e10vq
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 |
For the quarterly period ended May 26, 2007
or
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o |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
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Commission File Number:
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0-17276 |
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FSI INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
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MINNESOTA
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41-1223238 |
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(State or other jurisdiction of incorporation or organization)
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(I.R.S. Employer Identification No.) |
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3455 Lyman Boulevard, Chaska, Minnesota
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55318 |
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(Address of principal executive offices)
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(Zip Code) |
952-448-5440
(Registrants telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
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.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or
a non-accelerated filer. See definition of accelerated filer and large accelerated filer in Rule
12b-2 of the Exchange Act.
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Large Accelerated Filer o
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Accelerated Filer þ
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Non-Accelerated Filer o |
Indicate by a checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).
Indicate the number of shares outstanding of each of the issuers classes of common stock as of the
latest practicable date:
Common Stock, No Par Value 30,438,000 shares outstanding as of June 27, 2007
1
FSI INTERNATIONAL, INC. AND SUBSIDIARIES
QUARTERLY REPORT ON FORM 10-Q
2
PART I. Item 1. FINANCIAL INFORMATION
FSI INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED
BALANCE SHEETS
MAY 26, 2007 AND AUGUST 26, 2006
ASSETS
(unaudited)
(in thousands)
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May 26, |
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August 26, |
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2007 |
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2006 |
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Current assets: |
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Cash and cash equivalents |
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$ |
14,384 |
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$ |
15,672 |
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Restricted cash |
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149 |
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144 |
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Marketable securities |
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9,650 |
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11,100 |
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Trade accounts receivable, net of
allowance for doubtful accounts of $200
and $520, respectively |
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17,908 |
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23,173 |
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Inventories, net |
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35,504 |
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35,682 |
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Prepaid expenses and other current assets |
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7,943 |
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11,340 |
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Total current assets |
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85,538 |
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97,111 |
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Property, plant and equipment, at cost |
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79,142 |
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77,320 |
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Less accumulated depreciation |
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(58,184 |
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(56,925 |
) |
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20,958 |
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20,395 |
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Restricted cash |
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516 |
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Investment |
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460 |
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7,632 |
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Intangibles, net of accumulated amortization
of $13,749 and $13,619, respectively |
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605 |
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1,246 |
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Other assets |
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1,160 |
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1,160 |
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Total assets |
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$ |
109,237 |
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$ |
127,544 |
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See accompanying notes to condensed consolidated financial statements.
3
FSI INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED
BALANCE SHEETS
MAY 26, 2007 AND AUGUST 26, 2006
(continued)
LIABILITIES AND STOCKHOLDERS EQUITY
(unaudited)
(in thousands)
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May 26, |
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August 26, |
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2007 |
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2006 |
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Current liabilities: |
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Trade accounts payable |
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$ |
4,208 |
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$ |
8,803 |
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Accrued expenses |
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11,217 |
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15,212 |
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Current portion of capital lease obligations |
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523 |
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Customer deposits |
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2,471 |
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5,408 |
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Deferred profit |
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3,292 |
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4,149 |
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Total current liabilities |
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21,711 |
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33,572 |
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Capital lease obligations |
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786 |
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Stockholders equity: |
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Preferred stock, no par value; 9,700 shares
authorized; none issued and outstanding
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Series A Junior Participating Preferred Stock, no par
value; 300 shares authorized; none issued and outstanding |
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Common stock, no par value; 50,000 shares
authorized; issued and outstanding, 30,438 and
30,309 shares, respectively |
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225,687 |
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225,169 |
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Accumulated deficit |
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(140,093 |
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(132,052 |
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Accumulated other comprehensive loss |
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(362 |
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(218 |
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Other stockholders equity |
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1,508 |
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1,073 |
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Total stockholders equity |
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86,740 |
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93,972 |
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Total liabilities and stockholders equity |
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$ |
109,237 |
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$ |
127,544 |
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See accompanying notes to condensed consolidated financial statements.
4
FSI INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE QUARTERS ENDED MAY 26, 2007 AND MAY 27, 2006
(unaudited)
(in thousands, except per share data)
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May 26, |
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May 27, |
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2007 |
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2006 |
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Sales (including sales to affiliate of
$3,876 and $1,788, respectively) |
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$ |
25,227 |
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$ |
31,957 |
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Cost of sales |
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15,840 |
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18,909 |
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Gross margin |
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9,387 |
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13,048 |
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Selling, general and administrative expenses |
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8,571 |
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9,303 |
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Research and development expenses |
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6,119 |
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6,305 |
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Operating loss |
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(5,303 |
) |
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(2,560 |
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Interest expense |
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(50 |
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(14 |
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Interest income |
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184 |
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244 |
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Impairment and loss on sale of investment |
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(489 |
) |
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Other income (expense), net |
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45 |
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(39 |
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Loss before income taxes |
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(5,613 |
) |
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(2,369 |
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Income taxes |
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55 |
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12 |
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Loss before equity in earnings (loss) of affiliate |
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(5,668 |
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(2,381 |
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Equity in earnings (loss) of affiliate |
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25 |
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(52 |
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Net loss |
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$ |
(5,643 |
) |
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$ |
(2,433 |
) |
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Net loss per common share: |
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Basic |
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$ |
(0.19 |
) |
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$ |
(0.08 |
) |
Diluted |
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$ |
(0.19 |
) |
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$ |
(0.08 |
) |
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Weighted average common shares |
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30,428 |
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30,075 |
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Weighted average common and potential common shares |
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30,428 |
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30,075 |
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See accompanying notes to condensed consolidated financial statements.
5
FSI INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED MAY 26, 2007 AND MAY 27, 2006
(unaudited)
(in thousands, except per share data)
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May 26, |
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May 27, |
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2007 |
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2006 |
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Sales (including sales to affiliate of $5,355
and $4,386, respectively) |
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$ |
96,284 |
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$ |
72,867 |
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Cost of sales |
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56,485 |
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37,821 |
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Gross margin |
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39,799 |
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35,046 |
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Selling, general and administrative expenses |
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26,177 |
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27,307 |
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Research and development expenses |
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18,247 |
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18,379 |
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Operating loss |
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(4,625 |
) |
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(10,640 |
) |
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Interest expense |
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(152 |
) |
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(28 |
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Interest income |
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638 |
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|
807 |
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Impairment and loss on sale of investments |
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(4,088 |
) |
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(500 |
) |
Other income, net |
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289 |
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103 |
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Loss before income taxes |
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(7,938 |
) |
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(10,258 |
) |
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Income taxes |
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130 |
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37 |
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Loss before equity in earnings (loss) of affiliate |
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(8,068 |
) |
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(10,295 |
) |
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Equity in earnings (loss) of affiliate |
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27 |
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(155 |
) |
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Net loss |
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$ |
(8,041 |
) |
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$ |
(10,450 |
) |
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Net loss per common share: |
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Basic |
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$ |
(0.26 |
) |
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$ |
(0.35 |
) |
Diluted |
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$ |
(0.26 |
) |
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$ |
(0.35 |
) |
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Weighted average common shares |
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30,383 |
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29,979 |
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Weighted average common and potential common shares |
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30,383 |
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29,979 |
|
See accompanying notes to condensed consolidated financial statements.
6
FSI INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED MAY 26, 2007 AND MAY 27, 2006
(unaudited)
(in thousands)
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May 26, |
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May 27, |
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2007 |
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2006 |
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OPERATING ACTIVITIES: |
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Net loss |
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$ |
(8,041 |
) |
|
$ |
(10,450 |
) |
Adjustments to reconcile net loss to net cash
used in operating activities: |
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Stock compensation expense |
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427 |
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|
807 |
|
Impairment and loss on sale of investments |
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|
4,088 |
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|
500 |
|
Depreciation |
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2,723 |
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|
2,620 |
|
Amortization |
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|
399 |
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|
404 |
|
Gain on sale of fixed asset |
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(17 |
) |
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Equity in (earnings) loss of affiliate |
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(27 |
) |
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|
155 |
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Changes in operating assets and liabilities: |
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Restricted cash |
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(5 |
) |
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|
139 |
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Trade accounts receivable |
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|
5,265 |
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|
1,880 |
|
Inventories |
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177 |
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(6,806 |
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Prepaid expenses and other current assets |
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|
3,396 |
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(2,454 |
) |
Trade accounts payable |
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(4,595 |
) |
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|
1,974 |
|
Accrued expenses |
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|
(3,998 |
) |
|
|
(803 |
) |
Customer deposits |
|
|
(2,937 |
) |
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|
5,884 |
|
Deferred profit |
|
|
(857 |
) |
|
|
(213 |
) |
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Net cash used in operating activities |
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|
(4,002 |
) |
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(6,363 |
) |
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INVESTING ACTIVITIES: |
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Capital expenditures |
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(1,586 |
) |
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|
(1,996 |
) |
Purchases of marketable securities |
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|
(66,650 |
) |
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|
(245,550 |
) |
Sales of marketable securities |
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|
68,100 |
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|
252,695 |
|
Dividend from affiliate |
|
|
2,047 |
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|
208 |
|
Proceeds from sale of investments |
|
|
1,238 |
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Proceeds from sale of fixed asset |
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|
17 |
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Net cash provided by investing activities |
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|
3,166 |
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|
5,357 |
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FINANCING ACTIVITIES: |
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Net proceeds from issuance of common stock |
|
|
518 |
|
|
|
744 |
|
Increase in restricted cash |
|
|
(515 |
) |
|
|
|
|
Principle payments on capital lease |
|
|
(378 |
) |
|
|
|
|
|
|
|
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Net cash (used in) provided by financing activities |
|
|
(375 |
) |
|
|
744 |
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|
|
|
|
|
|
|
|
|
|
|
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|
Effect of exchange rate changes on cash and cash equivalents |
|
|
(77 |
) |
|
|
(145 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Decrease in cash and cash equivalents |
|
|
(1,288 |
) |
|
|
(407 |
) |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at beginning of period |
|
|
15,672 |
|
|
|
11,352 |
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Cash and cash equivalents at end of period |
|
$ |
14,384 |
|
|
$ |
10,945 |
|
|
|
|
|
|
|
|
See accompanying notes to condensed consolidated financial statements.
