e10vk
SECURITIES AND EXCHANGE
COMMISSION
Washington, D.C.
20549
Form 10-K
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(Mark One)
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þ
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ANNUAL REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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For the fiscal year ended August 29, 2009
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or
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TRANSITION REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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For the transition period
from to
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Commission File Number 0-17276
FSI INTERNATIONAL,
INC.
(Exact Name of Registrant as
specified in its charter)
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MINNESOTA
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41-1223238
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(State or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer Identification
No.)
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3455 LYMAN BOULEVARD, CHASKA, MINNESOTA
55318-3052
(Address of principal executive
offices and Zip Code)
Registrants telephone number, including area code:
(952) 448-5440
Securities registered pursuant to Section 12(b) of the
Securities Exchange Act:
Title of each class
Common Stock, no par value
Name of Exchange on which registered:
NASDAQ Global Market
Securities registered pursuant to Section 12(g) of the
Securities Exchange Act:
Indicate by a check mark if the Registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act of
1933. Yes o No þ
Indicate by a check mark if the Registrant is not required to
file reports pursuant to Section 13 or Section 15(d)
of the Securities Exchange Act of
1934. Yes o No þ
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 þ No o
Indicate by a checkmark whether the Registrant has submitted
electronically and posted on its corporate website, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of
Regulation S-T
(§ 232.405 of this chapter) during the preceding
12 months (or for such shorter period that the Registrant
was required to submit and post such
files). Yes o No o
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 Registrants 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. þ
Indicate by check mark whether the Registrant is a large
accelerated filer, an accelerated filer or a non-accelerated
filer. See definition of accelerated filer and large
accelerated filer in
Rule 12b-2
of the Securities Exchange Act of 1934.
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Large
accelerated
filer o
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Accelerated
filer o
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Non-accelerated
filer o
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Smaller
reporting
company þ
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(Do not check if a smaller
reporting company)
Indicate by a check mark whether the Registrant is a shell
company (as defined in Rule
12b-2 of the
Exchange Act of
1934). Yes o No þ
The aggregate market value of the voting common stock held by
non-affiliates of the Registrant, based on the closing price on
February 27, 2009, the last business day of the
Registrants most recently completed second fiscal quarter,
as reported on the NASDAQ Global Market, was approximately
$7,700,000. Shares of common stock held by each officer and
director have been excluded from this computation in that such
persons may be deemed to be affiliates. This amount is provided
only for purposes of this report on
Form 10-K
and does not represent an admission by the Registrant or any
such person as to the status of such person.
As of October 30, 2009, the Registrant had issued and
outstanding 31,636,000 shares of common stock.
DOCUMENTS
INCORPORATED BY REFERENCE
Portions of the Registrants definitive proxy statement for
the Annual Meeting of Shareholders to be held on
January 20, 2010 and to be filed within 120 days after
the Registrants fiscal year ended August 29, 2009,
are incorporated by reference into Part III of this
Form 10-K
Report. (The Audit and Finance Committee Report and the
Compensation Committee Report of the Registrants proxy
statement are expressly not incorporated by reference herein.)
TABLE OF CONTENTS
PART I
Cautionary
Information Regarding Forward-Looking Statements
Certain statements contained in this report on
Form 10-K
constitute forward-looking statements within the meaning of
Section 21E of the Securities Exchange Act of 1934, as
amended, and are subject to the safe harbor created by that
statute. Typically we identify forward-looking statements by use
of an asterisk *. In some cases, you can identify
forward-looking statements by terminology such as
expects, anticipates,
intends, may, should,
plans, believes, seeks,
estimates, could, would or
the negative of such terms or other comparable terminology. Such
forward-looking statements are based upon current expectations
and beliefs and involve numerous risks and uncertainties, both
known and unknown, that could cause actual events or results to
differ materially from these forward-looking statements. For a
discussion of factors that could cause actual results to differ
materially from those described in this
Form 10-K,
see the discussion of risk factors set forth below in
Item 1.A. of this report. Although we believe that the
expectations reflected in the forward-looking statements are
reasonable as of the date of this report, we cannot guarantee
future results, levels of activity, performance or achievements.
We undertake no duty to update any of the forward-looking
statements after the date of this report.
The
Company
FSI International, Inc., a Minnesota corporation organized in
1973 (FSI, the Company, we,
us), designs, manufactures, markets and supports
equipment used in the fabrication of microelectronics, such as
advanced semiconductor devices. In fiscal 2009, we provided
surface conditioning technology solutions and microlithography
systems and support services to worldwide manufacturers of
integrated circuits. FSI manufactures, markets and supports
surface conditioning equipment that uses wet, cryogenic and
other chemistry techniques to clean, strip or etch the surfaces
of silicon wafers and supplies refurbished microlithography
products that are used to deposit and develop light sensitive
films. FSIs business is supported by service groups that
provide finance, human resources, information services, sales
and service, marketing and other administrative functions.
FSI directly sells and services our products in North America,
Europe, and the Asia Pacific region, except for Japan. In Japan,
our products are sold and serviced through Apprecia Technology,
Inc. (Apprecia) (formerly known as mFSI LTD),
a company in which FSI maintains a 20 percent equity
ownership. See Note 3 of the Notes to Consolidated
Financial Statements for a discussion of our equity ownership in
Apprecia.
Industry
Background
The complex process of fabricating semiconductor devices
involves several distinct phases that are repeated numerous
times. Because each production phase typically requires
different processing technologies and equipment, no single
semiconductor equipment supplier currently produces all types of
tools needed to equip an entire
state-of-the-art
fabrication facility. Instead, semiconductor device
manufacturers typically equip their facilities by combining
manufacturing equipment produced by a number of suppliers. Each
set of equipment performs specific functions in the
manufacturing process.
Generally, increasing demand for computer chips, new computer
chip designs, new materials of fabrication and new substrate
(the underlying material upon which a semiconductor device or
integrated circuit is formed) types both size and
composition drives demand for new microelectronics
manufacturing equipment and processes. Industries that use
microelectronics increasingly demand higher performance devices
from manufacturers. Over the last decade, device manufacturers
have reduced the feature size and substantially increased the
functionality of individual devices through a number of
technological advances. Many of these advancements are made
possible using the equipment and technologies FSI provides to
the semiconductor industry.
