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 February 28, 2001
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 210
BURLINGAME, CALIFORNIA 94010
-------------------------------
(Address of principal executive offices)
Registrant's telephone number, including area code: (650) 401-4600
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 MARCH 31, 2001
------------------- -----------------------------
Common shares, par value NLG 0.96 per share 12,743,780
METRON TECHNOLOGY N.V.
INDEX
PAGE NO.
-------
Part I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Statements of Income (Unaudited)
for the Three and Nine Months Ended February 29, 2000 and February 28, 2001 3
Condensed Consolidated Statements of Comprehensive Income (Unaudited)
for the Three and Nine Months Ended February 29, 2000 and February 28, 2001 4
Condensed Consolidated Balance Sheets (Unaudited)
as of May 31, 2000 and February 28, 2001 5
Condensed Consolidated Statements of Cash Flows (Unaudited)
for the Nine Months Ended February 29, 2000 and February 28, 2001 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 18
Item 6. Exhibits and Reports on Form 8-K 27
Signature 28
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 ENDED NINE MONTHS ENDED
FEBRUARY 29 FEBRUARY 28 FEBRUARY 29 FEBRUARY 28
----------- ----------- ----------- -----------
2000 2001 2000 2001
---- ---- ---- ----
Net revenue............................................. $80,980 $137,301 $224,616 $398,078
Cost of revenue......................................... 65,135 113,309 183,481 327,343
------- -------- -------- --------
Gross profit............................................ 15,845 23,992 41,135 70,735
Selling, general, administrative, and other expenses.... 12,535 16,895 34,093 50,356
Other operating income, net of associated costs......... - 91 - 91
------- -------- -------- --------
Operating income........................................ 3,310 7,188 7,042 20,470
Equity in net loss of joint ventures.................... (31) (6) (159) (170)
Other income (expense), net............................. 340 (494) 444 (615)
------- -------- -------- --------
Income before income taxes.............................. 3,619 6,688 7,327 19,685
Provision for income taxes.............................. 1,062 2,579 2,381 8,077
------- -------- -------- --------
Net income.............................................. $2,557 $4,109 $4,946 $11,608
======= ======== ======== ========
Earnings per common share
Basic................................................ $0.20 $0.30 $0.44 $0.86
Diluted.............................................. $0.18 $0.29 $0.40 $0.83
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 ENDED NINE MONTHS ENDED
FEBRUARY 29 FEBRUARY 28 FEBRUARY 29 FEBRUARY 28
----------- ----------- ----------- -----------
2000 2001 2000 2001
---- ---- ---- ----
Net income.................................... $2,557 $4,109 $4,946 $11,608
Other comprehensive income (loss)............. (280) 1,537 (503) (627)
------ ------ ------ -------
Comprehensive income.......................... $2,277 $5,646 $4,443 $10,981
====== ====== ====== =======
See accompanying Notes to Condensed Consolidated Financial Statements
4
METRON TECHNOLOGY N.V.
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
(Dollars in thousands)
MAY 31, FEBRUARY 28,
2000 2001
---- ----
ASSETS
Cash and cash equivalents................................................. $22,911 $21,789
Short-term investments.................................................... 3,249 -
Accounts receivable, net.................................................. 82,433 108,130
Inventories, net.......................................................... 40,445 56,118
Prepaid expenses and other current assets................................. 10,723 12,972
-------- --------
Total current assets................................................... 159,761 199,009
Property, plant, and equipment, net....................................... 10,253 15,413
Intangible assets, net.................................................... 9,758 9,934
Long-term investments..................................................... 827 1,657
Other assets.............................................................. 770 1,047
-------- --------
Total Assets........................................................... $181,369 $227,060
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable.......................................................... $30,489 $39,711
Amounts due affiliates.................................................... 38,372 41,569
Accrued wages and employee-related expenses............................... 7,634 8,800
Deferred revenue for installation and warranty............................ 5,247 11,490
Deferred income........................................................... - 8,124
Short term borrowings and current portion of long-term debt............... 13,140 15,947
Amounts payable to shareholders........................................... 204 204
Other current liabilities................................................. 10,288 16,285
-------- --------
Total current liabilities.............................................. 105,374 142,130
Long-term debt, excluding current portion.................................... 1,227 1,118
Deferred credits and other long-term liabilities............................. 2,253 1,989
-------- --------
Total liabilities...................................................... 108,854 145,237
-------- --------
Commitments.................................................................. - -
Shareholders' Equity:
Preferred shares, par value NLG 0.96...................................... - -
Common shares and additional paid-in capital, par value NLG 0.96.......... 39,517 38,305
