-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VyshZticFv/GsIGaZHbybTcXYvD7/UB8bWuEJMADdY9whPesNSH8/WKSD2/IlPvA Ojqcxv3taOl5rwX6RxLJ2A== 0000891618-99-004194.txt : 19990920 0000891618-99-004194.hdr.sgml : 19990920 ACCESSION NUMBER: 0000891618-99-004194 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19990706 ITEM INFORMATION: FILED AS OF DATE: 19990917 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SILICON VALLEY GROUP INC CENTRAL INDEX KEY: 0000712752 STANDARD INDUSTRIAL CLASSIFICATION: SPECIAL INDUSTRY MACHINERY, NEC [3559] IRS NUMBER: 942264681 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: SEC FILE NUMBER: 000-11348 FILM NUMBER: 99713092 BUSINESS ADDRESS: STREET 1: 101 METRO DRIVE STREET 2: SUITE 400 CITY: SAN JOSE STATE: CA ZIP: 95110 BUSINESS PHONE: 4084416700 MAIL ADDRESS: STREET 1: 101 METRO DRIVE STREET 2: SUITE 400 CITY: SAN JOSE STATE: CA ZIP: 95110 8-K/A 1 FORM 8-K/A 1 ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 8-K/A CURRENT REPORT (AMENDMENT NO. 1) PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of Report (Date of earliest event reported) July 6,1999 Silicon Valley Group, Inc. ---------------------------------------------------- (Exact name of registrant as specified in its charter)
Delaware 0-11348 94-2264681 - ---------------------------- ------------------------ ------------------- (State or other jurisdiction (Commission File Number) (I.R.S. Employer of incorporation) Identification No.) 101 Metro Drive, Suite 400, San Jose, California 95110 ------------------------------------------------ ---------- (Address of principal executive offices) (Zip Code)
(408) 441-6700 -------------------------------------------------- (Registrant's telephone number, including area code) 2 The undersigned registrant hereby amends Item 7 of its Current Report on Form 8-K filed with the Commission on July 16, 1999 as set forth in the pages attached hereto. ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION, AND EXHIBITS (a) Financial statements of business acquired. The following audited consolidated financial statements are included herein: Independent Auditors' Report Consolidated Balance Sheets as of December 31, 1998 and 1997 Consolidated Statements of Operations, Invested Equity and Comprehensive Income (Loss) for the years ended December 31, 1998, 1997, and 1996 Consolidated Statements of Cash Flows for the years ended December 31, 1998, 1997, and 1996 Notes to Consolidated Financial Statements for the years ended December 31, 1998, 1997, and 1996 The following unaudited consolidated financial statements are included herein: Unaudited Consolidated Balance Sheet as of June 30, 1999 Unaudited Consolidated Statements of Operations, Invested Equity and Comprehensive Income for the six months ended June 30, 1999 and 1998 Unaudited Consolidated Statements of Cash Flows for the six months ended June 30, 1999 and 1998 Notes to Unaudited Consolidated Financial Statements for the six months ended June 30, 1999 and 1998 (b) Pro forma financial information. The following pro forma combined consolidated financial statements are included herein: Introduction to Unaudited Pro Forma Financial Statements Unaudited Pro Forma Combined Consolidated Balance Sheet as of June 30, 1999 Unaudited Pro Forma Combined Consolidated Statement of Operations for the year ended September 30, 1998 and for the nine months ended June 30, 1999 Notes to Unaudited Pro Forma Combined Consolidated Financial Information (c) Exhibits. Pursuant to Item 601 of Regulation S-K, the following exhibits are filed herewith: 2.1 Securities Purchase Agreement dated April 30, 1999 by and between Registrant and Watkins-Johnson Company.* 2.2 Amendment No. 1 to the Securities Purchase Agreement dated July 2, 1999, by and between Registrant and Watkins-Johnson Company.* 2.3 Escrow Agreement, dated July 6, 1999, by and among the Registrant, Watkins-Johnson Company and U.S. Bank Trust, National Association.* - ------------ * Exhibit previously filed. 3 SIGNATURES 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. SILICON VALLEY GROUP, INC. ---------------------------------------- (Registrant) Dated: September 17, 1999 By: /s/ Papken S. Der Torossian ------------------------------------ Papken S. Der Torossian Chief Executive Officer and Chairman of the Board Dated: September 17, 1999 By: /s/ Russell G. Weinstock ------------------------------------ Russell G. Weinstock Vice President Finance and Chief Financial Officer 4 ITEM 7(a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED INDEPENDENT AUDITORS' REPORT To the Board of Directors of Watkins-Johnson Company: We have audited the accompanying consolidated balance sheets of the Semiconductor Equipment Group and subsidiaries (the "Group") of Watkins-Johnson Company, as of December 31, 1998 and 1997 and the related consolidated statements of operations, invested equity and comprehensive income (loss) and cash flows for the three years in the period ended December 31, 1998. These consolidated financial statements are the responsibility of the management of Watkins-Johnson Company. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Group as of December 31, 1998 and 1997, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1998 in conformity with generally accepted accounting principles. The Group is a business segment of Watkins-Johnson Company; consequently, as indicated in Note 1, these financial statements have been derived from the consolidated financial statements and accounting records of Watkins-Johnson Company, and reflect significant assumptions and allocations. Moreover, as indicated in Note 1, the Group relies on Watkins-Johnson Company for administrative, management and other services. The reported financial position, results of operations and cash flows of the Group could differ from those that would have resulted had the Group operated autonomously or as an entity independent of Watkins-Johnson Company. Deloitte & Touche LLP San Jose, California August 5, 1999 5 SEMICONDUCTOR EQUIPMENT GROUP OF WATKINS-JOHNSON COMPANY
CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1998 AND 1997 (IN THOUSANDS) - -------------------------------------------------------------------------------- ASSETS 1998 1997 CURRENT ASSETS: Receivables, net $ 12,354 $ 22,894 Inventories 13,664 34,184 Deferred taxes 19,925 15,861 Other 2,423 3,312 --------- --------- Total current assets 48,366 76,251 PROPERTY PLANT AND EQUIPMENT: Land 7,978 9,022 Building 25,210 48,761 Machinery and equipment 38,616 54,246 --------- --------- 71,804 112,029 Accumulated depreciation and amortization (32,756) (40,080) --------- --------- Property, plant and equipment, net 39,048 71,949 --------- --------- OTHER ASSETS 27 51 --------- --------- TOTAL ASSETS $ 87,441 $ 148,251 ========= ========= LIABILITIES AND INVESTED EQUITY CURRENT LIABILITIES: Accounts payable $ 6,019 $ 10,647 Accrued salaries and profit sharing 1,960 2,891 Accrued vacation 1,439 2,495 Provision for warranty 6,292 13,423 Accrued payroll, property and other taxes 6,583 5,633 Accrued expenses - other 3,391 4,442 Income tax payable 4,501 4,050 --------- --------- Total current liabilities 30,185 43,581 LONG-TERM OBLIGATIONS 24,090 22,701 COMMITMENTS AND CONTINGENCIES (Note 5) INVESTED EQUITY 33,166 81,969 --------- --------- TOTAL LIABILITIES AND INVESTED EQUITY $ 87,441 $ 148,251 ========= =========
See notes to consolidated financial statements. 6 SEMICONDUCTOR EQUIPMENT GROUP OF WATKINS-JOHNSON COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS, INVESTED EQUITY AND COMPREHENSIVE INCOME (LOSS) YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 (IN THOUSANDS) - ------------------------------------------------------------------------------------------------------------- 1998 1997 1996 SALES $ 96,981 $ 186,454 $ 272,436 COST AND EXPENSES: Cost of goods sold 80,328 131,117 176,614 Cost of goods sold-write down of discontinued products 13,720 -- -- Selling and administrative 24,754 32,180 40,976 Restructuring charges 24,590 -- -- Research and development 28,010 27,321 39,190 Corporate allocations 6,575 9,164 8,444 --------- --------- --------- Total operating expenses 177,977 199,782 265,224 INCOME (LOSS) FROM OPERATIONS (80,996) (13,328) 7,212 OTHER INCOME (EXPENSE) -- Net 1,029 (773) 497 INTEREST EXPENSE (567) (630) -- --------- --------- --------- INCOME (LOSS) BEFORE INCOME TAXES (80,534) (14,731) 7,709 INCOME TAX BENEFIT (EXPENSE) 26,056 5,733 (2,695) --------- --------- --------- NET INCOME (LOSS) (54,478) (8,998) 5,014 FOREIGN CURRENCY TRANSLATION ADJUSTMENTS (1,385) (301) (294) --------- --------- --------- COMPREHENSIVE INCOME (LOSS) (55,863) (9,299) 4,720 INVESTED EQUITY, Beginning of period 81,969 124,277 125,121 TRANSFER OF BUILDING TO CORPORATE (6,767) -- -- ADDITION (DEDUCTION) IN INVESTED EQUITY 13,827 (33,009) (5,564) --------- --------- --------- INVESTED EQUITY, End of period $ 33,166 $ 81,969 $ 124,277 ========= ========= =========
See notes to consolidated financial statements. 7 SEMICONDUCTOR EQUIPMENT GROUP OF WATKINS-JOHNSON COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 (In thousands) - ---------------------------------------------------------------------------------------------------------------- 1998 1997 1996 CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $(54,478) $ (8,998) $ 5,014 Reconciliation to net cash provided (used) by operating activities: Depreciation and amortization of property, plant and equipment 11,512 9,758 6,674 Loss on disposal of assets 4,030 5,081 52 Noncash restructuring charges 36,285 -- -- Deferred taxes (4,065) (3,771) (3,987) Net changes in operating assets and liabilities: Receivables, net 11,058 24,002 11,764 Inventories 7,161 6,698 13,689 Advances on contracts 411 -- (1,669) Provision for warranties (7,131) (1,793) 6,623 Other current assets 1,188 (19) (930) Accrued expenses and payables (8,682) 8,996 (1,539) -------- -------- -------- Net cash provided by (used in) operating activities (2,711) 39,954 35,691 -------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Additions to property, plant and equipment (9,245) (12,025) (46,261) Proceeds on asset retirements and other 383 -- -- Restricted plant construction funds -- 3,738 (3,738) -------- -------- -------- Net cash used in investing activities (8,862) (8,287) (49,999) -------- -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Borrowing on long-term debt -- 2,192 30,241 Payments on long-term borrowings (544) (1,530) (10,074) Increase (decrease) in invested equity 13,827 (33,009) (5,564) -------- -------- -------- Net cash provided (used) by financing activities 13,283 (32,347) 14,603 -------- -------- -------- EFFECT OF EXCHANGE RATE CHANGES ON CASH (1,710) 680 (295) -------- -------- -------- NET CHANGE IN CASH: CASH, Beginning of year -- -- -- -------- -------- -------- CASH, End of year $ -- $ -- $ -- ======== ======== ======== NONCASH ACTIVITIES - Transfer of building to Corporate $ 6,767 $ -- $ -- ======== ======== ========
See notes to consolidated financial statements. 8 SEMICONDUCTOR EQUIPMENT GROUP OF WATKINS-JOHNSON COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 - -------------------------------------------------------------------------------- 1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION AND DESCRIPTION OF BUSINESS -- The Semiconductor Equipment Group (the Group) is a business segment of Watkins-Johnson Company ("WJ" or the "Company"). The Group designs, develops, manufactures and services semiconductor equipment used to deposit thin dielectric films by using the process of atmospheric-pressure chemical-vapor-deposition (APCVD). BASIS OF PRESENTATION -- The accompanying consolidated financial statements have been derived from the accounting records of WJ. The accompanying consolidated financial statements reflect the assets, liabilities, revenue and expenses directly attributable to the Group as well as allocations deemed reasonable by management to present the financial position, results of operations and cash flows of the Group on a stand-alone basis. Although management is unable to estimate the actual costs that would have been incurred if the services performed by WJ had been purchased from independent third parties, the allocation methodologies have been described within the respective footnotes, where applicable, and management considers the allocations to be reasonable. However, the financial position, results of operations and cash flows of the Group may differ from those that would have been achieved had the Group operated autonomously or as an entity independent of