
The Magnum is a multimodule chemical processing tool which clusters the
Company's solvent, acid and spin rinser/dryer capabilities into a single
automated unit. The Magnum incorporates a Company-designed advanced robot which
employs fiber optic communications, absolute positioning and a linear motor
track to ensure precise, reliable and particle-free automated wafer handling.
The Magnum also offers standard mechanical interface ("SMIF") loading
capabilities and a touch screen computer interface for ease of operation. The
Magnum provides the customer 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 Magnum possesses 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 "Revolver" random access WIP station,
carrierless fault tolerant loading, concentration control monitoring, and 50
wafer payloads. The Company believes that the installed base of its widely
accepted chemical processing tools has facilitated market acceptance of the
Magnum. The purchase price of the Magnum ranges from $900,000 to over $2.0
million, depending on configuration. The Company, during fiscal 1996, built its
first Centurium, an enlarged Magnum, that is used to process large glass
substrates.
Single Substrate Processing. 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, developing and plating applications. 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 the customer 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 $1.2 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 $1.3 million, depending on configuration.
The Company, through its Semy Engineering, Inc. (Semy) subsidiary, manufactures
process control computers that upgrade diffusion and low pressure chemical
deposition furnaces with state-of-the-art control features. The Company has also
recently introduced a family of cell workstations that interface to a variety of
wafer processing equipment produced by Semitool and other semiconductor
equipment manufacturers. The cell workstations collect and store data generated
by the processing equipment and provide statistical process control, inventory
control data and process flow control to the user in a graphical interface.
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 1996:
Allegro Microsystems Intel Seagate
Atmel Lucky Goldstar SGS-Thomson
Austria Micro System Micro Chip Corporation Siemens
Cirrus Logic, Inc. Motorola Siltec Silicon
Fraunhofer Institut National Semiconductor Texas Instruments
Hewlett-Packard Philips Semiconductor Thermco Systems
IBM Xerox
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
44%, 40% and 40% of total sales for fiscal years 1996, 1995 and 1994,
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 and service personnel in four offices. In Asia, the Company sells through
direct sales personnel and six 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 in Japan. To supplement TEL's sales
efforts, the Company has a direct sales and service operation in Japan. Semitool
opened a Korean service office during fiscal 1996. 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 increased to approximately $85.9 million at September 30, 1996, from
approximately $64.7 million at September 30, 1995. The Company's automated batch
chemical processing tool, first shipped in fiscal 1995, now represents the
largest single component of the backlog with the vertical furnace second. Due
largely to customers rescheduling deliveries, approximately $19.0 million of the
backlog is not scheduled to ship until the fourth quarter of fiscal 1997. 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 personnel
work directly with customers to provide process solutions, develop new processes
and to design and evaluate new pieces of equipment.
The Company shipped new models of its vertical furnace, automated batch chemical
processor and single substrate processor during fiscal 1996. The EXPRESS
vertical furnace uses a model based controller to achieve much faster thermal
ramping speeds than furnaces with conventional control systems. The Centurium
automated batch chemical processor can handle the glass substrates used in the
production of flat panel displays and multichip modules. A Magnum automated
batch chemical processor which uses immersion processing was developed and
shipped in fiscal 1996. Equinox single substrate processors for solder bump and
interconnect plating were also developed and shipped during fiscal 1996. All of
this equipment is either in customers' research and development (R&D) labs or
production areas where it is being evaluated. Evaluation periods are expected to
vary by customer, application and equipment type and to continue through fiscal
1997.
Expenditures for R&D, which are expensed as incurred, during fiscal 1996, 1995
and 1994 were approximately $19.5 million, $11.4 million and $6.0 million and
represented 11.2%, 8.9% and 9.5% 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. 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. In this regard, the Company is aware that TEL, one of the
Company's distributors and competitors in Japan, which accounted for the
distribution of approximately 6% of the Company's sales in fiscal 1996, has
filed patent applications in Japan which are based on certain Company-developed
designs in one of the Company's chemical processing tools. The Japanese patent
applications were filed without the authority or approval of the Company and the
Company has demanded that the applications be abandoned or otherwise
relinquished. While the Company believes that the Japanese patent applications
constitute an improper attempt to patent the Company's proprietary designs, no
assurances can be given that the Company will prevail in any negotiations or
litigation the Company may initiate to secure the other party's abandonment or
other relinquishment of the patent applications. If the Company is unsuccessful
in securing the abandonment or relinquishment of the applications, or if the
competitor were to file patent applications on the Company-developed designs,
the Company's competitive position in Japan could be adversely affected although
the Company believes that any such effect should not be material to the overall
results of operations of the Company or materially adversely affect the
Company's relationship with TEL. 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, 1996, the Company had 1,214 full time employees and 246
temporary contract employees worldwide. This includes 718 in manufacturing, 372
in marketing, sales and field service, 186 in research and development, and 184
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. During 1995, many of the semiconductor device
manufacturers announced plans to expand existing or build new semiconductor
device manufacturing facilities. In early 1996, 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 are expected 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.
