UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended November 30, 2000
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from_______to________.
Commission File Number: 000-27863
METRON TECHNOLOGY N.V.
----------------------
(Exact name of registrant as specified in its charter)
The Netherlands 98-0180010
--------------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1350 Old Bayshore Highway
Suite 360
Burlingame, California 94010
----------------------
(Address of principal executive offices)
Registrant's telephone number, including area code: (650) 373-1133
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Title of Each Class Outstanding at December 31, 2000
------------------- --------------------------------
Common shares, par value NLG 0.96 per share 13,870,678
METRON TECHNOLOGY N.V.
INDEX
PAGE NO.
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Part I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Statements of Income (Unaudited)
for the Three and Six Months Ended November 30, 1999 and November 30, 2000 3
Condensed Consolidated Statements of Comprehensive Income (Unaudited)
for the Three and Six Months Ended November 30, 1999 and November 30, 2000 4
Condensed Consolidated Balance Sheets (Unaudited)
as of May 31, 2000 and November 30, 2000 5
Condensed Consolidated Statements of Cash Flows (Unaudited)
for the Six Months Ended November 30, 1999 and November 30, 2000 6
Notes to Condensed Consolidated Financial Statements (Unaudited) 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 10
Item 3. Quantitative and Qualitative Disclosures About Market Risk 18
Part II. Other Information
Item 1. Legal Proceedings 18
Item 2. Changes in Securities and Use of Proceeds 18
Item 3. Defaults Upon Senior Securities 18
Item 4. Submission of Matters to a Vote of Security Holders 18
Item 5. Other Information 19
Item 6. Exhibits and Reports on Form 8-K 28
Signature 29
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
METRON TECHNOLOGY N.V.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(Dollars in thousands except per share)
THREE MONTHS SIX MONTHS
ENDED NOVEMBER 30, ENDED NOVEMBER 30,
------------------ ------------------
1999 2000 1999 2000
---- ---- ---- ----
Net revenue.................................................. $74,163 $139,773 $143,636 $260,777
Cost of revenue.............................................. 61,013 115,050 118,345 214,034
----------- ---------- ------------ ----------
Gross profit................................................. 13,150 24,723 25,291 46,743
Selling, general, administrative, and other expenses......... 11,069 17,567 21,558 33,461
----------- ---------- ------------ ----------
Operating income............................................. 2,081 7,156 3,733 13,282
Equity in net loss of joint ventures......................... (44) (95) (129) (164)
Other income (expense), net.................................. 302 (138) 104 (121)
----------- ---------- ------------ ----------
Income before income taxes................................... 2,339 6,923 3,708 12,997
Provision for income taxes................................... 853 3,075 1,319 5,498
----------- ---------- ------------ ----------
Net income................................................... $1,486 $3,848 $2,389 $7,499
=========== ========== ============ ==========
Earnings per common share
Basic..................................................... $0.14 $0.29 $0.23 $0.56
Diluted................................................... $0.13 $0.28 $0.21 $0.53
See accompanying Notes to Condensed Consolidated Financial Statements
3
METRON TECHNOLOGY N.V.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
(Dollars in thousands)
THREE MONTHS SIX MONTHS
ENDED NOVEMBER 30, ENDED NOVEMBER 30,
------------------ ------------------
1999 2000 1999 2000
---- ---- ---- ----
Net income................................................... $1,486 $3,848 $2,389 $7,499
Other comprehensive loss..................................... (196) (1,558) (223) (2,163)
---------- -------- ---------- --------
Comprehensive income......................................... $1,290 $2,290 $2,166 $5,336
========== ======== ========== ========
See accompanying Notes to Condensed Consolidated Financial Statements
4
METRON TECHNOLOGY N.V.
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
(Dollars in thousands)
MAY 31, NOVEMBER 30,
2000 2000
-------------- -------------
ASSETS
Cash and cash equivalents.......................................................... $22,911 $25,326
Short-term investments............................................................. 3,249 -
Accounts receivable, net........................................................... 82,433 105,643
Inventories, net................................................................... 40,445 48,135
Prepaid expenses and other current assets.......................................... 10,723 11,218
-------------- --------------
Total current assets............................................................ 159,761 190,322
Property, plant, and equipment, net................................................ 10,253 14,311
Intangible assets, net............................................................. 9,758 9,156
Long-term investments.............................................................. 827 1,663
Other assets....................................................................... 770 827
-------------- --------------
Total Assets................................................................... $181,369 $216,279
============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable................................................................... $30,489 $45,732
Amounts due affiliates............................................................. 38,372 44,709
Accrued wages and employee-related expenses........................................ 7,634 8,104
Deferred revenue for installation and warranty..................................... 5,247 9,499
Short term borrowings and current portion of long-term debt........................ 13,140 12,866
Amounts payable to shareholders.................................................... 204 204
Other current liabilities.......................................................... 10,288 13,376
-------------- --------------
Total current liabilities....................................................... 105,374 134,490
Long-term debt, excluding current portion............................................. 1,227 1,177
Deferred credits and other long-term liabilities...................................... 2,253 1,986
-------------- --------------
Total liabilities............................................................... 108,854 137,653
-------------- --------------
Commitments........................................................................... - -
Shareholders' Equity:
Preferred shares, par value NLG 0.96............................................... - -
Common shares and additional paid-in capital, par value NLG 0.96................... 39,517 40,292
Retained earnings.................................................................. 37,938 45,437
Cumulative other comprehensive loss................................................ (4,809) (6,972)
Treasury shares.................................................................... (131) (131)
-------------- --------------
Total shareholders' equity...................................................... 72,515 78,626
-------------- --------------
Total Liabilities and Shareholders' Equity...................................... $181,369 $216,279
============== ==============
See accompanying Notes to Condensed Consolidated Financial Statements
5
METRON TECHNOLOGY N.V.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(Dollars in thousands)
SIX MONTHS
ENDED NOVEMBER 30,
---------------------
1999 2000
---- ----
Cash flows from (used for) operating activities:
Net income ..................................................................... $ 2,389 $ 7,499
Adjustments to reconcile net income for items currently not affecting operating cash
flows:
Depreciation and amortization ............................................... 1,073 2,321
Provision for inventory valuation and bad debts ............................. 206 2,067
Deferred income taxes ....................................................... 157 291
Equity in net loss of joint venture ......................................... 129 164
Gain on sale of stock warrant ............................................... (184) --
Gain on disposition of assets ............................................... (29) (9)
Changes in assets and liabilities:
Accounts receivable ....................................................... (16,669) (23,853)
Inventories ............................................................... (5,035) (9,333)
Prepaid expenses and other current assets ................................. 988 (780)
Accounts payable .......................................................... 7,995 15,243
Amounts due affiliates .................................................... 5,675 6,337
Accrued wages and employee-related expenses ............................... 254 470
Deferred revenue for installation and warranty ............................ 699 4,252
Other current liabilities ................................................. (472) 3,088
---------- ----------
Net cash flows from (used for) operating activities .................... (2,824) 7,757
---------- ----------
Cash flows used for investing activities:
Additions to property, plant, and equipment ................................. (860) (6,227)
Proceeds from sale of property, plant, and equipment ........................ 595 29
Proceeds from sale of stock warrant ......................................... 184 --
Equity investment in joint venture .......................................... (161) (1,000)
Other assets ................................................................ 72 (237)
Other long-term liabilities ................................................. (158) (99)
---------- ----------
Net cash flows used for investing activities ........................... (328) (7,534)
---------- ----------
Cash flows from financing activities:
Purchases of short-term investments ......................................... (21,833) --
Proceeds from sales of short-term investments ............................... -- 3,249
Net proceeds (repayment) of short-term borrowings ........................... 2,509 (410)
Proceeds from issuance of long-term debt .................................... 62 372
Principal payments on long-term debt ........................................ (163) (170)
Amounts payable to shareholders ............................................. (862) (62)
Net proceeds from issuance of common shares ................................. 27,043 774
---------- ----------
Net cash flows from financing activities ............................... 6,756 3,753
---------- ----------
Effect of exchange rate changes on cash and cash equivalents ...................... (112) (1,562)
---------- ----------
Net change in cash and cash equivalents ........................................... 3,492 2,415
Beginning cash and cash equivalents ............................................... 10,601 22,911
---------- ----------
Ending cash and cash equivalents .................................................. $ 14,093 $ 25,326
========== ==========
See accompanying Notes to Condensed Consolidated Financial Statements
6
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
UNAUDITED INTERIM INFORMATION
The condensed consolidated financial statements (including notes to condensed
consolidated financial statements) of Metron Technology N.V. ("Metron" or the
"Company") included herein have been prepared by the Company, without audit,
pursuant to the rules and regulations of the Securities and Exchange
Commission ("SEC"). In the opinion of management, the accompanying condensed
consolidated financial statements reflect all adjustments, consisting only of
normal recurring adjustments, necessary for their fair presentation.
Historical results are not necessarily indicative of the results the Company
expects in the future. This report should be read in conjunction with the
consolidated financial statements and notes thereto for the fiscal year ended
May 31, 2000 included in the Company's Report on Form 10-K/A as filed with
the SEC.
EARNINGS PER SHARE
Basic earnings per common share are based on the weighted-average number
of common shares outstanding in each period. Diluted earnings per common share
reflect the potential dilution that could occur if dilutive securities were
converted into common shares. For all periods presented the reported net income
was used in the computation of basic and diluted earnings per common share.
A reconciliation of the shares used in the computation follows:
THREE MONTHS SIX MONTHS
ENDED NOVEMBER 30, ENDED NOVEMBER 30,
------------------ ------------------
1999 2000 1999 2000
---- ---- ---- ----
(SHARES IN THOUSANDS)
Shares used for basic earnings per common share.............. 10,430 13,334 10,268 13,306
Potential common shares having a dilutive effect............. 1,017 646 996 746
-------- -------- -------- --------
Shares used for diluted earnings per common share............ 11,447 13,980 11,264 14,052
======== ======== ======== ========
Options to purchase 489,772 and 368,804 common shares of the Company
were excluded from the calculation of diluted earnings per share for the
three and six-month periods ended November 30, 2000, respectively, because
their effect was anti-dilutive. For both periods, these anti-dilutive
securities have a weighted-average exercise price of $14.85. Excluded
potential common shares could dilute earnings per share in the future. There
were no options excluded from the calculation of diluted earnings per share
for the three and six-month periods ended November 30, 1999.
