-----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, H/FA/imgJWkLetBxnKymJGsi6HkJ5zs+y+EZdXKdm6MDuPfWklxW0Wz8hBKxV0gN /A/w86eVcm8O1Fn3l27B3g== 0000927016-98-002551.txt : 19980701 0000927016-98-002551.hdr.sgml : 19980701 ACCESSION NUMBER: 0000927016-98-002551 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19980329 FILED AS OF DATE: 19980629 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: ASECO CORP CENTRAL INDEX KEY: 0000896645 STANDARD INDUSTRIAL CLASSIFICATION: INSTRUMENTS FOR MEAS & TESTING OF ELECTRICITY & ELEC SIGNALS [3825] IRS NUMBER: 042816806 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-21294 FILM NUMBER: 98657243 BUSINESS ADDRESS: STREET 1: 500 DONALD LYNCH BLVD CITY: MARLBORO STATE: MA ZIP: 01752 BUSINESS PHONE: 5084818896 MAIL ADDRESS: STREET 1: 500 DONALD LYNCH BOULEVARD CITY: MARLBORO STATE: MA ZIP: 01752 10-K 1 FORM 10-K - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-K [X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for fiscal year ended March 29, 1998 OR [_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number 0-21294 ASECO CORPORATION (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 04-2816806 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.) INCORPORATION OR ORGANIZATION) 500 DONALD LYNCH BOULEVARD, MARLBORO, MASSACHUSETTS 01752 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE 508-481-8896 SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: COMMON STOCK, $.01 PAR VALUE 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 BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM 405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE BEST OF THE REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATEMENTS INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY AMENDMENT TO THIS FORM 10-K. The aggregate market value of voting stock held by non-affiliates of the registrant was $18,423,492 as of May 30, 1998 3,731,718 (NUMBER OF SHARES OF COMMON STOCK OUTSTANDING AS OF MAY 30, 1998) DOCUMENTS INCORPORATED BY REFERENCE PART III INCORPORATES BY REFERENCE CERTAIN INFORMATION FROM THE REGISTRANT'S PROXY STATEMENT FOR THE ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON AUGUST 11, 1998 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- PART I ITEM 1. BUSINESS OVERVIEW Aseco designs, manufactures and markets test handlers used to automate the testing of integrated circuits in surface mount packages. Aseco provides high quality, versatile test handlers designed to maximize the productivity of the significantly more costly testers with which they operate. On May 23, 1997 the Company acquired Western Equipment Developments (Holdings) Ltd. ("WED"), based in Plymouth, England for approximately $6,100,000 in cash. (See Note L to the Consolidated Financial Statements.) WED designs, manufactures and markets integrated circuit wafer handling and inspection systems. These systems are used to load, sort and transport wafers during both manual and automatic inspection as well as other wafer processing steps in the semiconductor manufacturing process. INDUSTRY BACKGROUND The manufacture of integrated circuits (IC's) takes place in ultra-clean fabrication plants. Flat circular discs of silicon ("wafers"), of extremely high perfection and purity, are taken through a variety of processes-- principally micro-patterning, where small structures are etched into the surface, and physical and chemical processes, where material is deposited or implanted into the structures. Between these major processing steps the wafers must be transported cleanly and safely and inspected and assessed for quality and cleanliness. Automated wafer handling and inspection equipment facilitates the safe transport, handling and defect detection and assessment of wafers between process steps preventing damage, contamination and breakage which often results from manual intervention. Following the manufacturing process, IC devices are tested by semiconductor manufacturers for quality and electrical performance before shipment to end users. In addition, volume purchasers of IC devices often test IC devices during incoming inspection. Test handlers facilitate the fast, automated and cost-effective testing of IC devices. The automated test process requires two major pieces of equipment: a tester and a test handler. Testers are specialized, computer-controlled electronic systems that perform the electrical test of IC devices, including memory, logic, linear, microprocessor and Application Specific Integrated Circuit (ASIC) devices. Test handlers are electro-mechanical systems which are connected to and communicate with the tester. IC devices are loaded into the test handler and are then stabilized at a specified temperature to simulate operating extremes for the IC device. The test handler then transports the IC device to a contactor, which provides an electrical connection between the IC device and the tester and allows an interchange of electrical signals between the tester and device under test so the tester can evaluate the performance of the IC. Finally, the handler segregates the devices as determined by the tester. Traditionally, IC devices were attached to one side of a printed circuit board by means of pins, also referred to as leads, that were inserted into pre-drilled holes and soldered to the electrical circuits on the board, a technique known as "through-hole" mounting. Surface mount technology ("SMT"), an alternative technology which is widely used, involves soldering of IC devices directly to the surface of the board. This technology has been increasingly adopted in response to the introduction of more powerful IC devices with more leads and the demand for ever more increasing miniaturization. SMT has several distinct advantages over through-hole technology. First, because IC device leads are not inserted through the board, IC device leads can be closer together allowing IC devices and the boards they populate to be smaller. This reduction in IC device size also enhances circuit processing speed and thus board and system performance. Second, because IC device leads are not inserted through the board, boards can be populated on both sides which further reduces overall required board size. The demand for test handlers is driven primarily by IC device production levels and technological changes relating to the packaging of integrated circuits. Because only the test handler has physical contact with the IC 1 devices, changes in integrated circuit packaging have minimal effect on tester requirements but generally have a major effect on test handler requirements and the demand for the test handlers. The test handler market is commonly segmented on the basis of the function of the IC devices handled: test handlers which process memory IC devices, such as Dynamic Random Access Memory devices (DRAM) and Static Random Access Memory devices (SRAM), and test handlers which process non-memory IC devices, such as digital, logic, linear, ASIC and microprocessor devices. Non-memory IC devices generally have short test times, are often configured with leads on four sides, come in a wide variety of package configurations and are produced in relatively small lot sizes. Consequently, non-memory IC device test handlers must be able to handle devices gently and transport them to and from the contactor rapidly ("index time") and must be adaptable to accommodate many different package types. Memory IC devices, by contrast, generally have longer test times, have leads on just two sides, come in fewer package configurations and are produced in larger lot sizes. The index time of memory IC device test handlers is less important because of the long test times of memory IC devices. Test handlers capable of facilitating the testing of multiple IC devices simultaneously ("multi-site test handlers") have been developed to improve test handler throughput of memory IC devices. Traditionally, multi-site test handlers have not been used in connection with the testing of non-memory IC devices. Recently, however, as non-memory IC devices have become more complex and their test times have correspondingly increased, multi-site test handlers have been used in connection with the testing of non-memory IC devices as well. In addition, certain SRAM IC devices possess characteristics typical of non-memory IC devices, such as shorter test time, leads on four sides and wider variety of package configurations, therefore creating the demand in the SRAM market for a multi-site test handler with fast index speed and gentle handling capabilities. The majority of DRAM IC devices are manufactured in Japan and Korea while the majority of non-memory IC devices are manufactured in the United States. A significant number of SRAM IC devices are manufactured in the United States as well as in Japan and Korea. To date, the Company's products have primarily addressed the non-memory surface mount device portion of the test handler market. ASECO'S AUTOMATION EQUIPMENT Wafer Handling and Inspection Automation Equipment Wafer handling and inspection equipment is used to automate the transfer and inspection of wafers between semiconductor manufacturing process steps. Generally, wafers are transported through the factory in receptacles called cassettes. Basic bench top wafer handling equipment extracts a wafer from a cassette and places it on a horizontal stage where microscope inspection takes place. More sophisticated bench top equipment facilitates "macro-inspection" of wafers (i.e. not under a microscope) by placing each wafer on a stage which tilts and rotates the wafer at all angles under a high intensity lamp to reveal defects. During the wafer fabrication process, wafers are tracked in lots (typically of 25 wafers) which often need to be broken down into sub-lots in order to fit into certain process equipment and then returned to the original lots. In order to accomplish this, wafers are identified by alphanumeric or bar-code symbols etched into the surface of each wafer. Integrated wafer automation equipment enables the user to select any wafer from a maximum of 100 wafers (usually 4 lots of 25), identify it automatically, assign it a new position among the wafers, extract a given number of wafers from a batch, reorder the wafers or combine two lots or sublots. These wafer sorting devices then are able to communicate wafer and system status to an external factory computer enabling the sorter to function as an automation center under the control of the central factory automation system. Another type of wafer automation equipment is an integrated inspection station. Such a module enables the user to extract a wafer from a cassette, place it on a stage, inspect the wafer under a microscope using a monitor to view the microscope imaging, identify defects, collect and analyze data and return the wafer to its cassette for further processing. 2 Test Handlers Test handlers are used to automate the electrical testing of IC devices. IC devices are loaded into the handler from tubes, magazines or trays. They are then transported to a temperature chamber within the test handler where they are thermally conditioned at temperatures typically ranging from -55 to +155 Celsius to simulate operating extremes for the IC device. After the IC devices are stabilized at a specified temperature, the test handler positions the IC devices within a contactor, which provides an electrical connection between the IC device and the tester and insulates the tester from the temperature extremes inside the handler. Test routines can last from fractions of a second to minutes depending on the type of IC device being tested and the purpose of the test. After testing, the tester signals the test handler to sort the IC devices into various categories for shipment, additional testing or disposal. There are four basic types of test handlers: gravity-feed systems, pick and place systems, belt-conveyance systems and air-bearing systems. The appropriate type of test handler is generally determined by the size and lead configuration of the IC devices being tested. The gravity-feed system, the oldest of the four test handler types, is the predominant test handler for through-hole IC devices. As the name indicates, gravity-feed systems rely on gravity to move IC devices through the test handler. This type of test handler has the advantage of being able to process IC devices quickly, but has a greater tendency to damage IC devices with leads on four sides. Damaged leads can cause soldering defects when the IC devices are mounted on boards, which in turn increases re-work and warranty costs. Pick and place systems, in contrast, transport IC devices by means of robotic arms, which prevent the IC devices from coming into contact with one another and reduce the chance of lead damage. While pick and place systems are suitable for fragile IC devices that are susceptible to lead damage such as the Quad Flat Pack (QFP), they typically process IC devices more slowly than other types of test handlers. Air-bearing systems, which transport IC devices on a bed of air in the temperature chamber, permit high-speed processing while minimizing the potential for lead damage characteristic of gravity-feed systems. Belt- conveyance systems move large quantities of devices quickly into and out of the system on belts without damaging fragile leads. KEY ASECO EQUIPMENT FEATURES Key Wafer Automation Equipment Features Cleanliness--Semiconductor wafer fabrication is conducted under ultra-clean conditions; therefore, cleanliness of the equipment which operates in this environment is important. WED achieves cleanliness in its equipment by covering all moving parts, by ensuring that all moving parts are below the wafer plane and by carefully selecting the materials used to make the equipment. As wafer sizes and therefore equipment sizes grow and as cleanliness assumes greater importance, the cost of producing wafer fabrication cleanrooms will become prohibitively high. As an alternative, minienvironment technology offers lower costs in the construction of cleanrooms. Within such minienvironments, only the air immediately above the equipment where the wafer resides needs to be clean and this area is isolated by shields from the general area surrounding the equipment. Wafers are carried from process to process in sealed boxes which interface with the equipment shield via a "SMIF" Port (Standard Mechanical Interface). WED's entire range of benchtop and integrated systems are compatible with SMIF technology. Safety of Handling--Each wafer processed by a semiconductor manufacturer requires dozens of costly passes through each manufacturing process and ultimately yields numerous individual IC's. As a result, safety of handling, or zero wafer breakage, is of paramount importance to semiconductor manufacturers. WED has achieved safe handling using designs which incorporate both hardware sensors and software checks. Versatility--An important aspect of WED's technology and product range is the maximum wafer size that it can accommodate. State of the art fabrication units currently are running 8 inch (200mm) wafers. The next generation wafer size will be 12 inches, although facilities to support this production are, for the most part, on 3 hold. WED offers a full range of 6 inch and 8 inch compatible equipment and plans to broaden its product line to accommodate 12 inch wafers in time to take advantage of the construction of fabrication plants needed to produce 12 inch wafers. Key Test Handler Features The primary function of the test handler is to automate the testing process thereby increasing the productivity of the tester resulting in the accurate testing of IC devices at the lowest per unit cost possible. Important test handler features include: Gentle Handling. In order for the test handler user to maximize yield and the quality of the IC devices it ships, it is imperative that the test handler not damage the IC devices it processes. Due to their fragility, surface mount IC device leads are especially susceptible to damage, and as IC devices with higher lead counts and more fragile leads have become more prevalent, gentle handling has become an increasingly important test handler feature. Aseco currently offers test handlers with four IC device transport mediums--gravity- feed, air-bearing, pick and place and belt-conveyance test handlers. The four transport mediums allow customers to use the type of test handler most suitable for the IC device being tested. In addition, Aseco test handlers are equipped with vacuum stops, limited force contactors and other features to further minimize lead damage. Signal Integrity. Signal integrity is the ability of the test handler to facilitate accurate transmission of electrical signals between the tester and the IC device being tested. Poor transmission can lead to incorrect test results. Aseco maximizes its performance in this area by equipping its test handlers with Aseco's proprietary contactors which position the IC device under test in close proximity to the tester which allows fast and accurate signal transmission. If so desired by customers, other contactors can also be used with Aseco equipment. Cold Operation. The ability of the test handler to operate for extended periods of time at cold temperatures (typically -55 Celsius) without interruption for defrosting is an especially important factor in the overall productivity of the test handler. Aseco has developed considerable expertise in thermal engineering and insulation technology which is reflected by the fact that its test handlers are capable of operating for long periods over multiple work shifts without interruption. Productivity. The productivity of a test handler is largely a function of the rate at which it moves IC devices through the test handler ("throughput") and the percentage of time the test handler is available for use ("uptime"). The throughput of Aseco's test handlers is enhanced by their use of forced air to thermally condition IC devices. This produces an effect analogous to wind chill and minimizes the time IC devices are required to stay in the temperature chamber. The Company believes its handlers are able to achieve high uptime because of their relatively simple design that reduces jam rates and the frequency and duration of required maintenance. Maintenance time also is reduced by the diagnostic software incorporated in each Aseco test handler. Versatility. With the increase in the number of different IC device lead configurations, an important feature of a test handler is its ability to accommodate IC devices with different lead configurations. Through the use of easy to install conversion kits, Aseco's test handlers are currently capable of processing many different IC device configurations. ASECO AUTOMATION PRODUCTS Aseco offers a range of products to address the