WJ. PRINCIPLES OF CONSOLIDATION -- The consolidated financial statements include those of the Group and its subsidiaries after elimination of intercompany balances and transactions. REVENUE RECOGNITION AND RECEIVABLES -- Revenues are recorded upon shipment. Estimated product warranty costs are accrued at the time of shipment. CONCENTRATION OF CREDIT RISK -- Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of trade receivables. FOREIGN CURRENCY TRANSLATION -The functional currency for all foreign operations is the U.S. dollar, with the exception of the Group's subsidiary located in Japan, which uses the local functional currency. Gains or losses which result from the process of remeasuring foreign currency financial statements and transactions into U.S. dollars are included in other income (expense). For the Japanese subsidiary, the cumulative translation adjustments are recorded directly in invested equity. The Group incurred net translation gains of approximately $0.1 million in 1998 and net translation losses of $1.4 million in 1997, resulting primarily from its Asia-Pacific subsidiaries. FORWARD EXCHANGE CONTRACTS -- The Group enters into forward exchange contracts to hedge sales transactions and firm commitments denominated in foreign currencies. Gains and losses on the forward contracts are recognized based on changes in exchange rates, as are offsetting foreign exchange gains and losses on the underlying transactions. At December 31, 1998 and 1997, the Group had forward exchange contracts to sell Japanese Yen with a market value of approximately $14.1 million and $12.4 million, respectively for a contract amount of $13.8 million and $12.8 million, respectively. At 9 SEMICONDUCTOR EQUIPMENT GROUP OF WATKINS-JOHNSON COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 - -------------------------------------------------------------------------------- December 31, 1998 and 1997, the Group had forward exchange contracts to purchase Japanese Yen with a market value of approximately $6.0 million and $1.7 million, respectively, for a contract amount of $5.9 million and $1.8 million, respectively. All such contracts mature within one year. INVENTORIES -- Inventories are stated at the lower of cost, using first-in, first-out and average-cost basis, or market. Cost of inventory items is based on purchase and production cost. PROPERTY, PLANT AND EQUIPMENT -- Property, plant and equipment are stated at cost. Provision for depreciation and amortization is primarily based on straight-line methods. ACCRUED EXPENSES -- Certain accrued expenses have been allocated to the Group based on the ratio of total sales, property or employees the Group bears to the respective totals of the Company. In the opinion of management, the liabilities allocated to the Group as of December 31, 1998 and 1997 are reasonable. DEFERRED COMPENSATION -- WJ has deferred compensation plans covering selected members of the Group's management and key technical employees. Substantially all these plans were terminated as of December 31, 1998, and the balances relating to the Group classified as currently payable. STOCK-BASED COMPENSATION -- The Group accounts for stock-based compensation using WJ's stock under the intrinsic value method as defined in Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," (APB 25). RESEARCH AND DEVELOPMENT (R&D) COSTS incurred by the Group are accumulated on an identified project basis. Company-sponsored R&D projects related to the Group are included in expense in the period incurred. ALLOCATED EXPENSES -- Certain overhead, selling, administrative and corporate expenses represent an allocation of the Group's operating expenses and include payroll and charges for office space, which the Group shares with WJ. These costs have been allocated to the Group based on various allocation factors which, in the opinion of management, are reasonable. Corporate support costs such as treasury, cash management, accounting, financial management, legal, public relations, information systems, human resources, telecommunications, and support services are allocated to the Group based primarily on the estimated level of services provided, which management believes to be reasonable. However, such amounts may not be the same as would have been incurred had the Group operated autonomously or as a combined entity independent of WJ. INCOME TAXES -- The Group's results are included in the consolidated federal and state tax returns of WJ and its affiliates. WJ allocates income tax benefits to the Group based on its contribution to the taxable income or loss of WJ. The combined consolidated financial statements include provisions for deferred income taxes using the liability method for transactions that are reported in one period for financial accounting purposes and in another for income tax purposes. Deferred tax assets have been recognized based on the realizability determination of WJ. USE OF ESTIMATES -- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. In addition to the allocation of corporate and Group expenses described above, the most significant assumptions and estimates relate to allowance for bad debts, inventory obsolescence and warranty provisions. Actual results could differ from those estimates. 10 SEMICONDUCTOR EQUIPMENT GROUP OF WATKINS-JOHNSON COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 - -------------------------------------------------------------------------------- 2. RECEIVABLES Receivables at December 31 consist of the following (in thousands):
1998 1997 Trade $ 14,275 $ 25,044 Less allowance for doubtful accounts (1,921) (2,150) -------- -------- Receivables, net $ 12,354 $ 22,894 ======== ========
3. INVENTORIES Inventories at December 31 consist of the following (in thousands):
1998 1997 Finished goods $ 2,085 $ 8,103 Work-in-progress 8,787 12,541 Raw materials 2,792 13,540 ------- ------- Inventories $13,664 $34,184 ======= =======