7
FSI INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(1) Description of Business and Summary of Significant Accounting Policies
Description of Business
FSI International, Inc. (the Company) is a global supplier of surface conditioning equipment
(process equipment that is used to wet-etch and remove contaminates from the surfaces of
microelectronic substrates and devices), and technology and support services for microelectronics
manufacturing. The Companys broad portfolio of batch and single-wafer cleaning products includes
process technologies for immersion (a method used to clean substrates and devices by immersing them
in multiple tanks filled with process chemicals), spray (sprays chemical mixtures, water and
nitrogen in a variety of sequences on to the substrates and devices), vapor (utilizes gas phase
chemistries to selectively remove sacrificial surface films) and CryoKinetic (a momentum transfer
process used to remove non-chemically bonded particles from the surface of substrates and devices).
The Companys support services programs provide product and process enhancements to extend the life
of installed FSI equipment.
The Company announced the winding down of its Microlithography business in March 2003 and
transitioned the Microlithography (uses light to transfer a circuit pattern onto microelectronic
substrates and devices) business to a POLARIS® Systems and Services (PSS) organization
to focus on supporting the more than 300 installed POLARIS® Systems, including
refurbishments, upgrades, training and spares.
The Companys customers include microelectronics manufacturers located throughout North
America, Europe, Japan and the Asia-Pacific region.
Condensed Consolidated Financial Statements
The accompanying condensed consolidated financial statements have been prepared by the Company
without audit and reflect all adjustments (consisting only of normal and recurring adjustments,
except as disclosed in the notes) which are, in the opinion of management, necessary to present a
fair statement of the results for the interim periods presented. The statements have been prepared
in accordance with the regulations of the Securities and Exchange Commission (SEC) but omit
certain information and footnote disclosures necessary to present the statements in accordance with
accounting principles generally accepted in the United States of America. The results of operations
for the interim periods presented are not necessarily indicative of the results to be expected for
the full fiscal year. These condensed consolidated financial statements should be read in
conjunction with the consolidated financial statements included in the Companys Annual Report on
Form 10-K for the fiscal year ended August 26, 2006, previously filed with the SEC.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally
accepted in the United States of America requires management to make estimates and assumptions that
could affect the reported amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of revenue and
expenses during the reporting period. Actual results could differ from those estimates.
New Accounting Pronouncements
In June 2006, the Financial Accounting Standards Board (FASB) issued Interpretation No. 48,
Accounting for Uncertainty in Income Taxes an interpretation of FASB Statement No. 109. This
interpretation clarifies the accounting for uncertainty in income taxes recognized in an
enterprises financial statements in accordance with FASB Statement No. 109, Accounting for Income
Taxes. This interpretation prescribes a recognition threshold and measurement attribute for the
financial statement recognition and measurement of a tax position taken or expected to be taken in
a tax return. It also provides guidance on derecognition, classification, interest and
penalties, accounting in interim periods, disclosure and transition. This interpretation is
effective for the Company
8
FSI INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
beginning in fiscal year 2008. The Company is still evaluating the impact
that the adoption of this pronouncement will have on its consolidated financial statements.
In June 2006, the FASB ratified the Emerging Issues Task Force (EITF) consensus on EITF Issue
No. 06-3 How Taxes Collected From Customers and Remitted to Governmental Authorities Should Be
Presented in the Income Statement (That Is, Gross versus Net Presentation) (EITF No. 06-3). The
scope of EITF No. 06-3 includes any tax assessed by a governmental authority that is directly
imposed on a revenue-producing transaction between a seller and a customer, and provides that a
company may adopt a policy of presenting taxes either gross within revenue or on a net basis. For
any such taxes that are reported on a gross basis, a company should disclose the amounts of those
taxes for each period for which an income statement is presented if those amounts are significant.
This statement is effective to financial reports for interim and annual reporting periods beginning
after December 15, 2006. EITF No. 06-3 became effective for the Company as of February 25, 2007.
The Company collects various sales and value-added taxes on certain product and service sales,
which are accounted for on a net basis.
In September 2006, the SEC issued Staff Accounting Bulletin No. 108 (SAB 108), Considering
the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial
Statements, to address diversity in practice in quantifying financial statement misstatements. SAB
No. 108 requires that the Company quantify misstatements based on their impact on each of the
Companys financial statements and related disclosures. SAB No. 108 is effective as of the end of
the Companys fiscal year 2007, allowing a one-time transitional cumulative effect adjustment to
retained earnings as of August 27, 2006, for errors that were not previously deemed material, but
are material under the guidance in SAB No. 108. The Company is still evaluating the impact SAB No.
108 will have on its consolidated financial statements and will adopt SAB No. 108 in the fourth
quarter of fiscal 2007.
In September 2006, the FASB issued Statement of Financial Accounting Standard (SFAS) No. 157,
Fair Value Measurements. SFAS No. 157 establishes a single authoritative definition of fair
value, sets out a framework for measuring fair value and requires additional disclosures about
fair-value measurements. This statement applies only to fair-value measurements that are already
required or permitted by other accounting standards, except for measurements of share-based
payments and measurements that are similar to, but not intended to be, fair value. This statement
is expected to increase the consistency of fair value measurements, but imposes no requirements for
additional fair-value measures in financial statements. The provisions under SFAS No. 157 are
effective for the Company beginning in the first quarter of fiscal 2008. The Company is still
evaluating the impact the adoption of this pronouncement will have on its consolidated financial
statements.
In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets
and Financial Liabilities including an amendment of FASB Statement No. 115 (SFAS No. 159). This
statement permits entities to choose to measure many financial instruments and certain other items
at fair value. The objective is to improve financial reporting by providing entities with the
opportunity to mitigate volatility in reported earnings caused by measuring related assets and
liabilities differently without having to apply complex hedge accounting provisions. SFAS 159 is
effective as of the beginning of fiscal years that begin after November 15, 2007. The Company is
still evaluating the impact the adoption of this pronouncement will have on its consolidated
financial statements.
Reclassifications
Certain amounts have been reclassified to conform to the current year presentation.
9
FSI INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(2) Inventories, net
Inventories, net are summarized as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
May 26, |
|
|
August 26, |
|
|
|
2007 |
|
|
2006 |
|
Finished products |
|
$ |
3,511 |
|
|
$ |
4,756 |
|
Work-in-process |
|
|
13,995 |
|
|
|
17,435 |
|
Subassemblies |
|
|
4,259 |
|
|
|
2,911 |
|
Raw materials and purchased parts |
|
|
13,739 |
|
|
|
10,580 |
|
|
|
|
|
|
|
|
|
|
$ |
35,504 |
|
|
$ |
35,682 |
|
|
|
|
|
|
|
|
(3) Accrued expenses
Accrued expenses are summarized as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
May 26, |
|
|
August 26, |
|
|
|
2007 |
|
|
2006 |
|
Salaries and benefits |
|
$ |
3,789 |
|
|
$ |
3,667 |
|
Product warranty |
|
|
4,023 |
|
|
|
3,964 |
|
Professional fees |
|
|
418 |
|
|
|
489 |
|
Income taxes |
|
|
1,194 |
|
|
|
1,260 |
|
VAT taxes |
|
|
192 |
|
|
|
4,257 |
|
Other |
|
|
1,601 |
|
|
|
1,575 |
|
|
|
|
|
|
|
|
|
|
$ |
11,217 |
|
|
$ |
15,212 |
|
|
|
|
|
|
|
|
(4) Supplementary cash flow information
The following summarizes supplementary cash flow items (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
|
May 26, |
|
|
May 27, |
|
|
|
2007 |
|
|
2006 |
|
Income taxes paid |
|
$ |
93 |
|
|
$ |
32 |
|
Interest paid, net |
|
|
153 |
|
|
|
|
|
Assets acquired by a capital lease |
|
$ |
1,687 |
|
|
$ |
|
|
10
FSI INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(5) Comprehensive loss
Other comprehensive loss pertains to revenues, expenses, gains and losses that are not
included in the net loss but rather are recorded directly in stockholders equity. For the
quarters and nine months ended May 26, 2007 and May 27, 2006, other comprehensive loss consisted of
the foreign currency translation adjustment. The components of comprehensive loss are summarized as
follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarters Ended |
|
|
Nine Months Ended |
|
|
|
May 26, |
|
|
May 27, |
|
|
May 26, |
|
|
May 27, |
|
|
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
Net loss |
|
$ |
(5,643 |
) |
|
$ |
(2,433 |
) |
|
$ |
(8,041 |
) |
|
$ |
(10,450 |
) |
Foreign currency translation |
|
|
98 |
|
|
|
(53 |
) |
|
|
(145 |
) |
|
|
(600 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss |
|
$ |
(5,545 |
) |
|
$ |
(2,486 |
) |