Management of Growth
Semitool has recently undergone a period of rapid growth. In response to the
recent growth, the Company has expanded its facilities in Kalispell, Montana in
each of the last three years, added significantly to its workforce, and
implemented a variety of new and upgraded management information systems. This
recent expansion may significantly strain the Company's management,
manufacturing, engineering, financial and other personnel at its headquarters
location in Kalispell. The Company also merged with Semy, in fiscal 1996. Semy's
product line of controllers and supervisory systems are developed and assembled
in Phoenix, Arizona, and are the first new products made by the Company away
from its headquarters location. Any failure to efficiently manage the Company
and its subsidiaries could adversely effect the Company's business and results
of operations.
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 44%, 40% and 40% of the Company's sales for fiscal 1996, 1995 and
1994, 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. In this regard, the Company is aware that TEL, one of the
Company's distributors and competitors in Japan, which accounted for the
distribution of approximately 6% of the Company's sales in fiscal 1996, has
filed patent applications in Japan which are based on certain Company-developed
designs in one of the Company's chemical processing tools. Sales of this
equipment accounted for less than $500,000 of the Company's revenue in Japan in
the three year period ended September 30, 1996. The Japanese patent applications
were filed without the authority or approval of the Company and the Company has
demanded that the applications be abandoned or otherwise relinquished. While the
Company believes that the Japanese patent applications constitute an improper
attempt to patent the Company's proprietary designs, no assurances can be given
that the Company will prevail in any negotiations or litigation the Company may
initiate to secure the other party's abandonment or other relinquishment of the
patent applications. If the Company is unsuccessful in securing the abandonment
or relinquishment of the applications, or if the competitors were to file patent
applications on the Company-developed designs, the Company's competitive
position in Japan could be adversely affected although the Company believes that
any such effect should not be material to the overall result of operations of
the Company or materially adversely affect the Company's relationship with TEL.
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 42%, 55% and 58% of the
Company's net sales in fiscal 1996, 1995 and 1994, 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, and developments in the industry. 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 purported 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 purported 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 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 11, 1996 was 229 and the reported last sale price of the Company's
common stock on the Nasdaq National Market was $11.625. The high and low sales
prices for the common stock reported by the Nasdaq National Market for each
quarter that the Company's common stock has traded publicly are shown below.
Common Stock Price Range
Fiscal Year
Ended September 30,
1996 1995
High Low High Low
First Quarter ....................... $ 24.50 $ 12.50 NA NA (1)
Second Quarter ...................... $ 17.75 $ 12.50 $ 16.33 $ 8.67 (2)(3)
Third Quarter ....................... $ 17.00 $ 13.00 $ 21.83 $ 13.17 (3)
Fourth Quarter ...................... $ 13.50 $ 10.25 $ 36.75 $ 21.00 (3)
(1) Prior to the Company's Initial Public Offering (IPO) of common stock.
(2) The low price is the IPO price.
(3) Adjusted for the August 1995 three-for-two stock split.
