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| HELX > SEC Filings for HELX > Form 10-K on 30-Jan-2004 | All Recent SEC Filings |
30-Jan-2004
Annual Report
Fiscal Year Ended December 31, 2003, Compared to the Fiscal Year Ended December 31, 2002
For most of 2003, we continued to experience the significant slowdown in the global market for semiconductor capital equipment that began in 2001. In the last quarter of the year, however, we have seen an increase in both orders and sales as the industry begins to show signs of expansion. Net sales for 2003 were $105.9 million as compared with net sales for 2002 of $100.2 million, an increase of 5.7%.
In the fourth quarter of 2002, we initiated a worldwide cost-reduction program and the suspension of an internal-use software development program in response to the continued duration and severity of the slowdown in the semiconductor capital equipment industry. The cost-reduction program included severance and fringe benefits to terminate approximately 130 employees and included closure or consolidation of selected facilities worldwide. We recorded an $8.7 million charge for restructurings and other charges in the fourth quarter of 2002 and expect to save approximately $2.4 million quarterly which has significantly reduced our breakeven point. This program was substantially completed in the first quarter of 2003.
Cost of sales for 2003 was $69.8 million compared with $73.0 million for 2002, a decrease of 4.4%. The gross margin for 2003 was 34.0% compared with 27.1% for 2002. The improvement in gross margin for 2003 is primarily due to the lower overhead costs resulting from our cost reduction actions taken in the fourth quarter of 2002, offset by some temporary increases in production and customer support costs incurred in the middle of the year relating to our new generation of vacuum technology.
Research and development expenses were $10.1 million for 2003, or 9.5% of net sales, compared to $14.7 million for 2002, or 14.6% of net sales. The decrease in overall research and development expenses from the prior year is due to cost reduction actions taken in the fourth quarter of 2002, as well as the completion of several major research and development projects during the past year. We maintain a commitment to developing technologies to support a new generation of products for 300-millimeter-capable production tools, to expand our support service capability and to improve our core component product lines.
Total selling, general and administrative expenses for 2003 were $31.3 million, as compared with $37.7 million for 2002. Excluding the $2.8 million nonrecurring litigation charge included in 2002, total selling, general and administrative expenses declined from the prior year by 10.3%, reflecting cost savings realized from the restructuring program implemented in the fourth quarter of 2002.
Royalty and equity income from our joint venture in Japan for 2003 increased to $1.2 million from $0.6 million in 2002. The improvement over 2002 reflects improvement in the Flat Panel Display portion of the semiconductor capital equipment market.
Interest and other income was $0.9 million for both 2003 and 2002. This reflects higher 2003 average cash balances offset by lower interest rates.
We had a pretax loss of $3.2 million in 2003, compared with a pretax loss of $32.4 million for 2002. In 2003 we recorded an income tax provision of $7.9 million. This provision is primarily attributable to the establishment of the valuation allowance against our deferred tax assets in accordance with SFAS 109, "Accounting for Income Taxes" and to record state and foreign income taxes for 2003. If we generate future taxable income domestically against which these tax attributes may be applied, some portion or all of the valuation allowance would be reversed and increase net income reported in future periods. The effective tax rate for 2002 was 40%. The tax rates differ from the U.S. statutory rate primarily due to tax credits and undistributed nontaxable equity income from our joint venture. These tax credits and equity income increase our tax rate on pretax losses and decrease our tax rate on pretax income.
Fiscal Year Ended December 31, 2002, Compared to the Fiscal Year Ended December 31, 2001
In 2002, we experienced a significant slowdown in the global market for semiconductor capital equipment that began in 2001. Net sales for 2002 were $100.2 million as compared with net sales for 2001 of $113.0 million, a decrease of 11.3%.