Retained earnings......................................................... 37,938 49,546
Cumulative other comprehensive loss....................................... (4,809) (5,436)
Treasury shares........................................................... (131) (592)
-------- --------
Total shareholders' equity............................................. 72,515 81,823
-------- --------
Total Liabilities and Shareholders' Equity............................. $181,369 $227,060
======== ========
See accompanying Notes to Condensed Consolidated Financial Statements
5
METRON TECHNOLOGY N.V.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(Dollars in thousands)
NINE MONTHS
FEBRUARY 29 FEBRUARY 28
----------- -----------
2000 2001
---- ----
Cash flows from (used for) operating activities:
Net income................................................................ $ 4,946 $ 11,608
Adjustments to reconcile net income for items not affecting
operating cash flows:
Depreciation and amortization.......................................... 1,698 3,600
Provision for inventory valuation and bad debts........................ 429 4,092
Deferred income taxes.................................................. 107 (1,260)
Other operating income, net of associated costs........................ - (91)
Equity in net loss of joint venture.................................... 159 170
Gain on sale of stock warrant.......................................... (184) -
Gain on disposition of assets.......................................... (57) (7)
Changes in assets and liabilities:
Accounts receivable.................................................. (21,044) (25,662)
Inventories.......................................................... (10,895) (17,515)
Prepaid expenses and other current assets............................ (766) (1,454)
Accounts payable..................................................... (674) 8,431
Amounts due affiliates............................................... 14,544 3,197
Accrued wages and employee-related expenses.......................... 985 1,116
Deferred revenue for installation and warranty....................... (20) 6,243
Deferred income...................................................... - 1,750
Other current liabilities............................................ 999 5,735
-------- -------
Net cash flows from (used for) operating activities............... (9,773) (47)
-------- -------
Cash flows used for investing activities:
Additions to property, plant, and equipment............................ (1,523) (7,815)
Proceeds from sale of property, plant, and equipment................... 672 37
Proceeds from sale of stock warrant.................................... 184 -
Equity investment in joint venture..................................... (161) (1,000)
Other assets........................................................... 158 (363)
Other long-term liabilities............................................ (233) (3)
-------- -------
Net cash flows used for investing activities...................... (903) (9,144)
-------- -------
Cash flows from financing activities:
Purchases of short-term investments.................................... (40,755) -
Proceeds from sales of short-term investments.......................... 20,510 3,249
Net proceeds from short-term borrowings................................ 1,168 2,660
Proceeds from issuance of long-term debt............................... 62 372
Principal payments on long-term debt................................... (223) (218)
Amounts payable to shareholders........................................ (862) (62)
Net proceeds from issuance of common shares............................ 34,544 2,430
-------- -------
Net cash flows from financing activities.......................... 14,444 8,431
-------- -------
Effect of exchange rate changes on cash and cash equivalents................. (266) (362)
-------- -------
Net change in cash and cash equivalents...................................... 3,502 (1,122)
Beginning cash and cash equivalents.......................................... 10,601 22,911
-------- -------
Ending cash and cash equivalents............................................. $ 14,103 $21,789
======== =======
Supplemental disclosure of non-cash investing and financing activities:
Purchase of Intec, net of cash......................................... $ - $(2,811)
Treasury stock from Entegris........................................... - (6,615)
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 computation of
basic and diluted earnings per common share uses reported net income.
A reconciliation of the shares used in the computation follows:
THREE MONTHS ENDED NINE MONTHS ENDED
FEBRUARY 29 FEBRUARY 28 FEBRUARY 29 FEBRUARY 28
----------- ----------- ----------- -----------
2000 2001 2000 2001
---- ---- ---- ----
(SHARES IN THOUSANDS)
Shares used for basic earnings per common share...... 12,980 13,665 11,170 13,426
Potential common shares having a dilutive effect..... 1,364 348 1,136 613
------ ------ ------ ------
Shares used for diluted earnings per common share.... 14,344 14,013 12,306 14,039
====== ====== ====== ======
Because the effect was anti-dilutive, the calculation of diluted
earnings per share for the three and nine-month periods ended February 28, 2001,
excludes options to purchase, respectively, 1,594,975 and 547,267 common shares
of the Company. For the three and nine-month periods ended February 28, 2001,
these anti-dilutive securities had a weighted-average exercise price of $10.61
and $13.97, respectively. Excluded potential common shares could dilute earnings
per share in the future. No options were excluded from the calculation of
diluted earnings per share for the three and nine-month periods ended February
28, 2000.