2. ACQUISITION OF INTEC
Effective November 17, 2000, the Company acquired all the common shares of
Intec Technology (S) Pte. Ltd., a privately held company incorporated in
Singapore. Intec is a supplier of cleanroom products and manufactures
cleanroom garments in Singapore and Malaysia. Metron intends to use the
assets acquired in the transaction to continue the operations of Intec. The
transaction will be accounted for as a purchase, and will be reflected in the
Company's consolidated financial statements as of December 1, 2000. The
results of Intec's operations from November 17, 2000 through November 30,
2000 were insignificant to the consolidated financial statements of the
Company. In addition, the purchase price of Intec was insignificant to
Metron's consolidated balance sheet as of November 30, 2000. Accordingly, the
Company excluded its investment in Intec and Intec's results from its
consolidated financial statements.
As consideration for the acquisition, Metron issued 475,000 of the Company's
common shares at an average share price of $8.29 for a total consideration of
approximately $3,937,000. The excess of the purchase price over the fair
value of the net identifiable assets acquired of approximately $3,166,000
will be recorded as goodwill and amortized on a straight-line basis over 10
years.
3. SEGMENT AND GEOGRAPHIC DATA
Metron operates predominantly in the semiconductor industry. Metron
provides marketing, sales, service and support solutions to semiconductor
materials and equipment suppliers and semiconductor manufacturers. Reportable
segments are based on the way the Company is organized, reporting
responsibilities to the chief executive officer, and on the nature of the
products offered to customers. Reportable segments are the equipment division,
which includes certain specialized process chemicals, spare part sales, and
equipment service; the materials division, which includes components used in
construction and maintenance; and other, which includes finance, administration
and corporate functions.
7
Segment operating results are measured based on net income (loss)
before tax, adjusted if necessary, for certain segment specific items. There
are no inter-segment sales. Identifiable assets are the Company's assets that
are identified with classes of similar products or operations in each
geographic region. Corporate assets include primarily cash, short and
long-term investments and assets related to the administrative headquarters
of the Company.
SEGMENT INFORMATION
EQUIPMENT MATERIALS OTHER TOTAL
DIVISION DIVISION ----- -----
--------- ---------
(DOLLARS IN THOUSANDS)
Three months ended November 30, 1999
Net revenue............................................ $36,835 $37,328 $- $74,163
Income (loss) before income taxes...................... $2,644 $3,045 $(3,350) $2,339
Three months ended November 30, 2000
Net revenue............................................ $72,741 $67,032 $- $139,773
Income (loss) before income taxes...................... $5,208 $6,580 $(4,865) $6,923
Six months ended November 30, 1999
Net revenue............................................ $73,642 $69,994 $- $143,636
Income (loss) before income taxes...................... $4,531 $6,241 $(7,064) $3,708
Assets................................................. $47,252 $31,173 $66,020 $144,445
Six months ended November 30, 2000
Net revenue............................................ $131,389 $129,388 $- $260,777
Income (loss) before income taxes...................... $10,614 $13,135 $(10,752) $12,997
Assets................................................. $82,865 $86,870 $46,544 $216,279
GEOGRAPHIC INFORMATION
THREE MONTHS SIX MONTHS
ENDED NOVEMBER 30, ENDED NOVEMBER 30,
------------------ ------------------
1999 2000 1999 2000
---- ---- ---- ----
(DOLLARS IN THOUSANDS)
Net revenue:
United States............................................ $17,953 $31,570 $36,375 $61,501
Germany.................................................. 9,978 21,196 19,620 32,581
Singapore................................................ 11,586 16,423 20,196 31,714
Hong Kong................................................ 2,638 13,942 10,942 29,627
United Kingdom........................................... 7,988 11,528 15,668 29,464
France................................................... 6,946 13,112 11,824 21,405
The Netherlands.......................................... 6,024 9,125 8,594 14,967
Other nations............................................ 11,050 22,877 20,417 39,518
---------- ---------- ---------- ----------
Geographic totals........................................... $74,163 $139,773 $143,636 $260,777
========== ========== ========== ==========
8
MAY 31, NOVEMBER 30,
------- ------------
2000 2000
---- ----
(DOLLARS IN THOUSANDS)
Assets:
United States.................................................. $38,672 $55,555
United Kingdom................................................. 35,460 30,520
Germany........................................................ 13,043 22,995
Singapore...................................................... 26,344 22,690
Hong Kong...................................................... 19,574 19,109
France......................................................... 18,569 17,931
The Netherlands................................................ 11,153 13,973
Other nations.................................................. 18,554 33,506
--------- ---------
Geographic totals................................................. $181,369 $216,279
========= =========
4. SUBSEQUENT EVENT
On January 8, 2001 the Company and Entegris, Inc. entered into an
agreement to modify their existing distribution relationship. Pursuant to the
agreement, beginning March 1, 2001, Entegris would assume direct sales
responsibility for products from its Microelectronics Group in Europe and
Asia. In addition, the companies expect to enter into a new distribution
agreement for Entegris' Fluid Handling Products Group products under which
Metron would continue to distribute the Fluid Handling Products Group product
line in all regions currently covered, including select territories of the
United States, Europe and Asia. The new distribution agreement is anticipated
to run until at least August 31, 2005.
In consideration for termination of the existing distribution
agreement, Entegris is expected to transfer to Metron 1,125,000 shares of the
Metron common shares it currently owns, and to make cash payments totaling
$1,750,000 over a 15-month period. In addition, Entegris is expected to
repurchase the Company's inventory of Microelectronics Group products at
cost. At November 30, 2000, the cost of the Company's inventory of these
products totaled approximately $3 million. The early termination of the
Microelectronics Group product distribution agreement is anticipated to be
effective as of March 1, 2001, subject to completion of the new distribution
agreement for Entegris' Fluid Handling Products Group products and
finalization of transition matters.
5. RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998 the Financial Accounting Standards Board ("FASB") issued SFAS
133, "Accounting for Derivative Instruments and Hedging Activities". The new
standard establishes accounting and reporting standards for
9
derivative instruments, including certain derivative instruments embedded in
other contracts, and for hedging activities. It requires companies to record
derivatives on the balance sheet as assets or liabilities, measured at fair
value. Accounting for changes in the values of those derivatives depends on
the intended use of the derivatives and whether they qualify for hedge
accounting. SFAS 133, as amended by SFAS 137 and SFAS 138, is effective for
fiscal years beginning after June 15, 2000. Historically, the Company has
engaged in limited hedging activities to reduce the exposure to foreign
currency risks, but has not entered into derivatives contracts for
speculative purposes. Accordingly, the Company does not expect adoption of
the new standard to materially affect its consolidated financial statements.
In March 2000, the FASB issued FASB Interpretation No. 44, Accounting
for Certain Transactions involving Stock Compensation, an interpretation of
APB Opinion No. 25. This Interpretation clarifies the application of APB
Opinion 25 for certain issues including: (a) the definition of employee for
purposes of applying Opinion 25, (b) the criteria for determining whether a
plan qualifies as a non-compensatory plan, (c) the accounting consequence of
various modifications to the terms of a previously fixed stock option or
award, and (d) the accounting for an exchange of stock options in a business
combination. The Company adopted Interpretation No. 44 in the first quarter
of fiscal 2001. The adoption of this Interpretation did not have a material
impact on its consolidated financial statements.
In December 1999 the SEC issued Staff Accounting Bulletin No. 101 ("SAB
101") REVENUE RECOGNITION IN FINANCIAL STATEMENTS, which as amended, will be
implemented by the Company in the fourth fiscal quarter of fiscal 2001. In
October 2000 the SEC issued a Frequently Asked Questions and Answers document
(SAB 101 FAQ) which provides further guidance on questions raised by SAB 101.
SAB 101 summarizes certain of the SEC staff's views in applying generally
accepted accounting principles to revenue recognition in financial
statements. In addition, SAB 101 requires companies that have not applied
this method of accounting previously to report a change in accounting
principle in accordance with Accounting Principles Bulletin No. 20,
ACCOUNTING CHANGES. The Company believes that its revenue recognition
policies are consistent with the provisions of SAB 101 and SAB 101 FAQ. The
implementation of SAB 101 is therefore not expected to have a material impact
on the Company's consolidated financial statements.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information in this Management's Discussion and Analysis of Financial
Condition and Results of Operations, except for the historical information,
contains forward-looking statements. These statements are subject to risks and
uncertainties. You should not place undue reliance on these forward-looking
statements as actual results could differ materially. We do not assume any
obligation to publicly release the results of any revision or updates to these
forward-looking statements to reflect future events or unanticipated
occurrences. You should read this discussion and analysis in conjunction with
our Consolidated Financial Statements and the related Notes, included in
Metron's Annual Report on Form 10-K/A for the fiscal year ended May 31, 2000,
filed with the SEC on September 15, 2000.
OVERVIEW
Metron Technology N.V. is a holding company organized under the laws of The
Netherlands. Through our various operating subsidiaries, we are a leading
global provider of marketing, sales, service and support solutions to
semiconductor materials and equipment suppliers and semiconductor
manufacturers. We operate in Europe, Asia and the United States. We were
founded in Europe in 1975 by our two corporate shareholders, who each own
about 19.5% of our shares, and certain of our current and former management.