Cost of sales for 2002 was $73.0 million compared with $75.3 million for 2001, a decrease of 3.0%. The gross margin for 2002 was 27.1% compared with 33.4% for 2001. Cost of sales for 2002 included an additional fourth quarter charge for excess and obsolete inventory totaling $1.7 million resulting from the significant slowdown in the global market for semiconductor capital equipment and from expected efficiencies to be gained in our future delivery of global customer support. We monitor and forecast expected inventory needs based on our constantly changing sales forecast and write-down or write-off inventory when it becomes obsolete or when it is deemed excess. Excluding these charges, the gross margin for 2002 would have been 28.8%, a decline from 2001, primarily due to lower sales volume that reduced utilization of manufacturing capacity.
Research and development expenses were $14.7 million for 2002, or 14.6% of net sales, compared to $16.1 million for 2001, or 14.2% of net sales. We maintain a commitment to developing technologies to support a new generation of products for 300 millimeter- capable production tools, to expand our support service capability and to improve our core component product lines.
Total selling, general and administrative expenses for 2002 were $37.7 million, as compared with $35.1 million for 2001. The increase in selling, general and administrative expenses was primarily due to the nonrecurring litigation settlement charge of $2.8 million in 2002. Total selling, general and administrative expenses excluding the nonrecurring litigation settlement charge remained consistent with the prior year, reflecting a decrease in spending due to the restructuring program completed in the third quarter of 2001 offset by an increase in depreciation expense associated with our new global information system and associated startup costs.
Restructurings and other charges recorded during the fourth quarter of 2002 were associated with the initiation of a worldwide cost-reduction program and the suspension of an internal-use software development program in response to the continued duration and severity of the slowdown in the semiconductor capital equipment industry. The $8.7 million charged to restructurings and other charges is comprised of $3.0 million of employee severance costs; $2.8 million to consolidate leased facilities; and $2.9 million to write off certain software.
The employee costs of $3.0 million primarily consist of severance and fringe benefits to terminate approximately 130 employees. The affected employees, most of whom were located in the United States, were primarily full-time nonmanufacturing employees. Notification and termination benefits were communicated to employees in the fourth quarter of 2002. The majority of the terminations took place in 2002, and most of the remaining terminations occurred in the first quarter of 2003. We realized approximately $2.0 million in quarterly savings from the reduction in force.
The $2.8 million of net exit costs related to facility closures resulted from the planned consolidation of customer support facilities located in Massachusetts; facility reductions of satellite sales and customer support facilities located in Texas, Arizona, and California; and consolidation of sales and service centers located in Japan. These accrued costs reflect payments required under operating lease contracts in excess of expected sub lease rentals and costs for writing down related leasehold improvements at the affected facilities. The consolidation of these facilities is expected to result in quarterly cost savings of approximately $0.4 million.
We also suspended an internal-use software development program given current market conditions and timing of market application, resulting in a $2.9 million charge.
Royalty and equity income from our joint venture in Japan for 2002 decreased to $0.6 million from $2.4 million in 2001 due to the continued decline in the Japanese semiconductor capital equipment market.
Interest and other income was $0.9 million for both 2002 and 2001. In 2002, higher average cash, cash equivalent and investment balances resulting from the public offering completed in March 2002 were offset by lower interest rates.
We had a pretax loss of $32.4 million in 2002, resulting in a tax benefit of $12.9 million, compared with a pretax loss of $11.2 million and a tax benefit of $5.3 million for 2001. The effective tax rates for 2002 and 2001 were 40% and 47%, respectively. The tax rates differ from the U.S. statutory rate primarily due to tax credits and undistributed nontaxable equity income from our joint venture. These tax credits and equity income increase our tax rate on pretax losses and decrease our tax rate on pretax income. The decline in the 2002 tax rate was primarily attributable to the decline in the benefit received from lower undistributed nontaxable equity income from our joint venture.
Quarterly Financial Results
The following table presents selected unaudited financial information for the eight quarters in the period ended December 31, 2003. The results for any quarter are not necessarily indicative of future quarterly results and, accordingly, period-to-period comparisons should not be relied upon as an indication of future performance.