During 1998, the Group incurred a charge of approximately $13.7 million, included in cost of sales, for the write-down of discontinued products (see Note 10). 4. LONG-TERM OBLIGATIONS Long-term borrowings consist of three unsecured loans used for the Group's land, building and equipment located in Kawasaki, Japan. The loans are denominated in Yen. Approximately $6.8 million is payable in monthly installments through the year 2011, which bears interest at 2.5%. Approximately $11.7 million and $1.7 million require a balloon payment due in the year 2006 and 2007, respectively, which bear interest at 3.1% and 2.2%, respectively, payable semiannually. ENVIRONMENTAL REMEDIATION -- As discussed in Note 5, WJ is obligated to remediate groundwater contamination at its Scotts Valley facility. Included in long-term obligations is approximately $4 million related to estimated remediation actions and clean-up costs. LEASES -- The Group has noncancellable operating leases for plant facilities and equipment expiring through the year 2004. These leases may be renewed for various periods after the initial term. Payment obligations under existing operating leases as of December 31, 1998 are as follows (in thousands): 1999 $1,093 2000 823 2001 478 2002 310 2003 24 Remaining years 13 ------ Total $2,741 ======
11 SEMICONDUCTOR EQUIPMENT GROUP OF WATKINS-JOHNSON COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 - -------------------------------------------------------------------------------- Rent expense included in continuing operations for property and equipment relating to operating leases is as follows (in thousands):
1998 1997 1996 Real property $ 608 $2,321 $2,221 Equipment 615 448 365 ------ ------ ------ $1,223 $2,769 $2,586 ====== ====== ======
5. ENVIRONMENTAL REMEDIATION AND OTHER CONTINGENCIES The Group's Scotts Valley, California facility is subject to an environmental remediation plan being monitored by various regulatory agencies. WJ recorded a provision for estimated remediation actions and cleanup costs related to the facility in 1991, and no additional provisions have been made by the Company, nor are any charges relating to such remediation included in the Group's combined statements of operations for the year ended December 31, 1998. Management of WJ believes the accrual of $4.0 million as of December 31, 1998 remains adequate based on facts known at that time. However, changes in environmental regulations, improvements in cleanup technology and discovery of additional information concerning this site could affect estimated costs in the future. This liability is included in long-term obligations in the Group's consolidated balance sheet. Expenditures charged against the provision totaled $140,000, $173,000 and $202,000 for the years ended December 31, 1998, 1997 and 1996, respectively. The Group is involved in various other legal actions which management believes should not have a material impact on the Group's results of operations, cash flows, and financial position. 6. OPTION PLANS STOCK OPTION PLANS -- Employees of the Group participate in the stock option plans of WJ. The employee stock option plan provides for grants of nonqualifying and incentive stock options to certain key employees and officers. The options are granted at the market price on date of grant and expire on the tenth anniversary date. One-third of the options granted are exercisable in each of the third, fourth and fifth succeeding years. The plan allows those employees who are subject to the insider trading restrictions certain limited rights to receive cash in the event of a change in control. As discussed in Note 1, the Group applies Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations in accounting for its plans. Accordingly, no compensation expense has been recognized for its stock-based compensation plans. Had compensation cost for the WJ stock option plans been determined based upon the fair value at the grant date for awards under these plans, and amortized over the vesting period of the awards consistent with the methodology prescribed under Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation," the Group's pro forma consolidated net (loss) income for the years ended December 31, 1998, 1997 and 1996 would have been $(55.2) million, $(9.9) million and $3.8 million, respectively. 12 SEMICONDUCTOR EQUIPMENT GROUP OF WATKINS-JOHNSON COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 - -------------------------------------------------------------------------------- The weighted average fair value of options calculated on the date of grant using the Black-Scholes option-pricing model along with the weighted average assumptions used are as follows:
1998 1997 1996 Fair value per share under option plan $ 7.70 $ 8.02 $ 7.96 Dividend yield 2.1% 1.2% 1.5% Volatility 41.7% 38.1% 37.5% Risk free interest rate at time of grant 5.4% 6.1% 6.2% Expected term to exercise (in months from the vest date) 4.9 4.5 3.5
The Company's calculations are based on a multiple option valuation approach, and forfeitures are recognized as they occur. 7. INCOME TAXES The components of income (loss) from operations before federal, state and foreign income taxes as of December 31 consist of the following (in thousands):
1998 1997 1996 U.S. $(74,374) $(18,099) $ 4,980 Foreign (6,160) 3,368 2,729 -------- -------- -------- Total $(80,534) $(14,731) $ 7,709 ======== ======== ========
The provision (benefit) for federal, state and foreign taxes as of December 31 on loss from operations consists of the following (in thousands):
1998 1997 1996 Current: Federal $(22,557) $ (3,846) $ 4,845 State 59 13 405 Foreign 507 1,871 1,432 -------- -------- -------- Total current (21,991) (1,962) 6,682 Deferred: Federal (3,421) (3,309) (3,587) State (644) (462) (400) -------- -------- -------- Total deferred (4,065) (3,771) (3,987) -------- -------- -------- Total $(26,056) $ (5,733) $ 2,695 ======== ======== ========
13 SEMICONDUCTOR EQUIPMENT GROUP OF WATKINS-JOHNSON COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 - -------------------------------------------------------------------------------- Deferred tax assets (liabilities) consist of the following at December 31 (in thousands):
1998 1997 1996 NOL and credit carryovers $ 8,397 $ -- $ -- Inventory reserves 5,171 4,488 3,676 Bad debt reserves 749 484 262 Other reserves 5,915 7,493 5,876 Compensation 653 1,176 713 Other 433 5,577 4,465 -------- -------- -------- Gross deferred tax assets 21,318 19,218 14,992 Deferred tax liabilities - depreciation (1,393) (3,357) (2,902) -------- -------- -------- Net deferred tax assets $ 19,925 $ 15,861 $ 12,090 ======== ======== ========