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 was
accounted for as a purchase, and Intec's results of operations are included in
the Company's consolidated financial statements from December 1, 2000.
As consideration for the acquisition, Metron issued 475,000 shares of
the Company's common shares at an average share price of $8.29 for a total
consideration of approximately $3,938,000. The excess of the purchase price over
the approximately $3,132,000 fair value of the net identifiable assets acquired
was recorded as goodwill and will be amortized on a straight-line basis over 10
years.
7
The following unaudited pro forma financial information presents the
combined results of operations of Intec and the Company as if the acquisition
had occurred as of June 1, 1999. The pro forma financial information does not
necessarily reflect the results of operations that would have occurred had Intec
and the Company constituted a single entity during the nine months ended
February 29, 2000 and February 28, 2001.
NINE MONTHS ENDED
FEBRUARY 29 FEBRUARY 28
----------- -----------
2000 2001
---- ----
Dollars in thousands, except per share amounts
Net revenue............................................................ $229,545 $401,687
Net income............................................................. $ 5,301 $ 12,030
Earnings per common share
Basic............................................................... $ 0.46 $ 0.90
Diluted............................................................. $ 0.41 $ 0.86
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.
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-investments and
assets related to the administrative headquarters of the Company.
SEGMENT INFORMATION
EQUIPMENT MATERIALS
DIVISION DIVISION OTHER TOTAL
--------- --------- -------- ---------
(DOLLARS IN THOUSANDS)
Three months ended February 29, 2000
Net revenue............................................ $ 36,501 $ 44,479 $ - $ 80,980
Income (loss) before income taxes...................... $ 2,484 $ 4,508 $ (3,373) $ 3,619
Three months ended February 28, 2001
Net revenue............................................ $ 71,724 $ 65,577 $ - $137,301
Income (loss) before income taxes...................... $ 4,727 $ 7,120 $ (5,159) $ 6,688
Nine months ended February 29, 2000
Net revenue............................................ $109,826 $114,790 $ - $224,616
Income (loss) before income taxes...................... $ 7,015 $ 10,749 $(10,437) $ 7,327
Assets................................................. $ 60,179 $ 49,868 $ 44,399 $154,446
Nine months ended February 28, 2001
Net revenue............................................ $203,113 $194,965 $ - $398,078
Income (loss) before income taxes...................... $ 13,787 $ 20,243 $(14,345) $ 19,685
Assets................................................. $101,036 $103,543 $ 22,481 $227,060
8
GEOGRAPHIC INFORMATION
THREE MONTHS ENDED NINE MONTHS ENDED
FEBRUARY 29 FEBRUARY 28 FEBRUARY 29 FEBRUARY 28
----------- ----------- ----------- -----------
2000 2001 2000 2001
---- ---- ---- ----
(DOLLARS IN THOUSANDS)
Net revenue:
United States............................................ $17,176 $ 32,867 $ 53,551 $ 94,368
Germany.................................................. 8,118 29,326 27,755 61,907
United Kingdom........................................... 6,081 21,094 21,741 50,558
Singapore................................................ 12,069 14,377 32,265 46,090
Hong Kong................................................ 10,229 9,961 22,744 39,587
France................................................... 11,839 9,020 23,725 30,655
The Netherlands.......................................... 5,004 6,846 13,605 21,813
Other nations............................................ 10,464 13,810 29,230 53,100
------- -------- -------- --------
Geographic totals........................................... $80,980 $137,301 $224,616 $398,078
======= ======== ======== ========
MAY 31, FEBRUARY 28,
------- ------------
2000 2001
---- ----
(DOLLARS IN THOUSANDS)
Assets:
United States..................................... $38,672 $52,564
United Kingdom.................................... 35,460 39,796
Germany........................................... 13,043 29,294
Singapore......................................... 26,344 25,713
Hong Kong......................................... 19,574 17,056
France............................................ 18,569 15,931
The Netherlands................................... 11,153 17,788
Other nations..................................... 18,554 28,918
Geographic totals.................................... -------- --------
$181,369 $227,060
======== ========
4. MODIFICATION OF ENTEGRIS DISTRIBUTION AGREEMENT
On January 8, 2001 the Company and Entegris, Inc. entered into an
agreement to modify their existing distribution relationship. On February 13,
2001, the Company entered into a transition agreement whereby Entegris
assumed direct sales responsibility for products from its Microelectronics
Group in Europe beginning April 1, 2001, and in Asia beginning May 1, 2001.