|
$ |
(8,186 |
) |
|
$ |
(11,050 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
(6) Stock-Based Compensation
Stock-based compensation expense for stock options granted or vested under the Companys stock
incentive plan and Employees Stock Purchase Plan (ESPP) was reflected in the statements of
operations for the third quarter and first nine months of each of fiscal 2007 and 2006 as follows
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarters Ended |
|
|
Nine Months Ended |
|
|
|
May 26, |
|
|
May 27, |
|
|
May 26, |
|
|
May 27, |
|
|
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
Cost of goods sold |
|
$ |
6 |
|
|
$ |
11 |
|
|
$ |
22 |
|
|
$ |
32 |
|
Selling, general and administrative |
|
|
112 |
|
|
|
193 |
|
|
|
316 |
|
|
|
550 |
|
Research and development |
|
|
20 |
|
|
|
79 |
|
|
|
89 |
|
|
|
225 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
138 |
|
|
$ |
283 |
|
|
$ |
427 |
|
|
$ |
807 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11
FSI INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
The fair value of each option granted under the Companys stock incentive plan and ESPP is
estimated on the date of grant using the Black-Scholes option-pricing model. The Company uses
historical data to estimate the expected price volatility, the expected option life and the
expected forfeiture rate. The risk-free rate is based on the U.S. Treasury yield curve in effect at
the time of grant for the estimated life of the option. The Company has not made any dividend
payments nor does it expect to pay dividends in the foreseeable future. The following assumptions
were used to estimate the fair value of options granted during the third quarter and first nine
months of fiscal 2007 and 2006 using the Black-Scholes option-pricing model:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarters Ended |
|
|
Nine Months Ended |
|
|
|
May 26, |
|
|
May 27, |
|
|
May 26, |
|
|
May 27, |
|
|
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
Stock options: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Volatility |
|
|
* |
|
|
|
68.0 |
% |
|
|
69.0 |
% |
|
|
68.5 |
% |
Risk-free interest rates |
|
|
* |
|
|
|
4.9 |
% |
|
|
4.7 |
% |
|
|
4.5 |
% |
Expected option life |
|
|
* |
|
|
|
5.5 |
|
|
|
5.5 |
|
|
|
5.6 |
|
Stock dividend yield |
|
|
* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ESPP: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Volatility |
|
|
* |
|
|
|
* |
|
|
|
69.0 |
% |
|
|
68.3 |
% |
Risk-free interest rates |
|
|
* |
|
|
|
* |
|
|
|
5.1 |
% |
|
|
4.3 |
% |
Expected option life |
|
|
* |
|
|
|
* |
|
|
|
0.5 |
|
|
|
0.5 |
|
Stock dividend yield |
|
|
* |
|
|
|
* |
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
There were no stock options granted under the Companys option plan in the third quarter of fiscal
2007 or under the ESPP in the third quarter of fiscal 2007 or the third quarter of fiscal
2006. |
A summary of option activity for the first nine months of fiscal 2007 is as follows (in
thousands, except price per share and contractual term):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
-average |
|
|
|
|
|
|
|
|
|
|
-average |
|
|
Remaining |
|
|
Aggregate |
|
|
|
Number of |
|
|
Exercise Price |
|
|
Contractual |
|
|
Intrinsic |
|
|
|
Shares |
|
|
Per Share |
|
|
Term |
|
|
Value |
|
Outstanding as of August 26, 2006 |
|
|
3,699 |
|
|
$ |
7.42 |
|
|
|
|
|
|
|
|
|
Options granted |
|
|
173 |
|
|
|
5.20 |
|
|
|
|
|
|
|
|
|
Options forfeited |
|
|
(5 |
) |
|
|
3.73 |
|
|
|
|
|
|
|
|
|
Options expired |
|
|
(179 |
) |
|
|
11.26 |
|
|
|
|
|
|
|
|
|
Options exercised |
|
|
(54 |
) |
|
|
3.50 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding as of May 26, 2007 |
|
|
3,634 |
|
|
$ |
7.19 |
|
|
|
5.4 |
|
|
$ |
778 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable as of May 26, 2007 |
|
|
3,306 |
|
|
$ |
7.43 |
|
|
|
5.1 |
|
|
$ |
731 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12
FSI INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
The weighted-average grant-date fair value based on the Black-Scholes option-pricing model for
options granted in the first nine months of fiscal 2007 was $3.32 per share, for options granted in
the third quarter of fiscal 2006 was $3.22 per share, and options granted in the first nine months
of fiscal 2006 was $3.10 per share. The total intrinsic value of options exercised was $13,500
during the third quarter of fiscal 2007, $108,200 during the first nine months of fiscal 2007,
$92,000 during the third quarter of fiscal 2006 and $203,700 during the first nine months of fiscal
2006.
A summary of the status of our unvested options as of May 26, 2007 is as follows (in
thousands, except fair value amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average |
|
|
|
Number of |
|
|
Grant-Date Fair |
|
|
|
Shares |
|
|
Value |
|
Unvested at August 26, 2006 |
|
|
303 |
|
|
$ |
2.75 |
|
Options granted |
|
|
173 |
|
|
|
3.32 |
|
Options forfeited |
|
|
(5 |
) |
|
|
2.30 |
|
Options vested |
|
|
(143 |
) |
|
|
2.80 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unvested at May 26, 2007 |
|
|
328 |
|
|
$ |
3.04 |
|
|
|
|
|
|
|
|
|
As of May 26, 2007, there was $852,000 of total unrecognized compensation cost related to
unvested share-based compensation granted under our plans. That cost is expected to be recognized
over a weighted-average period of 1.1 years. The total fair value of option shares vested during
the third quarter of fiscal 2007 was $138,000, $427,000 during the first nine months of fiscal
2007, $283,000 during the third quarter of fiscal 2006, and $806,000 during the first nine months
of fiscal 2006.
(7) Capital Lease
The Company entered into a capital lease to finance lab equipment during the first quarter of
fiscal 2007. The future minimum lease payments as of May 26, 2007 are as follows (in thousands):
|
|
|
|
|
Last three months of fiscal 2007 |
|
$ |
162 |
|
Fiscal 2008 |
|
|
648 |
|
Fiscal 2009 |
|
|
647 |
|
|
|
|
|
|
|
|
1,457 |
|
Less imputed interest |
|
|
(148 |
) |
|
|
|
|
Total capital lease obligation |
|
$ |
1,309 |
|
|
|
|
|
13
FSI INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(8) mFSI LTD Transaction
Prior to the transaction described below, the Company owned a 49 percent equity interest in
mFSI, LTD (mFSI), a Japanese joint venture company formed in 1991 among the Company, Mitsui &
Co., Ltd. (Mitsui) and Mitsuis wholly owned subsidiary, Chlorine Engineers Corp., Ltd. (CEC).
mFSI is engaged in the manufacturing and distribution in the Japanese market of semiconductor
equipment and products, including certain products of FSI. The Company, CEC, Mizuho Capital Co.,
Ltd, (Mizuho), The Yasuda Enterprise Development III, Limited Partnership (Yasuda) and certain
mFSI managers (mFSI Management Group) entered into a Stock Purchase Agreement (the
Agreement). The mFSI Management Group does not include any officers or employees of the
Company. Under the Agreement, mFSI paid on May 15, 2007, (the Closing Date), a $4.2 million
dividend to its shareholders prior to the sales contemplated in the Agreement, of which the Company
received approximately $2.0 million. In addition, under the Agreement, CEC and MBK Project Holdings
Ltd. (MPH), a wholly owned subsidiary of Mitsui, sold all of their combined 51 percent equity
ownership in mFSI and the Company sold 28.4 percent of its equity ownership in mFSI, or a total
of 79.4 percent, to Yasuda, Mizuho and the mFSI Management Group for a total purchase price of
$1.8 million. On the Closing Date, the Company received total proceeds of $3.2 million, net of
applicable taxes. The Company maintains a 20.6 percent equity ownership in mFSI after the
completion of the transaction. As a result of the transaction, the Companys ownership and business
relationship with mFSI changed such that the Company no longer had the ability to exercise
significant influence over mFSI. Therefore, beginning in the fourth quarter of fiscal 2007, the
Company will begin to account for its investment in mFSI under the cost method. Previously, the
Company accounted for its investment in mFSI under the equity method. On the Closing Date, the
Company entered into a Termination and Release Agreement with Mitsui, CEC, MPH and mFSI, for the
termination of the following agreements and any amendments thereto:
|
(i) |
|
the mFSI Distribution Agreement, dated September 17, 2004, providing the
Company with the exclusive rights to distribute mFSI surface conditioning products
outside of Japan, |
|
|
(ii) |
|
the FSI Distribution Agreement, dated June 5, 1991, providing mFSI with
exclusive rights to distribute the Company surface conditioning products in Japan, |
|
|
(iii) |
|
the mFSI License Agreement, dated September 17, 2004, pursuant to which mFSI
granted to the Company a license to certain mFSI intellectual property and technology, |
|
|
(iv) |
|
the FSI License Agreement, dated June 5, 1991, pursuant to which the Company
granted to mFSI a license to certain of the Companys intellectual property and
technology, and |
|
|
(v) |
|
the Shareholders Agreement, dated June 5, 1991, among the Company, CEC and MPH
related to the establishment of mFSI. |
Finally, the Company and mFSI entered into a new distribution agreement, with an initial
five-year term, providing mFSI with the exclusive right to sell, lease or otherwise distribute FSI
surface conditioning products in Japan. Also, the Company, Mizuho, Yasuda and the mFSI Management
Group entered into a new shareholders agreement providing for certain governance, transfer and
other rights and restrictions related to their ownership of mFSI.
14
FSI INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(9) Impairment and loss on sale of Investments
In anticipation of completing the transaction described in Note 8, the Company recorded a $3.6
million impairment charge in the second quarter of fiscal 2007. With the completion of the
transaction in the third quarter of fiscal 2007, the Company recorded an additional $0.5 million
charge related to the transaction described in Note 8. During the first nine months of fiscal 2007,
the Company recorded net charges of $4.1 million related to the transaction described in Note 8.