Federal and state operating loss carryforwards attributable to the Group included in the returns of WJ total approximately $10.0 million and $4.4 million, respectively, which expire through the year 2019. In addition, federal and state tax credit carryforwards attributable to the Group total approximately $3.4 million and $0.6 million, respectively, and relate primarily to research credits. These tax credit carryforward benefits expire through the year 2019. In the event of a change in control, utilization of net operating loss carryforwards and credit carryforwards are subject to reattribution to WJ and other limitations provided by the Internal Revenue Code. The differences between the effective income tax (benefit) rate and the statutory federal income tax (benefit) rate at December 31 are as follows:
1998 1997 1996 Statutory federal tax rate (35.0)% (35.0)% 34.0% State taxes, net of federal benefit (1.2) (3.0) 0.1 Foreign taxes 3.3 4.7 6.5 Other 0.5 (5.6) (5.6) ------ ------ ------ Effective tax (benefit) rate (32.4)% (38.9)% 35.0% ====== ====== ======
8. EMPLOYEE BENEFIT PLANS The WJ Employees' Investment Plan conforms to the requirements of the Employee Retirement Income Security Act of 1974 (ERISA) and the Internal Revenue Code as a qualified defined contribution plan. The Plan covers substantially all employees of the Group and for 1998, 1997 and 1996 provided that the Company match employees' 401(k) salary deferrals up to 3% of eligible employee compensation. The amount charged to the Group's results of operations was $943,000, $1,019,000 and $1,047,000 in 1998, 1997 and 1996, respectively. The WJ Employee Stock Ownership Plan (ESOP) was established to encourage employee participation and long-term ownership of WJ stock and covers substantially all employees of the Group. The Board determines each year's contribution depending on the performance and financial condition for WJ. The Board approved a contribution equal to 1% of eligible employee compensation for 1998, 1997 and 1996, which resulted in charges of $170,000, $327,000 and $315,000, respectively, to the Group's results of operations. The ESOP is a qualified defined contribution plan under ERISA and the Internal Revenue Code. 14 SEMICONDUCTOR EQUIPMENT GROUP OF WATKINS-JOHNSON COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 - -------------------------------------------------------------------------------- 9. SIGNIFICANT CUSTOMERS AND GEOGRAPHIC INFORMATION One customer represented 11% and 14% of Group sales in 1998 and 1996, respectively. Two customers represented 13% and 10% of Group sales in 1997. Another customer represented 11% and 17% of Group sales in 1996. Sales to unaffiliated customers by geographic area are as follows for the year ended December 31:
1998 1997 1996 (IN THOUSANDS) United States $ 42,274 $ 78,779 $ 78,944 Export sales from the United States: Europe 761 6,017 28,781 Japan 10,629 22,584 65,857 Korea 4,291 27,771 51,739 Other Asia-Pacific countries 6,967 11,473 34,070 Other 17 141 25 Europe 21,429 30,872 4,947 Japan 4,510 2,742 3,312 Other Asia-Pacific countries 6,103 6,075 4,761 -------- -------- -------- Total $ 96,981 $186,454 $272,436 ======== ======== ========
Operating profit (loss) and year-end long-lived assets by geographic area are as follows at December 31 (in thousands):
1998 1997 1996 Operating profit (loss): United States $(75,605) $(18,061) $ 3,815 Europe 300 3,270 1,358 Japan (6,376) 185 840 Other Asia-Pacific countries 685 1,278 1,199 -------- -------- -------- Total $(80,996) $(13,328) $ 7,212 ======== ======== ======== Year-end long-lived assets: United States $ 22,648 $ 49,055 $ 53,039 Europe 85 178 297 Japan 16,001 22,186 23,335 Other Asia-Pacific countries 314 530 541 -------- -------- -------- Total $ 39,048 $ 71,949 $ 77,212 ======== ======== ========
15 SEMICONDUCTOR EQUIPMENT GROUP OF WATKINS-JOHNSON COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 - -------------------------------------------------------------------------------- 10. DISCONTINUED PRODUCT LINES AND RELATED RESTRUCTURING CHARGES During the third quarter of 1998, the Group restructured its operations to focus on its core atmospheric-pressure chemical-vapor-deposition (APCVD) operations by discontinuing efforts on its high-density-Plasma initiative. Inventory, demo equipment, and specialized fixed assets associated with this discontinued product were written down in the restructuring. As a result, the Group reduced its global work force and downsized its operations. The Group recorded charges of $38.3 million related to facilities and fixed assets, inventory, severance and other exit costs as follows:
ACCRUED SEVERANCE, WRITE DOWN BENEFITS, AND OF FACILITIES AND WRITE DOWN OF (IN THOUSANDS) OTHER COSTS FIXED ASSETS INVENTORY Restructuring provision $ 3,473 $21,117 $13,720 ======= ======= Amounts paid (1,997) ------- Balance at December 31, 1998 $ 1,476 =======
Included in the third-quarter 1998 asset write-downs is an approximately $6.0 million charge related to the Group's facility in Japan, which was written down to fair market value in accordance with SFAS No. 121, "Accounting for Impairment of Long-Lived Assets and for Long-Lived Assets To Be Disposed Of." A portion of this facility is being leased to a tenant. The Group anticipates that substantially all accrued severance and benefits will be paid within a year. 11. SUBSEQUENT EVENTS On March 4, 1999, WJ signed a non-binding letter of intent to sell the Group (exclusive of its high-density-plasma and certain other discontinued products) to Silicon Valley Group, Inc. (SVG). On July 6, 1999, WJ completed the sale of the Group to SVG. On March 31, 1999, WJ sold the Group's high-density-plasma technology to Applied Materials, Inc. for cash of $12 million. * * * * 16 SEMICONDUCTOR EQUIPMENT GROUP OF WATKINS-JOHNSON COMPANY