The Company will receive revenue for orders received before the above dates
and shipped within the 90 days following these dates. In addition, on March
1, 2001, the companies entered into a new distribution agreement, under which
Metron will continue to distribute Entegris' Fluid Handling Group product
line in all regions in Europe, Asia, and parts of the United States covered
under the previous distribution agreements. The new distribution agreement
will be in effect until August 31, 2005.
As consideration for modifying the existing distribution agreement,
Entegris transferred 1,125,000 shares of the Metron common shares it owned to
Metron, and agreed to make cash payments totaling $1,750,000 over a 15-month
period. Metron will record a gain on the modification of $8,365,000 as other
operating income on a straight-line basis from the date of the modification,
February 13, 2001, over the remaining effective term of the original
agreement until August 31, 2002. The common shares transferred by Entegris
represented $6,615,000 of the gain, which was equal to their fair market
value on February 13, 2001. In addition, during the fiscal quarter ending
August 31, 2001, Entegris will repurchase, at cost, Metron's remaining
saleable inventory of Microelectronics Group products. At February 28, 2001,
the cost of this inventory approximated $3,500,000.
9
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 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 its exposure to foreign currency risks, but has not
entered into derivative contracts for speculative purposes. Accordingly, the
Company does not expect adoption of this new standard to materially affect its
consolidated financial statements.
In September 2000 the FASB issued SFAS 140, "ACCOUNTING FOR TRANSFERS
AND SERVICING OF FINANCIAL ASSETS AND EXTINGUISHMENTS OF LIABILITIES, A
REPLACEMENT OF FASB STATEMENT NO. 125". The new standard supersedes and replaces
the guidance in SFAS 125, "ACCOUNTING FOR TRANSFERS AND SERVICING OF FINANCIAL
ASSETS AND EXTINGUISHMENTS OF LIABILITIES". SFAS 140 revises the standards for
accounting for securitizations and other transfers of financial assets and
collateral and requires certain disclosures, but it carries over most of the
provisions of Statement No. 125 without reconsideration. Statement No. 140 is
effective for transfers of financial assets occurring after March 31, 2001, and
applies on a prospective basis. The Company does not expect that the adoption of
this statement will have any effect 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 and SAB 101 FAQ summarize 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. Accordingly, the Company does not expect
the implementation of SAB 101 to have an 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 together own about 33.4% 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
10
March 2000, we 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"). Effective November 17,
2001 we completed our acquisition of all the outstanding shares of Intec
Technology (S) Pte. Ltd., a privately held company incorporated in Singapore.
The transaction was accounted for as a purchase, and the results of operations
of Intec were 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 nine-month periods ended February 29, 2000 and
February 28, 2001, 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 23.4% and 27.2% of total revenue for the three months
ended February 29, 2000 and February 28, 2001, respectively, and 23.5% and 26.0%
of total revenues for the nine months ended February 29, 2000 and February 28,
2001, respectively. Revenue from the sale of products manufactured by Entegris
was 30.0% and 22.8% of total revenue for the three months ended February 29,
2000 and February 28, 2001, and 25.9% and 25.3% of total revenues for the nine
months ended February 29, 2000 and February 28, 2001, respectively. In addition
to representing our two largest sources of revenue, FSI and Entegris are also
our two largest shareholders. At February 28, 2001, FSI and Entegris held 21.1%
and 12.3% of our outstanding shares, respectively. 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. On February 13,
2001, the Company entered into a transition agreement whereby Entegris
assumed direct sales responsibility for products from its Microelectronics
Group in Europe beginning April 1, 2001, and in Asia beginning May 1, 2001.