2
Our business depends upon the microelectronics
manufacturers capital equipment expenditures.
Manufacturers expenditures in turn depend on the current
and anticipated market demand for products that use
microelectronic devices. The microelectronics industry is
cyclical in nature and experiences periodic downturns.
Microelectronics manufacturers require equipment suppliers to
take an increasingly active role in meeting the
manufacturers technology development and capital
productivity requirements. Equipment suppliers satisfy this
requirement by developing and supporting products and processes
required to address the new trends in microelectronics
manufacturing. These trends include development of smaller
geometries, transition to new materials, migration to larger
wafers and wafer level packaging.
According to Gartner, Inc., a leading semiconductor equipment
industry group, purchases of semiconductor equipment by
microelectronics manufacturers totaled $30.7 billion in
calendar 2008. Based upon the most recent Gartner Group forecast
(made in September 2009), spending on semiconductor equipment is
expected to decrease by 48% to $16 billion in calendar 2009
but increase in calendar year 2010 by 39% to $22.2 billion.*
Products
The sales mix between system sales and spare parts and service
sales has varied from year to year. The following table sets
forth, for the periods indicated, the amount of revenues and
approximate percentages of our total revenues for systems and
spare parts and service:
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Fiscal Year Ended
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August 29,
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August 30,
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August 25,
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2009
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2008
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2007
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(Dollars in thousands)
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Systems
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32,879
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65.1
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$
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51,365
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65.6
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%
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$
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85,444
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73.5
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%
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Spare parts and service
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17,605
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34.9
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%
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26,891
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34.4
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%
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30,789
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26.5
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%
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$
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50,484
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100.0
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$
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78,256
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100.0
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%
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$
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116,233
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100.0
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%
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Systems
Our surface conditioning (SC) systems perform
etching and cleaning operations for:
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front-end-of-line (FEOL) fabrication steps, where
integrated circuits or transistors are formed in and on the
substrate during the manufacturing process;
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back-end-of-line (BEOL) fabrication steps, where
metal wiring levels are formed on the surface of the wafer and
are connected to the transistors; and
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wafer-level packaging surface preparation, including cleaning,
etching and stripping functions necessary to fabricate solder
bumps or other terminal structures needed to connect the chip to
the circuit board.
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Todays most advanced integrated circuit (IC)
manufacturing involves more than 100 surface preparation steps.
Many factors are considered when designing and optimizing a
surface preparation process to meet a particular application
need. These factors can include:
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cleaning and etching goals, which are related to the removal of
wafer contaminants and films;
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selectivity goals, which are related to leaving desired films
and structures intact; and
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manufacturing goals, which are related to cost, productivity,
safety and environmental concerns.
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The priority of each factor in determining the final surface
preparation process can vary widely across the approximately 100
different steps and depends on the contaminants that need to be
removed, the materials that need to be preserved on the wafer
surface, the dimensions of patterned features and overall
process integration. These varied requirements and priorities
indicate that no single surface preparation technology can
provide the optimal process for every surface preparation
requirement. This is why FSI offers a range of technologies that
allow us, with our customers, to select and optimize the best
solution for each step. These technologies include batch and
single wafer spray, batch immersion and single wafer cryogenic
aerosol.
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Batch Spray Processing Systems. Our
batch spray processing systems, which include the
ZETA®
and
MERCURY®
Spray Cleaning Systems, are sophisticated surface conditioning
systems that remove unwanted films and contaminants from the
surface of semiconductor wafers at various stages in the
microelectronic device fabrication process. Multiple cassettes
that contain up to 27 wafers each are placed onto a turntable
inside the systems process chamber. As the turntable
rotates, dispense ports apply a chemical spray to the
wafers surfaces to dissolve and remove the undesirable
films and contaminants. After chemical application, ultra pure
water is sprayed on the wafer surfaces to rinse away the
chemicals. Multiple chemical and rinse steps may be employed
depending on the customers specific application. The
process sequence is completed with a drying step where a flow of
nitrogen into the chamber dries the wafers and the chamber. Our
control system and chemical mixing manifold allow the user to
define, control and monitor a variety of chemical mixtures,
temperatures and sequences. This enables the user to rapidly
develop new processes and utilize the systems for multiple
applications.
Our batch spray systems achieve
state-of-the-art
performance and are well suited for applications that require
removal of high levels of contamination, such as implanted
photoresist and unreacted salicide metal. Through efficient
mixing and use of chemicals and water packaged in a small
product footprint, customers may realize lower operational costs
than with competing systems. ZETA systems are differentiated in
that they dispense fresh chemicals during wafer processing as
compared to wet bench systems that may use recirculated
chemicals. Fresh chemical dispense leads to the lowest possible
surface contamination levels, which is critical in the
fabrication of advanced devices.
The
ZETA®
System is a fully-automated batch spray processor currently
available in configurations for both 200 and 300mm wafers. The
advanced process controls, process capability and automation are
ideal for leading technology nodes, particularly from 90
nanometers (nm) down to 32nm and below. Our ZETA
products provide a reliable, automated environment to move
wafers to and from the process chamber. This tools
multi-chemical flow system allows for a wide range of chemical
blend ratios. The system is also available in a lower cost
semi-automated configuration capable of processing 150 or 200mm
wafers.
Introduced in 2006, and offered on ZETA systems, our
ViPRtm
technology provides the industry with an all-wet non-ashing
implanted resist strip process. Ashing is a method of stripping
photoresist using an excited gas such as oxygen plasma, ozone or
hydrogen-containing plasma. Ashing can cause surface damage and
undesired material loss. ViPR provides a non-ashing alternative
stripping methodology by raising the process chemistry
temperature and reactivity higher than the traditional
processes. The ViPR process is accomplished through FSIs
patented steam injection chemistry.
In 2008, our ViPR technology was expanded to include stripping
of unreacted metals for metal silicide process steps most
notably the nickel platinum silicide process which traditionally
used hazardous aqua regia chemistry. Aqua regia (a mixture of
nitric acid and hydrochloric acid) is also known to attack
nickel platinum silicide degrading 45 and 32nm device
performance. ViPR has demonstrated its ability to efficiently
strip the unreacted metals without attacking the silicide layer.