CONSOLIDATED BALANCE SHEET JUNE 30, 1999 (IN THOUSANDS) (UNAUDITED) - ------------------------------------------------------------------- ASSETS CURRENT ASSETS: Receivables, net $ 45,376 Inventories 7,608 Deferred tax asset 19,925 Other 1,599 --------- Total current assets 74,508 PROPERTY PLANT AND EQUIPMENT: Land 7,615 Building 24,901 Machinery and equipment 36,295 --------- 68,811 Accumulated depreciation and amortization (33,963) --------- Property, plant and equipment, net 34,848 OTHER ASSETS -- --------- TOTAL ASSETS $ 109,356 ========= LIABILITIES AND INVESTED EQUITY CURRENT LIABILITIES: Accounts payable $ 5,942 Accrued salaries and profit sharing 5,305 Accrued vacation 1,943 Provision for warranty 7,076 Accrued payroll, property and other taxes 5,632 Accrued expenses-other 2,350 Income tax payable 6,241 --------- Total current liabilities 34,489 LONG-TERM BORROWINGS 22,772 INVESTED EQUITY 52,095 --------- TOTAL LIABILITIES AND INVESTED EQUITY $ 109,356 =========
See Notes to Unaudited Consolidated Financial Statements 17 SEMICONDUCTOR EQUIPMENT GROUP OF WATKINS-JOHNSON COMPANY
CONSOLIDATED STATEMENT OF OPERATIONS, INVESTED EQUITY AND COMPREHENSIVE INCOME FOR THE SIX MONTHS ENDED JUNE 30, 1999 (UNAUDITED) - ----------------------------------------------------------------------------------------- SIX MONTHS ENDED JUNE 30, 1999 1998 SALES $ 72,773 $ 65,620 COST AND EXPENSES: Cost of goods sold 46,843 44,735 Selling and administrative 9,365 14,577 Research and development 9,349 15,240 Corporate allocations 2,200 3,903 -------- -------- Total operating expenses 67,757 78,455 INCOME (LOSS) FROM OPERATIONS 5,016 (12,835) OTHER INCOME (EXPENSE) - Net (83) 173 INTEREST EXPENSE (286) (286) -------- -------- INCOME (LOSS) BEFORE INCOME TAXES 4,647 (12,948) INCOME TAX BENEFIT (EXPENSE) (836) 4,333 -------- -------- NET INCOME (LOSS) 3,811 (8,615) FOREIGN CURRENCY TRANSLATION ADJUSTMENTS 172 (259) -------- -------- COMPREHENSIVE INCOME 3,983 (8,874) INVESTED EQUITY, Beginning of period 33,166 81,969 TRANSFER OF BUILDING TO CORPORATE -- (6,767) ADDITION IN INVESTED EQUITY 14,946 19,563 -------- -------- INVESTED EQUITY, End of period $ 52,095 $ 85,891 ======== ========
See Notes to Unaudited Consolidated Financial Statements 18 SEMICONDUCTOR EQUIPMENT GROUP OF WATKINS-JOHNSON COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998 (UNAUDITED) - ------------------------------------------------------------------------------------------------------ SIX MONTHS ENDED JUNE 30, 1999 1998 CASH FLOWS FROM OPERATING ACTIVITIES: Net Income $ 3,811 $ (8,615) Reconciliation to net cash used in operating activities: Depreciation and amortization of property, plant and equipment 3,598 5,457 Loss on disposal of assets 147 85 Noncash restructuring charges 1,143 0 Deferred taxes 0 (4,064) Net changes in operating assets and liabilities: Receivables, net (33,156) 590 Inventories 5,896 3,895 Advances on contracts (411) 0 Provision for warranties 784 (2,820) Other current assets 762 999 Accrued expenses and payables 2,876 (6,056) -------- -------- Net cash used in operating activities (14,550) (10,529) -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Additions to property, plant and equipment (493) (8,684) Proceeds on asset retirements and other 184 0 -------- -------- Net cash used in investing activities (309) (8,684) -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Payments on long-term borrowings (296) (289) Increase in invested equity 14,946 19,563 -------- -------- Net cash provided by financing activities 14,650 19,274 -------- -------- EFFECT OF EXCHANGE RATE CHANGES ON CASH 209 (61) -------- -------- NET CHANGE IN CASH: CASH, Beginning of year 0 0 -------- -------- CASH, End of year $ 0 $ 0 ======== ======== NONCASH ACTIVITIES - Transfer of building to Corporate $ -- $ 6,767 ======== ========
See Notes to Unaudited Consolidated Financial Statements 19 Notes to Unaudited Consolidated Financial Statements for the six months ended June 30, 1999 and 1998 - -------------------------------------------------------------------------------- Note 1. Basis of Presentation The unaudited consolidated interim financial statements included herein have been prepared by Management, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures, normally included in financial statements prepared in accordance with generally accepted accounting principles, have been condensed or omitted as permitted by such rules and regulations. Management believes the disclosures included herein are adequate; however, these consolidated interim financial statements should be read in conjunction with the audited financial statements and the notes thereto for the year ended December 31, 1998, included elsewhere in this Form 8-K/A. In the opinion of Management, these unaudited consolidated financial statements of the Semiconductor Equipment Group of Watkins-Johnson Company ("SEG") contain all of the adjustments necessary to present fairly the financial position of SEG at June 30, 1999, the results of operations, and the changes in shareholders' equity and cash flows for the periods presented. The results of operations for the periods presented may not be indicative of those which may be expected for the full year. Note 2. Environmental Remediation and Other Contingencies The Scotts Valley, California facility of SEG is subject to an environmental remediation plan being monitored by various regulatory agencies. SEG recorded a provision for estimated remediation actions and cleanup costs related to the facility in 1991, and no additional provisions have been made, nor are any charges relating to such remediation included in SEG's consolidated statements of operations for the six months ended June 30, 1999 and June 30, 1998. Management believes the accrual of $4.0 million as of June 30, 1999 remains adequate based on facts known at that time. However, changes in environmental regulations, improvements in cleanup technology and discovery of additional information concerning this site could affect estimated costs in the future. This liability is included in long-term obligations in SEG's consolidated balance sheet. Expenditures charged against the provision totaled $51,000 and $62,000 for the six months ended June 30, 1999 and 1998, respectively. Note 3. Discontinued Product Lines and Related Restructuring Charges During the third quarter of 1998, SEG recorded restructuring and related charges of $38.3 million related to facilities and fixed assets, inventory, severance and other exit costs. The charges resulted from SEG restructuring its operations to focus on its core atmospheric-pressure chemical-vapor-deposition (APCVD) operations by discontinuing efforts on its high-density-Plasma initiative. Charges to the restructuring accrual during the six months ended June 30, 1999 (in thousands):