The Company will receive revenue for orders received before the above dates
and shipped within the 90 days following these dates. In addition, on March
1, 2001, the companies entered into a new distribution agreement, under which
Metron will continue to distribute Entegris' Fluid Handling Group product
line in all regions in Europe, Asia, and parts of the United States covered
under the previous distribution agreements. The new distribution agreement
will be in effect until August 31, 2005. Revenues from products for the
Microelectronics Group were as follows:
THREE MONTHS ENDED NINE MONTHS ENDED
FEBRUARY 29 FEBRUARY 28 FEBRUARY 29 FEBRUARY 28
----------- ----------- ----------- -----------
2000 2001 2000 2001
---- ---- ---- ----
(DOLLARS IN THOUSANDS)
Revenue................................ $15,333 $15,644 $32,676 $59,718
=========== ========= =========== ===========
As consideration for modifying the existing distribution agreement,
Entegris transferred 1,125,000 shares of the Metron common shares it owned to
Metron, and agreed to make cash payments totaling $1,750,000 over a 15-month
period. Metron will record a gain on the modification of $8,365,000 as other
operating income on a straight-line basis from the date of the modification
February 13, 2001, over the remaining effective term of the original
agreement until August 31, 2002. The common shares transferred by Entegris
represented $6,615,000 of the gain, which was equal to their fair market
value on February 13, 2001. In addition, during the fiscal quarter ending
August 31, 2001, Entegris will
11
repurchase, at cost, Metron's remaining saleable inventory of Microelectronics
Group products. At February 28, 2001, the cost of this inventory approximated
$3,500,000.
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 nine-month periods ended February 28, 2000 and 2001:
THREE MONTHS ENDED NINE MONTHS ENDED
FEBRUARY 29 FEBRUARY 28 FEBRUARY 29 FEBRUARY 28
----------- ----------- ----------- -----------
2000 2001 2000 2001
---- ---- ---- ----
(DOLLARS IN THOUSANDS)
Net revenue
Europe.................................................... $39,365 $77,369 $110,847 $209,380
Asia...................................................... 24,439 27,065 60,218 94,330
United States............................................. 17,176 32,867 53,551 94,368
------------ ------------ ----------- -----------
Total net revenue...................................... $80,980 $137,301 $224,616 $398,078
============ ============ =========== ===========
THREE MONTHS ENDED NINE MONTHS ENDED
FEBRUARY 29 FEBRUARY 28 FEBRUARY 29 FEBRUARY 28
----------- ----------- ----------- -----------
2000 2001 2000 2001
---- ---- ---- ----
(PERCENTAGE OF NET REVENUE)
Net revenue
Europe................................................... 48.6% 56.4% 49.4% 52.6%
Asia..................................................... 30.2 19.7 26.8 23.7
United States............................................ 21.2 23.9 23.8 23.7
------------- ------------- ------------- -----------
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 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 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
12
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 upturn continued through the third quarter of fiscal 2001, but
in February 2001 we started to see a downturn in new orders as well as customer
initiated shipment delays for existing orders, and we expect that our revenues
will be lower for at least the next three to four fiscal quarters.
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 nine-month
periods ended February 28, 2000 and 2001.
THREE MONTHS ENDED NINE MONTHS ENDED
FEBRUARY 29 FEBRUARY 28 FEBRUARY 29 FEBRUARY 28
----------- ----------- ----------- -----------
2000 2001 2000 2001
---- ---- ---- ----
Net revenue................................................. 100.0% 100.0% 100.0% 100.0%
Cost of revenue............................................. 80.4 82.5 81.7 82.2
-------------- ----------- ------------ ------------
Gross margin................................................ 19.6 17.5 18.3 17.8
Selling, general, administrative, and other expenses........ 15.5 12.4 15.2 12.7
Other operating income, net of associated costs............. - 0.1 - -
-------------- ----------- ------------ ------------
Operating margin............................................ 4.1% 5.2% 3.1% 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 ENDED NINE MONTHS ENDED
FEBRUARY 29 FEBRUARY 28 FEBRUARY 29 FEBRUARY 28
----------- ----------- ----------- -----------
2000 2001 2000 2001
---- ---- ---- ----
(DOLLARS IN MILLIONS)
Net revenue
Equipment division........................................ $36.5 $71.7 $109.8 $203.1
Materials division........................................ 44.5 65.6 114.8 195.0
Net revenue
Equipment division........................................ 45.1% 52.2% 48.9% 51.0%
Materials division........................................ 54.9 47.8 51.1 49.0
Gross margins
Equipment division........................................ 17.1% 14.3% 15.2% 15.0%
Materials division........................................ 21.6 20.9 21.3 20.6
THREE MONTHS ENDED FEBRUARY 28, 2001 COMPARED TO THREE MONTHS ENDED FEBRUARY 29,
2000
NET REVENUE
EQUIPMENT DIVISION. The equipment division's net revenue for the three
months ended February 28, 2001 was $71.7 million, an increase of $35.2 million
or 96.5% from the three months ended February 29, 2000. Revenues were higher in
all geographic regions, and more than doubled in Europe and the United States.