The
MERCURY®
System is a semi-automated batch spray processor designed for
wafer sizes up to 200mm in diameter and process technologies
through the 90nm node. The system has been widely adopted by the
IC manufacturing industry, with nearly 1000 systems shipped to
numerous customers since its introduction. Mercury systems offer
the benefits of high performance cleans, etches and strips with
the added advantage of low capital cost and low cost of
ownership and a very small footprint.
Single Wafer Cleaning Systems. Our
newest platform, the
ORION®
Single Wafer Cleaning System, is for cleaning 300mm
semiconductor wafers in a closed chamber, single wafer
environment. The ORION platform uses FSIs core
technologies, including ViPR technology, in-line chemical
blending, energetic aerosol chemical and water delivery, recipe
driven process flexibility and closed chamber environmental
control. Its small footprint modular design has the flexibility
to enable clustering of different chamber types and the
extendibility to add modules to increase maximum throughput. In
addition to offering a highly productive and space efficient
cleaning solution, the systems unique closed chamber
permits control of the environment in which the wafer is
processed. Benefits include elimination of water marks,
reduction of oxidation and related
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material loss, prevention of galvanic corrosion of metal film
stacks, and the use of our proprietary
ViPRtm
Technology to strip implanted photoresist and salicide metal
residues.
Since its introduction, ORION systems have proven to enable BEOL
copper / low-k interconnect cleans and accepted for
45nm and 32nm manufacturing. ORION systems are also currently
being used in 22nm development activities.
CryoKinetic Processing Systems. Our
ANTARES®
CryoKinetic Cleaning System is a fully automated, single-wafer
cleaning platform designed for 200 and 300mm wafers. CryoKinetic
cleaning is a physical energy transfer process used to remove
non-chemically bonded particles from the surface of a
microelectronic device. These systems offer a field-proven
history of removing surface particle defects and improving
customer yields. The ANTARES system uses an all-dry
non-chemically reactive method for removing defects from all
surface types from the beginning to the end of the device
manufacturing process. Of particular benefit to our customers is
its inherent compatibility with new device materials and
increasingly smaller device features.
CryoKinetic clean technology allows our customers to insert
particle removal steps in the manufacturing line where previous
or traditional wet cleaning and scrubber methods have been
phased out due to their incompatibility with new materials and
their propensity to cause watermark residue and surface charge
defects. Implementing the CryoKinetic clean technology allows
our customers to recover yield that would normally be lost where
traditional approaches cannot be used, such as after in-line
electrical testing of wafers. In-line testing creates debris on
the wafer surface that cannot be removed with traditional
cleaning methods due to the sensitivity of the exposed materials
(copper and low-k dielectrics). The ANTARES clean can eliminate
defects created by in-line electrical probing so IC makers can
collect electrical test data without scrapping wafers.
We believe the technical capabilities of the ANTARES system are
extendable well beyond current technology nodes and may result
in increased customer acceptance due to the limitations of
scrubbing methods.*
Immersion Processing Systems. Immersion
cleaning systems are used to clean silicon wafers by immersing
wafers in multiple tanks filled with process chemicals. These
systems enable the implementation of high performance isopropyl
alcohol (IPA) assisted drying to meet the critical
cleaning requirements for 90, 65, and 45nm technology nodes. Our
MAGELLAN®
Immersion Cleaning System is a fully automated immersion
cleaning product designed for either 200 or 300mm wafers at
advanced technology nodes and is capable of multiple cleans,
including critical clean, resist strip and etch. We believe this
system compares favorably to competing systems through its
process performance, flexibility, extendibility, and rapid cycle
time in a footprint that is smaller than the leading competition
when configured for specific applications. The MAGELLAN
Immersion Cleaning System incorporates a portfolio of exclusive
intellectual property, including our Surface Tension Gradient
(STG®)
rinse/dry technology,
SymFlow®
etch technology, ozone oxide re-growth technology, and
narrow-gate-compatible
MegaLenstm
Acoustic Diffuser megasonic cleaning technology. The MAGELLAN
System is qualified for several processes including FEOL
critical clean, FEOL photoresist strip and post-ash clean, as
well as oxide etch and nitride etch.
Resist Processing Systems. Our
POLARIS®
Microlithography System is used to deposit polyimide resist and
photoresist, light-sensitive, etch-resistant materials used to
transfer an image to the surface of a silicon wafer, or similar
material wafer, and then bake, chill and develop the deposited
material after exposure. We are focused on providing cost
effective solutions to our existing base of POLARIS system
customers and for specialized markets, including wafer level
packaging, MEMS, and thin film media storage devices. Through
our POLARIS Refresh
Programtm,
in which customers can purchase pre-owned, certified POLARIS
clusters (an integrated environmentally isolated manufacturing
system consisting of process, transport, and cassette modules
mechanically linked together) made of both new
and/or
re-manufactured modules. This allows customers to add capacity
for a lower capital investment. The ratio of new to pre-owned
modules is based on customer expectations and the availability
of used modules. These systems are able to accommodate a variety
of processes and can be purchased in a new configuration or a
system can be reconfigured and upgraded to match previously
installed configurations.
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Spare
Parts and Service
We offer system and subsystem upgrade packages, spare part kits,
individual spare part components, robot refurbishment and
replacement, and support services that provide product and
process enhancements to extend the life of previously purchased
and installed systems. Our customer service and process
engineers assist and train customers worldwide to perform
preventive maintenance on, and to service, our equipment. In
addition, our process engineering groups develop process
applications to expand the capabilities of our equipment. These
upgrade and spare part packages and support service programs
enable our worldwide customers to realize a higher return on
their capital investment. We sell a variety of process, service
and maintenance programs. A number of customers have purchased
maintenance contracts in which our service employees work at the
customers facility to provide process service and
maintenance support for our equipment.
Backlog
and Seasonality
Our backlog consists of customer purchase orders with delivery
dates within the next 12 months. Our backlog was
$7.9 million at fiscal 2009 year-end and
$5.6 million at fiscal 2008 year-end. Approximately
71% of our backlog at fiscal 2009 year-end was comprised of
orders from two customers. Approximately 37% of our backlog at
fiscal 2008 year-end was comprised of orders from two other
customers. All orders are subject to cancellation by the
customer and in some cases a penalty provision could apply to a
cancellation.