Accrued Severance Benefits, and Other Costs ------------------- Balance at December 31, 1998 $ 1,476 Incurred to date (1,143) ------- Balance at June 30, 1999 $ 333 =======
Management anticipates that substantially all accrued severance and benefits will be paid within a year. Note 4. Subsequent Events On July 6, 1999, the business of SEG was sold to Silicon Valley Group, Inc. for an initial cash payment of approximately $9.0M to be adjusted based upon the final closing balance sheet as of July 2, 1999. 20 ITEM 7 (b) PRO FORMA COMBINED FINANCIAL STATEMENTS On July 6, 1999, Silicon Valley Group, Inc., a Delaware corporation, (the "Company") acquired the business of the Semiconductor Equipment Group of Watkins-Johnson Company ("SEG"), a California corporation, pursuant to the Securities Purchase Agreement dated April 30,1999 by and between the Company and Watkins-Johnson, as amended by Amendment No. 1 to the Securities Purchase Agreement dated July 2, 1999 by and between the Company and Watkins-Johnson (as so amended, the "Purchase Agreement"). Under the terms of the Purchase Agreement, the Company acquired from Watkins-Johnson all of its limited liability company interests in Semiconductor Equipment Group, LLC and the outstanding capital stock of certain foreign subsidiaries. As consideration for the acquisition, the Company paid Watkins-Johnson an initial cash payment of approximately $9.0 million to be adjusted based upon the final closing balance sheet as of July 2, 1999. Based upon the final closing balance sheet, the Company expects to receive a cash payment back from Watkins-Johnson of approximately $6.3 million. The unaudited pro forma combined consolidated financial information gives effect of the acquisition of SEG by the Company under the purchase method of accounting. The unaudited pro forma combined consolidated balance sheet combines the Company's unaudited consolidated balance sheet and the SEG unaudited consolidated balance sheet at June 30, 1999, as if the transaction occurred on June 30, 1999. The Company's fiscal year end is September 30, while SEG's fiscal year end is December 31. Accordingly, the unaudited pro forma combined consolidated statement of operations combine the historical results of operations of the Company for the year ended September 30, 1998 with the historical results of operations for SEG for the year ended December 31, 1998. The unaudited pro forma combined consolidated statements of operations for the nine months ended June 30, 1999 represent the historical operations of the Company and SEG. Accordingly, the historical operations of SEG for the quarter ended December 31, 1998 is included in each of the pro forma combined consolidated statements of operations. SEG's net sales and net loss for the quarter ended December 31, 1998 were $24,173,000 and $222,000 respectively. This method of combining the companies is for the presentation of unaudited pro forma combined consolidated financial statements only. Actual statements of operations for the companies will be combined effective as of the date of the acquisition, with no retroactive restatement. The pro forma financial information is presented for illustrative purposes only and does not purport to be indicative of the operating results or financial position that would have occurred had the acquisition been effected as of the periods indicated nor is it indicative of the future operating results or financial position of the Company. The pro forma adjustments are based upon information and assumptions available at the time of the filing of this Form 8-K/A. The unaudited pro forma combined consolidated financial statements should be read in conjunction with the historical audited and unaudited financial statements of Silicon Valley Group, Inc. and Watkins-Johnson, Inc., including the notes thereto. 21 UNAUDITED PRO FORMA COMBINED CONSOLIDATED BALANCE SHEET (DOLLARS IN THOUSANDS)
JUNE 30, 1999 -------------------------------------------------------------------- SILICON VALLEY PRO FORMA PRO FORMA GROUP, INC. SEG ADJUSTMENTS COMBINED ASSETS CURRENT ASSETS: Cash and equivalents $ 113,549 $ -- $ 1,739 (a),(c) $ 115,288 Temporary investments 38,016 -- -- 38,016 Accounts receivable, net 97,806 45,376 (45,376) (b) 97,806 Refundable income taxes 6,466 -- -- 6,466 Inventories 203,248 7,608 6,504 (a) 217,360 Deferred taxes 36,848 19,925 (19,925) (b) 36,848 Other current assets 8,145 1,599 (1,678) (a) 8,066 --------- --------- --------- --------- Total current assets 504,078 74,508 (58,736) 519,850 PROPERTY AND EQUIPMENT -- NET 180,999 34,848 (12,435) (a),(b) 203,412 DEPOSITS AND OTHER ASSETS 7,341 -- -- 7,341 INTANGIBLE ASSETS-NET 3,328 -- -- 3,328 --------- --------- --------- --------- TOTAL $ 695,746 $ 109,356 $ (71,171) $ 733,931 ========= ========= ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $ 21,045 $ 5,942 $ (593) (b) $ 26,394 Accrued liabilities 108,890 22,306 (9,012) (b) 122,184 Current portion of long-term debt 715 -- 585 (a) 1,300 Income taxes payable 479 6,241 (6,241) (b) 479 --------- --------- --------- --------- Total current liabilities 131,129 34,489 (15,261) 150,357 LONG-TERM DEBT 5,278 22,772 (3,815) (b) 24,235 DEFERRED AND OTHER LIABILITIES 6,374 -- -- 6,374 STOCKHOLDERS' EQUITY: Preferred Stock-15,000 shares 14,976 -- -- 14,976 Common Stock 33,063,000 shares 407,450 -- -- 407,450 Retained Earnings or Invested Equity 133,293 52,095 (52,095) (c) 133,293 Other Comprehensive Income Loss (2,754) -- -- (2,754) --------- --------- --------- --------- Total Stockholders' Equity 552,965 52,095 (52,095) 552,965 --------- --------- --------- --------- TOTAL $ 695,746 $ 109,356 $ (71,171) $ 733,931 ========= ========= ========= =========
See Notes to Unaudited Pro Forma Combined Consolidated Financial Statements 22 UNAUDITED PRO FORMA COMBINED CONSOLIDATED STATEMENT OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