MATERIALS DIVISION. The materials division's net revenue for the three
months ended February 28, 2001 was $65.6 million, an increase of $21.1 million
or 47.4% from the three months ended February 29, 2000. The division recorded
higher revenue in all regions, with quarter over quarter growth particularly
strong in Europe and the United States.
GROSS MARGINS
EQUIPMENT DIVISION. The equipment division's gross margin of 14.3%
declined 280 basis points for the three months ended February 28, 2001 compared
to the three months ended February 29, 2000. The decrease in gross margin was
due to lower margins on the sales of spare parts, service, and parts cleaning.
The lower margins in parts cleaning were due in part to the start-up of new
facilities in Israel and Singapore.
MATERIALS DIVISION. The gross margin of the materials division decreased
70 basis points to 20.9% for the three months ended February 28, 2001 compared
to the three months ended February 29, 2000. The decline was due principally to
the higher proportion of sales coming from 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 three months ended February 28, 2001 were $16.9 million, up $4.4 million or
34.8% from the $12.5 million incurred in the three months ended February 29,
2000. The increase was due principally to the increase in the number of
employees and to higher travel expenses. In addition $0.8 million of the SG&A
expense increase in our third quarter of fiscal 2001 pertained to Shieldcare and
Intec, results from which were not included in our third quarter of fiscal 2000.
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, depreciation and amortization of
acquisition goodwill. Our SG&A expenses are a function principally of our total
headcount. Over 60% of SG&A expenses consist of salaries and other
employment-related costs for the three months ended February 29, 2000 and
February 28, 2001.
14
NINE MONTHS ENDED FEBRUARY 28, 2001 COMPARED TO NINE MONTHS ENDED FEBRUARY 29,
2000
NET REVENUE
EQUIPMENT DIVISION. The equipment division's net revenue in the nine
months ended February 28, 2001 was $203.1 million, up $93.3 million or 84.9%
from the nine months ended February 29, 2000. Net revenue increased in all
geographic regions with strong growth in both the United States and Europe,
which more than doubled for the comparable nine month periods.
MATERIALS DIVISION. The materials division's net revenue in the nine
months ended February 28, 2001 was $195.0 million, up $80.2 million or 69.8%
from the nine months ended February 29, 2000. Materials revenue was higher in
all geographic areas. Materials' revenue growth was particularly strong in Asia,
which almost doubled from the prior nine-month period.
GROSS MARGINS
EQUIPMENT DIVISION. The equipment division's gross margin decreased 20
basis points to 15.0% for the nine months ended February 28, 2001 when compared
to the nine months ended February 29, 2000. The decrease in gross margin in
fiscal 2001 was due principally to declines in spare parts, service, and parts
cleaning margins which was only partially offset by higher equipment margins and
a higher proportion of equipment commissions.
MATERIALS DIVISION. The gross margin of the materials division decreased
70 basis points to 20.6% for the nine months ended February 28, 2001 when
compared to the nine months ended February 29, 2000. While margins improved in
Asia, they decreased in the both Europe and the United States. The decline 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 nine months ended February 28, 2001 were $50.4 million, up $16.3 million or
47.7% from the $34.1 million incurred for the nine months ended February 29,
2000. The increase is due principally to the increase in the number of employees
and to higher travel expenses. In addition $2.1 million of the SG&A expense
increase in our third quarter of fiscal 2001 pertained to Shieldcare and Intec,
results from which were not included in our third quarter of fiscal 2000. Over
60% of SG&A expenses consist of salaries and other employment-related costs for
the nine months ended February 29, 2000 and February 28, 2001.