In fiscal 2009 and 2008, no significant purchase orders were
canceled. Because of the timing and relative size of certain
orders we received and possible changes in delivery schedules
and order cancellations, our backlog can vary from time to time
so that backlog as of any particular date is not necessarily
indicative of actual sales for any subsequent period. Our
business is cyclical but is not seasonal to any significant
extent.
Research
and Development
We believe that our future success depends in large part on our
ability to enhance and advance, in collaboration with our
customers and other equipment and materials manufacturers, our
existing SC product lines to meet the changing needs of
microelectronics manufacturers. We believe that industry trends,
such as the use of smaller circuit geometries, the increased use
of larger substrates and manufacturers increased desire
for integrated processing equipment, will make highly automated
and integrated systems, including single substrate processing
systems, more important to customers. For assistance in our
development efforts, we maintain relationships with our
customers and industry consortium, who help identify and analyze
industry trends and assess how our development activities meet
the industrys advanced technology needs.
Our current research and development programs are focused on
creating new processes and technologies for cleaning substrates
without damaging the increasingly smaller patterned features
being used for the most advanced IC devices. We are also
conducting programs to increase process control and flexibility
through monitoring and software management systems and process
automation, robotics automation in the cleanroom, and
integration of our product offerings with other suppliers
products. Each of these programs involves collaboration with
customers and other equipment manufacturers to ensure proper
machine configuration and process development to meet industry
requirements.
We maintain an 8,000-square-foot,
state-of-the-art
demonstration and process development laboratory for our SC
business at our Chaska, Minnesota facility. In addition, we
lease 6,000 square feet of laboratory and office space in
Allen, Texas for process development and demonstration for our
POLARIS resist processing products.
Expenditures for research and development, which are expensed as
incurred, during fiscal 2009 were approximately
$14.7 million, representing 29.1% of total sales.
Expenditures for research and development during fiscal 2008
were approximately $19.0 million, representing 24.2% of
total sales, and expenditures for research and development
during fiscal 2007 were approximately $24.1 million,
representing 20.7% of total sales.
6
We expect to continue to make substantial investments in
research and development.* We also recognize the importance of
managing product transitions successfully, as the introduction
of new products could adversely affect sales of existing
products.
Marketing,
Sales and Support
We market our products worldwide to manufacturers of
microelectronic devices. Our marketing and sales efforts are
focused on building long-term collaborative relationships with
our customers. These efforts are supported by marketing, sales,
and service personnel, along with applications engineers. These
worldwide FSI teams work collaboratively with individual IC
manufacturers, in FSI process laboratories and at customer
sites, to integrate FSI developed product and process
innovations into customer process flows and optimize them
according to customer priorities.
During fiscal 2009, we directly sold and serviced our products
in North America, Europe and the Asia Pacific region, and
through Apprecia in Japan.
By providing a full portfolio of direct support services, we are
able to develop stronger customer relationships and our
customers continue to show greater interest in expanding beyond
their current use of our traditional spray cleaning technologies
to include new FEOL and BEOL applications for batch and single
wafer spray, as well as employing our advanced immersion and
CryoKinetic technologies. Our increased responsiveness on the
local level has resulted in more shared efforts and joint
development programs with IC makers throughout the world for
65nm production and 45nm, 32nm and 22nm development projects.
Manufacturing,
Raw Materials and Suppliers
We maintain manufacturing facilities in Chaska, Minnesota and
Allen, Texas. We typically assemble our products and systems
from components and prefabricated parts manufactured and
supplied by others, including process controllers, robots,
integrated circuits, power supplies, stainless steel pressure
vessels, chamber bowls, valves and relays. Certain items
manufactured by third parties are custom-made to our
specifications. Typically, final assembly and systems tests are
performed by our manufacturing personnel. Quality control is
maintained through quality assurance programs with suppliers,
incoming inspection of components, in-process inspection during
equipment assembly, and final inspection and operation of
manufactured equipment prior to shipment. We have a company-wide
quality program in place and received ISO 9001 certification in
1994 and ISO 9000:2000 certification in 2003.
Certain components and subassemblies included in our products
are obtained from a single supplier or a limited group of
suppliers to ensure overall quality and delivery timeliness. We
purchased approximately 25% of our fiscal 2009 and approximately
23% of our fiscal 2008 inventory purchases from two suppliers.
We purchased approximately 10% of our fiscal 2007 inventory
purchases from one supplier. Although we seek to reduce
dependence on sole and limited-source suppliers, disruption or
termination of certain of our inventory sources could have a
temporary adverse effect on our operations. We believe that
alternative sources could be obtained and qualified to supply
these products, if necessary, but that production delays would
likely occur in some cases.* Further, a prolonged inability to
obtain certain components could have an adverse effect on our
operating results, delay scheduled deliveries and result in
damage to customer relationships.
Competition
The semiconductor equipment industry is very competitive and
marked by continuous technological challenges. Significant
competitive factors in the equipment market include system
price, which encompasses total cost of ownership, quality,
process performance, reliability, flexibility, extendibility,
process or tool of record, and customer support.
Many of our established competitors have greater financial,
engineering, research, development, manufacturing, marketing,
service and support resources. To remain competitive, we must
invest in research and development, marketing, customer service
and support programs, and also manage our operating expenses. We
cannot assure that we will have sufficient resources to continue
to make these investments or that our products
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will continue to be viewed as competitive as a result of
technological advances by existing or new competitors or due to
changes in semiconductor technology.
Our products compete with, among others, the products of
DaiNippon Screen Manufacturing Co. Ltd., Semitool, Inc., Lam
Research, SEMES Co. LTD, Tokyo Electron Ltd. and several smaller
companies. In addition, we compete with various small equipment
refurbishment, equipment maintenance and spare parts providers.
Customers
We sell products from one or more of our product lines to most
major microelectronics manufacturers. We have an extensive
history of sales to several of the largest IC manufacturers and
over 100 active customers worldwide. The following customers
accounted for 10% or more of our total sales in fiscal 2009,
2008 and 2007:
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Fiscal
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Fiscal
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Fiscal
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Samsung Electronics
|
|
|
34
|
%
|
|
|
19
|
%
|
|
|
13
|
%
|
ST Microelectronics
|
|
|
u
|
|
|
|
12
|
%
|
|
|
u
|
|
Intel Corporation
|
|
|
u
|
|
|
|
u
|
|
|
|
11
|
%
|
|
|
|
u |
|
Customer accounted for less than 10% of our total sales during
the fiscal year. |
The loss of any of these customers could have a material adverse
effect on our operations. We have experienced, and expect to
continue to experience, fluctuations in our customer mix.* The
timing of an order for our equipment is primarily dependent upon
the customers expansion program, replacement needs, or
requirements to improve productivity and yields. Consequently, a
customer who places significant orders in one year will not
necessarily place significant orders in subsequent years.