In 1995, we reorganized Metron to combine three Asian companies as a
reorganization of entities under common control, and purchased Transpacific
Technology Corporation ("TTC") and its subsidiaries. TTC was founded in
California in 1982 as a semiconductor equipment manufacturers' representative
company and expanded into the distribution business in 1990. In July 1998, we
acquired T.A. Kyser Co., which we refer to as Kyser, in a transaction
accounted for as a pooling of interests. Founded in 1977, Kyser markets and
sells materials in nine states within the United States, principally to the
semiconductor industry. In March 2000 we
10
acquired Shieldcare Ltd., a company incorporated in Scotland, in a
transaction accounted for as a purchase. Shieldcare is an authorized supplier
of critical parts cleaning services to major OEM and device manufacturing
companies worldwide. Shieldcare also operates as an authorized
re-manufacturer of physical vapor deposition ("PVD") equipment for a
well-known supplier of automated systems for chemical vapor deposition
("CVD"). As of November 17, 2000 we completed our acquisition of all shares
of Intec Technology (S) Pte. Ltd., a privately held company incorporated in
Singapore. The transaction will be accounted for as a purchase, and the
results of operations of Intec will be included in the Company's consolidated
financial statements from December 1, 2000. Intec is a distributor of
cleanroom products and a manufacturer of cleanroom garments, and sells these
products in Singapore and Malaysia.
We derive our revenue from sales of materials, equipment, service and
spare parts to the semiconductor industry, as well as from commissions on sales
of equipment and materials. We recognize revenue for most of an equipment sale
and all other product sales upon the shipment of goods to customers. We defer
the portion of equipment revenue associated with estimated installation and
warranty obligations. We recognize deferred revenue for installation upon
completion of the installation process, and amortize the deferred revenue for
warranty over the applicable warranty periods. We recognize service revenue in
the periods the services are rendered to customers.
In each of our three and six-month periods ended November 30, 1999 and
2000, a majority of our revenue came from the sale of products from five or
fewer of the semiconductor materials and equipment companies we represent, who
we refer to as our principals. Revenue from the sale of products manufactured by
FSI was 21.7% and 27.9% of total revenue for the three months ended November
30, 1999 and 2000, respectively, and 23.6% and 25.4% of total revenues for the
six months ended November 30, 1999 and 2000, respectively. Revenue from the sale
of products manufactured by Entegris was 24.3% and 25.6% of total revenue for
the three months ended November 30, 1999 and 2000, and 23.6% and 26.7% of total
revenues for the six months ended November 30, 1999 and 2000, respectively. In
addition to representing our two largest sources of revenue, FSI and Entegris
are also our two largest shareholders. At November 30, 2000, after including the
475,000 shares we issued for the acquisition of Intec, each company held 19.5%
of our outstanding shares. Although the principals that comprise our largest
sources of revenue may change from period to period, we expect that revenue from
the sale of products of a relatively small number of principals will continue to
account for a substantial portion of our revenue for at least the next five
years.
On January 8, 2001 the Company and Entegris, Inc. entered into an
agreement to modify their existing distribution relationship. Pursuant to the
agreement, beginning March 1, 2001, Entegris would assume direct sales
responsibility for products from its Microelectronics Group in Europe and
Asia. In addition, the companies expect to enter into a new distribution
agreement for Entegris' Fluid Handling Products Group products under which
Metron would continue to distribute the Fluid Handling Products Group product
line in all regions currently covered, including select territories of the
United States, Europe and Asia. The new distribution agreement is anticipated
to run until at least August 31, 2005. In the event the Company and Entegris
successfully complete the new agreement for Entegris' Fluid Handling Products
Group products and finalize transition matters, the existing distribution
agreement will be terminated and the new agreement will be effective March 1,
2001. If the existing agreement is terminated, effective March 1, the Company
would no longer market or sell products from Entegris' Microelectronics
Group. Revenues for these products were as follows:
THREE MONTHS SIX MONTHS
ENDED NOVEMBER 30, ENDED NOVEMBER 30,
------------------ ------------------
1999 2000 1999 2000
---- ---- ---- ----
(DOLLARS IN THOUSANDS)
Revenue.................... $9,110 $22,039 $17,343 $44,074
====== ======= ======= =======
In consideration for the termination of the existing distribution
agreement, Entegris is expected to transfer to the Company 1,125,000 of the
common shares it currently owns, and to make cash payments totaling $1.75
million, over a 15-month period. Entegris is also expected to repurchase the
Company's inventory of Microelectronics Group products at cost. At November 30,
2000, the cost of the Company's inventory of these products totaled
approximately $3 million.
If the changes to our relationship with Entegris go into effect, the
Company will record a gain on the termination of the existing distribution
agreement equal to the fair market value of the 1,125,000 shares on the day
on which major terms of the agreements are reached plus the $1.75 million
cash payments. If the Company reacquires these shares, Entegris' ownership
interest in the Company will be reduced to approximately 11.3% of our
outstanding shares. The Company would also record a provision for
restructuring costs associated with the reduction in head-count that it
expects to make as a result of the loss of the Microelectronics Group product
line. The Company does not presently expect that the provision will exceed
$500,000.
11
We operate in all areas of the world in which there is a significant
semiconductor industry, except Japan. The following tables show our sales in
Europe, Asia and the United States in dollars and as a percentage of net revenue
for each of the three and six-month periods ended November 30, 1999 and November
30, 2000:
THREE MONTHS SIX MONTHS
ENDED NOVEMBER 30, ENDED NOVEMBER 30,
------------------ ------------------
1999 2000 1999 2000
---- ---- ---- ----
(DOLLARS IN THOUSANDS)
Net revenue
Europe................................................... $39,776 $74,766 $71,482 $132,013
Asia..................................................... 16,434 33,437 35,779 67,263
United States............................................ 17,953 31,570 36,375 61,501
--------- --------- --------- ---------
Total net revenue..................................... $74,163 $139,773 $143,636 $260,777
========= ========= ========= =========
THREE MONTHS SIX MONTHS
ENDED NOVEMBER 30, ENDED NOVEMBER 30,
------------------ ------------------
1999 2000 1999 2000
---- ---- ---- ----
(PERCENTAGE OF NET REVENUE)
Net revenue
Europe................................................... 53.6% 53.5% 49.8% 50.6%
Asia..................................................... 22.2 23.9 24.9 25.8
United States............................................ 24.2 22.6 25.3 23.6
--------- --------- --------- ---------
Total net revenue..................................... 100.0% 100.0% 100.0% 100.0%
========= ========= ========= =========
We are organized into two worldwide operating divisions, equipment and
materials. Our equipment division derives the majority of its revenue from the
sale of capital equipment. The remainder of the division's revenue comes from
service, which includes the installation, maintenance and repair of
semiconductor equipment, spare part sales and commissions. Our equipment sales
represent products that support various production activities for the
manufacture of semiconductors. The sales of the equipment division principally
represent a small number of high-dollar value transactions for which the
products are generally shipped directly to the customer by the manufacturer. As
a result, our equipment sales are significantly affected by the pattern of
capital spending by customers, the timing of customer orders and the timing of
product shipments by the equipment manufacturer.
Our materials division derives the majority of its revenue from sales of
materials and components. The remainder of the division's revenue comes from
commissions. The materials and components we sell are used both in the
production of semiconductors and in the building and maintenance of
semiconductor equipment and manufacturing facilities. Materials include products
such as wafer handling cassettes and accessories, wafer surface preparation
materials, fluid-handling components such as fittings, valves and tubing, and
disposable cleanroom clothing. Sales of these products tend to be less cyclical
than sales of semiconductor equipment and generally offer higher gross margins.
RESULTS OF OPERATIONS
Beginning in the second half of 1996, as the result of excess capacity and
significant price erosion, especially for memory chips, semiconductor industry
growth slowed significantly. This slowdown caused semiconductor manufacturers to
exercise caution in making capital equipment purchasing decisions. Some
semiconductor
12
manufacturers reduced or delayed the expansion or construction of facilities.
This directly affected the sales of semiconductor capital equipment and, to a
lesser extent, the sales of materials. As a result of the slowdown, we
experienced order cancellations, delays in booking new orders and delays in
shipping orders to customers, all of which contributed to the reductions in our
revenue in fiscal 1998 and 1999. We believe that, despite short term slowdowns,
the semiconductor industry has long term growth opportunities. As a result, we
believe we must maintain our infrastructure, even during periodic slowdowns, in
order to continue to serve our customers and to be in a position to take
advantage of long term growth opportunities. Accordingly, we did not reduce our
operating expenses sufficiently to prevent us from recording an operating loss
in fiscal 1999. During the fourth quarter of our fiscal 1999 the semiconductor
industry began to recover from the slowdown and, as a result, the Company
returned to profitable operations. The recovery has continued through the second
quarter of fiscal 2001.
Our quarterly operating results have fluctuated significantly and are
likely to continue to fluctuate significantly due to a number of factors
including:
- the timing of significant customer orders and customer spending
patterns;
- the timing of product shipments by our principals;
- the loss of any significant customer or principal;
- the timing of new product and service announcements by our principals
and their competitors;
- the mix of products sold and the market acceptance of our new product
lines;
- the efficiencies we are able to achieve in managing inventories of
materials and spare parts;
- the timing of expenditures intended to increase future sales of
materials and equipment;
- general global economic conditions or economic conditions in a
particular region;
- changes in pricing by us, our principals or our competitors;
- changes in currency valuations relative to the U.S. dollar;
- costs we may incur if we become involved in future litigation; and
- other factors, many of which are beyond our control.
The following tables present certain consolidated statements of
operations data as a percentage of net revenue for the three and six-month
periods ended November 30, 1999 and November 30, 2000.