In the second quarter of fiscal 2006, the Company recorded a $0.5 million asset impairment
charge associated with an investment it had in a Malaysian foundry that was accounted for under the
cost method. On March 22, 2006, the majority shareholder of this Malaysian foundry announced that
the foundry would merge with another foundry and form a new entity. Subsequent to the merger
announcement, the Company was contacted by the majority shareholder and given the option of selling
its shares at a nominal value to the majority shareholder or providing additional debt to the
foundry as part of a pre-merger restructuring. Based on this information, the Company deemed its
investment as being fully impaired as of February 25, 2006 and recorded a loss of $0.5 million in
the second quarter of fiscal 2006. The Company sold its shares at a nominal value to the majority
shareholder during the third quarter of fiscal 2006.
(10) Contingencies
The Company generates minor amounts of liquid and solid hazardous waste and uses licensed
haulers and disposal facilities to ship and dispose of such waste. In the past, the Company has
received notices from state or federal enforcement agencies that the Company is a potentially
responsible party (PRP) in connection with the investigation of several hazardous waste disposal
sites owned and operated by third parties. In each matter, the Company has elected to participate
in settlement offers made to all de minimis parties with respect to such sites. The risk of being
named a PRP is that if any of the other PRPs are unable to contribute its proportionate share of
the liability, if any, associated with the site, those PRPs that are financially able could be
held financially responsible for the shortfall. The Company currently does not have any of these
claims outstanding.
In late calendar 2006, the Company determined that certain of its replacement valves, pumps
and heaters could fall within the scope of United States export licensing regulations to products
that could be used in connection with chemical weapons processes. The Company determined that these
regulations require it to obtain licenses to ship some of its replacement spare parts, spare parts
kits and assemblies to customers in certain controlled countries as defined in the export licensing
regulations. During the second quarter of fiscal 2007, the Company was granted licenses to ship
replacement spare parts, spare parts kits and assemblies to all customers in the controlled
countries where the Company conducts business.
The applicable export licensing regulations frequently change. Moreover, the types and
categories of products that are subject to export licensing are often described in the regulations
in general terms and could be subject to differing interpretations.
In the second quarter of fiscal 2007, the Company made a voluntary disclosure to the United
States Department of Commerce to clarify its licensing practices and to review its practices with
respect to prior sales of certain replacement valves, pumps and heaters to customers in several
controlled countries as defined in the licensing regulations.
The United States Department of Commerce could assess penalties for any past violation of
export control regulations. The potential penalties are dependent upon the number of shipments in
violation of the export control regulations. The penalties can range from zero to $50,000 per
violation. Management believes that the resolution of this matter will not have a material adverse
impact to the Companys consolidated financial condition. The licenses that were granted during the second quarter of fiscal 2007 do not necessarily
mitigate the Companys risk with respect to past violations.
15
FSI INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(11) Cost Reductions
In the third quarter of fiscal 2007, the Company implemented cost reduction actions including
an 11% reduction in headcount to approximately 500 employees and other operating cost initiatives.
The cost reduction actions were related to industry conditions in the semiconductor device and thin
film head (a device manufactured on a silicon wafer which is capable of reading and writing
information onto a compact disc or other information storage device) segments that the Company
serves, coupled with a delay in certain customer-specific equipment purchases. A total of 61
positions were eliminated in connection with this reduction of which 36 were manufacturing
positions, 13 were sales, service and marketing positions and 12 were engineering positions. The
terminations all occurred in the third quarter of fiscal 2007. Severance and outplacement costs
recorded in the third quarter of fiscal 2007 were allocated as follows: $216,000 to selling,
general and administrative expense, $216,000 to research and development expense and $142,000 to
cost of goods sold.
16
FSI INTERNATIONAL, INC. AND SUBSIDIARIES
Item 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The information in this report, except for the historical information, contains
forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of
1934, as amended, and is subject to the safe harbor created by that statute. Typically, we identify
forward-looking statements by use of an asterisk *. In some cases, you can identify
forward-looking statements by terminology such as expects, anticipates, intends, may,
should, plans, believes, seeks, estimates, could, would, or the negative of such
terms or other comparable terminology. These forward-looking statements include, but are not
limited to expected orders, revenues, gross margin, operating expense run rate, net loss and cash
usage for the fourth quarter of fiscal 2007; and expected fourth quarter actions to lower our
breakeven revenue level and to improve margins. These statements are subject to various risks and
uncertainties, both known and unknown. Factors that could cause actual results to differ from
these forward-looking statements include, but are not limited to the length and extent of industry
slowdowns and recoveries; order delays or cancellations; general economic conditions; changes in
customer capacity requirements and demand for microelectronics; the extent of demand for our
products and our ability to meet demand; global trade policies; worldwide economic and political
stability; our successful execution of internal performance plans; the cyclical nature of our
business; volatility of the market for certain products; performance issues with key suppliers and
subcontractors; the level of new orders; timely achievement of product acceptances; the timing and
success of current and future product and process development programs; the success of our
distributor in Japan; the success of our direct distribution organization; and the potential
impairment of long-lived assets; as well as other factors listed from time to time in our SEC
reports including, but not limited to, the Risk Factors set forth in the Form 10-K, as amended,
for the fiscal year ended August 26, 2006. Readers also are cautioned not to place undue reliance
on these forward-looking statements as actual results could differ materially. We undertake no duty
to update any of the forward-looking statements after the date of this report.
This discussion and analysis should be read in conjunction with the Consolidated Condensed
Financial Statements and footnotes thereto appearing elsewhere in this report.
Industry
In general, semiconductor and equipment industry analysts have become more cautious with
respect to calendar 2007. Many analysts anticipate that demand for semiconductors will improve in
the second half of calendar 2007 as compared to the first half.* On the other hand, some analysts
are forecasting demand for equipment to weaken in the second half of calendar 2007 before
recovering again in calendar 2008.*
Several semiconductor manufacturers have announced spin-offs and fab light initiatives. These
changes are impacting how equipment suppliers conduct business. The recently announced combination
of ST Microelectronics and Intels NOR (a type of flash memory chip with capabilities for
applications in which programs run directly from memory) flash businesses and Texas Instruments
announcement to partner with an Asian foundry are examples of such transactions. These initiatives,
at least in the near term, can disrupt momentum on both revenue and development fronts, as the
manufacturers involved delay or reduce spending until they implement their business model changes.*
In a softening industry environment, customers may take the opportunity to evaluate new
products and process technologies. We continue to experience a steady flow of demonstration
requests for our products and applications, particularly our ZETA® ViPR technology.
It is often during periods of lower sales growth and reduced profit margins that customers
request longer on-site product evaluations, sales concessions and delayed payment terms. In
addition, in an effort to reduce costs and preserve cash, many customers let on-site support
contracts expire. Due to lost revenue and profits, these actions put more financial burden on
equipment suppliers.
17
Overview
During the third quarter of fiscal 2007, we completed the restructuring of mFSI, our Japanese
joint venture with Mitsui. mFSI, established in 1991, is engaged in manufacturing and
distributing semiconductor equipment and products in the Japanese market, including our surface
conditioning products.
In the third quarter, we gained acceptance of another evaluation system at a key Asian
customer. We also demonstrated the high volume throughput version of our MAGELLAN®
system in a customers production fab. As a result of leads during our Knowledge Service Seminars,
we saw increased customer interest in our ViPR technology. In addition, we continued with customer
process qualification for our new single wafer wet cleaning system.
With expected revenue in the $20 to 25 million range for the August and November 2007
quarters, we are conducting a comprehensive program and cost structure review and expect to take
actions in the fourth quarter, focused on lowering our breakeven revenue level and improving our
margins.* Our challenge, in the current industry environment, is to restructure our business
without negatively impacting sales opportunities with new and existing customers of our flagship
products while sustaining our key development initiatives and preserving our cash.
Application of Critical Accounting Policies and Estimates
In accordance with Securities and Exchange Commission guidance, those material accounting
policies that we believe are the most critical to an investors understanding of our financial
results and condition and require complex management judgment are discussed below.
Our critical accounting policies and estimates are as follows:
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revenue recognition; |
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valuation of long-lived assets; |
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estimation of valuation allowances and accrued liabilities, specifically product
warranty, inventory reserves and allowance for doubtful accounts; |
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stock-based compensation; and |
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income taxes. |
Revenue Recognition
We recognize revenue when persuasive evidence of an arrangement exists, delivery has occurred
or services have been rendered, the purchase price is fixed or determinable and collectibility is
reasonably assured. If our equipment sales involve sales to our existing customers who have
previously accepted the same type(s) of equipment with the same type(s) of specifications, we
account for the product sales as a multiple element arrangement. Revenue from multiple element
arrangements is allocated among the separate accounting units based on the residual method. Under
the residual method, the revenue is allocated to undelivered elements based on fair value of such
undelivered elements and the residual amounts of revenue allocated to delivered elements. We
recognize the equipment revenue upon shipment and transfer of title. The other multiple elements
also include installation, service contracts and training. Equipment installation revenue is valued
based on estimated service person hours to complete installation and published or quoted service
labor rates and is recognized when the installation has been completed and the equipment has been
accepted by the customer. Training revenue is valued based on published training class prices or
quoted rates and is recognized when the customers complete the training classes or when a customer-specific training period has expired. The published or
quoted service labor rates and training class prices are rates actually charged and billed to our
customers.
18
All other product sales with customer-specific acceptance provisions are recognized upon
customer acceptance. Future revenues may be negatively impacted if we are unable to meet
customer-specific acceptance criteria. Revenue related to spare part sales is recognized upon
shipment or delivery based on the title transfer terms. Revenues related to maintenance and service
contracts are recognized ratably over the duration of such contracts.
The timing and amount of revenue recognized depends on whether revenue is recognized upon
shipment versus acceptance. For revenue recognized upon acceptance, it is dependent upon when
customer-specific criteria are met.