YEAR ENDED SEPTEMBER 30, 1998 -------------------------------------------------------------------- SILICON VALLEY PRO FORMA PRO FORMA GROUP, INC. SEG ADJUSTMENTS COMBINED NET SALES $ 608,625 $ 96,981 $ -- $ 705,606 COST OF SALES Cost of net sales 389,279 80,328 1,446 (d),(e) 471,053 (g) Restructuring and related charges 19,117 13,720 -- 32,837 --------- --------- --------- --------- GROSS PROFIT 200,229 2,933 (1,446) 201,716 OPERATING EXPENSES: Research, development and related engineering 87,272 28,010 (480) (d) 114,802 Marketing, general and administrative 130,615 31,329 (419) (d),(g) 161,525 Restructuring and related charges 14,563 24,590 (6,000) (f) 33,153 --------- --------- --------- --------- OPERATING LOSS (32,221) (80,996) 5,453 (107,764) INTEREST AND OTHER INCOME-NET 6,082 1,029 -- 7,111 INTEREST EXPENSE (1,018) (567) -- (1,585) --------- --------- --------- --------- LOSS BEFORE INCOME TAXES (27,157) (80,534) 5,453 (102,238) PROVISION (BENEFIT) FOR INCOME TAXES (13,580) (26,056) 2,126 (h) (37,510) --------- --------- --------- --------- NET LOSS $ (13,577) $ (54,478) $ 3,327 $ (64,728) ========= ========= ========= ========= NET LOSS PER SHARE -- BASIC $ (0.42) $ (2.00) ========= ========= SHARES USED IN PER SHARE COMPUTATIONS -- BASIC 32,438 32,438 ========= ========= NET LOSS PER SHARE -- DILUTED $ (0.42) $ (2.00) ========= ========= SHARES USED IN PER SHARE COMPUTATIONS -- DILUTED 32,438 32,438 ========= =========
See Notes to Unaudited Pro Forma Combined Consolidated Financial Statements 23 UNAUDITED PRO FORMA COMBINED CONSOLIDATED STATEMENT OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NINE MONTHS ENDED JUNE 30, 1999 -------------------------------------------------------------------- SILICON VALLEY PRO FORMA PRO FORMA GROUP, INC. SEG ADJUSTMENTS COMBINED NET SALES $ 283,877 $ 96,946 $ -- $ 380,823 COST OF SALES 197,817 60,389 1,823 (d),(e) 260,029 --------- --------- --------- (g) --------- GROSS PROFIT 86,060 36,557 (1,823) 120,794 OPERATING EXPENSES: Research, development and related engineering 61,668 14,919 (360) (d) 76,227 Marketing, general and administrative 68,286 17,678 (254) (d),(g) 85,710 --------- --------- --------- --------- OPERATING INCOME (LOSS) (43,894) 3,960 (1,209) (41,143) INTEREST AND OTHER INCOME-NET 4,916 794 -- 5,710 INTEREST EXPENSE (862) (436) -- (1,298) --------- --------- --------- (g) --------- INCOME (LOSS) BEFORE INCOME TAXES (39,840) 4,318 (1,209) (36,731) PROVISION (BENEFIT) FOR INCOME TAXES (12,749) 1,382 (471) (f) (11,838) --------- --------- --------- (g) --------- NET INCOME (LOSS) $ (27,091) $ 2,936 $ (738) $ (24,893) ========= ========= ========= ========= NET INCOME (LOSS) PER SHARE -- BASIC $ (0.82) $ (0.76) ========= ========= SHARES USED IN PER SHARE COMPUTATIONS -- BASIC 32,874 32,874 ========= ========= NET INCOME (LOSS) PER SHARE -- DILUTED $ (0.82) $ (0.76) ========= ========= SHARES USED IN PER SHARE COMPUTATIONS -- DILUTED 32,874 32,874 ========= =========
See Notes to Unaudited Pro Forma Combined Consolidated Financial Statements 24 Notes to Unaudited Pro Forma Combined Consolidated Financial Statements Note 1 -- Pro Forma Adjustments The following adjustments were applied to the historical consolidated financial statements to arrive at the pro forma combined consolidated financial statements. (a) On July 6, 1999 Silicon Valley Group, Inc. completed the acquisition of SEG with total consideration based upon the closing balance sheet as of July 2, 1999. The acquisition was accounted for using the purchase method. Accordingly, the purchase price was allocated to the assets acquired and liabilities assumed based on the estimated fair value as of the acquisition date. The allocation of the purchase price, assuming the acquisition occurred as of June 30, 1999, for pro forma purposes, is as follows: Cash paid, net $ 2,700,000 Estimated acquisition costs 1,050,000 ----------- $ 3,750,000 =========== Cash assumed $ 3,889,000 Inventory 14,112,000 Other current assets 1,521,000 Fixed assets 22,413,000 Current liabilities assumed (18,643,000) Current portion long term debt assumed (585,000) Long term debt assumed (18,957,000) ----------- $ 3,750,000 ===========
Of the $3,750,000 net cash paid, $1,600,000 had been paid prior to June 30, and has been removed from the Company's other current assets in the pro forma adjustments. The remaining $2,150,000 cash outlay occurred after June 30, and therefore has been removed from cash for pro forma presentation. The estimated fair value of the net assets acquired exceeded the purchase price of $3,750,000 by $5,809,000. Accordingly, the estimated fair value of the fixed assets acquired of $28,222,000 was adjusted to $22,413,000. Silicon Valley Group, Inc. expects to record additional liabilities not reflected herein for anticipated costs related to closing duplicate service and sales facilities domestically and internationally. (b) Reflects purchase accounting adjustments for assets not purchased and liabilities not assumed by the Company. Watkins-Johnson Company retained the accounts receivable balances. In connection with the acquisition, the Company entered into a third party lease with Key Bank, National Association ("Key Bank") covering certain real property located in Scotts Valley, California with a net book value of $9,556,000 that was sold by Watkins-Johnson to Key Bank. (c) Reflects the elimination of SEG's invested equity. 25 (d) Reflects a net reduction in depreciation resulting from the reduction of the fair value of the fixed assets by $5,809,000, as discussed above, partially offset by the write up of fixed assets to fair value. (e) Reflects the increase to cost of sales resulting from revaluing finished goods and work in process to estimated selling price less the sum of the (a) costs to complete, (b) costs of disposal, and (c) reasonable profit allowance for the selling effort of the Company. (f) Reflects the removal of the 1998 write-down to fair value of approximately $6,000,000 related to SEG's facility in Japan. Assuming for pro forma presentation purposes that the acquisition had occurred at the beginning of the period, this facility would have already been adjusted to fair value. (g) Reflects the net change in operating expenses resulting from removal of the depreciation on the real property located in Scotts Valley and replacement with the operating lease payments. The net effect of the changes reduces expenses $493,000 for the year ended September 30, 1998, and $71,000 for the nine months ended June 30, 1999. (h) Reflects the adjustment to income taxes based on the pro forma results for the periods presented. -----END PRIVACY-ENHANCED MESSAGE-----