Under the distribution agreement entered into on May 15,
2007 with Apprecia, Apprecia has exclusive distribution rights
for five years with respect to our SC products in Japan. Prior
to its expiration, the distribution agreement with Apprecia may
be terminated only upon the occurrence of certain events or
conditions or as otherwise mutually agreed. Starting in fiscal
2009, Apprecia was subject to a minimum purchase obligation.
Apprecia did not achieve the minimum purchase obligation in
fiscal 2009, and therefore, we have the right to terminate the
agreement in accordance with its terms and conditions. We are
not currently electing to terminate the agreement; however, we
are reserving the right to do so in the future.
Patents,
Trademarks and Intellectual Property
Our success depends upon a variety of factors, including
proprietary technology. It is important to protect our
technology by obtaining and enforcing patents. Consequently, we
have an active program to file patent applications in the United
States and other countries on inventions we consider
significant. We also possess other proprietary intellectual
property, including trademarks, know-how, trade secrets and
copyrights. We also protect our proprietary information through
confidentiality agreements with our employees and various third
parties.
We have a number of patents in the United States and other
countries, with additional applications pending. These patents
may be challenged, invalidated or circumvented, or may not
provide any competitive advantages to us. Pending applications
may not result in patents and the claims allowed in future
patents may not be sufficiently broad to protect our technology.
The laws of some foreign countries may not permit the protection
of our proprietary rights to the same extent as under the laws
of the United States. We believe that the protections afforded
by our patents, patent applications, and other intellectual
property rights have value. Because of rapidly changing
technology, our future success depends on the know-how of our
employees.
In the normal course of business, we occasionally receive and
make inquiries about possible patent infringement. In dealing
with such inquiries, it may be necessary or useful for us to
obtain or grant licenses or other rights. However, we cannot
assure that such license rights will be available to us on
commercially
8
reasonable terms, or even at all. The inability to obtain
certain license or other rights, or to obtain such licenses or
rights on favorable terms, or the need to engage in litigation
could have a material adverse effect on us.
We offer our POLARIS system pursuant to a non-exclusive license
from Texas Instruments Incorporated (TI). We have
converted the license to a fully
paid-up,
worldwide license to sell and manufacture the POLARIS system. We
also have the non-exclusive right to manufacture and sell
related TI modules. The license agreement with TI continues
until terminated by either party upon a breach by the other, and
the failure to cure, in accordance with the terms of the
agreement.
We offer our ANTARES CX Cleaning System under license agreements
from IBM Corporation. The licenses require certain minimum and
system-based royalties. Royalties are based on the royalty
portion revenues of licensed equipment that excludes
amounts for freight, taxes, customers duties, insurance,
discounts, and certain equipment not manufactured by us.
As of August 29, 2009, we had 76 U.S. patents.
Expiration dates for these patents range from January 2010 to
February 2027. In addition, we have 19 pending U.S. patent
applications in various stages of the patent examination process.
Employees
As of August 29, 2009, we had 255 full and part-time
employees. Competition for highly skilled employees is intense.
We believe that a great part of our future success depends upon
our continued ability to retain and attract qualified employees.
We are not subject to any collective bargaining agreements in
the United States and have never been subject to a work
stoppage. We are subject to collective bargaining agreements in
Italy and France covering approximately 10 employees. We
have never been subject to a work stoppage in Italy or France.
Environmental
Matters
In January 2003, we received our certificate of registration
from BSI Management Systems, an independent business services
organization that certifies management systems and products, for
its ISO 14001 environmental management system. ISO 14001 is an
internationally recognized environmental management standard
that empowers organizations to address the environmental impact
of its activities, services and processes. The standard then
provides a framework for enterprises to take steps to identify
issues significant to them and implement environmental
management programs to achieve improved performance.
Registration with ISO 14001 allows companies to reaffirm that
environmental processes are essential components of their
business strategy. We have a long history of
environmentally-friendly practices including research and
development programs that actively seek ways to operate more
environmentally efficient. We registered with ISO 14001 to
emphasize our ongoing commitment to the preservation and
protection of the environment, and to support existing
environmental health and safety initiatives.
We implemented an enterprise-wide program to actively engage our
employees to develop ways to, and emphasize the importance of,
protecting the environment in everyday life at FSI. Our programs
include recycling, water use reductions, chemical handling
processes and equipment design for the environment.
We are subject to a variety of governmental regulations related
to the discharge or disposal of toxic, volatile or otherwise
hazardous chemicals used in the manufacturing and product
development process. We believe that we are in compliance with
these regulations and that we have obtained all necessary
environmental permits to conduct our business. These permits
generally relate to the disposal of hazardous wastes. If we fail
to comply with present or future regulations, fines could be
imposed, production and product development could be suspended,
or operations could cease. Such regulations could require us to
acquire significant equipment or take other actions necessary to
comply with environmental regulations at a potentially
significant cost. If we fail to control the use of, or
adequately restrict the discharge and disposal of, hazardous
substances, we could incur future liabilities.
9
We believe that compliance with federal, state and local
provisions regulating the discharge of materials into the
environment, or otherwise relating to the protection of the
environment, will not have a material effect upon our capital
expenditures, earnings or competitive position.*
International
Sales
International sales accounted for approximately 71% of total
sales in fiscal 2009, 76% of total sales in fiscal 2008, and 69%
of total sales in fiscal 2007. Additional information on our
international sales for each of the last three fiscal years is
disclosed in Note 14 to the consolidated financial
statements included in Item 8 of this report.
Available
Information
Our annual reports on
Form 10-K,
quarterly reports on
Form 10-Q,
current reports on
Form 8-K,
and amendments to those reports filed or furnished pursuant to
Section 13(a) or 15(d) of the Exchange Act of 1934 are
available free of charge on our website at www.fsi-intl.com as
soon as reasonably practicable after such reports have been
filed with or furnished to the Securities and Exchange
Commission. The public may read and copy any materials we file
with the SEC at the SECs Public Reference Room at
100 F Street, NE, Washington, DC 20549, on official
business days during the hours of 10:00 am to 3:00 pm. The
public may obtain information on the operation of the Public
Reference Room by calling the SEC at
1-800-SEC-0330.