THREE MONTHS SIX MONTHS
ENDED NOVEMBER 30, ENDED NOVEMBER 30,
------------------ ------------------
1999 2000 1999 2000
---- ---- ---- ----
Net revenue.................................................. 100.0% 100.0% 100.0% 100.0%
Cost of revenue.............................................. 82.3 82.3 82.4 82.1
--------- --------- --------- ---------
Gross margin................................................. 17.7 17.7 17.6 17.9
Selling, general, administrative, and other expenses......... 14.9 12.6 15.0 12.8
--------- --------- --------- ---------
Operating margin............................................. 2.8% 5.1% 2.6% 5.1%
========= ========= ========= =========
The following table shows our materials division and equipment division
revenue as an amount and as a percent of net revenue, together with the related
gross margins:
13
THREE MONTHS SIX MONTHS
ENDED NOVEMBER 30, ENDED NOVEMBER 30,
------------------ ------------------
1999 2000 1999 2000
---- ---- ---- ----
(DOLLARS IN MILLIONS)
Net revenue
Equipment division........................................ $36.8 $72.8 $73.6 $131.4
Materials division........................................ 37.3 67.0 70.0 129.4
Net revenue
Equipment division........................................ 49.7% 52.0% 51.3% 50.4%
Materials division........................................ 50.3 48.0 48.7 49.6
Gross margins
Equipment division........................................ 15.2% 15.5% 14.6% 15.4%
Materials division........................................ 20.2 20.1 20.7 20.5
THREE MONTHS ENDED NOVEMBER 30, 2000 COMPARED TO THREE MONTHS ENDED
NOVEMBER 30, 1999
NET REVENUE
EQUIPMENT DIVISION. The equipment division's net revenue for the three
months ended November 30, 2000 was $72.8 million, an increase of $36.0 million
or 97.8% from the three months ended November 30, 1999. Revenues were higher in
all geographic regions due to the continued growth of the semiconductor
equipment industry. The division's revenue increased as a percentage of total
revenue for Metron to 52.0% as a result of the higher revenue growth.
MATERIALS DIVISION. The materials division's net revenue for the three
months ended November 30, 2000 was $67.0 million, an increase of $29.7 million
or 79.6% from the three months ended November 30, 1999. The division recorded
higher revenue in all regions, with continuing strong growth coming from Asia.
GROSS MARGINS
EQUIPMENT DIVISION. The equipment division's gross margin of 15.5%
increased 30 basis points (a basis point is 1/100 of 1%) for the three months
ended November 30, 2000 compared to the three months ended November 30, 1999.
The increase in gross margin for the three months ended November 30, 2000
compared to the three months ended November 30, 1999 was due to improved margins
on the sales of equipment partially offset by reductions in margins on spare
parts and service.
MATERIALS DIVISION. The gross margin of the materials division decreased
10 basis points to 20.1% for the three months ended November 30, 2000 compared
to the three months ended November 30, 1999. The slight decline was due to the
higher proportion of sales coming from fab construction activity where order
sizes are typically larger and gross margins typically tighter.
EXPENSES
SELLING, GENERAL, ADMINISTRATIVE AND OTHER (SG&A) EXPENSES. SG&A expenses
for the three months ended November 30, 2000 were $17.6 million, up $6.5 million
or 58.7% from the $11.1 million incurred in the three months ended November 30,
1999. The increase is due principally to the increase in the number of employees
and to higher travel expenses. In addition, Shieldcare, acquired during the
fourth quarter of fiscal 2000, accounted for $0.8 million of the increase in our
second quarter of fiscal 2001. SG&A expenses consist principally of salaries and
other employment-related costs, travel and entertainment, occupancy,
communications and computer-related expense, trade show and professional
services,
14
depreciation and amortization of acquisition goodwill. Our SG&A expenses are
a function principally of our total headcount. Over 65% of SG&A expenses
consist of salaries and other employment-related costs for the three months
ended November 30, 1999 and 2000.
SIX MONTHS ENDED NOVEMBER 30, 2000 COMPARED TO SIX MONTHS ENDED
NOVEMBER 30, 1999
NET REVENUE
EQUIPMENT DIVISION. The equipment division's net revenue in the six months
ended November 30, 2000 was $131.4 million, up $57.8 million or 78.5% from the
six months ended November 30, 1999. The net revenue increased in all geographic
regions with strong growth in both the United States and Europe. Revenues more
than doubled in the United States for the comparable six month periods.
MATERIALS DIVISION. The materials division's net revenue in the six months
ended November 30, 2000 was $129.4 million, up $59.4 million or 84.9% from the
six months ended November 30, 1999. Materials revenue was higher in all
geographic areas. Materials' revenue growth was particularly strong in Asia and
was more than one and one half times the revenues recorded in the prior
six-month period.
GROSS MARGINS
EQUIPMENT DIVISION. The equipment division's gross margin increased 80
basis points to 15.4% for the six months ended November 30, 2000 when compared
to the six months ended November 30, 1999. The increase in gross margin in
fiscal 2000 was due principally to improving equipment margins and a higher
proportion of equipment commissions. The improvements were offset by declines in
spare parts and service margins.
MATERIALS DIVISION. The gross margin of the materials division decreased
20 basis points to 20.5% for the six months ended November 30, 2000 when
compared to the six months ended November 30, 1999. While margins improved in
both Europe and Asia, the decrease in the United States was principally due to a
higher percentage of sales for fab construction activity, where order sizes are
typically larger and gross margins typically tighter.
SELLING, GENERAL, ADMINISTRATIVE AND OTHER (SG&A) EXPENSES. SG&A
expenses for the six months ended November 30, 2000 were $33.5 million, up
$11.9 million or 55.1% from the $21.6 million incurred for the six months
ended November 30, 1999. The increase is due principally to the increase in
the number of employees and to higher travel expenses. In addition,
Shieldcare, acquired during our fourth quarter of fiscal 2000, accounted for
$1.4 million of the increase in six-month period of fiscal 2001. Over 65% of
SG&A expenses consist of salaries and other employment-related costs for the
six months ended November 30, 1999 and 2000.
OTHER INCOME (EXPENSE). The following table summarizes the components of
other income (expense) for the periods indicated.
THREE MONTHS SIX MONTHS
ENDED NOVEMBER 30, ENDED NOVEMBER 30,
------------------ ------------------
1999 2000 1999 2000
---- ---- ---- ----
(DOLLARS IN THOUSANDS)
Foreign exchange gain (loss)................................ $260 $(41) $146 $(64)
Interest income............................................. 226 208 284 446
Interest expense............................................ (465) (327) (728) (640)
Miscellaneous income........................................ 281 22 402 137
--------- --------- --------- ---------
Other income (expense)...................................... $302 $(138) $104 $(121)
========= ========= ========= =========
15
We engage in limited hedging activities to reduce our exposure to exchange
risks arising from fluctuations in foreign currency, but because hedging
activities can be costly, we do not attempt to cover all potential foreign
currency exposures. During the three and six-month periods ended November 30,
1999 and November 30, 2000, we entered into contracts to hedge firm purchase
commitments, to hedge the maturities of foreign currency denominated liabilities
with foreign currency denominated assets and to hedge differences existing
between foreign currency assets and liabilities. The currencies in which we
purchase forward exchange contracts have numerous market makers to provide ample
depth and liquidity for our hedging activities.
Interest income represents primarily earnings on our available cash
balances and amounts invested in short-term investments, which primarily
resulted from the proceeds of our initial public offering. Our interest expense
for the same periods increased primarily as the result of increased borrowings
to support the increased working capital requirements associated with higher
revenues.
Other income for the three and six-month periods ended November 30,
2000 decreased when compared to the three and six months ending November 30,
1999 primarily as a result of a gain of $184,000 from the exercise of stock
warrants from a non-related principal during fiscal 2000.
PROVISION FOR INCOME TAXES. In July 2000, the German parliament
approved legislation, which decreased the income tax rate for corporations
from 51.9% to 38.2%. The rate reduction was enacted during our second fiscal
quarter of 2001. The rate reduction required the Company to reduce its
deferred tax asset associated with temporary differences and the carryforward
of net operating losses for our German subsidiary. We incurred an additional
deferred income tax expense of approximately $252,000 during our second
quarter for the reduction of the deferred tax asset.
LIQUIDITY AND CAPITAL RESOURCES
We define liquidity as our ability to generate resources to pay our
current obligations and to finance our growth during periods of business
expansion. Our principal requirement for capital is for working capital to
finance receivables and inventories. Until we completed our initial public
offering in late November 1999, our principal sources of liquidity were cash
flow from operations and bank borrowings. Our working capital, current assets
less current liabilities, at November 30, 2000 was $55.8 million slightly higher
than our working capital at May 31, 2000 of $54.4 million. Our current ratio,
current assets divided by current liabilities, was 1.5 at May 31, 2000 and 1.4
at November 30, 2000.
OPERATING ACTIVITIES. In the six months ended November 30, 1999, the net
total of net income plus items which did not affect operating cash flows was
$3.7 million. The net negative effect of increases in accounts receivables and
inventories offset by increases in accounts payable including payables to
affiliates and changes in other assets and liabilities for the first six months
in fiscal 2000 was $(6.6) million. In combination operating activities used $2.8
million of cash in the period.
In the six months ended November 30, 2000, the net total of net income
plus items, which did not affect operating cash flows was $12.3 million. The net
negative effect of increases in accounts receivables and inventories offset by
increases in accounts payable including payables to affiliates and changes in
other assets and liabilities for the first six months in fiscal 2000 was $(4.6)
million. In combination operating activities generated $7.8 million of cash in
the period. The net total of income statement items which did not affect
operating cash flows in the six months ended November 30, 2000, increased by
$3.5 million when compared to the same period in fiscal 2000. This increase is
primarily the result of increases in the amounts we provide for reserves for
inventory valuation and bad debts and the increase in amortization and
depreciation expense. The significant increase in our revenues this year also
required significant increases in accounts receivable, inventories and prepaid
expenses, which were only partially offset by increases in accounts payable and
in other liabilities.
INVESTING ACTIVITIES. Our capital expenditures for property, plant and
equipment totaled $0.9 million for the fiscal six months of fiscal 2000, and
$6.2 million for the same period in fiscal 2001. Approximately $3.6 million
of our capital expenditures in fiscal 2001 was for our new parts cleaning
facility in Singapore, and we invested $0.6 million in our new operations
management information system. We estimate that our total capital
expenditures in fiscal 2001 will be approximately $8.9 million, of which $1.9
million pertains to the initial phase of our new operations management
information system.
16
We estimate that the total costs of the new management information system
will be $4.0 to $5.0 million over a 24 to 36 month period.