varying wafer handling and inspection and IC device test handling requirements of its customers. Wafer Handling and Inspection MICROLOADER The Microloader extracts a wafer from its carrying cassette and places it on a flat, horizontal stage, usually for microscope inspection. Wafers can be selected specifically or randomly for quality assurance functions. The 4 microscope operator is freed from the delicate and potentially damaging task of manipulating the wafer to concentrate on the inspection task. AML (AUTOMATIC MICROSCOPE LOADER) The AML performs the same basic functions as the Microloader and adds an intermediate orientation stage to enable the operator to find specific features and an option to sort good wafers from bad. Higher throughput rates can also be achieved on this system. MACROSPEC The Macrospec also shares the same functions and features of a Microloader and has a built in "macro-inspection" stage, which tilts and rotates the wafer at all angles ensuring good visibility of all surface features of the wafer. A high intensity lamp shines on the wafer surface revealing wafer defects. HIGH SPEED MICROSORTER (SMIF OR NON-SMIF) The Microsorter is an integrated solution allowing semiconductor wafers to be automatically identified and sorted using advanced vision processing. Operator contact is eliminated as wafer movements are completed by a precision robotic transfer module ensuring clean and safe transfers. The Microsorter may be fitted with an optional SMIF minienvironment SubClass 1 which creates a clean environment surrounding the cassette transport modules. ORBIS The Orbis is an integrated inspection station that provides fully automatic detection of surface contamination, damage and process errors and dimensional tolerance failures on semiconductor wafers. The machine incorporates an autosizing function for 4 to 8 inch wafers which speeds set up and changeover for multi-size fabrication operations. Wafers are pre-aligned, automatically identified by machine vision and loaded to the microscope for fine alignment and flaw detection. The machine collects and stores inspection data for future recall and reference. Test Handlers The Company's test handlers share certain common features including the ability to operate at cold, ambient and hot temperatures and a menu-driven CRT user interface that displays test handler performance and diagnostic information. The Company's products are as follows: MODEL S-130 TEST HANDLER The S-130 is a versatile air-bearing test handler, capable of handling a broad array of non-memory IC device types. Through the use of conversion kits, the S-130 is currently able to accommodate a wide variety of IC device configurations. The S-130 reaches throughput rates of 2,400 devices per hour, and has the capability to operate at temperatures between -55 and +150 Celsius. The versatility of the S-130 has made it popular with suppliers of ASIC devices and others who need to test a relatively small number of many different IC device package types. MODEL S-133 TEST HANDLER The S-133 is a modified version of the S-130 test handler. It offers all the features and capabilities of the S-130 plus the ability to position the device for electrical testing of accelerometers while under physical shock. An accelerometer is a device that activates when a large amount of force is placed upon it and is used in such applications as car airbags. 5 MODEL S-170 TEST HANDLER The S-170 is a high-speed gravity-feed test handler capable of a throughput rate of 6,000 IC devices per hour. This test handler is equipped with high performance contactors and provides test handling at temperatures ranging from - -55 to +155 Celsius. Changing between different IC device package lead counts is achieved by simple keypad entry on a menu-driven CRT display. The S-170 is most appropriate for high volume testing of small surface mount IC devices having short test times and leads on only two sides such as linear devices. MODEL S-170C AND S-170D TEST HANDLERS The S-170C and S-170D are modified versions of the S-170 gravity feed test handler. Each offers all the features and capabilities of the S-170 plus the ability to handle a broader spectrum of the popular SOIC package types. In addition, the S-170D offers plunge to board capability that allows an electrical connection between the IC device and a device under test ("dut") board eliminating the need for a contactor and facilitating testing of IC devices with very short lead lengths. MODEL S-200 TEST HANDLER The S-200 is a pick and place test handler, particularly suitable for handling fragile lead IC devices such as the popular QFP package. The S-200 has a throughput capacity of 1,200 devices per hour and operates at temperatures ranging from -55 to +155 Celsius. Key features of the S-200 include its simple design, which enhances uptime, and the ease with which it can be converted to handle different package types plus automatic tray loading and unloading. A key distinguishing feature is its ability, through the addition of an optional machine vision system, to provide in-line lead inspection in addition to its normal electrical test handling capability. MODEL S-450 TEST HANDLER The S-450 is a versatile, high capacity, highly automated test handler employing an air-bearing transport system. This product incorporates the best features of Aseco's other test handlers, while incorporating additional capabilities such as a touch screen user interface, multi-site testing, high throughput and automated IC device loading and unloading. The S-450 meets the demand for higher throughput at lower cost per IC device tested and in addition to PLCC and SOIC(W) has the ability to accommodate new, larger IC devices with high lead counts such as the Molded Carrier Ring (MCR). The multi-site test capability of the S-450 allows up to eight IC devices to be tested simultaneously, thereby dramatically improving throughput. In addition, this product is the Company's first offering to the SRAM portion of the surface mount IC device test handler market. The Company believes that the high throughput and gentle handling features of the S-450 make it particularly suitable for SRAM devices that have more leads and shorter test times than many other memory IC devices. The S-450 can be converted to handle numerous IC device package types and, like the Company's other test handler models, allows testing at hot, cold and ambient temperatures. MODEL VT8000 TEST HANDLER The VT8000 is the Company's newest test handler and employs a unique combination of machine vision and multi track belt conveyance to enable more gentle handling of fragile devices. The VT8000 handles IC devices with simplified conversion kits resulting in cost savings for customers and less complicated set up and changeover. Machine vision facilitates lead inspection of IC devices before and after testing to identify parts with damaged leads. The VT8000 handles a variety of package types and incorporates an optional plunge-to board feature. Remanufacturing Services The Remanufacturing Services Group provides services such as machine upgrades, reconditioning and reconfiguration for all of the Company's test handler models. 6 Distribution Agreements In October 1997, Aseco entered into a distribution agreement with Aju Systems, Inc. ("Aju") to market and sell its memory test handler in all geographic areas except Korea and Japan. In turn, Aju agreed to market and sell Aseco's test handlers in Korea. The Aju handler, the 7070, handles up to 64 devices simultaneously at a throughput rate of 6,400 devices per hour and will operate within a temperature range of -30(degrees)C to 125(degrees)C. In November 1997, Aseco entered into a distribution agreement with Rasco to market and sell its SO1000 high-speed multi site test handler in the United States and Canada. CUSTOMERS Customers for the Company's products are primarily semiconductor manufacturers, but also include volume purchasers of IC devices and companies engaged in the business of testing IC devices for others. As of March 29, 1998, the Company had sold 1,349 test handler systems to approximately 136 customers in more than 161 worldwide locations. In fiscal 1998, two customers, Maxim Integrated Products, Inc and Analog Devices, Inc., accounted for 23% and 16% of net sales, respectively. In fiscal 1997, one customer, Analog Devices, Inc., accounted for 17% of net sales. SALES AND MARKETING The Company markets its products primarily through manufacturers' representative organizations and, in certain geographic regions, a direct sales force. As of March 29, 1998, the Company had fourteen United States manufacturers' representatives and fourteen international manufacturers' representatives located in England, Germany, France, Israel, Korea, Hong Kong, Italy, Malaysia, Singapore, Sweden, and Taiwan. The Company's sales organization coordinates the activities of the Company's manufacturers' representatives and actively participates with them in selling efforts. Aseco provides sales and technical support to its manufacturers' representatives through the Company's sales and service offices in Marlboro, Massachusetts, Santa Clara, California, Singapore, Plymouth, England and Kuala Lumpur, Malaysia. The Company employs a direct sales force to market and sell in Northern California. The Company's marketing efforts include participation in industry trade shows and production of product literature. These efforts are designed to generate sales leads for the Company's manufacturers' representatives. To date, the Company's international sales have been primarily to customers located in the Asia Pacific region (excluding Japan) and Western Europe. International sales accounted for approximately 36%, 52%, and 42% of the Company's net sales in fiscal 1998, 1997 and 1996, respectively. During fiscal 1998 a small percentage of the Company's international sales were invoiced in foreign currencies and, accordingly, were subject to fluctuating currency exchange rates. The Company's international sales are subject to certain risks common to many export activities, such as governmental regulations, export license requirements and the risk of imposition of tariffs and other trade barriers. BACKLOG The Company's backlog which consists of customer purchase orders which the Company expects to fill within the next twelve months, was approximately $4,011,000 as of March 29, 1998 compared to approximately $2,995,000 as of March 30, 1997. Because all purchase orders are subject to cancellation or delay by customers with limited or no penalty, the Company's backlog is not necessarily indicative of future revenues or earnings. The Company typically ships its major equipment within eight to ten weeks of receipt of purchase order and its conversion kits and spare parts within a shorter period. 7 CUSTOMER SERVICE The Company believes that strong customer service is important in achieving its goal of high customer satisfaction. Aseco's customer service organization, augmented by the Company's engineering personnel, provides product training, telephone technical support, applications support, maintenance and operations manuals and on-site service and repair. Such services are provided from the Company's headquarters in Marlboro, Massachusetts and from one other domestic and eight international field service centers, each strategically located near customers to minimize response time to customer service requests. Six of the nine international field service centers are maintained by the Company's manufacturers' representative organizations and three directly by the Company. The Company warranties its products against defects in material and workmanship for a period of up to one year. To date, the Company's warranty claims have not been material. The Company believes its accrual for product warranties at March 29, 1998 is adequate. PRODUCT DEVELOPMENT The Company believes that its future success will depend in large part on its ability to enhance and broaden, with the input of its customers, its existing product line to meet the evolving needs of the test handler market. To date, the Company has relied on internal development and a product acquisition (the TL-50, the forerunner of the S-200) to extend its product offering. The Company is continually engaged in improving its current products and expanding the types of IC devices its test handlers can accommodate and the size of wafers its wafer automation equipment can manage. In addition, the Company is currently focused on the continued development of enhancements and features for its current automation products. As the semiconductor equipment market continues to develop, the software component of the Company's products plays an increasingly important role. The Company currently develops all software in-house and plans to expand its expertise in this area by hiring additional personnel as needed. MANUFACTURING AND SUPPLY The Company manufactures its products at its facilities in Marlboro, Massachusetts and Plymouth, England. The Company's manufacturing operations consist of procurement and inspection of components and subassemblies, assembly and extensive testing of finished products. A significant portion of the components and subassemblies of the Company's products, including circuit boards, vacuum pumps, optical sensors, refrigeration units and contactor elements, are manufactured by third parties on a subcontract basis. Currently all components, subassemblies and parts used in Aseco's products are available from multiple sources. Quality and reliability are emphasized in both the design and manufacture of the Company's equipment. All components and subassemblies are inspected for mechanical and electrical defects. Fully assembled products are thoroughly tested and inspected for conformity to specifications of both Aseco and the customer. Test handler products are tested at all temperatures and with all the IC device packages to be accommodated. COMPETITION The test handler and wafer handling and inspection markets are highly competitive. Aseco competes with a large number of companies ranging from very small businesses to large companies, many of which have substantially greater financial, manufacturing, marketing and product development resources than the Company. Certain of these companies manufacture and sell both testers and test handlers. The Company's test handlers are compatible with all major testers, including those manufactured by companies which sell both testers and test handlers. The large companies in the overall surface mount IC device test handler market with which the Company competes include Advantest and Cohu. In general, the particular companies with which the Company competes vary with the Company's different markets, with no one company dominating the overall test handler 8 market. The companies with which the Company competes most directly in the surface mount non-memory IC device test handler market are companies such as Multitest, JLSI, Aetrium and Micro Component Technology, Inc. The Company's competitors in the wafer handling and inspection market vary depending upon the type of equipment. The Company's major competitors, however, in this market are Irvine Optical, Kensington, PST, Cybeq, Leica, Nikon, Zeiss and JenOptic. The Company competes primarily on the basis of the speed, ease-of-use, accuracy and other performance characteristics of its products, the breadth of its product lines, the effectiveness of its sales and distribution channels and its customer service. INTELLECTUAL PROPERTY RIGHTS Aseco attempts to protect the proprietary aspects of its products with patents, copyrights, trade secret laws and internal nondisclosure safeguards. The Company has several patents covering certain features of the S-200 and the contactor elements incorporated in certain of its other test handlers. In addition, the Company has patent applications pending with respect to the machine vision technology in the VT8000. The source code for all software contained in the Company's products is protected as a trade secret and as unpublished copyrighted work. In addition, the Company has entered into nondisclosure and assignment of invention agreements with each of its key employees. Despite these restrictions, it may be possible for competitors or users to copy aspects of the Company's products or to obtain information which the Company regards as a trade secret. Because of the rapid pace of technological changes in the test handler industry, the Company believes that patent, trade secret and copyright protection are less significant to its competitive position than factors such as the knowledge, ability and experience of the Company's personnel, new product development, frequent product enhancements, name recognition and ongoing reliable product maintenance and support. The Company believes that its products and trademarks and other proprietary rights do not infringe the proprietary rights of third parties. There can be no assurance, however, that third parties will not assert infringement claims in the future. EMPLOYEES As of March 29, 1998, Aseco had 202 regular employees and 15 contract employees including 78 in manufacturing, 67 in engineering and product development, 23 in general administration and finance, 44 in sales and marketing and 5 in customer service. None of the Company's employees are represented by a labor union or are subject to a collective bargaining agreement. The Company has never experienced a work stoppage and believes that its employee relations are adequate. ITEM 2. PROPERTIES The Company's administrative, manufacturing and product development, and its principal sales, marketing and field service office is located in Marlboro, Massachusetts where the Company occupies approximately 61,000 square feet under a lease that expires in May 2000. The Company's wafer automation equipment manufacturing and product development reside in Plymouth, England where the Company occupies 21,000 square feet under a lease that expires in November 2002. The Company also leases and occupies approximately 2,900 square feet of space in Santa Clara, California under a lease that expires in fiscal 1998 and 213 square meters of space in Singapore under a lease that expires in September 2000. The Company uses these latter two locations for sales and field service support operations. The Company believes its facilities are adequate for all its reasonable foreseeable requirements. 9 ITEM 3. LEGAL PROCEEDINGS None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of the Company's security holders during the last quarter of the fiscal year ended March 29, 1998. 10 EXECUTIVE OFFICERS OF THE REGISTRANT The following table sets forth the executive officers of the Company, their ages, present position and principal occupations held for at least the past five years.