The SEC maintains an Internet site,
http://www.sec.gov,
that contains reports, proxy and information statements, and
other information regarding issuers that file electronically
with the SEC.
Our business faces significant risks. The risks described below
are not the only risks we face. Additional risks and
uncertainties not presently known to us or that we currently
believe are immaterial also may impair our business operations.
If any of the events or circumstances described in the following
risks occurs, our business, operating results or financial
condition could be materially adversely affected. The following
risk factors should be read in conjunction with the other
information and risks set forth in this report.
If the
economic environment does not improve in early fiscal 2010 and,
notwithstanding our cash management initiatives, more cash is
needed to fund operations than expected, we may need to take
additional actions.
In light of our financial condition, we implemented a number of
cost reduction steps in fiscal 2009 to reduce our use of cash,
as discussed in Note 17 of the Notes to Condensed
Consolidated Financial Statements. Our cost reduction actions in
fiscal 2009 are expected to lower our annual operating expenses
by $11 to $12 million, which is expected to reduce our cash
flow breakeven revenue level to approximately $12 to
$14 million per quarter, depending on the gross margins and
the timing of shipments and accounts receivable collections.* In
addition, we plan to manage cash flows by reducing capital
expenditures to less than $500,000 in fiscal 2010 and to
aggressively improve our working capital levels in the second
half of fiscal 2010.* We believe that these actions will allow
us to have sufficient cash to fund our operations through at
least fiscal 2010.*
We do not have any revolving line of credit or other form of
debt financing. If the economic environment does not improve in
early fiscal 2010 and, notwithstanding our cash management
initiatives, more cash is needed to fund operations than
expected, we may need to take additional actions.* These
actions could include additional cost reduction measures and
possible cash generating activities, including exploring a
sale-leaseback arrangement for our Chaska, Minnesota facility,
entering into an asset-based lending arrangement, borrowing up
to $3.2 million against or liquidating our remaining life
insurance investments of $3.5 million, borrowing up to 50%
against or selling some or all of our currently illiquid auction
rate securities (ARS), possibly at a loss, or
selling additional equity.* We can provide no assurance
that any of these cash-generating activities will be available
to us when needed, or if available, on such terms that will be
acceptable or in sufficient amounts to cover our operating
expenses at such time. The sale of additional equity would
likely result in
10
additional dilution to our shareholders.* In addition,
without substantial available capital, we may be unable to take
advantage of strategic opportunities as they arise, such as
investments in or acquisitions of businesses, products or
technologies.*
If the
worsening of credit market conditions continues or increases, it
could have a material adverse impact on our investment
portfolio.
The current short-term funding credit issues that began to occur
during the second half of calendar 2007, continue to impact
liquidity in asset-backed commercial paper and to cause failed
auctions in the auction rate market. If the global credit market
continues to deteriorate, our investment portfolio may be
impacted and we could determine that some of our investments are
impaired. This could materially adversely impact our results of
operations and financial condition.
Our investment portfolio includes ARS. The ARS we currently hold
have contractual maturities between 26 to 34 years. ARS are
usually found in the form of municipal bonds, preferred stock, a
pool of student loans or collateralized debt obligations. The
interest rates of our ARS are reset every 28 days through
an auction process and at the end of each reset period,
investors can sell or continue to hold the securities at par.
The $4.7 million par value ARS we hold are backed by
student loans and are collateralized, insured and guaranteed by
the United States Federal Department of Education. In addition,
all ARS held by us are rated by the major independent rating
agencies and carry investment grade ratings and have not
experienced any payment defaults.
Beginning in the second quarter of fiscal 2008, all of our ARS
experienced failed auctions due to sell orders exceeding buy
orders. Under the contractual terms, the issuer is obligated to
pay penalty interest rates should an auction fail. We cannot
liquidate our ARS until a successful auction occurs, the issuer
redeems the ARS, a buyer is found outside of the auction process
or the underlying securities have matured.
We recorded an other than temporary impairment of approximately
$0.4 million as of August 30, 2008 related to our ARS
. During fiscal 2009, we redeemed $3.0 million par value of
ARS for $3.0 million and we recorded a gain of
$0.1 million, which reversed the previously recorded
impairment related to these securities.
There is no assurance that future auctions of our ARS will be
successful. As a result, our ability to voluntarily liquidate
and recover the carrying value of some or all of the ARS we hold
may be limited for an indefinite period of time. If an issuer of
our ARS is unable to successfully close future auctions or does
not redeem the ARS, or the United States government fails to
support its guaranty of the obligations, we may be required to
adjust the carrying value of the ARS and record additional
impairment charges in future periods, which could materially
affect our results of operations and financial condition.
Because
our business depends on the amount that manufacturers of
microelectronics spend on capital equipment, downturns in the
microelectronics industry may adversely affect our
results.
The microelectronics industry experiences periodic downturns,
which may have a negative effect on our sales and operating
results. Our business depends on the amounts that manufacturers
of microelectronics spend on capital equipment. The amounts they
spend on capital equipment depend on the existing and expected
demand for semiconductor devices and products that use
semiconductor devices. When a downturn occurs, some
semiconductor manufacturers experience lower demand and
increased pricing pressure for their products. As a result, they
are likely to purchase less semiconductor processing equipment
and have sometimes delayed making decisions to purchase capital
equipment. In some cases, semiconductor manufacturers have
canceled or delayed orders for our products. Typically, the
semiconductor equipment industry has experienced more pronounced
decreases in net sales than the semiconductor industry as a
whole.
Since early calendar 2007, we, along with others in the
semiconductor equipment industry, have experienced a downturn in
orders for new equipment as well as delays in existing orders,
primarily from logic
11
and flash memory manufacturers. We cannot predict the extent and
length of the current downturn in orders and the overall
softening in the industry in these segments. In addition:
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the semiconductor equipment industry may experience other,
possibly more severe and prolonged, downturns in the future;
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any future recovery of the microelectronics industry may not
result in an increased demand by semiconductor manufacturers for
capital equipment or our products; and
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the semiconductor equipment industry may not improve in the near
future or at all.