Quarter Ended
March 29, June 28, Sept. 27, Dec. 31, March 28, June 27, Sept. 26, Dec. 31,
2002 2002 2002 2002 2003 2003 2003 2003
(in thousands
except per share
data)
Net sales $ 20,380 $ 29,015 $ 27,395 $ 23,451 $ 23,623 $ 24,555 $ 25,973 $ 31,732 Cost of sales 15,541 19,653 19,279 18,564 15,806 17,027 17,133 19,870 Research and 3,516 3,968 3,601 3,585 2,683 2,547 2,333 2,519 development Selling, general and administrative 8,059 8,514 9,413 8,932 7,768 7,597 7,577 8,338 Litigation -- 2,800 -- -- -- -- -- -- settlement costs Restructuring and other charges -- -- -- 8,714 -- -- -- -- Operating income (6,736 ) (5,920 ) (4,898 ) (16,344 ) (2,634 ) (2,616 ) (1,070 ) 1,005 (loss) Net income (4,470 ) (3,787 ) (2,199 ) (8,962 ) (1,412 ) (1,413 ) (9,104 ) 793 (loss) Basic net income (loss) per share (0.19 ) (0.15 ) (0.08 ) (0.34 ) (0.05 ) (0.05 ) (0.35 ) 0.03 Diluted net income (loss) per share (0.19 ) (0.15 ) (0.08 ) (0.34 ) (0.05 ) (0.05 ) (0.35 ) 0.03
Liquidity and Capital Resources
Cash provided by operating activities in 2003 was $11.0 million, compared with cash used by operating activities of $7.1 million in 2002. The cash provided by operating activities for 2003 was primarily due to our receipt of $12.0 million in tax refunds, resulting from the carryback of the 2002 net operating loss, offset by the loss in 2003, by $3.7 million of severance and facility closure payments related to the 2002 restructuring activity, and by a $1.4 million payment to fund our pension plan.
In 2003 we spent $2.8 million to support the existing infrastructure and the implementation of our global information system in our European operations, which went live in October 2003. In 2002 we spent $5.5 million, principally for the implementation of our global information system in the U.S., which went live during July 2002. We continue to closely manage our capital expenditures.
Cash dividends paid to our stockholders during 2003 were $4.2 million, compared with $7.0 million for 2002. We paid a quarterly common stock dividend of $0.04 per share in 2003. After paying a quarterly dividend of $0.08 per share for the first three quarters of 2002, our Board of Directors reduced the quarterly dividend to $0.04 per share in October 2002, due to the continuing uncertain business environment and lack of visibility in the semiconductor capital equipment market.
We lease facilities and equipment under long-term operating leases. These contractual obligations entered into in the normal course of business are not required to be reflected in our consolidated balance sheets, but may impact our liquidity. The following table outlines our future minimum lease payments under non-cancelable operating leases.
Less Than 1 More than 5
Totals Year 1 - 3 Years 3 - 5 Years Years
Operating leases $ 15,588 $ 4,801 $ 6,073 $ 1,311 $ 3,403
We manage our foreign exchange rate risk arising from intercompany foreign currency denominated transactions through the use of foreign currency forward contracts. The gains and losses on these transactions are not material.
We believe that our existing funds and anticipated cash flow from operations will satisfy our working capital and capital expenditure requirements for at least the next 12 months.
Legal Proceedings
We may be involved in various legal proceedings in the normal course of business. We are not a party to any proceedings that involve amounts that would have a material effect on our financial position or results of operations if such proceedings were resolved unfavorably.
Recent Accounting Pronouncements
In November 2002, the EITF issued No. 00-21, "Accounting for Revenue Arrangements with Multiple Deliverables." EITF No. 00-21 addresses certain aspects of the accounting by a vendor for arrangements under which it will perform multiple revenue-generating activities. EITF No. 00-21 establishes three principles: revenue should be recognized separately for separate units of accounting; revenue for a separate unit of accounting should be recognized only when the arrangement consideration is reliably measurable and the earnings process is substantially complete; and consideration should be allocated among the separate units of accounting in an arrangement based on their fair values. We adopted the provisions of EITF No. 00-21 for all revenue arrangements entered into after June 15, 2003. The adoption of EITF No. 00-21 did not have a material impact on our results of operations or financial condition.