NAME AGE POSITION ---- --- -------- Carl S. Archer, Jr.......... 60 Chief Executive Officer and Chairman of the Board Sebastian J. Sicari......... 46 President, Chief Operating Officer, Treasurer Mary R. Barletta............ 37 Vice President, Chief Financial Officer Robert L. Murray............ 46 Vice President, Worldwide Customer Support Robert E. Sandberg.......... 40 Vice President, Sales Phillip J. Villari.......... 48 Vice President, Engineering & Manufacturing Operations
Mr. Archer has been Chief Executive Officer and a director of the Company since November 1987. Mr. Archer also served as President from November 1987 to June 1998. Mr. Sicari has been President & Chief Operating Officer of the Company since June 1998. Mr. Sicari served as Vice President, Finance and Administration and Chief Financial Officer of the Company from December 1985 until June 1998, served as Treasurer of the Company since July 1988 and has been a Director since 1993. Ms. Barletta has been Vice President, Chief Financial Officer of the Company since June 1998. Ms. Barletta served as Vice President, Corporate Controller from August 1997 to June 1998 and has served as Corporate Controller since 1993. Mr. Murray has been Vice President, Worldwide Customer Support since June 1998. Mr. Murray served as Director of Worldwide Customer Support from February 1997 until June 1998. From January 1992 to January 1997, Mr. Murray was Director of Worldwide Support at Optronics, a division of Intergraph, a manufacturer of laser image setters and scanners. Mr. Sandberg has been Vice President, Sales since June 1998. While working at Aseco, Mr. Sandberg served as Director of WED Worldwide Sales from April 1998 to June 1998, Director of Asian Operations from April 1997 to April 1998, Far East Sales Manager from April 1996 to April 1997 and Eastern Region Sales Manager from January 1994 to April 1996. Prior to January 1994, Mr. Sandberg was Marketing Manager at Symtek Systems, Inc., a manufacturer of automatic test handlers. Mr. Villari has been Vice President, Engineering & Manufacturing Operations since June 1998. Mr. Villari served as Vice President, Manufacturing Operations from April 1998 until June 1998. From July 1995 to March 1998, Mr. Villari was Director and General Manager, Semiconductor Business Unit, Electro Scientific Industries, Inc., a manufacturer of laser based equipment for circuit fine tuning, memory repair along with equipment for testing surface mount capacitors. From February 1993 to June 1995 Mr. Villari served as President and CEO of XRL, Inc. a manufacturer of laser based capital equipment. Executive officers of the Company are elected by the Board of Directors and serve until their successors have been duly elected and qualified. There are no family relationships among any of the executive officers or directors of the Company. 11 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS Aseco Corporation's common stock is traded on the NASDAQ National Market under the symbol "ASEC." The table below sets forth the high and low sale prices of the common stock during the two most recent fiscal years:
1998 ------------- PERIOD HIGH LOW - ------ ------ ------ First Quarter..................................................... $13.38 $ 8.63 Second Quarter.................................................... 19.00 10.63 Third Quarter..................................................... 18.88 8.38 Fourth Quarter.................................................... 11.38 7.25 1997 ------------- HIGH LOW ------ ------ First Quarter..................................................... $14.63 $ 9.50 Second Quarter.................................................... 11.50 8.25 Third Quarter..................................................... 10.38 7.00 Fourth Quarter.................................................... 11.88 9.50
On May 30, 1998, the closing price of the Company's common stock was $4.937 per share. On such date there were 3,731,718 shares outstanding held of record by 94 persons. This number does not include stockholders for whom shares are held in a "nominee" or "street" name. The Company has not paid cash dividends on its common stock and does not intend to do so in the foreseeable future. The Company's bank line of credit prohibits the payment of cash dividends without the bank's consent. ITEM 6. SELECTED FINANCIAL DATA
YEAR ENDED ----------------------------------------------- MARCH 29, MARCH 30, MARCH 31, APRIL 2, APRIL 3, 1998 1997 1996 1995 1994 --------- --------- --------- -------- -------- (IN THOUSANDS EXCEPT PER SHARE DATA) STATEMENT OF OPERATIONS DATA Net sales..................... $44,246 $34,320 $41,569 $29,192 $20,264 Income (loss) from operations................... (8,411) 2,623 6,397 3,987 2,445 Net income (loss)............. (8,143) 2,288 4,406 3,088 1,980 Earnings (loss) per share, diluted...................... (2.20) .62 1.17 .85 .55 BALANCE SHEET DATA Total assets.................. $33,691 $36,640 $36,681 $29,267 $23,792 Long term capital lease obligations.................. 25 29 42 53 -- Stockholders' equity.......... 23,582 31,113 28,416 22,711 19,513
Net loss for the year ended March 29, 1998 includes i) $1.8 million of charges resulting from valuation adjustments for inventory being carried in excess of normal replacement cost and the discontinuation of certain products, ii) acquired in process research and development costs totaling $6.1 million, and the write down of goodwill and other intangible assets totaling $963,000, related to the Company's 1998 acquisition of WED, and iii) approximately $500,000 of expenses related to the layoff of 40 employees. The earnings per share amounts prior to fiscal 1998 have been restated as required to comply with Statement of Financial Accounting Standards No. 128, "Earnings Per Share". (See Notes to Consolidated Financial Statements.) 12 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS -- FISCAL 1998 VERSUS FISCAL 1997 Net sales for fiscal 1998 increased 29% to $44.2 million from $34.3 million in fiscal 1997. The increase in net sales resulted from a 34% increase in units shipped during fiscal 1998 compared to fiscal 1997 offset in part by a decrease in average selling price of equipment resulting from large quantity order discounts earned by customers during fiscal 1998. Although unit sales increased in each of the first three quarters of fiscal 1998 from the previous quarter, unit sales declined 10% in the fourth quarter compared to the third quarter of fiscal 1998 as a result of a drop in the demand for semiconductors and semiconductor capital equipment experienced in the fourth quarter. International sales declined to 36% of net sales in fiscal 1998 compared to 52% of sales in the prior fiscal year. International sales, which represented approximately 46% of sales through the third quarter of fiscal 1998, decreased substantially to 20% of sales in the fourth quarter as orders from countries in the Far East slowed. As noted above, the Company began experiencing declining bookings and, as a result, lower net sales in the fourth quarter of fiscal 1998 as a result of adverse market conditions in the semiconductor industry. The Company expects that such market conditions will continue into the foreseeable future and as a result, will unfavorably impact bookings and net sales levels for some period of time. (See Liquidity and Capital Resources) Gross profit for fiscal 1998 was $17.5 million, or 40% of net sales, compared to $16.2 million, or 47% of net sales, in fiscal 1997. Fiscal 1998 gross profit was impacted by a special charge, recorded in the fourth quarter, of $1.8 million, or 4% of net sales, resulting from valuation adjustments for VT8000 inventory being carried in excess of normal replacement cost, and to a lesser extent, the discontinuation of certain product lines. Excluding the special charge, fiscal 1998 gross profit was $19.3 million, or 44% of net sales, a decrease of 3% from the prior fiscal year gross profit margin percentage. The decrease in gross margin percentage was a result of higher than normal discount rates earned by customers on larger quantity orders shipped during fiscal 1998, a shift in product mix away from older product lines with higher gross margins and manufacturing excess capacity experienced in the fourth quarter of fiscal 1998. Research and development costs increased approximately 30% to $6.8 million in fiscal 1998 from $5.2 million in fiscal 1997. Research and development costs were 15% of net sales in both fiscal years. The increase in such spending resulted from the addition of WED in the first quarter of fiscal 1998 (see Note L to the Consolidated Financial Statements), and the hiring of additional engineering personnel and procurement of prototype material for continuing development projects. Selling, general and administrative expenses increased 56% to $13.0 million in fiscal 1998 from $8.4 million in fiscal 1997. As a percentage of net sales, selling, general and administrative expenses increased to 29% of net sales in fiscal 1998 compared to 24% of net sales in fiscal 1997. Selling, general and administrative expenses were affected by a special charge of $1.5 million recorded in the fourth quarter of fiscal 1998. Components of the special charge were $963,000 related to the writedown of certain intangible assets associated with the acquisition of WED, as discussed below, and approximately $500,000 related to costs associated with the layoff of 40 employees. Excluding the special charge, selling, general and administrative expense for fiscal 1998 was $11.5 million or 26% of net sales. The balance of the increase in selling, general and administrative expenses was a result of the addition of WED in the first quarter of fiscal 1998, increased promotional and trade show costs related to the VT8000 introduction, increased costs of travel, an increase to the bad debt reserve to cover potential exposure in accounts receivable on Far East shipments and costs related to the establishment of a new sales and service office in Singapore. The Company's initial allocation of purchase price at the date of its acquisition of WED resulted in an estimate of acquired in-process research and development of $4.9 million, and developed technology, goodwill 13 and other intangibles totaling $3.0 million. However, during 1998, the Company determined that certain acquired technology was not as developed as originally expected, and certain in-process technology would require more time to develop than originally anticipated. At the end of fiscal 1998, the Company completed the allocation of the purchase price and estimated the fair values of the acquired in-process research and development, developed technology, goodwill and other intangibles using estimated future discounted cash flows. The final allocation resulted in an additional in-process research and development charge of $1.2 million recorded in the fourth quarter, resulting in an aggregate year to date charge of $6.1 million. The acquired in-process research and development had not yet reached technological feasibility and had no alternative future use. The Company estimates that $1.2 million will be expensed over the next three years in connection with the completion of acquired research and development. Since WED incurred operating losses in fiscal 1998 which were not originally anticipated, the year end assessments for developed technology and related goodwill indicated that the amounts originally recorded for these assets would not be recovered and thus were impaired. Therefore, these assets were written down to their estimated fair values, resulting in a separate fourth quarter charge of $963,000, which is included in selling, general and administrative expenses in the accompanying statement of operations. As a result of the above, the Company generated an operating loss of $8.4 million for fiscal 1998 (including $9.4 million of fiscal 1998 special charges) compared to operating income of $2.6 million for fiscal 1997. Other income, net consists principally of interest income earned on cash and cash equivalents which decreased in fiscal 1998 because of the lower average cash balance maintained during the year after the acquisition of WED. The Company recorded a tax benefit of $139,000 in fiscal 1998 compared to a tax provision of $1.0 million in fiscal 1997. The Company's tax rate was affected by the inability to offset losses incurred by WED against income earned in the United States and the write-off of acquired in process research and development and goodwill associated with the acquisition of WED, both of which are not deductible for tax purposes. Furthermore, the Company recorded a valuation allowance principally representing net operating loss carryforwards and other deferred tax assets at WED which the Company does not deem the realization of these assets to be more likely than not. The effective tax rate for fiscal 1997 was 30%. Net loss for fiscal 1998 was $8.1 million, or $2.20 per diluted share, compared to net income for fiscal 1997 of $2.3 million, or $.62 per diluted share. RESULTS OF OPERATIONS -- FISCAL 1997 VERSUS FISCAL 1996 Net sales for fiscal 1997 decreased 17% to $34.3 million from $41.6 million in fiscal 1996. The decrease resulted primarily from a reduction in unit shipments due to an industry wide slowdown in the semiconductor market during fiscal 1997. International sales, which increased 2.5% during fiscal 1997 to $17.8 million from $17.4 million in fiscal 1996, represented approximately 52% of net sales in fiscal 1997 versus 42% in fiscal 1996. Sales in the Pacific Rim region were particularly strong, representing 83% of all international sales. Gross profit for fiscal 1997 was $16.2 million, or 47% of net sales, compared to $20.4 million, or 49% of net sales, in fiscal 1996. The decrease in gross profit as a percentage of net sales resulted from a reduction in manufacturing overhead spending which was disproportionate with the reduction in units produced during fiscal 1997. Although cost control measures, including a reduction in workforce and discretionary spending constraints, were made early in fiscal 1997, the savings realized were partially offset by spending on operation infrastructure enhancements incurred to enable the Company to respond effectively to production demands in the future. Research and development costs increased 10% to $5.2 million in fiscal 1997 from $4.7 million in fiscal 1996. As a percentage of net sales, research and development costs were 15% and 11% in fiscal 1997 and fiscal 14 1996, respectively. Research and development spending in fiscal 1997 focused primarily on the development of a new test handler system design and the enhancement of existing products through additional automation and product versatility through additional conversion kits. Selling, general and administrative expenses for fiscal 1997 decreased approximately 10% to $8.4 million from $9.3 million in fiscal 1996. As a percentage of net sales, selling, general and administrative costs were 24% and 22% during fiscal 1997 and 1996, respectively. The decrease in selling, general and administrative expenses resulted primarily from a decrease in sales commissions earned during the year. The decrease in commission expense resulted from both the decrease in net sales and a decrease in commission rates resulting from the Company's efforts to transition more customers to a direct sales relationship. The decrease in selling, general and administrative costs were partially offset by spending incurred to support the installation of the Company's new business information system. As a result of the above, operating income for fiscal 1997 declined 59% to $2.6 million from $6.4 million in fiscal 1996. Other income, net of $668,000 in fiscal 1997 and $549,000 in fiscal 1996 was derived primarily from interest income earned on cash and cash equivalents. The Company's effective tax rate for fiscal 1997 was 30.5% compared to 36.6% in fiscal 1996. The fiscal 1997 tax rate was lower than the fiscal 1996 rate principally because of a higher percentage of net sales coming from international markets and a greater R&D tax credit which resulted as the Company accelerated its spending on certain qualified development expenses. Net income for fiscal 1997 decreased 48% to $2.3 million, or $.62 per share with 3,717,000 weighted average shares outstanding, from $4.4 million, or $1.17 per share with 3,776,000 weighted average shares outstanding, in fiscal 1996. LIQUIDITY AND CAPITAL RESOURCES The Company's cash position at the end of fiscal 1998 was $4.4 million compared to $14.1 million at the end of fiscal 1997. Additionally, the Company had an unsecured line of credit with a bank in the amount of $5.0 million against which there were no borrowings at the end of fiscal 1998. The Company's largest single use of cash during the year was for the purchase of its wafer automation equipment subsidiary, WED, for approximately $6.1 million in the first quarter of fiscal 1998. (See Note L to the Consolidated Financial Statements.) The Company used approximately $1.4 million in cash for operating activities during fiscal 1998. The primary working capital factors affecting cash from operations were inventory levels, accounts receivable, and accounts payable and accrued expenses. During fiscal 1998, inventory levels increased by approximately $4.6 million, offset by a fourth quarter fiscal 1998 special charge of $1.8 million related to lower of cost or market issues with VT8000 inventory and the discontinuation of certain products. The increase in inventory resulted from the addition of WED in the first quarter of fiscal 1998, the receipt of inventory for the initial quantity build of the VT8000 and an increase in finished units built in anticipation of receipt of machine orders in the fourth quarter of fiscal 1998 which did not book. Accounts receivable were relatively comparable with the prior year despite the 29% increase in net sales in fiscal 1998 versus fiscal 1997, driving days sales in accounts receivable down to 75 days at the end of fiscal 1998 compared to 97 at the end of fiscal 1997. Accounts payable and accrued expenses increased during the fiscal year as a result of the increase in business volume in fiscal 1998 and, to a lesser extent, the first quarter addition of WED. The Company used approximately $2.1 million in cash during fiscal 1998 to fund the acquisition of capital equipment which included a new enterprise-wide management information system and additions of equipment used in the manufacturing and engineering areas and internal software development costs. 