OTHER INCOME (EXPENSE). The following table summarizes the components
of other income (expense) for the periods indicated.
THREE MONTHS ENDED NINE MONTHS ENDED
FEBRUARY 29 FEBRUARY 28 FEBRUARY 29 FEBRUARY 28
----------- ----------- ----------- -----------
2000 2001 2000 2001
---- ---- ---- ----
(DOLLARS IN THOUSANDS)
Foreign exchange gain (loss)................................. $205 $(544) $350 $(606)
Interest income.............................................. 468 202 752 648
Interest expense............................................. (434) (312) (1,162) (952)
Miscellaneous income......................................... 101 160 504 295
------------ ------------ ------------ -------------
Other income (expense)....................................... $340 $(494) $444 $(615)
============ ============ ============ =============
The exchange loss of $544, 000 incurred for the three-month period
ended February 28, 2001, was primarily the result of the sudden and significant
appreciation of the Euro against the US Dollar in December 2000. 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
15
nine-month periods ended February 28, 2000 and 2001, 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. Compared to the same
periods of the previous fiscal year, our interest expense for the three and
nine-month periods ended February 28, 2001 decreased primarily as the result
of the reduction in our average use of bank facilities.
Miscellaneous income for the nine-month period ended February 28, 2001
was lower than the nine-month ending February 29, 2000 primarily because the
earlier period included a gain of $184,000 from the exercise and sale of stock
warrants held in a non-related principal.
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 February 28, 2001 was $56.9 million, 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
February 28, 2001.
OPERATING ACTIVITIES. In the nine months ended February 29, 2000, the net total
of net income plus items which did not affect operating cash flows was $7.1
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 nine months
in fiscal 2000 was $(16.9) million. In combination operating activities used
$9.8 million of cash in the period.
In the nine months ended February 28, 2001, the net total of net income plus
items which did not affect operating cash flows was $18.1 million. This increase
is primarily the result of significantly higher net income, together with
increases in the amounts we provided for reserves for inventory valuation and
bad debts and increases in amortization and depreciation expense. 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 nine months in fiscal 2000 was
$(18.2) million. The significant increase in our revenues this year also
required significant increases in accounts receivable, inventories and prepaid
expenses, which were substantially offset by increases in accounts payable and
in other liabilities. In total, operating activities used a small amount of cash
for the period.
INVESTING ACTIVITIES. Our capital expenditures for property, plant and
equipment totaled $1.5 million for the first nine months of fiscal 2000, and
$7.8 million for the same period in fiscal 2001. Approximately $3.8 million
of our capital expenditures in fiscal 2001 was spent to build our new parts
cleaning facility in Singapore, and we invested $1.1 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. 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 August 2000, we invested $1.0 million 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 in December 1999, the Company sold an additional 562,500 common
shares to cover the exercise of the underwriters' over-allotment option. We
received net proceeds of $34.5 million, and invested the majority of the
proceeds in short-term securities. During the nine-month period ending February
28, 2001, 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 $1.0 million from stock purchases through
our employee stock purchase plan and from the exercise of stock options by our
employees. In November 2000, the purchase of Intec resulted in net proceeds of
$1.4 million for the 475,000 common shares we issued to
16
the shareholders of Intec, which was equal to the $3.9 million fair value of
Metron's common shares less the fair value of Intec's assets net of cash.
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
February 28, 2001:
U.S. $
EQUIVALENT RECENT
FACILITY AMOUNT AMOUNT INTEREST
AMOUNT OUTSTANDING AVAILABLE RATE
------ ----------- --------- ----
(DOLLARS IN THOUSANDS)
Compass Bank............................................... $15,000 $11,146 $3,854 8.5%
Deutsche Bank.............................................. 3,753 - 3,753 8.0%
Royal Bank of Scotland..................................... 2,825 673 2,152 8.0%
All Others................................................. 9,596 5,246 4,350 5.0 to 8.5%
-------------- ------------- -----------
Total...................................................... $31,174 $17,065 $14,109
============== ============= ===========
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 February 28, 2001 we had aggregate forward exchange contracts in
various currencies as follows:
CONTRACT AMOUNT WEIGHTED AVERAGE
US DOLLARS BUY SELL CONTRACT RATE FAIR VALUE EXPIRATION DATE(S)
---------- --- ---- ------------- ---------- ------------------
(DOLLARS IN THOUSANDS)
$ 487 Japanese Yen - 109.55 $13 March to August 2001
$2,200 - Israeli Shekel 4.15 (16) March 2001
$4,500 Italian Lira - 2,115.06 (11) March 2001
$6,000 Deutschmark - 2.12 8 March to April 2001
$5,200 French Franc - 7.13 (2) March to April 2001
-----------
$(8)
===========
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) Not applicable.