In January 2003, the FASB issued FIN No. 46 "Consolidation of Variable Interest Entities, an interpretation of ARB 51." FIN No. 46 provides guidance on the identification of entities for which control is achieved through means other than through voting rights called "variable interest entities" or "VIEs" and how to determine when and which business enterprise should consolidate the VIE (the "primary beneficiary"). This new model for consolidation applies to an entity in which either (1) the equity investors (if any) do not have a controlling financial interest or (2) the equity investment at risk is insufficient to finance that entity's activities without receiving additional subordinated financial support from other parties. In addition, FIN No. 46 requires that both the primary beneficiary and all other enterprises with a significant variable interest in a VIE make additional disclosures. We do not have any interests that would change our current reporting entity or require additional disclosure outlined in FIN No. 46.
In April 2003, the FASB issued Statement of Financial Accounting Standards No. 149 (SFAS 149), "Amendment of Statement 133 on Derivative Instruments and Hedging Activities." This statement amends SFAS 133 to provide clarification on the financial accounting and reporting of derivative instruments and hedging activities and requires contracts with similar characteristics to be accounted for on a comparable basis. The adoption of SFAS 149, which is effective for contracts entered into or modified after June 30, 2003, did not have a material effect on our financial condition or results of operations.
In December 2003, the FASB issued Statement of Financial Accounting Standards No. 132 (revised 2003) (SFAS 132), "Employers' Disclosures about Pensions and Other Postretirement Benefits," that improves financial statement disclosures for defined benefit plans. The change replaces existing SFAS 132 disclosure requirements for pensions and other postretirement benefits and revises employers' disclosures about pension plans and other postretirement benefit plans. It does not change the measurement of recognition of those plans required by SFAS 87, "Employers' Accounting for Pensions," SFAS 88, "Employers' Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits," and SFAS 132 revised retains the disclosure requirements contained in the original SFAS 132, but requires additional disclosures about the plan assets, obligations, cash flows, and net periodic benefit cost of defined benefit pension plans and other defined benefit postretirement plans. SFAS 132 revised is effective for annual and interim periods with fiscal years ending after December 15, 2003. We have adopted the revised disclosure provisions.
Forward-Looking Statements
This Annual Report on Form 10-K contains forward-looking statements. These forward-looking statements appear principally in the sections entitled "Business" and "Management's Discussion and Analysis of Financial Condition and Results of Operations." Forward-looking statements may appear in other sections of this report as well. Generally, the forward-looking statements in this report use words like "expect," "anticipate," "plan," "intend," "believe," "seek," "estimate," and similar expressions.
The forward-looking statements include, but are not limited to, statements regarding:
- Our strategic plans; - The outlook for our business and industry; - Anticipated sources of future revenues; - Anticipated expenses, spending and savings from our cost reduction program; - Anticipated levels of capital expenditures; and - The sufficiency of capital to meet working capital and capital expenditure requirements.
Forward-looking statements are not guarantees of future performance and involve certain risks, uncertainties, and assumptions. Important factors that could cause our future results to differ materially from those expressed in any forward-looking statements made by us or on our behalf include, but are not limited to, market acceptance of and demand for the Company's products, the success of the Company's strategic initiatives, including its global support operations and new product introductions, the health of the global semiconductor capital equipment market and the timing and scope of any change in the current industry conditions, the Company's success in sustaining order bookings, and the other risk factors contained in Exhibit 99.1 to this Annual Report on Form 10-K. As a result of the foregoing, we may experience material fluctuations in our operating results on a quarterly basis, which could materially affect our business, financial position, results of operations and stock price. We undertake no obligation to update the information contained in this report to reflect subsequently occurring events or circumstances.
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