Valuation of Long-Lived Assets
We assess the impairment of identifiable long-lived assets whenever events or changes in
circumstances indicate that the carrying value may not be recoverable.
If we determine that the carrying value of long-lived assets may not be recoverable, we
measure any impairment based on a projected discounted cash flow method using a discount rate
determined by our management to be commensurate with the risk inherent in our current business
model or another valuation technique. Net intangible assets and long-lived assets amounted to $21.6
million as of May 26, 2007 and as of August 26, 2006.
Product Warranty Estimation
We record a liability for warranty claims at the time of sale. The amount of the liability is
based on the trend in the historical ratio of claims to sales, releases of new products and other
factors. The warranty periods for new equipment manufactured by us typically range from one to two
years. Special warranty reserves are also accrued for major rework campaigns. Although management
believes the likelihood to be relatively low, claims experience could be materially different from
actual results because of the introduction of new, more complex products; competition or other
external forces; manufacturing changes that could impact product quality; or as yet unrecognized
defects in products sold.
Inventory Reserves Estimation
We record reserves for inventory shrinkage and for potentially excess, obsolete and slow
moving inventory. These reserves are based upon historical loss trends, inventory levels, physical
inventory and cycle count adjustments, expected product lives, forecasted sales demand and
recoverability. Results could be materially different if demand for our products decreased because
of economic or competitive conditions, length of the industry downturn, or if products become
obsolete because of technical advancements in the industry or by us.
In the second quarter of fiscal 2003, we recorded POLARIS® Systems and Services (PSS)
product inventory reserves as a result of the wind-down of our Microlithography business. During
the first nine months of fiscal 2007, we had sales of PSS product inventory that had previously
been written down to zero with an original cost of approximately $887,000. During the third quarter
and first nine months of fiscal 2006, we had sales of PSS product inventory that had previously
been written down to zero with an original cost of $410,000 and $2.0 million, respectively. Also,
in the first nine months of fiscal 2007, we recorded an additional $1.2 million reserve related to
used tools and other raw materials purchased since March 2003 to be used for refurbished equipment.
Since the write-down of the inventory in fiscal 2003, we have had cumulative sales of PSS product
inventory that had previously been written down to zero and reductions in inventory buyback
requirements of approximately $9.7 million and have disposed of approximately $6.5 million of PSS
product inventory. The original cost of PSS product inventory available for sale or to be disposed
of as of May 26, 2007 that has been written down to zero was approximately $8.7 million. Total
inventory reserves were $14.7 million as of May 26, 2007 and $13.8 million as of August 26, 2006.
Allowance for Doubtful Accounts Estimation
Management must estimate the uncollectibility of our accounts receivable. The most significant
risk is a sudden
19
unexpected deterioration in financial condition of a significant customer who is
not considered in the allowance. Management specifically analyzes accounts receivable, historical
bad debts, customer concentrations, customer credit-worthiness, current economic trends and changes
in our customer payment terms when evaluating the adequacy of the allowance for doubtful accounts.
Results could be materially impacted if the financial condition of a significant customer
deteriorated, due to the cyclicality of our industry or for other reasons, and related accounts
receivable are deemed uncollectible. Accounts receivable are charged off after management
determines that they are uncollectible.
Stock-Based Compensation
We implemented the fair value recognition provisions of SFAS No. 123R effective August 28,
2005 using the modified prospective method. Under this method, we recognize compensation expense
for all stock-based awards granted on or after August 28, 2005 and for previously granted awards
not yet vested as of August 28, 2005.
We utilize the Black-Scholes option-pricing model to estimate fair value of each award on the
date of grant. The Black-Scholes model requires the input of certain assumptions that involve
management judgment. Key assumptions that affect the calculation of fair value include the expected
life of stock-based awards and our stock price volatility. Additionally, we expense only those
shares expected to vest. The assumptions used in calculating the fair value of stock-based awards
and the forfeiture rate of such awards reflect managements best estimates. However, circumstances
may change and additional data may become available over time, which could result in changes to
these assumptions that materially impact the fair value determination of future awards or their
estimated rate of forfeiture. If factors change and we use different assumptions in the application
of SFAS 123R in future periods, the compensation expense recorded under SFAS 123R may differ
significantly from the expense recorded in the current period.
Income Taxes
Our effective income tax rate is based on income, statutory tax rates and tax planning
opportunities available to us in the various jurisdictions in which we operate. We have established
valuation allowances against a portion of the U.S. and non-U.S. net operating losses to reflect the
uncertainty of our ability to fully utilize these benefits given the limited carryforward periods
permitted by the various jurisdictions. The evaluation of the realizability of our net operating
losses requires the use of considerable management judgment to estimate the future taxable income
for the various jurisdictions, for which the ultimate amounts and timing of such estimates may
differ. The valuation allowance can also be impacted by changes in the tax regulations.
Significant judgment is required in determining our contingent tax liabilities. We have
established contingent tax liabilities using managements best judgment and adjust these
liabilities as warranted by changing facts and circumstances. A change in our tax liabilities in
any given period could have a significant impact on our results of operations and cash flows for
that period.
20
THIRD QUARTER AND FIRST NINE MONTHS OF FISCAL 2007 COMPARED TO THIRD QUARTER AND FIRST NINE MONTHS
OF FISCAL 2006
The Company
The following table sets forth on a consolidated basis, for the fiscal period indicated,
certain income and expense items as a percent of total sales.
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Percent of Sales |
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Percent of Sales |
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Quarter Ended |
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Nine Months Ended |
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May 26, |
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May 27, |
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|
May 26, |
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May 27, |
|
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|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
Sales |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
Cost of sales |
|
|
62.8 |
|
|
|
59.2 |
|
|
|
58.7 |
|
|
|
51.9 |
|
|
|
|
|
|
|
|
|
|
|
|
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|
Gross margin |
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37.2 |
|
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40.8 |
|
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41.3 |
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48.1 |
|
Selling, general and administrative |
|
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34.0 |
|
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|
29.1 |
|
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|
27.2 |
|
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|
37.5 |
|
Research and development |
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24.2 |
|
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19.7 |
|
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|
18.9 |
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25.2 |
|
|
|
|
|
|
|
|
|
|
|
|
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|
Operating loss |
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|
(21.0 |
) |
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|
(8.0 |
) |
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|
(4.8 |
) |
|
|
(14.6 |
) |
Other income, net |
|
|
(1.2 |
) |
|
|
0.6 |
|
|
|
(3.4 |
) |
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|
0.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes |
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|
(22.2 |
) |
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|
(7.4 |
) |
|
|
(8.2 |
) |
|
|
(14.1 |
) |
Income taxes |
|
|
0.2 |
|
|
|
|
|
|
|
0.1 |
|
|
|
|
|
Equity in (loss) earnings of affiliate |
|
|
|
|
|
|
(0.2 |
) |
|
|
|
|
|
|
(0.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
|
(22.4 |
)% |
|
|
(7.6 |
)% |
|
|
(8.3 |
)% |
|
|
(14.3 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales Revenue and Shipments
Sales revenue decreased by $6.7 million to $25.2 million for the third quarter of fiscal 2007
as compared to $32.0 million for the third quarter of fiscal 2006. The decrease in sales revenue
related primarily to a decrease in shipments from $28.6 million in the third quarter of fiscal 2006
to $20.9 million in the third quarter of fiscal 2007. The decrease in shipments related to a
decrease in customer orders as a result of slower industry conditions in the third quarter of
fiscal 2007 than the third quarter of fiscal 2006. Sales revenue increased by $23.4 million to
$96.3 million for the first nine months of fiscal 2007 as compared to $72.9 million for the first
nine months of fiscal 2006. The increase in sales revenue related to an increase in shipments from
$73.3 million in the first nine months of fiscal 2006 to $95.0 million in the first nine months of
fiscal 2007. The increase in shipments primarily related to an increase in backlog from $19.3
million as of the beginning of the first nine months of fiscal 2006 to $39.8 million as of the
beginning of the first nine months of fiscal 2007 associated with industry cycles.
Based upon our revenue recognition policy, certain shipments to customers are not recognized
until customer acceptance. Therefore, depending on the timing of shipments and customer
acceptances, there are time periods where shipments may exceed sales revenue or sales revenue may
exceed shipments.
International sales were $18.9 million, representing 75% of total sales, during the third
quarter of fiscal 2007 and $18.7 million, representing 59% of total sales, during the third quarter
of fiscal 2006. The net increase in international sales related to increases in Europe and Japan,
net of decreases in the Far East. International sales were $65.8 million, representing 68% of total
sales, during the first nine months of fiscal 2007 and $42.4 million, representing 58% of total
sales, during the first nine months of fiscal 2006. The increase in international sales related to
increases in Europe and the Far East.
We expect fourth quarter of fiscal 2007 revenues to be between $20 and $24 million.* A portion
of the expected revenue is subject to us obtaining timely acceptance from our customers and orders
are subject to cancellation.
21
Gross Margin
Our gross profit margin fluctuates due to a number of factors, including the mix of products
sold; the geographic mix of products sold, with international sales generally having lower gross
profit than domestic sales; initial product placement discounts; utilization of manufacturing
capacity; sales of PSS product inventory previously written down to zero; and the competitive
pricing environment.
Gross margin as a percentage of sales for the third quarter of fiscal 2007 was 37.2% as
compared to 40.8% for the third quarter of fiscal 2006. Gross margin as a percentage of sales for
the first nine months of fiscal 2007 was 41.3% as compared to 48.1% for the first nine months of
fiscal 2006. The decreases in margin in the fiscal 2007 periods were primarily due to an increase
in the percentage of international sales as a percent of total sales and a product mix change. The
change in gross margin in the third quarter of fiscal 2007 as compared to the third quarter of
fiscal 2006 was also impacted by a reduction in our capacity utilization rate as shipments
declined.