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Our
licensing practices related to international spare parts sales
may subject us to fines and could reduce our ability to be
competitive in certain countries.
In addition to offering our customers microelectronics
manufacturing equipment, we provide replacement spare parts,
spare part kits and assemblies. In late calendar 2006, we
determined that certain of our replacement valves, pumps and
heaters could fall within the scope of United States export
licensing regulations to products that could be used in
connection with chemical weapons processes. We determined that
these regulations require us to obtain licenses to ship some of
our replacement spare parts, spare part kits and assemblies to
customers in certain controlled countries as defined in the
export licensing regulations. During the second quarter of
fiscal 2007, we were granted licenses to ship replacement spare
parts, spare parts kits and assemblies to all customers in the
controlled countries where we currently conduct business.
The applicable export licensing regulations frequently change.
Moreover, the types and categories of products that are subject
to export licensing are often described in the regulations in
general terms and could be subject to differing interpretations.
In the second quarter of fiscal 2007, we made a voluntary
disclosure to the United States Department of Commerce to
clarify our licensing practices and to review our practices with
respect to prior sales of certain replacement valves, pumps and
heaters to customers in several controlled countries as defined
in the licensing regulations.
In October 2009, we entered into a settlement agreement with the
Office of Export Enforcement for $450,000. We will pay $5,000
per month for ten months beginning in November 2009. The
remaining $400,000 owed under the settlement will be suspended
for 12 months. If we do not commit any export violations during
the 12-month
period, we will be released from further payment, including the
suspended $400,000.
Failure
of our products to gain market acceptance would adversely affect
our financial condition.
We believe that our growth prospects depend upon our ability to
gain customer acceptance of our products and technology,
particularly newly developed products. Market acceptance of
products depends upon numerous factors, including:
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compatibility with existing manufacturing processes and products;
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ability to displace incumbent suppliers or processes or tools of
record;
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perceived advantages over competing products; and
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the level of customer service available to support such products.
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Moreover, manufacturers often rely on a limited number of
equipment vendors to meet their manufacturing equipment needs.
As a result, market acceptance of our products may be affected
adversely to the extent potential customers utilize a
competitors manufacturing equipment. There can be no
assurance that sales of new products will remain constant or
grow or that we will be successful in obtaining broad market
acceptance of our systems and technology.
We expect to spend a significant amount of time and resources to
develop new systems and enhance existing systems. In light of
the long product development cycles inherent in our industry, we
will make these
12
expenditures well in advance of the prospect of deriving revenue
from the sale of any new systems. Our ability to commercially
introduce and successfully market any new systems is subject to
a wide variety of challenges during this development cycle,
including
start-up
bugs, design defects and other matters that could delay
introduction of these systems to the marketplace. In addition,
since our customers are not obligated by long-term contracts to
purchase our systems, our anticipated product orders may not
materialize or orders that do materialize may be canceled. As a
result, if we do not achieve market acceptance of new products,
we may not be able to realize sufficient sales of our systems in
order to recoup research and development expenditures. The
failure of any of our new products, for example the
ORION®,
to achieve market acceptance would harm our business, financial
condition, and results of operations and cash flows.
If we
do not continue to develop new products and processes, we will
not be able to compete effectively.
Our business and results of operations could decline if we do
not develop and successfully introduce new or improved products
and processes that the market accepts. The technology used in
microelectronics manufacturing equipment and processes changes
rapidly. Industry standards change constantly and equipment
manufacturers frequently introduce new products and processes.
We believe that microelectronics manufacturers increasingly rely
on equipment manufacturers like us to:
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design and develop more efficient manufacturing equipment;
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design and implement improved processes for microelectronics
manufacturers to use; and
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make their equipment compatible with equipment made by other
equipment manufacturers.
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To compete, we must continue to develop, manufacture, and market
new or improved products and processes that meet changing
industry standards. To do this successfully, we must:
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select appropriate products;
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design and develop our products efficiently and quickly;
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implement our manufacturing and assembly processes efficiently
and on time;
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make products that perform well for our customers;
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market and sell our products effectively; and
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introduce our new products in a way that does not unexpectedly
reduce sales of our existing products.
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Product
or process development problems could harm our results of
operations.
Our products are complex, and from time to time have defects or
bugs that are difficult and costly to fix. This can harm our
results of operations in the following ways:
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we may incur substantial costs to ensure the functionality and
reliability of products early in their life cycle;
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repeated defects or bugs can reduce orders, increase
manufacturing costs, adversely impact working capital and
increase service and warranty expenses; and
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we may require significant lead times between product
introduction and commercialization.
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As a result, we may have to write off inventory and other assets
related to products and could lose customers and revenue. There
is no assurance that we will be successful in preventing product
and process development problems that could potentially harm our
results of operations.
It may
be difficult for us to compete with stronger competitors
resulting from industry consolidation.
In the past several years, we have seen a trend toward
consolidation in the microelectronics equipment industry. We
expect the trend toward consolidation to continue as companies
seek to strengthen or maintain their market positions in a
rapidly changing industry.* We believe that industry
consolidations may result in
13
competitors that are better able to compete. This could have a
significant negative impact on our business, operating results,
and financial condition.
Future
acquisitions may dilute our shareholders ownership
interests and have other adverse consequences.
Because of consolidations in the semiconductor equipment
industry we serve and other competitive factors, our management
will seek to acquire additional product lines, technologies, and
businesses if suitable opportunities develop. Acquisitions may
result in the issuance of our stock, which may dilute our
shareholders ownership interests and reduce earnings per
share. Acquisitions also may increase debt levels and the
related goodwill and other intangible assets, which could have a
significant negative effect on our financial condition and
operating results. In addition, acquisitions involve numerous
risks, including:
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difficulties in absorbing the new business, product line, or
technology;
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diversion of managements attention from other business
concerns;
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entering new markets in which we have little or no
experience; and
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possible loss of key employees of the acquired business.
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Because
of the volatility of our stock price, the ability to trade FSI
shares may be adversely affected and our ability to raise
capital through future equity financing may be
reduced.