15 The Company generated cash from financing activities in fiscal 1998 of approximately $450,000 from employee stock purchases under the Company's employee stock option and stock purchase plans and used approximately $477,000 to pay down a line of credit which the Company assumed with the purchase of WED. The Company expects to continue to experience a slowdown in the volume of business due to adverse market conditions in the semiconductor industry. However, the Company intends to reduce further its expenses to a level consistent with its projected lower net sales. Although the Company anticipates that it will incur losses in future quarters which will negatively impact its liquidity position, the Company believes that funds generated from operations, existing cash balances and available borrowing capacity will be sufficient to meet the Company's cash requirements at least through the end of fiscal 1999. IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS In July 1997, the Financial Accounting Standards Board issued Statement No. 130 (SFAS 130) "Reporting Comprehensive Income" which establishes standards for reporting and display of comprehensive income and its components in a full set of general-purpose financial statements. Under this standard, certain revenues, expenses, gains and losses recognized during the period are included in comprehensive income, regardless of whether they are considered to be results of operations of the period. SFAS 130, which becomes effective for the Company in the first quarter of fiscal 1999, is not expected to have a material impact on the consolidated financial statements of the Company. Presently, the only additional item to be included in comprehensive income is the Company's cumulative translation adjustment. In June 1997, the Financial Accounting Standards Board issued Statement No. 131 (SFAS 131) "Disclosures About Segments of an Enterprise and Related Information" which establishes standards for the way that public companies report selected information about operating segments in annual financial statements and requires that those companies report selected information about operating segments in interim financial reports to shareholders. It also establishes standards for related disclosures about products and services, geographic areas and major customers. This statement becomes effective for the Company in the first quarter of fiscal 1999. The Company is in the process of assessing the impact of SFAS 131 on its footnote disclosures. YEAR 2000 COMPLIANCE Historically certain computer programs have been written using two digits rather than four to define the applicable year, which could result in a computer recognizing a date using "00" as the year 1900 rather than the year 2000. This, in turn, could result in major system failures or miscalculations, and is generally referred to as the "Year 2000 Problem". The Company is in the process of implementing a new enterprise-wide management information system that the vendor has represented is Year 2000 compliant. In addition, the Company has completed an initial assessment of other software used by the Company for Year 2000 compliance. The Company also reviews each of its new hardware and software purchases to ensure that they are Year 2000 compliant. Based on the foregoing, the Company believes that the computer systems used by it are Year 2000 compliant or will become Year 2000 compliant without materially and adversely affecting the Company's financial position or results of operations. However, there can be no assurance that the Company will not be materially and adversely affected by the failure of its significant vendors or customers to successfully and timely achieve Year 2000 compliance with respect to their own computer systems. The impact of inflation on the Company's business during the past three fiscal years has not been significant. Cautionary Statement for Purposes of "Safe Harbor" Provisions of the Private Securities Litigation Reform Act of 1995 This Annual Report on Form 10K contains forward-looking statements relating to future events or the future financial performance of the Company, including but not limited to statements contained in Item 1 16 - --"BUSINESS," Item 2--"PROPERTIES" and Item 7--"MANAGEMENTS' DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS". Readers are cautioned that such statements, which maybe identified by words including "anticipates," "believes," "intends," "estimates," "plans," and other similar expressions, are only predictions or estimations and are subject to known and unknown risks and uncertainties, over which the Company has little or no control. In evaluating such statements, readers should consider the various factors identified below which could cause actual events, performance or results to differ materially from those indicated by such statements. Semiconductor Market Fluctuations--The semiconductor market has historically been cyclical and subject to significant economic downturns at various times, which often have a disproportionate effect on manufacturers of semiconductor capital equipment. As a result, there can be no assurance that the Company will not experience material fluctuations in future quarterly or annual operating results as a result of such a market fluctuation. The semiconductor industry in recent periods has experienced decreased demand, and it is uncertain how long these conditions will continue. Integration of WED--In May 1997 the Company acquired WED, a maker of integrated circuit wafer handling and inspection systems. The process of integrating WED's business into the Company has and may continue to result in ongoing and extraordinary operating difficulties and expenditures, has and may continue to absorb significant management attention that would otherwise be available for ongoing development of the Company's business and has and may continue to result in charges to operating results. In addition, there are certain risks inherent in the fact that prior to the acquisition of WED, the Company had limited direct experience with the market for integrated circuit wafer handling and inspection systems. Variability in Quarterly Operating Results--During each quarter, the Company customarily sells a limited number of systems, thus a change in the shipment of a few systems in a quarter can have a significant impact on results of operations for a particular quarter. To achieve sales objectives, the Company must generally obtain orders for systems to be shipped in the same quarter in which the order is obtained. Moreover, customers may cancel or reschedule shipments with limited or no penalty, and production difficulties could delay shipments. Accordingly, the Company's operating results are subject to significant variability from quarter to quarter and could be adversely affected for a particular quarter if shipments for that quarter were lower than anticipated. Moreover, since the Company ships a significant quantity of products at or near the end of each quarter, the magnitude of fluctuation is not known until late in or at the end of any given quarter. New Product Introductions--The Company's success depends in part on its continued ability to develop and market new products. There can be no assurance that the Company will be able to develop and introduce new products including, in particular, continued iterations of its newest belt-conveyance test handler, in a timely manner or that such products, if developed, will achieve market acceptance. Additionally there can be no assurance that the Company will be able to manufacture such products at profitable levels or in sufficient quantities to meet customer requirements. The inability of the Company to do any of the foregoing could have a material adverse effect on the Company's operating results. International Operations--In fiscal 1998, 36% of the Company's net sales were derived from customers in international markets. The Company is therefore subject to certain risks common to many export activities, such as governmental regulations, export license requirements, air transportation disruptions, freight rates and the risk of imposition of tariffs and other trade barriers. A portion of the Company's international sales are invoiced in foreign currencies and, accordingly, are subject to fluctuating currency exchange rates. As such there can be no assurance that the Company will be able to protect its position by hedging its exposure to currency exchange rate fluctuations. Competition--The markets for the Company's products are highly competitive. The Company's competitors include a number of established companies that have significantly greater financial, technical, manufacturing and marketing resources than the Company. The Company also competes with a number of smaller companies. There can be no assurance that the Company will be able to compete successfully against current and future sources of 17 competition or that the competitive pressures faced by the Company will not adversely effect its profitability or financial performance. Customer Concentrations--Although the Company has a growing customer base, from time to time, an individual customer may account for 10% or more of the Company's quarterly or annual net sales. During the year ended March 29, 1998, two customers accounted for 23% and 16% of net sales, respectively. The Company expects that such customer concentration of net sales will continue to occur from time to time as customers place large quantity orders with the Company. As a result, the loss of, or significant reduction in purchases by, any such customer could have an adverse effect on the Company's annual or quarterly financial results. Investments in Research & Development and Selling General & Administrative Expenses--The Company is currently investing in specific time-sensitive strategic programs related to both the research and development and selling, general and administrative areas which the Company believes are critical to its future ability to compete effectively in the market. As such the Company plans to continue to invest in such programs at a planned rate and not to reduce or limit the increase in such expenditures until such programs are completed. As a result there can be no assurance that such expenditures will not adversely affect the Company's quarterly or annual profitability or financial performance. Reliance on Third Party Distribution Channels--The Company markets and sells its products primarily through third-party manufacturers' representative organizations which are not under the direct control of the Company. The Company has limited internal sales personnel. A reduction in the sales efforts by the Company's current manufacturers' representatives or a termination of their relationships with the Company could adversely affect the Company's operations and financial performance. There can be no assurance that the Company will be able to retain its current manufacturers' representatives or its distribution channels by selling directly through its sales employees or enter into arrangements with new manufacturers' representatives. Dependence on Key Personnel--The Company's success depends to a significant extent upon a number of senior management and technical personnel. These persons are not bound by employment agreements. The loss of the services of a number of these key persons could have a material adverse effect on the Company. The Company's future success will depend in large part upon its ability to attract and retain highly skilled technical, managerial and marketing personnel. Competition for such personnel in the Company's industry is intense. Although the Company has been successful to date in this endeavor, there can be no assurance that the Company will continue to be successful in attracting and retaining the personnel it requires to successfully develop new and enhanced products and to continue to grow and operate profitably. Dependence on Proprietary Technology--The Company's success is dependent upon proprietary software and hardware which the Company protects primarily through patents and restrictions on access to its trade secrets. There can be no assurance that the steps taken by the Company to protect its proprietary rights will be adequate to prevent misappropriation of its technology or independent development by others of similar technology. Although the Company believes that its products and technology do not infringe any existing proprietary rights of others, the use of patents to protect software and hardware has increased and there can be no assurance that third parties will not assert infringement claims against the Company in the future. 18 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX TO CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS INCLUDED IN ITEM 8:
PAGE ---- Report of Independent Auditors............................................. 20 Consolidated Balance Sheets as of March 29, 1998 and March 30, 1997............................................................ 21 Consolidated Statements of Operations for the years ended March 29, 1998, March 30, 1997, and March 31, 1996.................. 22 Consolidated Statements of Changes in Stockholders' Equity for the years ended March 29, 1998, March 30, 1997, and March 31, 1996........................................ 23 Consolidated Statements of Cash Flows for the years Ended March 29, 1998, March 30, 1997, and March 31, 1996.................. 24 Notes to Consolidated Financial Statements................................. 25 Supplementary Quarterly Financial Data (unaudited)......................... 34
19 REPORT OF INDEPENDENT AUDITORS The Board of Directors and Stockholders Aseco Corporation We have audited the accompanying consolidated balance sheets of Aseco Corporation as of March 29, 1998 and March 30, 1997, and the related consolidated statements of operations, changes in stockholders' equity and cash flows for each of the three years in the period ended March 29, 1998. Our audits also included the financial statement schedule listed in the Index at Item 14(a). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule 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, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Aseco Corporation at March 29, 1998 and March 30, 1997 and the consolidated results of its operations and its cash flows for each of the three years in the period ended March 29, 1998 in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. Ernst & Young LLP Boston, Massachusetts May 8, 1998 20 ASECO CORPORATION CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