In November 1999, we contributed $161,000 to increase our investment in
Metron Atkins Partnership Limited, a joint venture with WS Atkins Plc. In August
2000, we invested $1,000,000 for a 20% equity share of Advanced Stainless
Technologies, Inc., a company in Austin, Texas that electro-polishes stainless
steel tubing used principally in semiconductor fabrication facilities.
FINANCING ACTIVITIES. During November 1999 we completed our initial public
offering and received net proceeds of $27.0 million and invested $21.8 million
in short-term securities. In December 1999, the Company sold an additional
562,500 common shares to cover the exercise of the underwriters' over-allotment
option. During the six-month period ending November 30, 2000, we satisfied our
funding requirements from the sale of our short-term investments and from
internally generated funds and our various borrowing facilities. In addition, we
received $0.8 million from stock purchases through our employee stock purchase
plan and from the exercise of stock options by our employees.
We do not anticipate that we will need to raise additional capital to
permit us to conduct our operations in the ordinary course of business. However,
we may need to raise additional capital for significant acquisitions or other
extraordinary transactions. We do not currently have any specific plans,
agreements or commitments related to any such significant transaction and are
not currently engaged in any negotiations related to any such transaction. We
have no plans to pay any dividends on our common shares and intend to retain all
of our future profits to fund future growth. However, our future growth,
including potential acquisitions, may require additional external financing, and
from time to time we may need to raise additional funds through public or
private sales of equity and/or additional borrowings. If we are unable to obtain
this additional funding, we might have to curtail our expansion plans. The
issuance of additional equity or debt securities convertible into equity could
result in dilution to our existing shareholders.
The following table summarizes our material borrowing facilities as of
November 30, 2000:
U.S. $
EQUIVALENT AMOUNT RECENT
FACILITY CURRENTLY AMOUNT INTEREST
AMOUNT OUTSTANDING AVAILABLE RATE
------ ----------- --------- ----
(DOLLARS IN THOUSANDS)
Compass Bank............................................... $11,000 $10,947 $53 7.50%
Deutsche Bank.............................................. 3,505 657 2,848 7.5%
Royal Bank of Scotland..................................... 2,813 1,983 830 7.25%
All Others................................................. 4,305 476 3,829 5.0 to 8.5%
----------- ----------- -----------
Total...................................................... $21,623 $14,063 $7,560
=========== =========== ===========
EFFECT OF CURRENCY EXCHANGE RATE AND EXCHANGE RATE RISK MANAGEMENT
A significant portion of our business is conducted outside of the United
States through our foreign subsidiaries. While many of our international sales
are denominated in dollars, some are denominated in various foreign currencies.
To the extent that our sales and operating expenses are denominated in foreign
currencies, our operating results may be adversely affected by changes in
exchange rates. Owing to the number of currencies involved, the substantial
volatility of currency exchange rates, and our constantly changing currency
exposures, we cannot predict the effect of exchange rate fluctuations on our
future operating results. Although we engage in foreign currency hedging
transactions from time to time, these hedging transactions can be costly, and
therefore, we do not attempt to cover all potential foreign currency exposures.
These hedging techniques do not eliminate all of the effects of foreign currency
fluctuations on anticipated revenue.
In addition, the transition period from legacy currencies to the Euro
currently is set to expire January 1, 2002. One of the goals of our project to
install a new management information system is to accommodate the eventual
elimination of the legacy currencies.
17
MARKET RISK
At November 30, 2000 we had aggregate forward exchange contracts in
various currencies as follows:
CONTRACT AMOUNT WEIGHTED AVERAGE FAIR
--------------- ---------------- ----
US DOLLARS BUY SELL CONTRACT RATE VALUE EXPIRATION DATE
---------- --- ---- ------------- ----- ---------------
(DOLLARS IN THOUSANDS)
$2,342 Japanese Yen - 104.12 $71 March 2001
$2,000 - Israeli Shekel 4.18 (20) March 2001
$3,000 Singapore Dollar - 1.74 8 January 2001
$3,000 Italian Lira - 2,246.00 13 December 2000
$2,300 Deutschmark - 2.24 29 January 2001
$2,400 French Franc - 7.52 30 January 2001
--------
$131
========
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See "Effect of Currency Exchange Rate and Exchange Rate Risk Management"
and "Market Risk" under Part I, Item 2 of this report.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(a) Not applicable.
(b) Not applicable.
(c) On November 17, 2000, the Company issued 475,000 of its common shares
to Cher Lew Hiong James, Chia Chiap Heng Basil, Cher Lew Kwang Francis and
Elite Star Enterprises Pte. Ltd., a private company incorporated under the
laws of Singapore, in exchange for all of the common shares of Intec
Technology (S) Pte. Ltd., a private company incorporated under the laws of
Singapore, representing a purchase price of approximately $3,937,000. This
transaction was exempt from registration under the Securities Act of 1933, as
amended, by virtue of Section 4(2) and Regulation S thereunder, in reliance
in part on purchaser representations that, among other things, each
individual purchaser was a resident of Singapore and the office or offices of
the corporate purchaser in which it made its investment decision was or were
located in Singapore.
(d) Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its annual general meeting of shareholders on
November 21, 2000. The following actions were voted upon at such meeting:
18
Affirmative Negative Withheld Broker
Votes Votes Votes Abstentions Non-Votes
1. Election of five supervisory directors to hold
office until 2001:
Robert R. Anderson 12,811,959 - 10,240 - -
James E. Dauwalter 12,811,959 - 10,240 - -
Joel A. Elftmann 12,811,959 - 10,240 - -
Bruce M. Jaffe 12,811,959 - 10,240 - -
Sho Nakanuma 12,811,959 - 10,240 - -
2. Election of Gregory M. Claeys as a managing
director B 12,809,391 11,425 - 1,381 -
3. Approval of an increase in the number of
shares authorized for issuance under the
Company's Amended and Restated Employee Stock
Option Plan, as amended, by 1,000,000 8,791,195 1,774,835 - 1,615 2,254,554
4. Adoption of the Company's Annual Accounts for
the fiscal year ended May 31, 2000 12,600,669 220,475 - 1,055 -
5. Ratification of the selection of KPMG LLP as
the Company's independent auditors for the
fiscal year ending May 31, 2001 12,602,959 217,775 - 1,465 -
6. Authorization of the preparation of the
Company's Annual Reports for the fiscal year
ended May 31, 2000 and thereafter in the
English language 12,607,069 214,975 - 155 -
Item 5. OTHER INFORMATION
RISK FACTORS
OUR BUSINESS FACES SIGNIFICANT RISKS. THESE RISKS INCLUDE THOSE DESCRIBED
BELOW AND MAY INCLUDE ADDITIONAL RISKS AND UNCERTAINTIES NOT PRESENTLY KNOWN TO
US OR THAT WE CURRENTLY BELIEVE ARE IMMATERIAL. IF ANY OF THE EVENTS OR
CIRCUMSTANCES DESCRIBED IN THE FOLLOWING RISKS OCCURS, OUR BUSINESS, OPERATING
RESULTS OR FINANCIAL CONDITION COULD BE MATERIALLY ADVERSELY AFFECTED. THESE
RISKS SHOULD BE READ IN CONJUNCTION WITH THE OTHER INFORMATION SET FORTH IN THIS
REPORT.
RISKS RELATED TO METRON.
WE ARE DEPENDENT ON A FEW KEY PRINCIPALS FOR A MAJORITY OF OUR REVENUE;
THEREFORE, THE LOSS OF ONE OR MORE OF OUR KEY PRINCIPALS COULD SERIOUSLY HARM
OUR BUSINESS.
If, for any reason, any of our key principals were to materially reduce
its business or terminate its relationship with us, the loss of the key
principal would have a material adverse effect on our business. In particular,
if our commercial relationship with FSI or Entegris were to materially change or
were terminated, (for example, as described in the following paragraphs) our
business would be significantly adversely affected due to the large percentage
of our revenue generated by sales of these companies' products. For the three
month period ended November 30, 2000, 28% of our total revenue was generated
from the sale of products manufactured by FSI and 26% from the sale of products
manufactured by Entegris. For more information about our relationships with FSI
and Entegris, see also the risk titled "We are significantly controlled by FSI
and Entegris, which may limit your ability to influence the outcome of director
elections and other shareholder matters" and "Certain Transactions." In each of
our last three fiscal years, a majority of our revenue came from the sale of
products from five or fewer of the semiconductor materials and equipment
companies we represent, who we refer to as our principals. Although the
principals that comprise our largest sources of
19
revenue may change from period to period, we expect that revenue from the sale
of products of a relatively small number of principals will continue to account
for a substantial portion of our revenue for at least the next five years.
On January 8, 2001 the Company and Entegris, Inc. entered into an agreement
to modify their existing distribution relationship. Pursuant to the agreement,
beginning March 1, 2001, Entegris would assume direct sales responsibility for
products from its Microelectronics Group in Europe and Asia. In addition, the
companies expect to enter into a new distribution agreement for Entegris' Fluid
Handling Products Group products under which Metron would continue to distribute
the Fluid Handling Products Group product line in all regions currently covered,
including select territories of the United States, Europe and Asia. The new
distribution agreement is anticipated to run until at least August 31, 2005. In
the event the Company and Entegris successfully complete the new agreement for
Entegris' Fluid Handling Products Group products and finalize transition
matters, the existing distribution agreement will be terminated and the new
agreement will be effective March 1, 2001. If the existing agreement is
terminated, effective March 1, the Company would no longer market or sell
products from Entegris' Microelectronics Group. Revenues for these products were
as follows:
THREE MONTHS SIX MONTHS
ENDED NOVEMBER 30, ENDED NOVEMBER 30,
------------------ ------------------
1999 2000 1999 2000
---- ---- ---- ----
(DOLLARS IN THOUSANDS)
Revenue.................... $9,110 $22,039 $17,343 $44,074
====== ======= ======= =======
It is possible that the revised arrangement with Entegris will not
become effective on March 1, 2001 as anticipated, or at all. In such event,
while we would expect to continue to operate under our existing distribution
agreements with Entegris, the uncertainty about our relationship and other
factors may cause our sales of Entegris' microelectronics and other products
to decline. If the revised arrangement becomes effective, we expect that we
will incur restructuring costs not in excess of $500,000, although it is
possible that our costs in connection with our revised arrangement with
Entegris may exceed this amount.