The fiscal 2007 margins were also impacted by the usage of PSS product inventory that had
previously been written down to zero, offset by additional inventory reserves. During the third
quarter of fiscal 2007, we had no significant sales of PSS product inventory that had previously
been written down to zero. During the first nine months of fiscal 2007, we had sales of PSS product
inventory with an original cost of $887,000 that had previously been written down to zero. The
increase in gross margin was partially offset by $389,000 of additional inventory reserves recorded
in the third quarter of fiscal 2007 and $1.2 million of additional inventory reserves recorded in
the first nine months of fiscal 2007 related to excess inventory purchased since March 2003 to be
used for refurbished equipment. In the third quarter of fiscal 2006, we had sales of PSS product
inventory with an original cost of $410,000 that had previously been written down to zero. In the
first nine months of fiscal 2006, we had sales of PSS product inventory with an original cost of
$2.0 million that had previously been written down to zero.
We continue to try to sell the impaired inventory to our customers as spares, refurbished
systems and upgrades to existing systems. If unsuccessful, some of the items will be disposed. Any
significant sales of the impaired inventory will be disclosed. Gross margins will be higher if
inventory carried at a reduced cost is sold.
Gross margins for the fourth quarter of fiscal 2007 are expected to be between 41% to 43% of
revenues due to expected product and geographic sales mix, partially offset by a low factory
utilization rate.* The gross margin expectations do not reflect any impact from the comprehensive
program and cost structure review that we are conducting and expect to begin implementing in the
fourth quarter of fiscal 2007.
Selling, General and Administrative Expenses
Selling, general and administrative expenses decreased to $8.6 million for the third quarter
of fiscal 2007 as compared to $9.3 million for the third quarter of fiscal 2006. Selling, general
and administrative expenses were $26.2 million for the first nine months of fiscal 2007 as compared
to $27.3 million for the same period in fiscal 2006. The decreases in selling, general and
administrative expenses for 2007 primarily related to continued cost control efforts, including the
reduction in headcount and travel restrictions imposed on our employees.
We expect selling, general and administrative expenses in the fourth quarter of fiscal 2007 to
be in the range of $8.3 to $8.5 million as we experience the full quarterly impact of cost
reductions implemented in March 2007.* The expense estimates do not reflect any impact from the
comprehensive program and cost structure review that we are conducting and expect to begin
implementing in the fourth quarter of fiscal 2007.
Research and Development Expenses
Research and development expenses were $6.1 million for the third quarter of fiscal 2007 as
compared to $6.3 million for the third quarter in fiscal 2006. Research and development expenses
were $18.2 million for the first nine months of fiscal 2007 as compared to $18.4 million for the
same period in fiscal 2006. The majority of our research and development resources are focused on expanding the application capabilities of
our products,
22
supporting initial product placements at customer locations and development and
demonstration of our new single wafer cleaning system.
Research and development expenses for the fourth quarter of fiscal 2007 are expected to be in
the range of $5.7 to $5.9 million as we continue to invest in new application and product
development programs and provide support for product evaluations at customer locations along with
laboratory demonstrations.* The expense estimates do not reflect any impact from the comprehensive
program and cost structure review that we are conducting and expect to begin implementing in the
fourth quarter of fiscal 2007.
Impairment and Loss on Sale of Investment
We recorded $0.5 million of impairment and loss on sale of investment for the third quarter of
fiscal 2007, $4.1 million for the first nine months of fiscal 2007 and $0.5 million of impairment
of investment for the first nine months of fiscal 2006. See further discussion related to these
impairments in Note 9 of the Notes to Condensed Consolidated Financial Statements.
Income Taxes
We recorded tax expense of $55,000 in the third quarter of fiscal 2007, $12,000 in the third
quarter of fiscal 2006, $130,000 in the first nine months of fiscal 2007 and $37,000 in the first
nine months of fiscal 2006. The increases in income tax expense in the fiscal 2007 periods
primarily related to foreign withholding taxes.
Our deferred tax assets on the balance sheet as of May 26, 2007 have been fully reserved with
a valuation allowance. We do not expect to reverse our valuation allowance until we are
consistently profitable on a quarterly basis.*
We have net operating loss carryforwards for federal income tax purposes of approximately
$149.4 million, which will begin to expire in fiscal year 2011 through fiscal 2027 if not utilized.
Of this amount, approximately $15.0 million is subject to Internal Revenue Code Section 382
limitations on utilization. This limitation is approximately $1.4 million per year.
Equity in Earnings (Loss) of Affiliate
The equity in earnings (loss) of affiliate was approximately $25,000 of income for the third
quarter of fiscal 2007, compared to a loss of approximately $52,000 for the third quarter of fiscal
2006. The equity in earnings (loss) of affiliate was approximately $27,000 of income for the first
nine months of fiscal 2007, compared to a loss of approximately $155,000 for the first nine months
of fiscal 2006.
We will no longer be recording equity in earnings (loss) of affiliates due to the May 15, 2007
transaction with mFSI LTD. See further discussion related to the transaction in Note 8 of the
Notes to Condensed Consolidated Financial Statements.
Net Loss
Net loss was $5.6 million in the third quarter of fiscal 2007, as compared to a net loss of
$2.4 million in the third quarter of fiscal 2006. Net loss was $8.0 million for the first nine
months of fiscal 2007, as compared to a net loss of $10.5 million for the first nine months of
fiscal 2006.
Assuming that we can achieve the projected revenue, gross margin, operating expense levels,
interest income and affiliate earnings, we expect to report net loss of $3.5 to $4.5 million for
the fourth quarter of fiscal 2007.* The net loss estimate does not reflect any impact from the
comprehensive program and cost structure review that we are conducting and expect to begin
implementing in the fourth quarter of fiscal 2007.
23
Liquidity and Capital Resources
Cash, restricted cash, cash equivalents and marketable securities were approximately $24.7
million as of May 26, 2007, a decrease of $2.2 million from the end of fiscal 2006. The net
decrease in cash, restricted cash, cash equivalents and marketable securities was primarily due to
$4.0 million of cash used in operating activities, $1.6 million in capital expenditures, $0.4
million of principle payments on the capital lease, and $0.1 million of negative currency impact.
The decrease in these balances were offset by a $2.0 million dividend received from mFSI LTD, $1.2
million proceeds related to the sale of a portion of our investment in mFSI LTD and $0.5 million
of proceeds from the issuance of common stock.
Accounts receivable decreased $5.3 million from the end of fiscal 2006 to $17.9 million as of
May 26, 2007. The decrease in accounts receivable was primarily due to a decrease in shipments from
$36.4 million in the fourth quarter of fiscal 2006 to $20.9 million in the third quarter of fiscal
2007. Accounts receivable will fluctuate from quarter to quarter, depending on individual
customers timing of ship dates and payment terms. In certain situations, extended payment terms
may be granted to customers.
Inventory decreased slightly to $35.5 million at May 26, 2007 as compared to $35.7 million at
the end of fiscal 2006. The net decrease in inventory was due to decreases in finished goods and
work-in-process inventory, partially offset by increases in subassemblies and raw materials
inventory. Inventory reserves were $14.7 million at May 26, 2007 as compared to reserves of $13.8
million at the end of fiscal 2006. The increase in the inventory reserves is related to the
slowdown in the industry.
Trade accounts payable decreased approximately $4.6 million to $4.2 million as of May 26, 2007
as compared to $8.8 million at the end of fiscal 2006. The decrease in trade accounts payable
related primarily to a decrease in inventory purchases associated with a decrease in bookings.
Customer deposits decreased approximately $2.9 million to $2.5 million as of May 26, 2007 as
compared to $5.4 million at the end of fiscal 2006. The decrease primarily relates to a decrease in
legacy product bookings which generally require deposits.
Deferred profit decreased approximately $0.8 million to $3.3 million at May 26, 2007 as
compared to $4.1 million at the end of fiscal 2006.
As of May 26, 2007, our current ratio of current assets to current liabilities was 3.9 to 1.0
and working capital was $63.8 million. We did not have any outstanding loans with our affiliate, or
lines of credit for affiliate, as of May 26, 2007.
24
The following table provides aggregate information about our contractual payment obligations
and the periods in which payments are due (in thousands):
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|
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|
|
|
|
|
|
|
|
Payments due by period |
|
Contractual Obligations: |
|
Total |
|
|
Less than 1 Year |
|
|
1-3 years |
|
|
3-5 years |
|
|
More than 5 years |
|
Operating lease obligations |
|
$ |
1,874 |
|
|
$ |
909 |
|
|
$ |
870 |
|
|
$ |
95 |
|
|
$ |
|
|
Capital lease obligations |
|
|
1,457 |
|
|
|
648 |
|
|
|
809 |
|
|
|
|
|
|
|
|
|
Purchase obligations |
|
|
2,995 |
|
|
|
2,995 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Royalty accruals |
|
|
341 |
|
|
|
341 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other long-term obligations
(1) |
|
|
2,000 |
|
|
|
125 |
|
|
|
500 |
|
|
|
500 |
|
|
$ |
875 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
8,667 |
|
|
$ |
5,018 |
|
|
$ |
2,179 |
|
|
$ |
595 |
|
|
$ |
$875 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Other long-term obligations related to minimum royalty payments or discounts
granted under a license agreement. |
Capital expenditures were approximately $1.6 million in the first nine months of fiscal 2007
and $2.0 million in the first nine months of fiscal 2006. We expect total capital expenditures to
be less than $300,000 in the fourth quarter of fiscal 2007.* Depreciation and amortization for the
fourth quarter of fiscal 2007 is expected to be between approximately $1.1 million to $1.2
million.*
At the expected revenue and expense run rate, we anticipate using approximately $2.5 to $3.5
million in net cash for operations in the fourth quarter of fiscal 2007.* The cash usage estimate
does not reflect any impact from the comprehensive program and cost structure review that we are
conducting and expect to begin implementing in the fourth quarter of fiscal 2007. The comprehensive
program and cost structure review initiative is focused on lowering our break even revenue level,
improving our margins and preserving cash. We believe that with existing cash, cash receipts, cash
equivalents, marketable securities and internally generated funds, there will be sufficient funds
to meet our currently projected working capital requirements, and to meet other cash requirements
through at least mid-fiscal 2008.* We believe that success in our industry requires substantial
capital to maintain the flexibility to take advantage of opportunities as they arise. One of our
strategic objectives is, as market and business conditions warrant, to consider divestitures,
investments or acquisitions of businesses, products or technologies, particularly those that are
complementary to our surface conditioning business. We may fund such activities with additional
equity or debt financing. The sale of additional equity or debt securities, whether to maintain
flexibility or to meet strategic objectives, could result in additional dilution to our
shareholders.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements.