MARCH 29, MARCH 30, 1998 1997 --------- --------- ASSETS Current assets Cash and cash equivalents................................ $ 4,431 $14,082 Accounts receivable, less allowance for doubtful accounts of $781 in 1998 and $407 in 1997........................ 9,140 9,153 Inventories, net......................................... 11,875 9,238 Prepaid expenses......................................... 533 273 Deferred taxes........................................... 1,603 1,003 Other current assets..................................... 625 138 ------- ------- Total current assets................................... 28,207 33,887 Plant and equipment, less accumulated depreciation and amortization.............................................. 4,041 2,227 Other assets, net.......................................... 1,443 526 ------- ------- $33,691 $36,640 ======= ======= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Accounts payable......................................... $ 4,591 $ 2,091 Accrued expenses......................................... 4,886 2,608 Income taxes payable..................................... -- 321 Current portion of capital lease obligations............. 13 13 ------- ------- Total current liabilities.............................. 9,490 5,033 Deferred taxes payable..................................... 594 465 Long-term capital lease obligations........................ 25 29 Stockholders' equity Preferred stock, $.01 par value, 1,000,000 shares authorized, none issued and outstanding................. -- -- Common stock, $.01 par value: 15,000,000 shares authorized, 3,731,718 and 3,664,519 shares issued and outstanding in 1998 and 1997, respectively.............. 38 37 Additional paid in capital................................. 18,203 17,642 Retained earnings.......................................... 5,291 13,434 Foreign currency translation adjustment.................... 50 -- ------- ------- Total stockholders' equity............................. 23,582 31,113 ------- ------- $33,691 $36,640 ======= =======
See notes to consolidated financial statements. 21 ASECO CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
YEAR ENDED ---------------------------------- MARCH 29, MARCH 30, MARCH 31, 1998 1997 1996 ---------- ---------- ---------- Net sales................................. $ 44,246 $ 34,320 $ 41,569 Cost of sales............................. 26,761 18,113 21,174 ---------- ---------- ---------- Gross profit............................ 17,485 16,207 20,395 Research and development costs.......... 6,773 5,227 4,748 Selling, general and administrative expenses............................... 13,023 8,357 9,250 Acquired in process research and development costs...................... 6,100 -- -- ---------- ---------- ---------- Income (loss) from operations........... (8,411) 2,623 6,397 Other income (expense): Interest income......................... 309 664 560 Interest expense........................ (119) (7) (14) Other, net.............................. (61) 11 3 ---------- ---------- ---------- 129 668 549 ---------- ---------- ---------- Income (loss) before income taxes......... (8,282) 3,291 6,946 Income tax expense (benefit).............. (139) 1,003 2,540 ---------- ---------- ---------- Net income(loss).......................... $ (8,143) $ 2,288 $ 4,406 ========== ========== ========== Earnings (loss) per share, basic.......... $ (2.20) $ .63 $ 1.24 ========== ========== ========== Shares used to compute earnings (loss) per share, basic............................. 3,695,000 3,640,000 3,542,000 Earnings (loss) per share, diluted........ $ (2.20) $ .62 $ 1.17 ========== ========== ========== Shares used to compute earnings (loss) per share, diluted........................... 3,695,000 3,717,000 3,776,000
See notes to consolidated financial statements. 22 ASECO CORPORATION CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (IN THOUSANDS, EXCEPT SHARE DATA)
COMMON STOCK FOREIGN --------------- ADDITIONAL CURRENCY PAR PAID-IN RETAINED TRANSLATION SHARES VALUE CAPITAL EARNINGS ADJUSTMENT TOTAL --------- ----- ---------- -------- ----------- ------- BALANCE AT APRIL 2, 1995................... 3,437,380 $34 $15,937 $6,740 $-- $22,711 Issuance of shares under stock plans............ 174,121 2 634 -- -- 636 Tax benefit from exercise of stock options................ -- -- 663 -- -- 663 Net income.............. -- -- -- 4,406 -- 4,406 --------- --- ------- ------ ---- ------- BALANCE AT MARCH 31, 1996................... 3,611,501 36 17,234 11,146 -- 28,416 Issuance of shares under stock plans............ 53,018 1 344 -- -- 345 Tax benefit from exercise of stock options................ -- -- 64 -- -- 64 Net income.............. -- -- -- 2,288 -- 2,288 --------- --- ------- ------ ---- ------- BALANCE AT MARCH 30, 1997................... 3,664,519 37 17,642 13,434 -- 31,113 Issuance of shares under stock plans............ 67,199 1 449 -- -- 450 Tax benefit from exercise of stock options................ -- -- 112 -- -- 112 Net loss................ -- -- -- (8,143) -- (8,143) Foreign currency translation adjustment............. -- -- -- -- 50 50 --------- --- ------- ------ ---- ------- BALANCE AT MARCH 29, 1998................... 3,731,718 $38 $18,203 $5,291 $ 50 $23,582 ========= === ======= ====== ==== =======
See notes to consolidated financial statements. 23 ASECO CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
YEAR ENDED ----------------------------- MARCH 29, MARCH 30, MARCH 31, 1998 1997 1996 --------- --------- --------- Operating activities: Net income (loss)............................. $(8,143) $ 2,288 $ 4,406 Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activ- ities: Depreciation................................ 1,238 776 558 Amortization................................ 484 166 221 Deferred taxes.............................. (471) (310) 4 Lower of cost or market and other inventory adjustments................................ 1,777 -- -- Acquired in process research and development costs and write down of goodwill and other intangibles................................ 7,063 -- -- Changes in assets and liabilities: Accounts receivable........................... 639 3,193 (3,371) Inventories, net.............................. (4,595) (2,179) 626 Prepaid expenses.............................. (33) (61) 36 Accounts payable and accrued expenses......... 1,296 (2,665) 1,808 Income taxes payable.......................... (184) (91) 544 Other current assets.......................... (469) (84) 171 Other assets, net............................. -- 9 -- ------- ------- ------- Total adjustments......................... 6,745 (1,246) 597 ------- ------- ------- Cash (used in) provided by operating activities............................... (1,398) 1,042 5,003 Investing activities: Acquisition, net of cash acquired............. (6,079) -- -- Acquisition of machinery and equipment........ (1,768) (992) (728) Proceeds from sale of machinery and equipment.................................... 17 -- -- Increase in software development costs........ (383) (243) (117) ------- ------- ------- Cash used in investing activities......... (8,213) (1,235) (845) Financing activities: Loan to officer............................... -- (140) -- Net proceeds from issuance of common stock.... 450 345 636 Reduction of borrowings of working line of capital...................................... (477) -- -- Reductions of capital lease obligations....... (15) (13) (12) ------- ------- ------- Cash (used in) provided by financing activities............................... (42) 192 624 ------- ------- ------- Effect of exchange rate changes........... 2 -- -- Net increase (decrease) in cash and cash equivalents.............................. (9,651) (1) 4,782 Cash and cash equivalents at the beginning of the year....................................... 14,082 14,083 9,301 ------- ------- ------- Cash and cash equivalents at the end of the year........................................... $ 4,431 $14,082 $14,083 ======= ======= =======
See notes to consolidated financial statements 24 ASECO CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (ALL TABULAR AMOUNTS IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS) NOTE A--NATURE OF BUSINESS Aseco Corporation (the "Company") designs, manufactures and markets test handlers used to automate the testing of surface mount integrated circuits, integrated circuit lead inspection equipment and wafer handling and wafer inspection equipment. The Company markets its products principally in North America, the Asia Pacific region and Western Europe and sells its products principally to integrated circuit manufacturers. NOTE B--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation: The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany balances and transactions are eliminated. Use of Estimates: The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. Cash and Cash Equivalents: The Company considers all highly liquid investments with maturities of three months or less at the time of purchase to be cash equivalents. The Company invests its excess cash in high quality commercial paper ($0 at March 29, 1998 and $7,213,000 at March 30, 1997) and money market funds ($885,000 at March 29, 1998 and $1,943,000 at March 30, 1997), all of which are cash equivalents as of fiscal year end. Management determines the appropriate classification of these investments at the time of purchase as either held-to-maturity, available-for-sale or trading and re-evaluates such designation at each balance sheet date. Given the short-term nature of the Company's investments at March 29, 1998 and their availability for use in the Company's current operations, these amounts are considered to be available- for-sale. Available-for-sale securities are carried at fair market value and unrealized gains or losses are reported as a separate component of stockholders' equity. At March 29, 1998 and March 30, 1997, the cost of the Company's investments in cash equivalents approximated their fair market value. Inventories: Inventories are stated at the lower of cost or market, using the first-in, first-out method to determine cost. Plant and Equipment: Plant and equipment are stated at cost. Depreciation is provided using the straight-line method over the estimated useful lives of the applicable assets which are generally three to seven years. Leasehold improvements and equipment under capital leases are being amortized over the lives of the leases. The Company adopted Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" effective as of the beginning of fiscal 1997. This adoption had no material affect on the Company's financial statements. Intangible Assets and Goodwill: The Company has certain intangible assets including software development costs, developed technology and goodwill. The Company amortizes these assets over their estimated useful lives as follows: Software development costs....................................... 3 years Developed technology, goodwill and others........................ 15 years
25 ASECO CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Accumulated amortization associated with these assets was $1,604,000 and $151,000 at March 29, 1998 and March 30, 1997, respectively. In determining the value of impaired goodwill, the Company has adopted the use of estimated future discounted cash flows as the method for estimating the related write- down. Warranty Costs: Estimated warranty costs are accrued upon shipment of product. Revenue Recognition: Revenue is recognized generally upon shipment of product, and when special contractual criteria apply, upon acceptance. Earnings Per Share: In the third quarter of fiscal 1998, the Company adopted Statement of Financial Accounting Standards No. 128 "Earnings Per Share" (SFAS 128) which replaced the previously reported primary and fully diluted earnings per share with basic and diluted earnings per share. Unlike primary earnings per share, basic earnings per share excludes the dilutive effects of options, warrants, and convertible securities. Diluted earnings per share is very similar to the previously reported fully diluted earnings per share. All earnings per share amounts for all periods have been presented, and where necessary, restated to conform to the SFAS 128 requirements. The effect of dilutive stock options on the total shares used to compute diluted earnings per share was 77,000 in fiscal 1998 and 234,000 in fiscal 1997. Stock Based Compensation: The Company has elected to follow Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25) and related Interpretations in accounting for its stock-based compensation plans, rather than the alternative fair value accounting provided for under Financial Accounting Standards Board Statement No. 123, "Accounting for Stock-Based Compensation." Under ABP 25, for those options granted in which the exercise price equals or exceeds the market price of the underlying stock on the date of grant, no compensation expense is recognized. Recent Accounting Pronouncements: In July 1997, the Financial Accounting Standards Board issued Statement No. 130 (SFAS 130) "Reporting Comprehensive Income" which establishes standards for reporting and display of comprehensive income and its components in a full set of general-purpose financial statements. Under this standard, certain revenues, expenses, gains and losses recognized during the period are included in comprehensive income, regardless of whether they are considered to be results of operations of the period. SFAS 130, which becomes effective for the Company in the first quarter of fiscal 1999, is not expected to have a material impact on the consolidated financial statements of the Company. Presently, the only additional item to be included in comprehensive income is the Company's cumulative translation adjustment. In June 1997, the Financial Accounting Standards Board issued Statement No. 131 (SFAS 131) "Disclosures About Segments of an Enterprise and Related Information" which establishes standards for the way that public companies report selected information about operating segments in annual financial statements and requires that those companies report selected information about operating segments in interim financial reports to shareholders. It also establishes standards for related disclosures about products and services, geographic areas and major customers. This statement becomes effective for the Company in the first quarter of fiscal 1999. The Company is in the process of assessing the impact of SFAS 131 on its footnote disclosures. NOTE C--INVENTORIES, NET Net inventories consisted of the following:
MARCH 29, MARCH 30, 1998 1997 --------- --------- Raw materials............................................ $ 5,612 $4,996 Work in process.......................................... 4,712 1,612 Finished goods........................................... 1,551 2,630 ------- ------ $11,875 $9,238 ======= ======
26 ASECO CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE D--PLANT AND EQUIPMENT Plant and equipment consisted of the following:
MARCH 29, MARCH 30, 1998 1997 --------- --------- Machinery and equipment.................................. $4,365 $2,289 Office furniture and equipment........................... 3,602 2,203 Property under capital lease............................. 578 578 Leasehold improvements................................... 251 109 ------ ------ 8,796 5,179 Less accumulated depreciation and amortization........... 4,755 2,952 ------ ------ $4,041 $2,227 ====== ======
During the year ended March 29, 1998, the Company transferred approximately $790,000 of equipment from inventory to fixed assets for use as manufacturing test equipment. NOTE E--INDEBTEDNESS The Company has a revolving credit facility with a bank which expires on September 1, 1998. Under the facility, the Company may borrow up to $5,000,000 on an unsecured basis, conditioned upon meeting certain financial covenants, including maintaining specified levels of quarterly and annual earnings, tangible net worth and restrictions on dividend payments. Borrowings bear interest at the bank's prime rate which was 8.5% at March 29, 1998. There were no borrowings outstanding at March 29, 1998 and March 30, 1997. Cash payments of interest were approximately $119,000, $7,000, and $14,000 for the years ended March 29, 1998, March 30, 1997, and March 31, 1996 respectively. NOTE F--LEASES The Company leases a building in Marlboro, Massachusetts for its corporate and test handler manufacturing activities. The Company also leases facilities in Plymouth, England for its wafer handling and inspection manufacturing activities and sales offices in Santa Clara, California and Singapore. The operating lease for the Massachusetts facility expires in the year 2000, subject to the Company's option to extend the term for an additional three- year period. Rent expense for this lease is approximately $350,000 per year. In addition, the lease is subject to escalation for increases in operating expenses and real estate taxes. The operating lease for the Company's facility in Plymouth, England expires in November 2002, subject to the Company's option to extend the term through 2012. Rent expense for the lease is approximately $109,000 per year through December 1999 and $150,000 per year through December 2002. The Company also leases equipment under capital and non-cancelable operating leases expiring through the year 2001. The following is a schedule of required minimum lease payments under capital and operating leases at March 29, 1998:
CAPITAL OPERATING LEASES LEASES ------- --------- 1999....................................................... $27 $ 569 2000....................................................... 13 583 2001....................................................... -- 210 2002....................................................... -- 152 2003....................................................... -- 101 --- ------ Total minimum lease payments............................... 40 $1,615 ====== Less amounts representing interest......................... (2) --- Present value of minimum lease payments.................... $38 ===
27 ASECO CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Total rent expense for the years ended March 29, 1998, March 30, 1997, and March 31, 1996 was approximately $510,000, $372,000, and $450,000, respectively. NOTE G--STOCKHOLDERS' EQUITY The Board of Directors may, at its discretion, designate one or more series of preferred stock and establish the voting, dividend, liquidation, and other rights and preferences of the shares of each series, and provide for the issuance of shares of any series. At March 29, 1998, no shares of preferred stock were outstanding. NOTE H--STOCK PLANS AND EMPLOYEE BENEFITS Omnibus Stock Plan: The Company's 1993 Omnibus Stock Plan (the "Omnibus Plan") is administered by the Compensation Committee of the Board of Directors and provides for the issuance of up to 1,230,000 shares of common stock pursuant to the exercise of options or in connection with awards or direct purchases of stock. Options granted under the Omnibus Plan may be either incentive stock options or non-qualified stock options. Incentive stock options may only be granted under the Omnibus Plan to employees and officers of the Company. Non-qualified stock options may be granted to, awards of stock may be made to, and direct purchases of stock may be made by, employees, officers, consultants or directors of the Company. The terms of the awards or grants, including the number of shares, the duration and rate of exercise of each option, the option price per share, and the determination of any restrictions to be placed on the grants or awards, are determined by the Compensation Committee of the Board of Directors. Non-Employee Director Stock Option Plan: The Company's 1993 Non-Employee Director Stock Option Plan (the "Director Plan") provides for the grant of non-qualified stock options to non-employee directors of the Company for the purchase of up to an aggregate of 165,000 shares of common stock. Under the Director Plan, each non-employee director is entitled to receive, when first elected to serve as a director, an option to purchase 15,000 shares. In addition, each non-employee director is entitled to receive on April 30 of each year an option to purchase 2,500 shares. The exercise price of the options is equal to the fair market value of the underlying common stock on the date of grant. Options granted under the plan may only be exercised with respect to vested shares. One-half of the shares subject to such options vest on the first anniversary of the date of the grant and the balance vest on the second anniversary of the grant. The following is a summary of activity with respect to the Company's stock option plans:
WEIGHTED AVERAGE OPTIONS EXERCISE -------- -------- Outstanding at April 2, 1995.............................. 442,900 $ 4.59 Granted................................................. 477,000 17.76 Exercised............................................... (157,400) 3.04 Canceled................................................ (18,000) 7.17 -------- ------ Outstanding at March 31, 1996............................. 744,500 13.30 Granted................................................. 458,000 10.37 Exercised............................................... (33,400) 5.67 Canceled................................................ (449,000) 17.72 -------- ------ Outstanding at March 30, 1997............................. 720,100 8.91 Granted................................................. 317,500 9.92 Exercised............................................... (38,600) 6.16 Canceled................................................ (130,200) 10.11 -------- ------ Outstanding at March 29, 1998............................. 868,800 $ 9.33 ======== ======
28 ASECO CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) As of March 29, 1998, March 30, 1997, and March 31, 1996, there were outstanding options exercisable for approximately 538,000, 430,000, and 393,000, respectively. As of March 29, 1998, shares available for future grant were 94,000 shares in the Director Plan and 305,700 shares in the Omnibus Plan. The range of exercises prices for options outstanding at March 29, 1998 was $.29--$18.69. The range of exercise prices is wide due to the inclusion of options granted at a lower fair market value in years preceding the Company's initial public offering in March 1993. In fiscal 1997, 391,000 options outstanding under the Company's 1993 Omnibus Stock Plan having an exercise price of $18.69 per share were cancelled and 290,250 new shares were issued at a price of $10.38 per share representing the fair value on the date of issuance. All other terms of these options, including the vesting period associated with each option remained the same. The following table summarizes information about options outstanding at March 29, 1998:
WEIGHTED WEIGHTED WEIGHTED AVERAGE RANGE OF OPTIONS AVERAGE OPTIONS AVERAGE CONTRACTUAL XERCISE PRICESE OUTSTANDING PRICE EXERCISABLE PRICE LIFE - --------------- ----------- -------- ----------- -------- ----------- $ .29-$ .48............ 1,000 $ .38 1,000 $ .38 2 Years $ 5.38-$ 9.94............ 498,200 $ 8.12 275,000 $ 6.75 6 Years $10.38-$18.69............ 369,600 $10.98 262,000 $10.96 8 Years ------- ------- 868,800 538,000
Employee Stock Purchase Plan: The Company's Employee Stock Purchase Plan (the "Purchase Plan") is administered by the Board of Directors or by its designee (the "Administrator") and entitles employees of the Company to purchase shares of the Company's common stock through payroll deductions over offering periods specified by the Administrator. Shares may be purchased at a price equal to the lesser of 85% of the fair market value of the common stock on the first day of the offering period, or 85% of the fair market value of the common stock on the last day of the offering period. A total of 100,000 shares have been reserved for issuance under the Purchase Plan. During fiscal 1998 and 1997, a total of approximately 28,600 and 19,600 shares of common stock, respectively, were issued under this plan. Shares available for future grant were approximately 18,000 shares. Disclosure of pro forma information regarding net income and earnings per share is required by FASB Statement No. 123 "Accounting for Stock-Based Compensation", and has been determined as if the Company had accounted for its employee stock plans under the fair value method of that Statement. The fair value for these options was estimated at the date of grant using a Black- Scholes option pricing model with the following weighted-average assumptions for fiscal years 1998, 1997 and 1996, respectively: risk-free interest rates of 6.28%, 4.73% and 5.97%; dividend yields of 0% in all years; volatility factors of the expected market price of the Company's common stock of .475, .485 and .520; and a weighted-average expected life of the options of 4, 3 and 5 years. The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company's employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options. 29 ASECO CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) The weighted average grant date fair value of options granted during fiscal 1998, 1997 and 1996 was $4.34, $4.12 and $9.21, respectively. The weighted average grant date fair value of options associated with the Company's Employee Stock Purchase Plan for fiscal 1998, 1997 and 1996 was $1.17, $1.47 and $2.42, respectively. For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting period. The Company's pro forma information follows:
MARCH 29, MARCH 30, 1998 1997 --------- --------- Pro forma net income (loss).............................. $(9,165) $1,633 Pro forma earnings (loss) per share...................... $ (2.48) $ .44
Savings Plan: Under the Company's Savings Plan (the "401(k) Plan"), eligible employees are permitted to make pre-tax contributions up to 15% of their salary, subject to certain limitations imposed by Section 401(k) of the Internal Revenue Code. In addition, employees may contribute up to 10% of their salary to the 401(k) Plan on an after tax basis. The Company may, but is not required to, contribute for the benefit of the employees of the Company an amount determined each year by the Company. For the years ended March 29, 1998, March 30, 1997, and March 31, 1996, the Company contributed approximately $131,000, $110,000, and $80,000, respectively to the 401(k) Plan. Stockholder Rights Plan: On August 15, 1996, the Board of Directors adopted a Stockholder Rights Plan. Pursuant to the Stockholder Rights Plan, each share of common stock has an associated right. Under certain circumstances, each right entitles the holder to purchase from the Company one one-thousandth of a share of junior preferred stock at an exercise price of $55.00 per one one- thousandth of a share, subject to adjustment. The rights are not exercisable and cannot be transferred separately from the common stock until ten days after a person acquires or obtains the right to acquire 15% or more or makes a tender offer for 30% or more of the Company's common stock. Upon exercise, each right will entitle the holder to purchase, in lieu of preferred stock, at the right exercise price, common stock having a value of two times the exercise price of the right. In addition, if the Company is either (i) acquired in a merger or other business combination in which the Company is not the surviving entity, or (ii) sells or transfers 50% or more of its assets or earning power to another party, each right will entitle its holder to purchase, upon exercise, common stock of the acquiring Company having a value equal to two times the exercise price of the right. The rights have certain anti-takeover effects, in that they would cause substantial dilution to a person or group that attempts to acquire a significant interest in the Company on terms not approved by the Board of Directors. The rights expire on August 15, 2006 but may be redeemed by the Company for $.01 per right at any time prior to the tenth day following a person's acquisition of 15% or more of the Company's common stock. So long as the rights are not separately transferable, the Company will issue one right with each new share of common stock issued. 30 ASECO CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE I--INCOME TAXES Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's deferred tax liabilities and assets as of March 29, 1998 and March 30, 1997 are as follows:
1998 TOTAL CURRENT NON-CURRENT ---- ------ ------- ----------- Deferred tax liabilities: Tax over book depreciation................... $ (398) $(398) Capitalized software......................... (196) (196) Capital vs. operating lease.................. (78) $ (78) Other........................................ (32) (32) ------ ------ ----- Total deferred tax liabilities................. (704) (110) (594) Deferred tax assets: Asset valuation allowances................... 1,384 1,384 Product warranty............................. 152 152 Net operating loss carryforwards............. 571 571 Other........................................ 368 291 77 ------ ------ ----- Total deferred tax assets...................... 2,475 1,827 648 Valuation allowance for deferred tax assets.... (762) (114) (648) ------ ------ ----- Net deferred tax assets........................ 1,713 1,713 -- ------ ------ ----- Net deferred tax assets (liabilities).......... $1,009 $1,603 $(594) ====== ====== ===== 1997 TOTAL CURRENT NON-CURRENT ---- ------ ------- ----------- Deferred tax liabilities: Tax over book depreciation................... $ (308) $(308) Capitalized software......................... (157) (157) Capital vs. operating lease.................. (98) $ (98) Other........................................ (35) (35) ------ ------ ----- Total deferred tax liabilities................. (598) (133) (465) Deferred tax assets: Asset valuation allowances................... 1,013 1,013 Product warranty............................. 62 62 Other........................................ 61 61 ------ ------ Total deferred tax assets...................... 1,136 1,136 ------ ------ ----- Net deferred tax assets (liabilities).......... $ 538 $1,003 $(465) ====== ====== =====
Significant components of the provision (benefit) for income taxes are as follows:
YEAR ENDED ----------------------------- MARCH 29, MARCH 30, MARCH 31, 1998 1997 1996 --------- --------- --------- Current federal tax............................ $ 318 $1,211 $2,106 Current state tax.............................. 14 102 438 Deferred federal tax........................... (451) (258) (3) Deferred state tax............................. (20) (52) (1) ----- ------ ------ $(139) $1,003 $2,540 ===== ====== ======
31 ASECO CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) The reconciliation of income tax computed at the U.S. federal statutory rate to income tax expense is as follows:
YEAR ENDED ----------------------------- MARCH 29, MARCH 30, MARCH 31, 1998 1997 1996 --------- --------- --------- Tax at U.S. statutory rates.................. (34.0%) 34.0% 34.0% State income taxes, net of federal benefit... -- 3.1 4.6 Foreign sales corporation.................... (1.6%) (3.7) (2.7) Tax credits.................................. (.8%) (4.9) (1.1) Acquired in-process research and development................................. 25.0% -- -- Non deductible goodwill and other intangibles................................. 4.6% -- -- Unbenefitted foreign net operating losses.... 4.8% -- -- Other, net................................... .3% 2.0 1.8 ------ ---- ---- (1.7%) 30.5% 36.6% ====== ==== ====
During the year ended March 29, 1998 the Company recorded a tax benefit of approximately $112,000 related to the exercise of non-qualified stock options which amounts have been credited to additional paid-in capital. The Company has foreign net operating losses of $2,700,000 which will continue indefinitely. Of these carryforwards, $1,550,000 resulted from the acquisition of WED, which have been reserved for as part of the valuation allowance. When realized, the tax benefit for these items will be applied to reduce goodwill and other intangibles related to the acquisition. Income taxes paid in the years ended March 29, 1998, March 30, 1997, and March 31, 1996, were $827,000, $1,404,000, and $2,010,000, respectively. NOTE J--ACCRUED EXPENSES Accrued expenses consist of the following:
MARCH 29, MARCH 30, 1998 1997 --------- --------- Accrued commissions...................................... $1,199 $1,467 Accrued compensation and benefits........................ 1,215 595 Accrued warranty......................................... 823 -- Other.................................................... 1,649 546 ------ ------ $4,886 $2,608 ====== ======
During 1998 the Company accrued approximately $500,000 related to costs associated with the layoff of 40 employees, which are included in selling, general and administrative expense in the accompanying Statement of Operations. 32 ASECO CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE K--SEGMENT, GEOGRAPHIC, CUSTOMER INFORMATION AND CONCENTRATION OF CREDIT RISK The Company operates in one industry segment and in two major geographic areas. Information on the Company's industry segments and geographic operations is set forth in the table below.