(d) Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
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.
18
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 February 28, 2001, 27% of our total revenue was generated
from the sale of products manufactured by FSI and 23% 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 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. On February 13,
2001, the Company entered into a transition agreement whereby Entegris
assumed direct sales responsibility for products from its Microelectronics
Group in Europe beginning April 1, 2001, and in Asia beginning May 1, 2001.
The Company will receive revenue for orders received before the above dates
and shipped within the 90 days following these dates. In addition, on March
1, 2001, the companies entered into a new distribution agreement, under which
Metron will continue to distribute Entegris' Fluid Handling Group product
line in all regions in Europe, Asia, and parts of the United States covered
under the previous distribution agreements. The new distribution agreement
will be in effect until August 31, 2005. Revenues from products for the
Microelectronics Group were as follows:
THREE MONTHS ENDED NINE MONTHS ENDED
FEBRUARY 29 FEBRUARY 28 FEBRUARY 29 FEBRUARY 28
----------- ----------- ----------- -----------
2000 2001 2000 2001
---- ---- ---- ----
(DOLLARS IN THOUSANDS)
Revenue................................................... $15,333 $15,644 $32,676 $59,718
=========== =========== =========== ===========
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
19
- the failure of a principal's business.
We have lost other 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
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 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. 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 downturn in the
semiconductor industry from mid-1996 until the end of 1998 had a material
adverse effect on our operating results. In February 2001 we started to
experience a downturn in new orders as well as delays in shipment for
existing orders. The continuation of the downturn, or an increase in the
number of shipment delays, could have a materially adverse effect on our
operating results.
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.
To the extent we are unable to enter into relationships with principals
that anticipate or respond adequately to technological developments or customer
requirements, we could suffer a loss of competitiveness. Such loss, or any
significant delays in product development or introductions by these principals,
could have a materially adverse effect on 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, particularly
because we generally do not carry competing product lines, on our ability to
identify and obtain new product lines which achieve market success.
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 LONGER-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
affected.
IF WE ARE UNABLE TO COMPETE FOR CUSTOMERS OWING TO OUR INABILITY TO PROVIDE
SALES, MARKETING AND SUPPORT SERVICES OR PARTICULAR PRODUCT OFFERINGS, OUR
ABILITY TO MAINTAIN OR INCREASE SALES WILL BE ADVERSELY AFFECTED.
20
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, any such lack of success 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.
To the extent we are unable to effectively manage future expansion and
the system and procedural transitions required by expansion, our business and
our operating results could be seriously harmed. 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
21
associated with installing and implementing new systems, procedures and controls
may place a significant burden on 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, both 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
22
adversely affected. Furthermore, if a principal cannot provide refunds in cash
for the inventory we desire to return, we may be forced to dispose of inventory
below cost, and this may have a material adverse effect on our financial
results.
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 and/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, THIS 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
23
largest customers will vary from period to period, we expect that revenue from a
relatively small number of customers 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, or at all. 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 our 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 products. 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, which adversely affected our results of operations. Moreover, any
economic, banking or currency difficulties experienced by countries in which we
have sales may lead to economic instability in those countries. This in turn may
result in the cancellation or delay of orders for our products from customers in
those 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 the
third quarter of fiscal 2001, we recorded exchange losses of approximately
$500,000. Given the number of currencies involved, the substantial
24
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. 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 February 28, 2001, FSI owned 21.1%, and Entegris owned 12.3% 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 that 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;
- changes in financial estimates by securities analysts;
- changes in market values of comparable companies;
25
- 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 our articles of association. 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.
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 a general meeting of shareholders. To amend our
articles requires
26
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
---- -----------
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the quarter ended
February 28, 2001.
27
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: April 16, 2001 /s/ PETER V. LEIGH
------------------
Peter V. Leigh
Vice President, Finance
Signing on behalf of the registrant
and as principal accounting officer
28