The Company, prior to its initial public offering of common stock in February
1995, 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,
1996 1995 1994 1993 1992
Statement of Operations Data:
Net sales ............................................. $174,204 $128,326 $ 62,597 $ 48,532 $ 32,445
Gross profit .......................................... 84,631 65,858 31,957 24,070 17,764
Income from operations ................................ 24,182 20,927 3,020 356 481
Net income (loss) ..................................... 15,136 14,885 2,170 (445) (353)
Pro forma Statement of Operations Data:
Income from operations (1) ............................ 24,182 22,599 6,509 3,126 2,534
Net income (2) ........................................ 15,136 14,403 3,723 1,579 1,110
Net income per share (3) .............................. 1.09 1.15 0.37
Shares used in per share computation (4) .............. 13,858 12,563 9,946
Balance Sheet Data:
Working capital ....................................... 43,797 37,209 6,109 6,223 5,785
Total assets .......................................... 114,954 88,067 39,807 30,744 20,927
Short-term debt ....................................... 4,374 924 7,409 5,164 2,199
Long-term debt ........................................ 3,637 4,011 6,089 1,940 2,287
Shareholders' equity .................................. 68,003 52,813 12,487 2,741 3,519
(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. See
Note 14 of Notes to Consolidated Financial Statements.
(2) Between October 1, 1986 and February 1, 1995, the Company elected to be
taxed under the provisions of Subchapter S of the Internal Revenue 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 1992 through 1996 were 41.8%, 33.0%, 36.4%, 37.1%
and 37.0%, 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, 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 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.
The unit selling prices for the Company's products range from $10,000 to
$150,000 for a spin rinser/dryer, to $900,000 to over $2.0 million for the
Magnum. 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 1996,
approximately 43.9% 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 and Europe, and through distributors in Asia and elsewhere.
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,
------------------------------------------------------
1996 1995 1994
------- ------ -------
Statement of Operations Data:
Net sales ........................................................ 100.0 % 100.0 % 100.0 %
Cost of sales .................................................... 51.4 48.7 49.0
------- ------ -------
Gross profit ..................................................... 48.6 51.3 51.0
------- ------ -------
Operating expenses:
Selling, general and administrative ........................... 23.5 24.8 31.1
Research and development ...................................... 11.2 8.9 9.5
Cost of technology rights ..................................... -- 1.3 5.6
------- ------- -------
Total operating expenses .................................. 34.7 35.0 46.2
------- ------- -------
Income from operations ........................................... 13.9 16.3 4.8
Other income (expense), net ...................................... (0.1) 0.2 (1.0)
------- ------- -------
Income before income taxes ....................................... 13.8 16.5 3.8
Provision for income taxes ....................................... 5.1 4.9 0.3
------- ------- -------
Net income ....................................................... 8.7 % 11.6 % 3.5 %
======= ======= =======
Pro Forma Statement of Operations Data:
Income from operations before
pro forma adjustments ......................................... 13.9 % 16.3 % 4.8 %
Elimination of cost of technology
rights ........................................................ -- 1.3 5.6
------- ------- -------
Income from operations ........................................... 13.9 17.6 10.4
Other income (expense), net ...................................... (0.1) 0.2 (1.0)
------- ------- -------
Income before income taxes ....................................... 13.8 17.8 9.4
Provision for income taxes ....................................... 5.1 6.6 3.5
------- ------- -------
Net income ....................................................... 8.7 % 11.2 % 5.9 %
======= ======= =======
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 are 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.
YEARS ENDED SEPTEMBER 30, 1995 AND 1994
Net Sales. Net sales consist of revenues from sales of equipment, spare parts
and service contracts. Net sales increased $65.7 million (105.0%) to $128.3
million in 1995 from $62.6 million in 1994. This increase was primarily
attributable to increased unit volumes of existing products and the continued
market penetration of products with higher average selling prices introduced in
recent years.
The Company's largest product line growth occurred in the Magnum automated
multimodule chemical processing system and the Storm wafer carrier cleaning
system. The Magnum was introduced in the fourth quarter of fiscal 1994 and had
no net sales in that year. Magnum net sales in fiscal 1995 totaled $9.1 million.
Net sales of the Storm totaled $6.3 million and $802,000 in 1995 and 1994,
respectively. Net sales of the VTP 1500 vertical furnace and the Equinox single
substrate processor also grew rapidly in 1995. Each more than doubled net sales
in fiscal 1995 and exceeded the corporate average growth rate. The controllers
and supervisor systems sold by Semy increased 90% from $6.9 million in fiscal
1994 to $13.0 million in fiscal 1995. Net sales of the Company's established
manual batch spray chemical tools increased 70% in 1995 compared to 1994. Net
sales of spare parts and service are related to both current year sales and the
Company's installed base of process tools. Growth in spare parts and service
sales exceeded 50% in 1995 when compared to 1994.