MARCH 29, 1998 NET SALES OPERATING LOSS IDENTIFIABLE ASSETS -------------- --------- -------------- ------------------- Domestic Operations............. $41,855 $ (202) $29,461 European Operations............. 2,391 (8,209) 4,230 ------- ------- ------- Total......................... $44,246 $(8,411) $33,691 ======= ======= =======
Prior to fiscal 1998 the Company operated in one geographic area. Export sales from the United States were approximately as follows:
YEAR ENDED ----------------------------- MARCH 29, MARCH 30, MARCH 31, 1998 1997 1996 --------- --------- --------- Pacific Rim.................................... $13,094 $14,785 $12,845 Europe......................................... 2,697 2,512 3,567 Other.......................................... 308 528 984 ------- ------- ------- $16,099 $17,825 $17,396 ======= ======= =======
The Company sells its products principally to integrated circuit manufacturers. The Company performs periodic credit evaluations of its customers' financial condition, and historically, credit losses have been small. The Company's accounts receivable included balances owed by two customers which represented 16% and 26% of total trade accounts receivable as of March 29, 1998, and two customers which represented 11% and 18% of total trade accounts receivable as of March 30, 1997. Two customers accounted for 23% and 16% of net sales for the year ended March 29, 1998. One customer accounted for 17% of net sales for the year ended March 30, 1997. One customer accounted for 12% of net sales for the year ended March 31, 1996. NOTE L--ACQUISITION AND WRITEDOWN OF GOODWILL AND RELATED INTANGIBLES On May 23, 1997, the Company acquired 100% of the outstanding stock of Western Equipment Developments (Holdings) Ltd. ("WED"), located in Plymouth, England, for approximately $6,100,000 in cash. WED designs, manufacturers and markets integrated circuit wafer handling robot and inspection systems used to load, sort, transport and inspect wafers during the semiconductor manufacturing process. The acquisition was accounted for as a purchase and accordingly, the results of operations of the acquired business have been included in the Company's consolidated financial statements commencing May 23, 1997. The purchase price was allocated to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values. Intangible assets acquired consisting of developed technology, and acquired in-process research and development were valued using risk adjusted cash flow models under which estimated future cash flows were discounted taking into account risks related to existing and future target markets and to the completion of the products expected to be ultimately marketed by the Company, and assessments of the life expectancy of the underlying technology. The Company's initial allocation of purchase price at the date of acquisition resulted in an estimate of acquired in-process research and development of $4,900,000 and developed technology, goodwill and other intangibles totaling $3,005,000. 33 ASECO CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) However, during fiscal 1998 the Company determined that certain acquired technology was not as developed as originally expected, and certain in-process technology would require more time to develop than originally anticipated. At the end of fiscal 1998, the Company completed the allocation of the purchase price and estimated the fair values of the acquired in-process research and development, developed technology, goodwill and other intangibles using estimated future discounted cash flows. The final allocation resulted in an additional in-process research and development charge of $1,200,000 recorded in the fourth quarter, resulting in an aggregate year to date charge of $6,100,000. Since WED incurred operating losses in fiscal 1998 which were not originally anticipated, the year end assessments for developed technology and related goodwill indicated that the amounts originally recorded for these assets would not be recovered and thus were impaired. Therefore, these assets were written down to their estimated fair values, resulting in a separate fourth quarter charge of $963,000, which is included in Selling, General and Administrative expenses in the accompanying statement of operations. The following table summarizes the unaudited pro-forma consolidated results of operations as if the acquisition had been made at the beginning of each of the periods presented.
MARCH 29, MARCH 30, 1998 1997 --------- --------- Net sales............................................... $45,274 $39,303 Net loss................................................ (9,519) (4,878) Earnings (loss) per share:.............................. $ (2.58) $ (1.31)
NOTE M--RELATED PARTY TRANSACTIONS On April 15, 1996, the Company loaned $140,000 to an executive officer, who is also a director of the Company. The loan bears interest at the rate of 5.33% per annum, compounded annually, and is due and payable in full on the earlier of the termination of the executive officer's employment with the Company or April 15, 1999. The loan is secured by shares of the Company's common stock owned by the executive officer. NOTE N--SUPPLEMENTARY QUARTERLY FINANCIAL DATA (UNAUDITED) The following is a summary of unaudited quarterly results for the fiscal years ended March 29, 1998 and March 30, 1997.
FIRST SECOND THIRD FOURTH FISCAL 1998 QUARTER QUARTER QUARTER QUARTER ----------- ------- ------- ------- ------- Net sales................................. $ 8,865 $11,557 $13,551 $10,273 Gross profit.............................. 4,045 5,304 6,113 2,023 Net income (loss)......................... (4,740) 418 488 (4,309) ------- ------- ------- ------- Earnings (loss) per share, diluted........ $ (1.29) $ .11 $ .13 $ (1.16) ======= ======= ======= ======= FIRST SECOND THIRD FOURTH FISCAL 1997 QUARTER QUARTER QUARTER QUARTER ----------- ------- ------- ------- ------- Net sales................................. $11,001 $ 8,989 $ 6,722 $ 7,608 Gross profit.............................. 5,387 4,184 3,127 3,509 Net income................................ 1,275 538 234 241 ------- ------- ------- ------- Earnings per share, diluted............... $ .34 $ .15 $ .06 $ .06 ======= ======= ======= =======
34 ASECO CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) The results of the first quarter of the fiscal year ended March 29, 1998 include $4.9 million of acquired in process research and development costs related to the Company's 1998 acquisition of WED. The results of the fourth quarter of the year ended March 29, 1998 include 1) $1.8 million of charges resulting from valuation adjustments for inventory being carried in excess of normal replacement cost and the discontinuation of certain products, 2) acquired in-process research and development costs totaling $1.2 million and the writedown of goodwill and intangible assets totaling $963,000, related to the Company's 1998 acquisition of WED and 3) approximately $500,000 of expense related to the layoff of 40 employees. Earnings (loss) per share amounts for fiscal 1997 and the first two quarters of 1998 have been restated to comply with Statement of Accounting Standards No. 128, "Earnings Per Share". 35 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information required by this item is included in the Company's Proxy Statement to be filed in connection with the Company's 1998 Annual Meeting of Stockholders to be held on August 11, 1998, under the section captioned "Election of Officers" and is incorporated herein by reference thereto. The information required by this item with respect to executive officers of the Company is set forth under the caption "Executive Officers of the Registrant" in Part I of this Report on Form 10-K. ITEM 11. EXECUTIVE COMPENSATION The information required by this item is included in the Company's Proxy Statement to be filed in connection with the Company's 1998 Annual Meeting of Stockholders to be held on August 11, 1998, under the section captioned "Executive Officer Compensation" and is incorporated herein by reference thereto. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this item is included in the Company's Proxy Statement to be filed in connection with the Company's 1998 Annual Meeting of Stockholders to be held on August 11, 1998, under the section captioned "Stock Ownership of Directors, Nominees, Executive Officers and Principal Stockholders" and is incorporated herein by reference thereto. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS On April 15, 1996, the Company loaned $140,000 to Sebastian J. Sicari, a director and executive officer of the Company. The loan bears interest at the rate of 5.33% per annum, compounded annually, and is due and payable in full on the earlier of the termination of Mr. Sicari's employment with the Company or April 15, 1999. At March 29, 1998, principal and accrued interest on the loan totaled $154,846. The loan is secured by shares of the Company's common stock owned by Mr. Sicari. 36 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (A) 1. FINANCIAL STATEMENTS The following consolidated financial statements are included in Item 8: Consolidated Balance Sheets as of March 29, 1998 and March 30, 1997 Consolidated Statements of Operations for the years ended March 29, 1998, March 30, 1997, and March 31, 1996 Consolidated Statements of Changes in Stockholders' Equity for the years ended March 29, 1998, March 30, 1997 and March 31, 1996 Consolidated Statements of Cash Flows for the years ended March 29, 1998, March 30, 1997 and March 31, 1996 (A) 2. FINANCIAL STATEMENT SCHEDULES
PAGE ---- Schedule II--Valuation and Qualifying Accounts........................ F-1
All other schedules have been omitted since the required information is not present or not present in amounts sufficient to require submission of the schedule, or because the information required is included in the consolidated financial statements or the notes thereto. (A) 3. LISTING OF EXHIBITS
EXHIBIT NO. DESCRIPTION ----------- ----------- *3.2 Third Restated Certificate of Incorporation of the Company. 3.3 Amended and Restated By-laws of the Company, filed as Exhibit 4.2 to the Registration Statement on Form S-8 (SEC File No. 333-18337) filed with the Commission on December 19, 1996 and incorporated herein by reference. 4.2 Rights Agreement dated August 15, 1996 between the Company and State Street Bank & Trust Company as Rights Agent (including the exhibits thereto), incorporated by reference from the Company's Registration Statement on Form 8-A filed with the Commission on August 26, 1996. 4.3 Amendment Number One to the Rights Agreement dated January 2, 1997 between the Company and American Stock Transfer & Trust Company, filed as Exhibit 4.2 to the Company's Form 10-Q for the quarter ended December 29, 1996 and incorporated herein by reference. **10.2 1993 Non-Employee Director Stock Option Plan, as amended and restated as of October 18, 1996 *10.3 1993 Employee Stock Purchase Plan. 10.4 1993 Omnibus Stock Plan, as amended and restated as of June 14, 1996, filed as Exhibit 10.1 to the Registration Statement on Form S-8 (SEC File No. 333-18337) filed with the Commission on December 19, 1996 and incorporated herein by reference. *10.5 Lease dated April 13, 1993, between the Company and CIGNA Investments, Inc. *10.7 Letter Agreement dated November 27, 1992, between the Company and Fleet Bank of Massachusetts, N.A. 10.9 Amended Letter Agreement dated July 30, 1993, between the Company and Fleet Bank of Massachusetts, N.A., filed as an exhibit to the Company's Form 10-K for the fiscal year ended April 3, 1994 and incorporated herein by reference ***10.10 Severance agreement, dated December 30, 1996, between the Company and Carl S. Archer, Jr.
37
EXHIBIT NO. DESCRIPTION ----------- ----------- ***10.11 Severance agreement, dated December 30, 1996, between the Company and Sebastian J. Sicari ***10.12 Form of Key Employee Stock Option Agreement, filed as Exhibit 10.12 to the Company's Form 10-K for the fiscal year ended April 3, 1994 and incorporated herein by reference. 10.13 Amended Letter Agreement dated August 22, 1997, between the Company and Fleet Bank of Massachusetts, N.A., filed herewith. 10.14 Promissory Note between the Company and Sebastian J. Sicari dated April 15, 1996 and filed as Exhibit 10.13 to the Company's Form 10-Q for the quarter ended December 29, 1996. 10.15 Pledge Agreement between the Company and Sebastian J. Sicari dated April 15, 1996, filed as Exhibit 10.15 to the Company's Form 10-Q for the quarter ended December 29, 1996 and incorporated herein by reference. ***10.16 Severance agreement, dated March 18, 1997, between C. Kenneth Gray and the Company ***10.17 Severance agreement, dated December 30, 1996, between Dennis A. Legal and the Company ***10.18 Severance agreement, dated April 21, 1998, between Phillip J. Villari and the Company, filed herewith. ***10.19 Severance agreement, dated October 16, 1997, between Mary R. Barletta and the Company, filed herewith. 10.20 Share Purchase Agreement dated as of May 23, 1997 by and among the Company and each of the shareholders of Western Equipment Developments (Holdings) Limited filed as Exhibit 2.1 to the Company's Form 8-K dated May 23, 1997. 10.21 Tax Deed dated May 23, 1997 by and among the company and certain shareholders of Western Equipment Developments (Holdings) Limited filed as Exhibit 2.2 to the Company's Form 8-K dated May 23, 1997. 10.22 Escrow Agreement dated as of May 23, 1997 by and among the Company and David Carr and Philip Steven Walsh as representatives for certain shareholders of Western Equipment Developments (Holdings) Limited filed as Exhibit 2.3 to the Company's Form 8-K dated May 23, 1997. 21 Subsidiaries of the Company, filed herewith. 23.1 Consent of Ernst & Young LLP, filed herewith. 27 Financial Data Schedule, filed herewith.