All of the semiconductor materials, equipment and products we market,
sell, service and support are sold pursuant to agreements with our principals.
These agreements are generally cancelable at will, subject to notification
periods which range from 30 days to two years. We generally do not sell
competing products in the same market, and therefore the number of principals we
can represent at any one time is limited. It is likely that in the future some
of our principals will terminate their relationships with us upon relatively
short notice. If we lose a key principal, we may not be able to find a
replacement quickly, or at all. The loss of a key principal may cause us to lose
customers and incur expenses associated with ending our agreement with that
principal. We may lose principals for various reasons, including:
- mergers and acquisitions involving our principals and other
semiconductor materials and equipment manufacturers that we do not
represent;
- a principal's decision to attempt to build a direct sales organization;
- the expansion of a principal's product offerings to compete with the
products of another principal, because we generally do not offer
competing product lines;
- a principal's dissatisfaction with our level or quality of service; and
- the failure of a principal's business.
We have lost principals in the past. For example, after Ontrak was
acquired by Lam Research in August 1997, we ceased marketing and selling Ontrak
products in Europe in September 1998 and in South Korea in June 1998. In
20
March 1999, A.G. Associates was acquired by Steag. As a result of this
acquisition, we ceased marketing and selling A.G. Associates' products in
September 1999. In July 1999, FSI sold its chemical management division to BOC
Edwards. As a result of this divestiture, we are phasing out our marketing and
sale of products of this division. In October 1999, Applied Materials acquired
Obsidian. As a result of the acquisition, Obsidian terminated its agreement with
us.
THE SEMICONDUCTOR INDUSTRY IS HIGHLY CYCLICAL, AND THEREFORE, A DOWNTURN MAY
RESULT IN POOR OPERATING RESULTS.
The downturn in the semiconductor industry from mid-1996 until the end of
1998 had a material adverse effect on our operating results. Our business
depends in large part on the procurement expenditures of semiconductor
manufacturers, which, in turn, depend on the current and anticipated demand for
semiconductors and products utilizing semiconductors. The semiconductor industry
is highly cyclical and historically has experienced periodic downturns, which
often have resulted in decreased expenditures by semiconductor manufacturers.
These downturns generally have adversely affected the sales, gross profits and
operating results of semiconductor materials and equipment suppliers. From 1996
through 1998, the semiconductor industry experienced a downturn, which led
semiconductor manufacturers to delay or cancel capital expenditures. During this
downturn, some of our customers delayed or canceled purchases of semiconductor
materials and equipment, which had a negative impact on our sales, gross profits
and operating results. We cannot predict when future downturns will occur or how
they will affect us.
IF WE ARE UNABLE TO SUCCESSFULLY IDENTIFY NEW PRODUCTS AND ENTER INTO AND
IMPLEMENT ARRANGEMENTS WITH THE SUPPLIERS OF THESE PRODUCTS, OUR BUSINESS WILL
BE SERIOUSLY HARMED.
Any failure by us to enter into relationships with principals that
anticipate or respond adequately to technological developments or customer
requirements, or any significant delays in product development or introductions
by these principals, could result in a loss of competitiveness and could
materially adversely effect our business. The semiconductor materials and
equipment market is subject to rapid technological change, changing customer
requirements and frequent new product introductions. Because of this, the life
cycle of products that we market and sell is difficult to determine. Our future
success will depend to a significant extent on our principals' ability to keep
pace with changes in the market and on our ability to identify and carry
successful new product lines, particularly because we generally do not carry
competing product lines.
WE FACE INTENSE COMPETITION FROM COMPANIES WITH SIGNIFICANTLY GREATER FINANCIAL,
TECHNICAL AND MARKETING RESOURCES, WHICH COULD ADVERSELY AFFECT OUR ABILITY TO
MAINTAIN OR INCREASE SALES.
We face intense competition on two distinct fronts: competition for
product lines and competition for customers.
IF WE ARE UNABLE TO COMPETE SUCCESSFULLY FOR PRODUCT LINES AGAINST INDEPENDENT
SALES AND DISTRIBUTION COMPANIES THAT HAVE GREATER FINANCIAL RESOURCES, ARE MORE
ESTABLISHED OR HAVE LONG-STANDING RELATIONSHIPS WITH SEMICONDUCTOR MATERIALS AND
EQUIPMENT MANUFACTURERS, WE WILL BE UNABLE TO OFFER COMPETITIVE PRODUCTS, WHICH
WILL NEGATIVELY IMPACT OUR SALES.
We compete with independent sales and distribution companies for the right
to sell specific product lines in specific territories. We believe that our most
formidable competition comes from regionally established semiconductor materials
and equipment distribution companies. Some of these independent sales and
distribution companies have substantially greater financial resources to devote
to a particular region than we do, are better established in particular regions
than we are, have greater name recognition in their chosen markets than we have
and have long-standing collaborative business relationships with semiconductor
materials and equipment manufacturers which are difficult to overcome. If we are
unable to effectively compete with sales and distribution companies to attract
and retain principals, our business will be adversely effected.
IF WE ARE UNABLE TO COMPETE FOR CUSTOMERS DUE TO OUR INABILITY TO PROVIDE SALES,
MARKETING AND SUPPORT SERVICES OR PARTICULAR PRODUCT OFFERINGS, IT WILL
ADVERSELY AFFECT OUR ABILITY TO MAINTAIN OR INCREASE SALES.
21
We compete for orders from semiconductor manufacturers with established
semiconductor materials and equipment manufacturers who sell directly to
customers and with independent sales and distribution companies and sales
representatives. We believe that to compete effectively for customers we must
maintain a high level of investment in marketing, customer service and support
in all of the markets in which we operate, and we may not have sufficient
financial resources, technical expertise or marketing, services and support
capabilities to continue to compete successfully in the future. Some of our
competitors have greater name recognition in the territories they serve and have
long-standing relationships with semiconductor manufacturers that may give them
an advantage in attracting and retaining customers. Furthermore, we believe that
once a semiconductor manufacturer has selected a particular product for a
specific use from a vendor that is not one of our principals, it may be
difficult to achieve significant sales of a competing product to that customer
unless there are compelling reasons for the customer to switch products, such as
significant performance or cost advantages.
We anticipate that as we continue to diversify our product portfolio and
expand into new markets for our principals' products, we will encounter
additional competition for customers. If we cannot continue to compete
successfully for customers in the future, it will have a significant negative
impact on our business.
THE MANAGEMENT INFORMATION SYSTEMS THAT WE CURRENTLY USE IN OUR DAY-TO-DAY
OPERATIONS ARE NOT INTEGRATED ACROSS COUNTRY BORDERS AND NEED TO BE UPGRADED.
UPGRADING THEM WILL BE COSTLY, AND IF THE NEW SYSTEM IS NOT SUCCESSFULLY
IMPLEMENTED, OUR BUSINESS MAY SUFFER MATERIAL ADVERSE CONSEQUENCES.
While our financial reporting management information system is integrated
and operational, our current management information systems that we use to
control our day-to-day operations are not integrated across country borders. To
accommodate growth in the past, we have had to hire additional people to
compensate for the lack of a fully-functional, integrated operations management
information system. We are currently investing in a new operations management
information system in order to maintain our current level of business and
accommodate any future growth. We anticipate that the total costs associated
with the implementation of the new system will be approximately $4.0 to $5.0
million and that the system will be implemented over the next 24 to 36 months.
Any failure to successfully implement our new operations management information
system may result in delayed growth, increased inefficiency due to a lack of
centralized data, higher inventories, increased expenses associated with
employing additional employees, a loss of our investment in the new operations
management information system and may have additional material adverse effects
on our business.
WE NEED TO SUCCESSFULLY MANAGE THE ANTICIPATED EXPANSION IN OUR OPERATIONS OR
OUR BUSINESS MAY SUFFER MATERIAL ADVERSE CONSEQUENCES.
Any failure by us to effectively manage future expansion and the system
and procedural transitions required by expansion could seriously harm our
business and our operating results. We have expanded our operations in the past
and anticipate future expansion of our operations through acquisitions and
otherwise. Our growth has placed and will continue to place significant demands
on our management, operational, financial and technical resources, as well as
our accounting and control systems, as we work to integrate geographically
dispersed offices and administrative personnel, diverse service and maintenance
operations and different accounting and financial systems. Our future operating
results will depend on the ability of our management and other employees to:
- continue to implement and improve our operational, customer support and
financial control systems;
- recruit, train, manage and motivate our employees;
- identify companies that are strategic acquisition candidates and
successfully acquire and integrate them with our existing business;
- communicate information efficiently throughout our organization; and
- work effectively with principals and customers.
We cannot predict whether these efforts will be successful or will occur
in a timely or efficient manner. We may not be able to install adequate control
systems in an efficient and timely manner, and our current or planned
operational systems, procedures and controls may not be adequate to support our
future operations. The difficulties associated with installing and implementing
new systems, procedures and controls may place a significant burden on
22
our management and our internal resources. Delays in the implementation of new
systems or operational disruptions when we transition to new systems would
impair our ability to accurately forecast sales demand, manage our product
inventory and record and report financial and management information on a timely
and accurate basis.
WE MAY NOT BE SUCCESSFUL IN ANY EFFORT TO PENETRATE JAPAN, WHICH COULD LIMIT OUR
FUTURE GROWTH.
We do not market and sell products to semiconductor manufacturers in
Japan. However, approximately 22% of the world's production of semiconductors
takes place in Japan. Accordingly, to reach all of the world's major
semiconductor markets, we will need to establish or acquire sales and marketing
capabilities in Japan. Historically, it has been difficult for non-Japanese
companies to succeed in establishing themselves in Japan, and we believe that
expanding our operations to Japan would be both expensive and time-consuming and
would place additional demands on our management. In addition, FSI and Entegris
have existing arrangements for the sale, service and support of their products
in Japan and have not indicated that they would modify such arrangements in the
event that Metron establishes or acquires sales and marketing capabilities in
Japan. We cannot predict whether any of our efforts to penetrate the Japanese
market will be successful. If we are not successful in our efforts to penetrate
the Japanese market, our future growth may be limited.