International sales, predominantly to customers based in Europe and Asia,
accounted for 40.4% of net sales in fiscal 1995 compared to 40.0% in the prior
year.
Gross Profit. Gross margin increased to 51.3% in fiscal 1995 from 51.0% in the
prior year. The Company's manufacturing facility was doubled in size from
approximately 65,000 square feet to 130,000 square feet in an expansion
completed mid-year in fiscal 1994. A further 40,000 square foot addition was
completed at the end of the third quarter of fiscal 1995. The manufacturing and
assembly space provided by these two additions enabled the Company to install
improved material flow and assembly systems resulting in improved productivity
and lower costs. Gross margins in both 1995 and 1994 were favorably impacted by
the merger of Semy which, over the two-year period, had margins higher than the
average of the Company's other products.
Selling, General and Administrative. SG&A expenses were $31.8 million or 24.8%
of net sales in fiscal 1995 compared to $19.5 million or 31.1% of net sales in
the prior year. The increase in these costs in absolute dollars reflects the
increased costs associated with a much higher sales volume and, to a lesser
extent, the ongoing costs related to being a public company for eight months of
fiscal 1995. The decline in these expenses, as a percentage of net sales, was
primarily due to improved overhead absorption. The increase in net sales was
105.0% compared to a 63.5% increase in SG&A expense. SG&A expense in both 1995
and 1994 was unfavorably impacted by the merger of Semy which, over the two-year
period, had SG&A expense as a percentage of net sales higher than the Company
average excluding Semy.
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 $11.4 million or 8.9% of net
sales in fiscal 1995 compared to $6.0 million or 9.5% of net sales in the prior
year.
During fiscal 1995, the Company completed the development of the Magnum
multimodule chemical processing system and began work on a larger version of
this tool designed to process flat panel display substrates. New models of the
Equinox single substrate processor were designed as a thick film resist develop
tool, an acid immersion etch tool, a solvent resist strip tool, a solder bump
plating tool, and a metal lift-off tool. The first VTP 1500 Express, fast ramp
vertical furnace, was designed and built in fiscal 1995 in preparation for beta
testing in fiscal 1996. The Storm III wafer carrier cleaning system was designed
and introduced during the year to address the needs of customers with lower
processing throughput needs or customers desiring smaller machines placed at
multiple locations within their facility.
Spending on R&D increased 91.1% or $5.4 million in absolute dollars over the
prior year due to the number and complexity of projects undertaken, but declined
as a percentage of net sales which increased 105.0%. R&D expense, as a
percentage of net sales, was higher in both 1995 and 1994 at Semy than the
Company average excluding Semy.
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.
Other Income (Expense). Other income (expense) includes interest income on
short-term investments and interest expense on bank borrowings. Interest expense
net of interest income declined from $708,000 in fiscal 1994 to $143,000 in
fiscal 1995 primarily as a result of decreased borrowings and increased
investment income subsequent to the Company's public stock offering in February
of 1995. The Company realized a net gain of $191,000 on the sale of fixed assets
in 1995 compared to $7,000 the year before.
Provision for Income Taxes. The provisions for income taxes for 1995 and 1994
were $6.4 million and $194,000, 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 and
borrowings on its revolving line of credit. Cash used by operating activities in
fiscal 1996 was $4.2 million as compared to $6.6 million provided by operations
in fiscal 1995. Substantial investments in accounts receivable and inventory
occurred in both years as sales levels increased. As of September 30, 1996, the
Company had $39.2 million of accounts receivable and $36.9 million of inventory,
compared to $28.5 million of accounts receivable and $19.3 million of inventory
at September 30, 1995. 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 less than 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.
Investing activities consisted primarily of acquisitions of property and
equipment and, in fiscal 1996, $4.0 million of net sales of marketable
securities purchased in the prior year. Property and equipment purchases used
cash of $8.1 million in fiscal 1995 and $10.2 million in fiscal 1996. Capacity
expansions were completed in both fiscal years. In fiscal 1995, approximately
40,000 square feet were added to the Company's main facility in Kalispell,
Montana, resulting in a 170,000 square foot total size. Also in fiscal 1995, the
Company purchased land and buildings in Cambridge, England in support of its
sales and service effort. 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 $4.0 million of borrowings in excess
of repayments under the Company's revolving line of credit, and $0.9 million of
long-term debt repayments.