New Accounting Pronouncements
In June 2006, the FASB issued Interpretation No. 48, Accounting for Uncertainty in Income
Taxes an interpretation of FASB Statement No. 109. This interpretation clarifies the accounting
for uncertainty in income taxes recognized in an enterprises financial statements in accordance
with FASB Statement No. 109, Accounting for Income Taxes. This interpretation prescribes a
recognition threshold and measurement attribute for the financial statement recognition and
measurement of a tax position taken or expected to be taken in a tax return. It also provides
guidance on derecognition, classification, interest and penalties, accounting in interim periods,
disclosure and transition. This interpretation is effective for us beginning in fiscal year 2008.
We are still evaluating the impact that the adoption of this pronouncement will have on our
consolidated financial statements.
In June 2006, the FASB ratified the Emerging Issues Task Force (EITF) consensus on EITF Issue
No. 06-3 How Taxes Collected From Customers and Remitted to Governmental Authorities Should Be
Presented in the Income Statement (That Is, Gross versus Net Presentation) (EITF No. 06-3). The scope of
EITF No. 06-3
25
includes any tax assessed by a governmental authority that is directly imposed on a
revenue-producing transaction between a seller and a customer, and provides that a company may
adopt a policy of presenting taxes either gross within revenue or on a net basis. For any such
taxes that are reported on a gross basis, a company should disclose the amounts of those taxes for
each period for which an income statement is presented if those amounts are significant. This
statement is effective to financial reports for interim and annual reporting periods beginning
after December 15, 2006. EITF No. 06-3 became effective for us as of February 25, 2007. We collect
various sales and value-added taxes on certain product and service sales, which are accounted for
on a net basis.
In September 2006, the SEC issued Staff Accounting Bulletin No. 108 (SAB 108), Considering
the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial
Statements, to address diversity in practice in quantifying financial statement misstatements. SAB
No. 108 requires that we quantify misstatements based on their impact on each of our financial
statements and related disclosures. SAB No. 108 is effective as of the end of our fiscal year 2007,
allowing a one-time transitional cumulative effect adjustment to retained earnings as of August 27,
2006 for errors that were not previously deemed material, but are material under the guidance in
SAB No. 108. We are still evaluating the impact SAB No. 108 will have on our consolidated financial
statements and will adopt SAB No. 108 in the fourth quarter of fiscal 2007.
In September 2006, the FASB issued Statement of Financial Accounting Standard (SFAS) No. 157,
Fair Value Measurements. SFAS No. 157 establishes a single authoritative definition of fair
value, sets out a framework for measuring fair value and requires additional disclosures about
fair-value measurements. This statement applies only to fair-value measurements that are already
required or permitted by other accounting standards, except for measurements of share-based
payments and measurements that are similar to, but not intended to be, fair value. This statement
is expected to increase the consistency of fair value measurements, but imposes no requirements for
additional fair-value measures in financial statements. The provisions under SFAS No. 157 are
effective for us beginning in the first quarter of fiscal 2008. We are still evaluating the impact
the adoption of this pronouncement will have on our consolidated financial statements.
In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets
and Financial Liabilities including an amendment of FASB Statement No. 115 (SFAS No. 159). This
statement permits entities to choose to measure many financial instruments and certain other items
at fair value. The objective is to improve financial reporting by providing entities with the
opportunity to mitigate volatility in reported earnings caused by measuring related assets and
liabilities differently without having to apply complex hedge accounting provisions. SFAS 159 is
effective as of the beginning of fiscal years that begin after November 15, 2007. We are still
evaluating the impact the adoption of this pronouncement will have on our consolidated financial
statements.
26
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our cash flows and earnings are subject to fluctuations in foreign exchange rates due to an
investment in our foreign-based affiliate. As of May 26, 2007, our investment represents a 20.6%
interest in mFSI LTD, a distributor of our products that operates in Japan. We denominate the
majority of our sales outside of the U.S. in U.S. dollars.
Because we assumed direct sales, service and applications support and logistics
responsibilities for our products in Europe and the Asia Pacific region in March 2003, we have and
will continue to incur labor, service and other expenses in foreign currencies. As a result, we may
be exposed to fluctuations in foreign exchange rate risks.* As of May 26, 2007, we had not entered
into any hedging activities and our foreign currency transaction gains and losses for the third
quarter and first nine months of fiscal 2007 were insignificant. We are currently evaluating
various hedging activities and other options to minimize these risks.
We do not have significant exposure to changing interest rates as we currently have no
material long-term debt. As of May 26, 2007, amortized cost approximated market value for all
outstanding marketable securities. We do not undertake any specific actions to cover our exposure
to interest rate risk and we are not party to any interest rate risk management transactions. The
impact on loss before income taxes of a 1% change in short-term interest rates would be
approximately $247,000 based on our cash, restricted cash, cash equivalents and marketable
securities balances as of May 26, 2007.
ITEM 4. CONTROLS AND PROCEDURES
As of the end of the period covered by this report, we conducted an evaluation, under the
supervision and with the participation of the principal executive officer and principal financial
officer, of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)
under the Securities Exchange Act of 1934 (the Exchange Act)). Based on this evaluation, the
principal executive officer and the principal financial officer concluded that our disclosure
controls and procedures are effective to ensure that information required to be disclosed by us in
reports that we file or submit under the Exchange Act is recorded, processed, summarized and
reported within the time periods specified in Securities and Exchange Commission rules and forms.
There was no change in our internal control over financial reporting during our most recently
completed fiscal quarter that has materially affected, or is reasonably likely to materially
affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings
We generate minor amounts of liquid and solid hazardous waste and use licensed haulers and
disposal facilities to ship and dispose of such waste. In the past, we have received notices from
state or federal enforcement agencies that we are a potentially responsible party (PRP) in
connection with the investigation of several hazardous waste disposal sites owned and operated by
third parties. In each matter, we have elected to participate in settlement offers made to all de
minimis parties with respect to such sites. The risk of being named a PRP is that if any of the
other PRPs are unable to contribute its proportionate share of the liability, if any, associated
with the site, those PRPs that are financially able could be held financially responsible for the
shortfall. We currently do not have any of these claims outstanding.
In late calendar 2006, we determined that certain of our replacement valves, pumps and heaters
could fall within the scope of United States export licensing regulations to products that could be
used in connection with chemical weapons processes. We determined that these regulations require us
to obtain licenses to ship some of our replacement spare parts, spare parts kits and assemblies to
customers in certain controlled countries as defined in the export licensing regulations. During
the second quarter of fiscal 2007, we were granted licenses to ship replacement spare parts, spare
parts kits and assemblies to all customers in the controlled countries where we currently conduct
business.
27
The applicable export licensing regulations frequently change. Moreover, the types and
categories of products that are subject to export licensing are often described in the regulations
in general terms and could be subject to differing interpretations.
In the second quarter of fiscal 2007, we made a voluntary disclosure to the United States
Department of Commerce to clarify our licensing practices and to review our practices with respect
to prior sales of certain replacement valves, pumps and heaters to customers in several controlled
countries as defined in the licensing regulations.
The United States Department of Commerce could assess penalties for any past violation of
export control regulations. The potential penalties are dependent upon the number of shipments in
violation of the export control regulations. The penalties can range from zero to $50,000 per
violation. We believe that the resolution of this matter will not have a material adverse impact on
our consolidated financial condition. The licenses that were granted during the second
quarter of fiscal 2007 do not necessarily mitigate our risk with respect to past violations.
ITEM 1.A. Risk Factors
There have not been any material changes from the risk factors previously disclosed in our
Form 10-K for the fiscal year ended August 26, 2006, except as set forth below.
Because our business depends on the amount that manufacturers of
microelectronics spend on capital equipment, downturns in the microelectronics
industry may adversely affect our results.
The microelectronics industry experiences periodic downturns, which may have a negative effect
on our sales and operating results. Our business depends on the amounts that manufacturers of
microelectronics spend on capital equipment. The amounts they spend on capital equipment depend on
the existing and expected demand for semiconductor devices and products that use semiconductor
devices. When a downturn occurs, some semiconductor manufacturers experience lower demand and
increased pricing pressure for their products. As a result, they are likely to purchase less
semiconductor processing equipment and have sometimes delayed making decisions to purchase capital
equipment. In some cases, semiconductor manufacturers have canceled or delayed orders for our
products. Typically, the semiconductor equipment industry has experienced more pronounced decreases
in net sales than the semiconductor industry as a whole.