- -------- * Incorporated by reference to the same exhibit number to the Registration Statement on Form S-1 (SEC File No. 33-57644) filed with the Securities and Exchange Commission on January 29, 1993. ** Incorporated by reference to the same exhibit number to the Company's Form 10K for its fiscal year ended March 30, 1997 *** Management contract or compensation plan or arrangement required to be filed as an exhibit pursuant to Item 14(c) of Form 10-K. (B) REPORTS ON FORM 8-K The Company filed no reports on Form 8-K with the Securities and Exchange Commission during the fiscal quarter ended March 29, 1998. 38 SIGNATURES PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) 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. ASECO Corporation /s/ Carl S. Archer, Jr. By: _________________________________ CARL S. ARCHER, JR. CHIEF EXECUTIVE OFFICER JUNE 29, 1998 PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED. SIGNATURE TITLE(S) DATE /s/ Carl S. Archer, Jr. Chief Executive June 29, 1998 - ------------------------------------- Officer and CARL S. ARCHER, JR. Director (Principal Executive Officer) /s/ Sebastian J. Sicari President, Chief June 29, 1998 - ------------------------------------- Operating Officer, SEBASTIAN J. SICARI Treasurer and Director /s/ Mary R. Barletta Vice President, June 29, 1998 - ------------------------------------- Chief Financial MARY R. BARLETTA Officer (Principal Financial and Accounting Officer) /s/ Dr. Sheldon Buckler Director June 29, 1998 - ------------------------------------- DR. SHELDON BUCKLER /s/ Dr. Gerald Wilson Director June 29, 1998 - ------------------------------------- DR. GERALD WILSON /s/ Dr. Sheldon Weinig Director June 29, 1998 - ------------------------------------- DR. SHELDON WEINIG
39 SCHEDULE II ASECO CORPORATION VALUATION AND QUALIFYING ACCOUNTS
TOTAL ADDITIONS --------------------- BALANCE AT CHARGES TO BEGINNING OF COSTS AND OTHER BALANCE AT CLASSIFICATION YEAR EXPENSES CHANGES(1) DEDUCTIONS END OF YEAR -------------- ------------ ---------- ---------- ---------- ----------- YEAR ENDED MARCH 29, 1998 Allowance for doubtful accounts............. $ 407,000 $ 407,000 $ 325,000 $ 358,000 $ 781,000 YEAR ENDED MARCH 30, 1997 Allowance for doubtful accounts............. $ 397,000 $ 100,000 -- $ 90,000 $ 407,000 YEAR ENDED MARCH 31, 1996 Allowance for doubtful accounts............. $ 133,000 $ 264,000 -- -- $ 397,000 YEAR ENDED APRIL 2, 1995 Allowance for doubtful accounts............. $ 78,000 $ 55,000 -- -- $ 133,000
- -------- (1) Represents the balance of the allowance for doubtful accounts of WED as of the acquisition date May 23, 1997. (See Note L to Consolidated Financial Statements.) S-1 EX-10.13 2 AMENDED LETTER AGREEMENT DATED AUGUST 22, 1997 EXHIBIT 10.13 FLEET BANK August 22, 1997 Mr. Sebastian J. Sicari Chief Financial Officer Aseco Corporation 500 Donald Lynch Boulevard Marlboro, MA 01752 Dear Sebastian: Reference is hereby made to the Letter Agreement (the "Agreement") executed by and between Aseco Corporation and Fleet National Bank (as successor to Fleet Bank of Massachusetts, N.A.) as of November 27, 1992 and amended as of July 30, 1993, August 2, 1994, August 24, 1995 and August 30, 1996. We are pleased to inform you that we have approved an extension of the Expiration Date from September 1, 1997 to September 1, 1998. Nothing herein shall be deemed to constitute a waiver, release or amendment of any other terms of the agreement. The Borrower represents and warrants that the execution of this amendment has been duly authorized by the Borrower by all necessary corporate and other action and that the execution will not conflict with, violate the provisions of, or cause a default or constitute an event which, with the passage of time or giving of notice or both, could cause a default on the part of the Borrower under its charter documents or by-laws or under any contract, agreement, law, rule, order, ordinance, franchise, instrument or other document, or result in the imposition of any lien or encumbrance on any property or asset of the Borrower. The Borrower further represents that this agreement and the attached Promissory Note each represent legal, valid and binding obligations of the Borrower, enforceable against the Borrower in accordance with their respective terms. In addition, the statements, representations and warranties made in the Agreement continue to be correct as of the date hereof and the Borrower is in compliance with all terms of the Agreement. Except as expressly affected hereby, the Agreement remains in full force and effect as heretofore. Sebastian, we are pleased to extend the Agreement and look forward to continuing our relationship with Aseco Corporation. Please sign below and execute the attached note to evidence your acceptance of this amendment. Sincerely, Thomas W. Davies Senior Vice President High Technology Group Agreed and Accepted: Sebastian J. Sicari September 3, title: Vice President and CFO 1997 Date B-1 EX-10.18 3 SEVERANCE AGREEMENT DATED APRIL 21, 1998 EXHIBIT 10.18 SEVERANCE AGREEMENT This Severance Agreement is entered into as of this 21st day of April, 1998 by and between Aseco Corporation, a Delaware corporation (the "Company"), and Phillip J. Villari (the "Employee"). Recitals: WHEREAS, the Employee is an executive officer of the Company; and WHEREAS, the Company and the Employee wish to provide for the payment of certain severance compensation by the Company to the Employee in the event the Employee's employment by the Company is terminated. NOW, THEREFORE, in consideration of the Employee's continued service to the Company and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows: 1. Definitions. "Benefit Period" shall mean the six (6)-month period following the Termination Date. "Cause" shall be deemed to exist if the Board of Directors of the Company or its successor in good faith determines, after giving the Employee notice and an opportunity to be heard, that the Employee has committed an act constituting fraud, embezzlement, larceny or theft. "Change in Control" shall mean (i) the sale, lease, transfer or other disposition by the Company of all or substantially all of its assets in a single transaction or a series of related transactions; (ii) the merger or consolidation of the Company with another entity in which the stockholders of the Company immediately prior to such merger or consolidation hold less than 50% of the outstanding voting stock of the surviving or resulting corporation immediately following such transaction; or (iii) the sale or exchange (to or with any person or entity other than the Company) by the stockholders of the Company of more than 50% of the outstanding voting stock of the Company in a single transaction or series of related transactions. "Ineligibility Period" shall mean that portion of the Benefit Period when the Employee is ineligible for coverage under the Company's group life or group health insurance policies. "Termination Date" shall mean the effective date of the termination of the Employee's employment with the Company. 2. Severance. In the event the Employee's employment by the Company is terminated without Cause by the Company or any successor within twelve (12) months following a Change in Control, the Company or such successor shall (i) pay the Employee within five days after the Termination Date a lump sum amount equal to six (6) times the Employee's monthly base salary in effect at the time of such termination (less applicable withholding taxes and FICA) and (ii) continue to provide during the Benefit Period life and health insurance coverage to the Employee, with benefits substantially comparable to those provided to executive officers of the Company generally immediately prior to such termination. Notwithstanding the foregoing, the Company shall have the right, in lieu of providing such coverage during any Ineligibility Period, to pay the Employee an amount equal to 200% of the amount it would have cost the Company to provide such coverage during any Ineligibility Period, assuming the Employee were eligible for coverage under the Company's group insurance policies and assuming further no increase in premium costs under such policies after the commencement of the Ineligibility Period. C-1 3. Miscellaneous. 3.1 This Agreement constitutes the entire agreement between the parties and supersedes all prior agreements and understandings, whether written or oral, relating to the subject matter of this Agreement. 3.2 This Agreement may be amended or modified only by a written instrument executed by both the Company and the Employee. 3.3 This Agreement shall be construed, interpreted and enforced in accordance with the laws of The Commonwealth of Massachusetts. 3.3a. Upon a "change of control" at any time after you join Aseco, the vesting of all stock options held by you shall be accelerated so that all such options shall be immediately exercisable. If your employment is terminated by the Company or its successor at any time within one year from the date of a "change of control" event, you shall be entitled to a severance amount equal to six (6) times your monthly base salary in effect at the time of such termination (less applicable withholding taxes and FICA). 3.4 This Agreement shall be binding upon and inure to the benefit of both parties and their respective successors and assigns, including any corporation with which or into which the Company may be merged or which may succeed to its assets or business. 3.5 The captions of the sections of this Agreement are for convenience of reference only and in no way define, limit or affect the scope or substance of any section of this Agreement. 3.6 In case any provision of this Agreement shall be invalid, illegal or otherwise unenforceable, the validity, legality and enforceability of the remaining provisions shall in no way be affected or impaired thereby. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year set forth above. ASECO CORPORATION By: _________________________________ President and CEO EMPLOYEE By: _________________________________ Phillip J. Villari C-2 EX-10.19 4 SEVERANCE AGREEMENT DATED OCTOBER 16, 1997 EXHIBIT 10.19 SEVERANCE AGREEMENT This Severance Agreement is entered into as of this 16th day of October, 1997 by and between Aseco Corporation, a Delaware corporation (the "Company"), and Mary Barletta (the "Employee"). Recitals: WHEREAS, the Employee is an executive officer of the Company; and WHEREAS, the Company and the Employee wish to provide for the payment of certain severance compensation by the Company to the Employee in the event the Employee's employment by the Company is terminated. NOW, THEREFORE, in consideration of the Employee's continued service to the Company and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows: 1. Definitions. "Benefit Period" shall mean the six (6)-month period following the Termination Date. "Cause" shall be deemed to exist if the Board of Directors of the Company or its successor in good faith determines, after giving the Employee notice and an opportunity to be heard, that the Employee has committed an act constituting fraud, embezzlement, larceny or theft. "Change in Control" shall mean (i) the sale, lease, transfer or other disposition by the Company of all or substantially all of its assets in a single transaction or a series of related transactions; (ii) the merger or consolidation of the Company with another entity in which the stockholders of the Company immediately prior to such merger or consolidation hold less than 50% of the outstanding voting stock of the surviving or resulting corporation immediately following such transaction; or (iii) the sale or exchange (to or with any person or entity other than the Company) by the stockholders of the Company of more than 50% of the outstanding voting stock of the Company in a single transaction or series of related transactions. "Ineligibility Period" shall mean that portion of the Benefit Period when the Employee is ineligible for coverage under the Company's group life or group health insurance policies. "Termination Date" shall mean the effective date of the termination of the Employee's employment with the Company. 2. Severance. In the event the Employee's employment by the Company is terminated without Cause by the Company or any successor within twelve (12) months following a Change in Control, the Company or such successor shall (i) pay the Employee within five days after the Termination Date a lump sum amount equal to six (6) times the Employee's monthly base salary in effect at the time of such termination (less applicable withholding taxes and FICA) and (ii) continue to provide during the Benefit Period life and health insurance coverage to the Employee, with benefits substantially comparable to those provided to executive officers of the Company generally immediately prior to such termination. Notwithstanding the foregoing, the Company shall have the right, in lieu of providing such coverage during any Ineligibility Period, to pay the Employee an amount equal to 200% of the amount it would have cost the Company to provide such coverage during any Ineligibility Period, assuming the Employee were eligible for coverage under the Company's group insurance policies and assuming further no increase in premium costs under such policies after the commencement of the Ineligibility Period. D-1 3. Miscellaneous. 3.1 This Agreement constitutes the entire agreement between the parties and supersedes all prior agreements and understandings, whether written or oral, relating to the subject matter of this Agreement. 3.2 This Agreement may be amended or modified only by a written instrument executed by both the Company and the Employee. 3.3 This Agreement shall be construed, interpreted and enforced in accordance with the laws of The Commonwealth of Massachusetts. 3.4 This Agreement shall be binding upon and inure to the benefit of both parties and their respective successors and assigns, including any corporation with which or into which the Company may be merged or which may succeed to its assets or business. 3.5 The captions of the sections of this Agreement are for convenience of reference only and in no way define, limit or affect the scope or substance of any section of this Agreement. 3.6 In case any provision of this Agreement shall be invalid, illegal or otherwise unenforceable, the validity, and enforceability of the remaining provisions shall in no way be affected or impaired thereby. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year set forth above. ASECO Corporation By:__________________________________ President and CEO EMPLOYEE _____________________________________ Mary R. Barletta D-2 EX-21 5 SUBSIDIARIES OF THE COMPANY EXHIBIT 21 SUBSIDIARIES OF THE REGISTRANT
PERCENTAGE OF VOTING SECURITIES OWNED BY ORGANIZED UNDER REGISTRANT AS OF LAW OF MARCH 29, 1998 --------------- -------------------- Aseco Investment Corporation............. Massachusetts 100% Aseco International Sales Corporation.... Barbados 100% Aseco International Inc.................. Delaware 100% Aseco Malaysia Sdn. Bhd.................. Malaysia 100% Aseco (Singapore) Pte. Ltd............... Singapore 100% Aseco Branch, Inc........................ Delaware 100% Western Equipment Developments (Holdings) Ltd..................................... England 100%
A-1 EX-23.1 6 CONSENT OF ERNST & YOUNG EXHIBIT 23.1 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statements (Forms S-8 No. 33-66250, 33-80425, 33-89036, 333-18337) of Aseco Corporation of our report dated May 8, 1998, with respect to the consolidated financial statements and schedule of Aseco Corporation included in the Annual Report (Form 10-K) for the year ended March 29, 1998. Ernst & Young LLP Boston, Massachusetts June 24, 1998 E-1 EX-27 7 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL STATEMENTS FOR YEAR ENDED MARCH 29, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR MAR-29-1998 MAR-31-1997 MAR-29-1998 4,431 0 9,921 781 11,875 28,207 8,796 4,755 33,691 9,490 0 0 0 38 23,544 33,691 44,246 44,246 26,761 26,761 0 0 119 (8,282) (139) (8,143) 0 0 0 (8,143) (2.20) (2.20)
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