As of September 30, 1996, the Company's principal sources of liquidity consisted
of approximately $3.1 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 put in place during the fourth quarter of
fiscal 1996. Both credit facilities are with Seafirst Bank and bear interest at
the bank's prime lending rate. The revolving line of credit expires on December
31, 1997 when all principal amounts owing are due. The long-term credit facility
expires on December 31, 1998 with principal amounts outstanding repayable in
monthly principal and interest payments over a five-year period ending December
2003.
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 $9.0 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 purported 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.
NEW ACCOUNTING PRONOUNCEMENT
In October 1995, the Financial Accounting Standards Board issued SFAS No. 123,
"Accounting for Stock-Based Compensation." This Statement establishes financial
accounting and reporting standards for stock-based employee compensation plans.
The Statement encourages all entities to adopt a fair value based method of
accounting, but allows an entity to continue to measure compensation cost for
those plans using the intrinsic value based method of accounting prescribed by
APB Opinion No. 25, "Accounting for Stock Issued to Employees." The Company must
implement SFAS No. 123 on October 1, 1996. Management does not plan to adopt the
measurement provisions of SFAS No. 123, although the Company will comply with
the pro forma disclosure requirements of the Statement in its 1997 annual
financial statements.
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 55 Chairman of the Board of Directors, Chief
Executive, Officer and President
Robert W. Berner 52 Vice President and General Manager,
Metallization Group
Timothy C. Dodkin 47 Managing Director, Semitool Europe Ltd.
James R. Gordley 45 Vice President, Sales, Thermal Products
Division
Jean B. Hugues 38 Vice President and General Manager, Thermal
Products Division
Gregory L. Perkins 53 Vice President and General Manager
John W. Sullivan 50 Vice President, Finance and Assistant Secretary
Steven R. Thompson 33 Vice President
Howard E. Bateman (1) 62 Director
Richard A. Dasen (2) 54 Director
Daniel J. Eigeman (2) 62 Director
Ryal R. Poppa (2) 63 Director
Calvin S. Robinson (1) 76 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.
Robert W. Berner joined the Company in 1991 and has served as the Company's
Engineering Manager from October 1991 until August of 1995 when he was appointed
General Manager of the Equinox Divison. In January of 1996, he was appointed
General Manager and Vice President of the Metallization Group. Prior to joining
the Company, Mr. Berner worked for Motorola, a semiconductor manufacturer, for
16 years.
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.
James R. Gordley joined the Company in 1989 as Vice President, Sales and
Marketing and, in October 1994, was appointed Vice President and Director of
Sales, Thermal Products Division. For twelve years prior to joining the Company,
Mr. Gordley was employed by Minnesota Mining and Manufacturing Corporation, a
manufacturing conglomerate, where he held several sales and management
positions.
Jean B. Hugues joined the Company with the merger of Semy in February of 1996.
In October of 1996, he was appointed Vice President and General Manager, Thermal
Products Division. Prior to joining the Company, Mr. Hugues was Founder and
President of Semy Engineering, Inc., for 11 years.
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.
John W. Sullivan joined the Company in March 1993 as Vice President, Finance and
was appointed Assistant Secretary in February 1996. From 1974 to 1992, Mr.
Sullivan was employed by United Dominion Industries, a manufacturing and
construction company, most recently as a Group Vice President of Finance. Mr.
Sullivan is a Certified Public Accountant.
Steven R. Thompson joined the Company in 1979 and served as Vice President and
General Manager, Thermal Products Division from 1990 to September of 1996. Prior
to 1990, he served as Engineering Manager, Thermal Products Division from 1988
to 1990 and Manufacturing Manager, Thermal Products Division from 1986 to 1988.
Steven R. Thompson is Raymon F. Thompson's son.
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.
Ryal R. Poppa has served on the Company's Board of Directors since May of 1995.
Mr. Poppa is the former Chairman of the Board, Chief Executive Officer and a
director of Storage Technology Corporation.
Calvin S. Robinson has served as a director of the Company since 1982 and, since
February 1996 has served as the Company's Secretary. Mr. Robinson has been of
counsel to Murphy, Robinson, Heckathorn & Phillips 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 1997 Annual Meeting
of Shareholders under the caption "Section 16(a) Beneficial Ownership Reporting
Compliance" 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 1997 Annual Meeting of Shareholders under the
caption "Executive Compensation," and is incorporated