We, along with others in the semiconductor equipment industry, have recently experienced a
downturn in orders for new equipment as well as delays in existing orders, primarily from logic and
flash memory manufacturers. We cannot predict the extent and length of the current downturn in
orders and the overall softening in the industry in these segments. In addition:
|
|
the semiconductor equipment industry may experience other, possibly more severe
and prolonged, downturns in the future; |
|
|
any future recovery of the microelectronics industry may not result in an
increased demand by semiconductor manufacturers for capital equipment or our products;
and |
|
|
the semiconductor equipment industry may not improve in the near future or at
all. |
Our licensing practices related to international spare parts sales may subject us to fines and
could reduce our ability to be competitive in certain countries.
In addition to offering our customers microelectronics manufacturing equipment, we provide
replacement spare parts, spare part kits and assemblies. In late calendar 2006, we determined that
certain of our replacement valves, pumps and heaters could fall within the scope of United States export licensing
regulations to products that could be used in connection with chemical weapons processes. We
determined that these regulations require us to obtain
28
licenses to ship some of our replacement
spare parts, spare part kits and assemblies to customers in certain controlled countries as defined
in the export licensing regulations. During the second quarter of fiscal 2007, we were granted
licenses to ship replacement spare parts, spare parts kits and assemblies to all customers in the
controlled countries where we currently conduct business.
The applicable export licensing regulations frequently change. Moreover, the types and
categories of products that are subject to export licensing are often described in the regulations
in general terms and could be subject to differing interpretations.
In the second quarter of fiscal 2007, we made a voluntary disclosure to the United States
Department of Commerce to clarify our licensing practices and to review our practices with respect
to prior sales of certain replacement valves, pumps and heaters to customers in several controlled
countries as defined in the licensing regulations.
The United States Department of Commerce could assess penalties for any past violation of
export control regulations. The licenses that were granted do not mitigate our risk with respect to
past violations.
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
None
ITEM 3. Defaults upon Senior Securities
None
ITEM 4. Submission of Matters to a Vote of Security Holders
None
ITEM 5. Other Information
After consideration by the Companys Board of Directors, the Company permitted its shareholder
rights plan to expire on June 10, 2007. The Companys shareholder rights plan was set forth in the
Share Rights Agreement, dated as of May 22, 1997, between the Company and ComputerShare Investor
Services, as Rights Agent (as amended, the Rights Agreement). The Rights Agreement and the
related preferred share purchase rights expired in accordance with the terms on June 10, 2007.
29
ITEM 6 Exhibits and Reports on Form 8-K
(a) Exhibits
|
|
|
|
|
|
2.1 |
|
|
Agreement and Plan of Reorganization, dated as of January 21, 1999
among FSI International, Inc., BMI International, Inc. and YieldUP
International Corporation (4) |
|
2.2 |
|
|
Agreement and Plan of Reorganization by and Among FSI
International, Inc., Spectre Acquisition Corp., and Semiconductor
Systems, Inc. (1) |
|
2.3 |
|
|
Asset Purchase Agreement dated as of June 9, 1999 between FSI
International, Inc. and The BOC Group, Inc. (5) |
|
3.1 |
|
|
Restated Articles of Incorporation of the Company. (2) |
|
3.2 |
|
|
Restated and amended By-Laws. (7) |
|
3.5 |
|
|
Articles of Amendment of Restated Articles of Incorporation (6) |
|
3.6 |
|
|
Certificate of Designation, Preferences and Rights of Series A
Junior Participating Preferred Shares. (3) |
|
10.1 |
|
|
Termination and Release Agreement dated as of May 15, 2007 with
Mitsui & Co. Ltd., Chlorine Engineers Corp., Ltd., MBK Project
Holdings Ltd. and mFSI LTD.(filed herewith) |
|
10.2 |
|
|
Stock Purchase Agreement dated as of May 15, 2007 by and among FSI
International, Inc., MBK Project Holdings Ltd., Chlorine Engineers
Corp. Ltd., Yasuda Enterprise Development III Limited Partnership,
Mizuho Capital Co., Ltd., Mr. Hideki Kawai, Mr. Takanori Yoshioka
and Mr. Satoshi Shikami. (exhibits omitted) (filed herewith) |
|
31.1 |
|
|
Certification by Principal Executive Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.(filed herewith) |
|
31.2 |
|
|
Certification by Principal Financial and Accounting Officer
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.(filed
herewith) |
|
32.1 |
|
|
Certification of Chief Executive Officer and Chief Financial
Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.(filed herewith) |
|
|
|
(1) |
|
Filed as an Exhibit to the Companys Registration Statement on Form S-4 (as amended)
dated March 21, 1996, SEC File No. 333-1509 and incorporated by reference. |
|
(2) |
|
Filed as an Exhibit to the Companys Report on Form 10-Q for the quarter ended February
24, 1990, SEC File No. 0-17276, and incorporated by reference. |
|
(3) |
|
Filed as an Exhibit to the Companys Report on Form 8-A, filed by the Company on June 5,
1997, SEC File No. 0-17276, and incorporated by reference. |
|
(4) |
|
Filed as an Exhibit to the Companys Report on Form 8-K, filed by the Company on January
27, 1999, SEC File No. 0-17276 and incorporated by reference. |
|
(5) |
|
Filed as an Exhibit to the Companys Report on Form 8-K, filed by the Company on June 24,
1999, SEC File No. 0-17276 and incorporated by reference. |
|
(6) |
|
Filed as an Exhibit to the Companys Report on Form 10-K for the fiscal year ended August
28, 1999, SEC File No. 0-17276, and incorporated by reference. |
|
(7) |
|
Filed as an Exhibit to the Companys Report on Form 10-Q for the fiscal quarter ended
February 23, 2002, SEC File No. 0-17276 and incorporated by reference. |
30
FSI INTERNATIONAL, INC. AND SUBSIDIARIES
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
|
|
|
|
FSI INTERNATIONAL, INC.
[Registrant]
|
|
|
By: |
/s/Patricia M. Hollister
|
|
|
|
Patricia M. Hollister |
|
|
|
Chief Financial Officer
on behalf of the
Registrant and as
Principal Financial and
Accounting Officer |
|
|
DATE: June 29, 2007
31
INDEX TO EXHIBITS
|
|
|
|
|
Exhibit |
|
Description |
|
Method of Filing |
2.1
|
|
Agreement and Plan of Reorganization, dated as of January 21,
1999 among FSI International, Inc., BMI International, Inc.
and YieldUP International Corporation (4)
|
|
Incorporated by
reference. |
|
|
|
|
|
2.2
|
|
Agreement and Plan of Reorganization by and Among FSI
International, Inc., Spectre Acquisition Corp., and
Semiconductor Systems, Inc. (1)
|
|
Incorporated by
reference. |
|
|
|
|
|
2.3
|
|
Asset Purchase Agreement dated as of June 9, 1999 between FSI
International, Inc. and The BOC Group, Inc. (5)
|
|
Incorporated by
reference. |
|
|
|
|
|
3.1
|
|
Restated Articles of Incorporation of the Company. (2)
|
|
Incorporated by
reference. |
|
|
|
|
|
3.2
|
|
Restated and amended By-Laws. (7)
|
|
Incorporated by
reference. |
|
|
|
|
|
3.5
|
|
Articles of Amendment of Restated Articles of Incorporation (6)
|
|
Incorporated by
reference. |
|
|
|
|
|
3.6
|
|
Certificate of Designation, Preferences and Rights of Series A
Junior Participating Preferred Shares. (3)
|
|
Incorporated by
reference. |
|
|
|
|
|
10.1
|
|
Termination and Release Agreement dated as of May 15, 2007
with Mitsui & Co. Ltd., Chlorine Engineers Corp., Ltd., MBK
Project Holdings Ltd. and mFSI LTD.
|
|
Filed herewith. |
|
|
|
|
|
10.2
|
|
Stock Purchase Agreement dated as of May 15, 2007 by and among
FSI International, Inc., MBK Project Holdings Ltd., Chlorine
Engineers Corp. Ltd., Yasuda Enterprise Development III
Limited Partnership, Mizuho Capital Co., Ltd., Mr. Hideki
Kawai, Mr. Takanori Yoshioka and Mr. Satoshi Shikami.
(exhibits omitted)
|
|
Filed herewith |
|
|
|
|
|
31.1
|
|
Certification by Principal Executive Officer Pursuant to
section 302 of the Sarbanes-Oxley Act of 2002.
|
|
Filed herewith. |
|
|
|
|
|
31.2
|
|
Certification by Principal Financial and Accounting Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
Filed herewith. |
|
|
|
|
|
32.1
|
|
Certification of Chief Executive Officer and Chief Financial
Officer Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
|
Filed herewith. |
|
|
|
(1) |
|
Filed as an Exhibit to the Companys Registration Statement on Form S-4 (as amended)
dated March 21, 1996, SEC File No. 333-1509 and incorporated by reference. |
|
(2) |
|
Filed as an Exhibit to the Companys Report on Form 10-Q for the quarter ended February
24, 1990, SEC File No. 0-17276, and incorporated by reference. |
|
(3) |
|
Filed as an Exhibit to the Companys Report on Form 8-A, filed by the Company on June 5,
1997, SEC File No. 0-17276, and incorporated by reference. |
|
(4) |
|
Filed as an Exhibit to the Companys Report on Form 8-K, filed by the Company on January
27, 1999, SEC File No. 0-17276 and incorporated by reference. |
|
(5) |
|
Filed as an Exhibit to the Companys Report on Form 8-K, filed by the Company on June 24,
1999, SEC File No. 0-17276 and incorporated by reference. |
|
(6) |
|
Filed as an Exhibit to the Companys Report on Form 10-K for the fiscal year ended August
28, 1999, SEC File No. 0-17276, and incorporated by reference. |
|
(7) |
|
Filed as an Exhibit to the Companys Report on Form 10-Q for the fiscal quarter ended
February 23, 2002, SEC File No. 0-17276 and incorporated by reference. |
32