WE EXPECT CONTINUED DOWNWARD PRESSURE ON THE GROSS MARGINS OF THE PRODUCTS WE
SELL, AND AS A RESULT, IF WE ARE UNABLE TO CONTINUE TO DECREASE OUR OPERATING
EXPENSES AS A PERCENTAGE OF SALES, WE WILL BE UNABLE TO INCREASE OR MAINTAIN OUR
OPERATING MARGINS.
Particularly during industry down cycles, pressure on the gross margins of
the products we sell is intense and can adversely impact our financial
performance. We have experienced significant downward pressure on our gross
margins mainly as a result of sales discounts offered by our competitors and
pressure from our customers to reduce prices and from our principals to reduce
the discounts they provide to us. This, in turn, has put significant downward
pressure on our operating margins. To maintain or increase our gross margins, we
must develop and maintain relationships with principals who introduce new
products and product enhancements on a timely basis. As a result of continued
pressure on gross margins, we must find ways to decrease our selling, general,
administrative and other expenses as a percentage of sales to increase or
maintain our operating margins. If our principals cannot continue to innovate,
if we cannot maintain our relationships with innovating principals, or if we
cannot successfully manage our selling, general, administrative and other
expenses, our operating margins may decrease. If our operating margins decline
as a result of these factors, our business would be harmed.
OUR EMPLOYMENT COSTS IN THE SHORT-TERM ARE TO A LARGE EXTENT FIXED, AND
THEREFORE ANY UNEXPECTED REVENUE SHORTFALL COULD ADVERSELY AFFECT OUR OPERATING
RESULTS.
Our operating expense levels are based in significant part on our head
count, which is generally driven by longer-term revenue goals. For a variety of
reasons, particularly the high cost and disruption of lay-offs and the costs of
recruiting and training, our head count in the short-term is, to a large extent,
fixed. In particular, approximately half of our employees are in Europe, and the
costs associated with any reductions of our labor force in Europe are high.
Accordingly, we may be unable to reduce employment costs in a timely manner to
compensate for any unexpected revenue or gross margin shortfall, which could
have a material adverse effect on our operating results.
WE MAY BEAR INVENTORY RISK DUE TO AN INABILITY TO RETURN PRODUCTS, AND IF WE ARE
UNABLE TO MANAGE OUR INVENTORY EFFECTIVELY, OUR OPERATING RESULTS COULD BE
ADVERSELY AFFECTED.
We bear inventory risk because we generally take title to the products we
sell when we receive them from our principals, and we cannot always return
products to the principal in the event the products are not sold. Our customers
do not always purchase at the time or in the quantities we originally
anticipated. For example, as a result of the industry downturn in 1997 and 1998,
we had excess inventory for which we booked reserves in both the United States
and Asia. Typically, products cannot be returned to principals after they have
been in our inventory for a certain period of time; this time period varies
depending on the product and the principal. In addition, although it is typical
when a relationship with a principal terminates for that principal to repurchase
most of the inventory we have of that principal's products, it is possible under
certain circumstances that a principal may be unable or unwilling to repurchase
our inventory. If we fail to manage our inventory and accumulate substantial
product that cannot be returned, our operating results could be adversely
affected. Furthermore, if a principal cannot provide refunds in cash for the
inventory we desire to return, we
23
may be forced to dispose of inventory below cost, and this may have a material
adverse effect on our financial condition.
OUR REVENUE AND OPERATING RESULTS MAY FLUCTUATE IN FUTURE PERIODS, WHICH COULD
ADVERSELY AFFECT OUR SHARE PRICE.
In the past, we have experienced fluctuations in our quarterly and annual
operating results and anticipate that these fluctuations will continue in the
future due to a variety of factors, many of which are out of our control.
Fluctuations in our results could cause our share price to decline
substantially. We believe that period-to-period comparisons of our results of
operations may not be meaningful, and you should not rely upon them as
indicators of our future performance. Our sales in, and the operating results
for, a particular quarter can vary significantly due to a variety of factors,
including those described elsewhere in this report and the following:
- The Timing Of Significant Customer Orders And Customer Spending
Patterns. During industry downturns, our customers may ask us to delay
or even cancel the shipment of previously firm orders. Delays and
cancellations may adversely affect our operating results in any
particular quarter if we are unable to recognize revenue for particular
sales in the quarter in which those sales were expected.
- The Timing Of Product Shipments By Our Principals. For the most part,
we recognize sales upon the shipment of goods to our customers. Most of
the equipment and some of the materials we sell is shipped by the
principal directly to our customers, and we do not necessarily have any
control over the timing of a particular shipment. If we are unable to
recognize revenue for a particular sale in the quarter in which that
sale was expected, our operating results in that particular quarter
will be negatively affected.
- The Timing Of New Product And Service Announcements By Our Principals
And Their Competitors. New product announcements by our principals and
their competitors could cause our customers to delay a purchase or to
decide to purchase products of one of our principal's competitors which
would adversely affect our revenue and, therefore, our results of
operations. New product announcements by others may make it necessary
for us to reduce prices on our products or offer more service options,
which could adversely impact operating margins and net income.
- The Mix Of Products Sold And The Market Acceptance Of Our New Product
Lines. The mix of products we sell varies from period to period, and
because margins vary amongst or within different product lines, this
can adversely affect our results of operations. If we fail to sell our
products which generate higher margins, our average gross margins may
be lower than expected. If we fail to sell our new product lines, our
revenue may be lower than expected.
- General Global Economic Conditions Or Economic Conditions In A
Particular Region. When economic conditions in a region or worldwide
worsen, customers may delay or cancel their orders. There may also be
an increase in the time it takes to collect from our customers or even
outright defaults in payments. This can negatively affect our cash flow
and our results.
- Costs We May Incur If We Become Involved In Future Litigation.
Litigation is often costly, and even if we are successful in defending
or making any claim, the expenses incurred may significantly impact our
results.
As a result of the factors listed above, our future operating results are
difficult to predict. Further, we base our current and future expense plans in
significant part on our expectations of our longer-term future revenue. As a
result, we expect our expense levels to be relatively fixed in the short-run. An
unanticipated decline in revenue for a particular quarter may disproportionately
affect our net income in that quarter. If our revenue is below our projections,
then our operating results will also be below expectations and, as we have in
the past, we may even have losses in the short-run. Any one of the factors
listed above, or a combination thereof, could adversely affect our quarterly
results of operations, and consequently may cause a decline in our share price.
WE DEPEND ON SALES TO A RELATIVELY SMALL NUMBER OF CUSTOMERS FOR A SIGNIFICANT
PORTION OF OUR REVENUE, AND IF ANY OF OUR LARGE CUSTOMERS WERE TO STOP OR REDUCE
THEIR PURCHASING FROM US, IT WOULD MATERIALLY AND ADVERSELY AFFECT OUR REVENUE.
A loss or a significant reduction or delay in sales to any of our major
customers could materially and adversely affect our revenue. We depend on a
small number of customers for a substantial portion of our revenue. During
fiscal 2000, our top ten customers accounted for an aggregate of 40% of our
sales. Although a ranking by revenue of our largest customers will vary from
period to period, we expect that revenue from a relatively small number of
customers
24
will account for a substantial portion of our revenue in any accounting period
for the foreseeable future. Consolidation in the semiconductor industry may
result in increased customer concentration and the potential loss of customers
as a result of acquisitions. Unless we diversify and expand our customer base,
our future success will significantly depend upon certain factors which are not
within our control, including:
- the timing and size of future purchase orders, if any, from our larger
customers;
- the product requirements of our customers; and
- the financial and operational success of our customers.
If any of our largest customers were to stop or reduce their purchasing
from us, our financial results could be adversely affected. A significant
decrease in sales to a major customer or the deferral or cancellation of any
significant order would have a material adverse effect on our operating results.
OUR SALES CYCLE, PARTICULARLY FOR EQUIPMENT, IS LONG AND UNPREDICTABLE, WHICH
COULD REQUIRE US TO INCUR HIGH SALES AND MARKETING EXPENSES WITH NO ASSURANCE
THAT A SALE WILL RESULT.
Sales cycles for some of our products, particularly equipment, can run as
long as 12 to 18 months. As a result, we may not recognize revenue from efforts
to sell particular products for extended periods of time. We believe that the
length of the sales cycle may increase as some current and potential customers
of our key principals centralize purchasing decisions into one decision-making
entity. We expect this may intensify the evaluation process and require us to
make additional sales and marketing expenditures with no assurance that a sale
will result.
WE HAVE NOT YET DEVELOPED A STRATEGY TO SELL TO OUR CUSTOMERS OVER THE INTERNET,
AND IF A COMPETITOR DEVELOPS AND IMPLEMENTS AN EFFECTIVE E-COMMERCE STRATEGY, WE
MAY LOSE SOME OF OUR CUSTOMERS, WHICH WOULD HAVE A NEGATIVE IMPACT ON OUR
RESULTS OF OPERATIONS.
Although we have begun efforts to develop an e-commerce strategy, we have
not implemented a process to sell to our customers over the Internet. Because
our principals grant us the right to sell their products only for specific
territories and sales conducted over the Internet may occur anywhere around the
globe, it is difficult to adopt e-commerce practices in this industry. If our
principals decide to directly distribute their products over the Internet, if
our competitors develop a successful strategy for engaging in e-commerce or if
our customers require e-commerce capabilities which we are unable to provide, we
may lose customers, which would have a negative impact on our revenue and on our
operating results.
RISKS RELATED TO OUR INTERNATIONAL OPERATIONS.
ECONOMIC DIFFICULTIES IN COUNTRIES IN WHICH WE SELL OUR PRODUCTS CAN LEAD TO A
DECREASE IN DEMAND FOR OUR PRODUCTS AND IMPAIR OUR FINANCIAL RESULTS.
The volatility of general economic conditions and fluctuations in currency
exchange and interest rates can lead to decreased demand in countries in which
we sell product. For example, in 1997 and 1998 many Asian countries experienced
economic and financial difficulties. During this period, we experienced
cancellation or delay of orders for our products from customers in Asia, thus
adversely affecting our results of operations. Moreover, any economic, banking
or currency difficulties experienced by countries in which we have sales may
lead to economic recession in those countries. This in turn may result in the
cancellation or delay of orders for our products from customers in these
countries, thus adversely affecting our results of operations.
MOST OF OUR PRODUCT SALES ARE OUTSIDE THE UNITED STATES, AND CURRENCY
FLUCTUATIONS MAY IMPAIR OUR FINANCIAL RESULTS.
While most of our international sales are denominated in dollars, some are
denominated in various foreign currencies. To the extent that our sales and
operating expenses are denominated in foreign currencies, our operating results
may be adversely affected by changes in exchange rates. For example, in fiscal
1997, we recorded exchange losses of approximately $600,000. Given the number of
currencies involved, the substantial volatility of currency exchange rates, and
our constantly changing currency exposures, we cannot predict the effect of
exchange rate
25
fluctuations on our future operating results. Although we engage in foreign
currency hedging transactions from time to time, these hedging transactions can
be costly, and therefore, we do not attempt to cover all potential foreign
currency exposures. These hedging techniques do not eliminate all of the effects
of foreign currency fluctuations on anticipated revenue.
In addition, the transition period from legacy currencies to the euro
currently is set to expire January 1, 2002. Our new operations management
information system is designed to accommodate the eventual elimination of the
legacy currencies. If our new system is not successfully installed on a timely
basis, this could have a material adverse effect on our business.
IF WE OR OUR NON-UNITED STATES SUBSIDIARIES ARE DEEMED SUBJECT TO UNITED STATES
TAXES, OUR BUSINESS, FINANCIAL CONDITION AND RESULTS MAY SUFFER.
Metron and its non-United States subsidiaries conduct most of their
activities in a manner which we believe does not constitute the conduct of a
trade or business in the United States. Accordingly, although we report taxable
income and pay taxes in the countries where we operate, including the United
States, we believe that income earned by Metron and its non-United States
subsidiaries from operations outside the United States is not reportable in the
United States for tax purposes and is not subject to United States income tax.
If income earned by us or our non-United States subsidiaries from operations
outside the United States is determined to be income effectively connected to an
United States trade or business and as a result becomes taxable in the United
States, we could be subject to United States taxes on this income. If we were to
be deemed to be subject to these taxes, our business, financial condition and
results of operations might be materially and adversely affected.
RISKS RELATED TO INVESTING IN OUR COMMON SHARES.
WE ARE SIGNIFICANTLY CONTROLLED BY FSI AND ENTEGRIS, WHICH MAY LIMIT YOUR
ABILITY TO INFLUENCE THE OUTCOME OF DIRECTOR ELECTIONS AND OTHER SHAREHOLDER
MATTERS.
As of November 30, 2000, after including the 475,000 shares we issued for
the acquisition of Intec, FSI and Entegris each owned 19.5% of our outstanding
shares. If the modified relationship with Entegris described elsewhere in this
Quarterly Report becomes effective, we will reacquire 1,125,000 of our shares
currently held by Entegris, and Entegris' ownership interest in the Company
would be reduced to approximately 11.3% of our outstanding shares. By virtue of
their share ownership and the fact that each holds one of the five seats on our
supervisory board, FSI and Entegris can exercise significant voting and
management control over Metron. As a result, each of these shareholders has
significant influence over all matters requiring shareholder or supervisory
board approval, including the election of directors and approval of significant
corporate transactions, which may have the effect of delaying or preventing a
third party from acquiring control over us.
WE MAY NEED TO RAISE ADDITIONAL CAPITAL, AND ANY INABILITY TO RAISE REQUIRED
FUNDS COULD HARM OUR BUSINESS.
We expect the net proceeds from our initial public offering, cash from
operations and borrowings under our credit facilities will be sufficient to meet
our working capital and capital expenditure needs for the foreseeable future.
However, we may need to raise additional capital to acquire or invest in
complementary businesses. Further, if we issue additional equity securities, the
ownership stakes of our existing shareholders would be reduced, and the new
equity securities may have rights, preferences or privileges senior to those of
our existing common shares. If we cannot raise funds, if needed, on acceptable
terms, we may not be able to develop our business, take advantage of future
opportunities or respond to competitive pressures or unanticipated requirements,
all of which could seriously harm our business and results of operations.
OUR SHARE PRICE IS VOLATILE.
The trading price of our common shares is subject to wide fluctuations in
response to various factors, some of which are beyond our control, including
factors discussed elsewhere in this report and the following:
- failure to meet the published expectations of securities analysts for a
given quarterly period;
26
- changes in financial estimates by securities analysts;
- changes in market values of comparable companies;
- stock market price and volume fluctuations, which are particularly
common among securities of high technology companies;
- stock market price and volume fluctuations attributable to inconsistent
trading volume levels;
- additions or departures of key personnel; and
- commencement of our involvement in litigation.
In the past, securities class action litigation has often been brought
against a company following periods of volatility in the market price of its
securities. We may in the future be the target of similar litigation. Securities
litigation may result in substantial costs and divert management's attention and
resources, which may seriously harm our business.
WE DO NOT INTEND TO PAY DIVIDENDS.
We have never declared or paid any cash dividends on our capital shares.
We currently intend to retain any future earnings for funding growth and,
therefore, do not expect to pay any dividends in the foreseeable future.
RISKS RELATED TO BEING A DUTCH COMPANY.
OUR SUPERVISORY BOARD HAS THE AUTHORITY TO ISSUE SHARES WITHOUT SHAREHOLDER
APPROVAL, WHICH MAY MAKE IT MORE DIFFICULT FOR A THIRD PARTY TO ACQUIRE US.
As a Netherlands "NAAMLOZE VENNOOTSCHAP," or N.V., we are subject to
requirements not generally applicable to corporations organized in United States
jurisdictions. Among other things, under Netherlands law the issuance of shares
of a N.V. company must be approved by the shareholders unless the shareholders
have delegated the authority to issue shares to another corporate body. Our
articles of association provide that the shareholders have the authority to
resolve to issue shares, common or preferred, and may designate the Metron board
of supervisory directors as the corporate body with the authority to adopt any
resolution to issue shares, but this designation may not exceed a period of five
years. Our articles also provide that as long as the supervisory board has the
authority to adopt a resolution to issue shares, the shareholders will not have
this authority. Pursuant to the Metron articles, the supervisory board has the
authority to adopt resolutions to issue shares until five years from the
November 19, 1999, deed of conversion from a B.V. to an N.V. and the related
amendment of the articles. This authorization of the supervisory board may be
renewed by the shareholders from time to time. As a result, our supervisory
board currently has the authority to issue common and preferred shares without
shareholder approval.
The issuance of preferred shares could have the effect of making it more
difficult for a third party to acquire, or of discouraging a third party from
acquiring, a majority of the outstanding shares of our share capital.
IT MAY NOT BE POSSIBLE TO ENFORCE UNITED STATES JUDGMENTS AGAINST NETHERLANDS
CORPORATIONS, DIRECTORS AND OTHERS.
Our articles provide that Metron has two separate boards of directors, a
managing board and a supervisory board. One of our managing directors resides
outside of the United States. A significant percentage of our assets are located
outside the United States. As a result, it may not be possible to effect service
of process within the United States upon the managing director who lives outside
the United States. Furthermore, judgments of United States courts, including
judgments against us, our directors or our officers predicated on the civil
liability provisions of the federal securities laws of the United States, are
not directly enforceable in The Netherlands.
PROVISIONS OF OUR CHARTER DOCUMENTS AND DUTCH LAW COULD DISCOURAGE POTENTIAL
ACQUISITION PROPOSALS AND COULD DELAY, DETER OR PREVENT A CHANGE IN CONTROL.
27
Our articles of association and the applicable law of The Netherlands
contain provisions that may be deemed to have anti-takeover effects. These
provisions may delay, defer or prevent a takeover attempt that a shareholder
might consider in the best interest of our shareholders. For example, our
articles may be amended only pursuant to a proposal of the supervisory board
followed by a resolution of the general meeting of shareholders. To amend our
articles requires that at a general meeting of shareholders, (1) more than half
of the issued share capital is represented and (2) the resolution to amend the
articles is supported by a two-thirds majority of the valid votes cast. This
supermajority voting requirement may have the effect of discouraging a third
party from acquiring a majority of the outstanding Metron shares. In addition,
these provisions could have a negative impact on our stock price. Furthermore,
some United States tax laws may discourage third parties from accumulating
significant blocks of our common shares.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements under the captions "Risk Factors" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
elsewhere in this report are "forward-looking statements." These statements
involve known and unknown risks, uncertainties, and other factors that may cause
our, or our industry's, actual results, levels of activity, performance or
achievements to be materially different from any future results, levels of
activity, performance or achievements expressed or implied by the
forward-looking statements. These factors are listed under "Risk Factors" and
elsewhere in this report.
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.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. Moreover, neither we nor any other person
assumes responsibility for the accuracy and completeness of these statements. We
are under no duty to update any of the forward-looking statements after the date
of this report to conform these statements to actual results.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
ITEM DESCRIPTION
10.1 Stock Purchase Agreement, dated as of November 17, 2000, among Metron Technology N.V. and
Cher Lew Hiong James, Chia Chiap Heng Basil, Cher Lew Kwang Francis and Elite Star Enterprises
Pte. Ltd.
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the quarter ended
November 30, 2000.
28
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.
METRON TECHNOLOGY N.V.
Date: January 16, 2001 /s/ PETER V. LEIGH
------------------
Peter V. Leigh
Vice President, Finance
Signing on behalf of the registrant
and as principal accounting officer
29