Our stock price has been volatile in the past and may continue
to be so in the future. In fiscal 2009, our stock price ranged
from $0.20 to $1.21 per share. In fiscal 2008, our stock price
ranged from $1.08 to $2.73 per share and in fiscal 2007, our
stock price ranged from $2.13 to $6.90 per share.
The trading price of our common shares is subject to wide
fluctuations in response to various factors, some of which are
beyond our control, including factors discussed elsewhere in
this report, and the following:
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failure to meet the published expectations of securities
analysts for a given period;
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changes in financial estimates by securities analysts;
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press releases or announcements by, or changes in market values
of, comparable companies;
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additions or departures of key personnel; and
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involvement in or adverse results from litigation.
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The prices of technology stocks, including ours, have been
particularly affected by extreme fluctuations in price and
volume in the stock market generally. These broad stock market
fluctuations may have a negative effect on our future stock
price.
In the past, securities class action litigation has often been
brought against a company following periods of volatility in the
market price of its securities. In the future we could be the
target of this type of litigation. Securities litigation may
result in substantial costs and divert managements
attention and resources, which could seriously harm our business.
Our
common stock is at risk for delisting from the NASDAQ Global
Market. If it is delisted, our stock price and the liquidity of
our common stock may be impacted.
While our stock price has recently exceeded $1.00 per share, our
stock price has traded below $1.00 during fiscal 2009. If, in
the future, the bid price falls below $1.00 for 30 consecutive
business days, we could receive notice from the NASDAQ Global
Market stating that the bid price of our common stock had closed
below the minimum $1.00 per share requirement for continued
inclusion on the NASDAQ Global Market under Marketplace
Rule 4310(c)(4). Under NASDAQ Marketplace
Rule 4310(c)(8)(D), we would then have 180 calendar days to
regain compliance. If at any time after receiving the notice,
the bid price of our common stock closes at $1.00 per share or
more for a minimum of 10 consecutive business days, the NASDAQ
Global
14
Market would notify us that we have achieved compliance with the
minimum bid price rule. However, if we did not regain compliance
with the minimum bid price rule within the 180 calendar days,
the NASDAQ Global Market would determine whether we met the
initial listing criteria for the NASDAQ Capital Market other
than the bid price requirement. If we met such criteria, we
would be afforded an additional 180 calendar days in order to
regain compliance with the minimum bid price rule.
If we fail to meet NASDAQs maintenance criteria, our
common stock will be delisted from the NASDAQ Global Market.
If we fail to maintain the standards necessary to be quoted on
the NASDAQ Global Market and our common stock is delisted,
trading in our common stock would be conducted on the NASDAQ
Capital Market or other available market, provided we meet the
standards of such market. Our stock price, as well as the
liquidity of our common stock, may be adversely impacted as a
result.
Because
our quarterly operating results are volatile, our stock price
could fluctuate.
In the past, our operating results have fluctuated from quarter
to quarter and are likely to do so in the future. These
fluctuations may have a significant impact on our stock price.
The reasons for the fluctuations in our operating results, such
as sales, gross profits, and net loss, include:
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The Timing of Significant Customer Orders and Customer
Spending Patterns. During industry downturns, our
customers may ask us to delay or even cancel the shipment of
equipment orders. Delays and cancellations may adversely affect
our operating results in any particular quarter if we are unable
to recognize revenue for particular sales in the quarter in
which we expected those sales.
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The Timing of Customer Acceptances. Based on
our revenue recognition policy, certain shipments to customers
are not recognized until customer acceptance. Delays of customer
acceptances may adversely affect our operating results in any
particular quarter if we are unable to recognize revenue for
particular sales in the quarter in which we expected those sales.
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The Timing of New Product and Service Announcements By Us or
Our Competitors. New product announcements by us
or our competitors could cause our customers to delay a purchase
or to decide to purchase products of one of our competitors
which would adversely affect our revenue and, therefore, our
results of operations. New product announcements by others may
make it necessary for us to reduce prices on our products or
offer more service options, which could adversely impact
operating margins and net income.
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The Mix of Products Sold and the Market Acceptance of Our New
Product Lines. The mix of products we sell varies
from period to period, and because margins vary among or within
different product lines, this can adversely affect our results
of operations. If we fail to sell products that generate higher
margins, our average gross margins may be lower than expected.
If we fail to sell our new product lines, our revenue may be
lower than expected.
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General Global Economic Conditions or Economic Conditions in
a Particular Region. When economic conditions in
a region or worldwide worsen, customers may delay or cancel
their orders. There also may be an increase in the time it takes
to collect payment from our customers or even outright payment
defaults. This can negatively affect our cash flow and our
results.
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As a result of these factors, our future operating results are
difficult to predict. Further, we base our current and future
expense plans in significant part on our expectations of our
longer-term future revenue. As a result, we expect our expense
levels to be relatively fixed in the short-run. An unanticipated
decline in revenue for a particular quarter may
disproportionately affect our net income in that quarter. If our
revenue is below our projections, then our operating results
will also be below expectations. Any one of the factors we list
above, or a combination of them, could adversely affect our
quarterly results of operations, and consequently may cause a
decline in our share price.
15
Changes
in demand caused by fluctuations in foreign currency exchange
rates may reduce our international sales.
Almost all of our direct international sales are denominated in
U.S. dollars. Nonetheless, changes in demand caused by
fluctuations in interest and currency exchange rates may affect
our international sales. We have direct sales, service and
applications support and logistics responsibilities for our
products in Europe and the Asia Pacific region, and accordingly,
we incur labor, service and other expenses in foreign
currencies. As of August 29, 2009, we had not entered into
any hedging activities and our foreign currency transaction
gains and losses for fiscal 2009 were insignificant. We intend
to evaluate various hedging activities and other options to
minimize fluctuations in foreign currency exchange rates. There
is no assurance that we will be successful in minimizing foreign
exchange rate risks and such failure may reduce our
international sales or negatively impact our operating results.
Because
of the need to meet and comply with numerous foreign regulations
and policies, the potential for change in the political and
economic environments in foreign jurisdictions and the
difficulty of managing business overseas, we may not be able to
sustain our historical level of international
sales.
We operate in a global market. In fiscal 2009,
approximately 71% of our sales revenue derived from sales
outside of the United States. In fiscal 2008, approximately 76%
of our sales revenue derived from sales outside the United
States. In fiscal 2007, approximately 69% of our sales revenue
derived from sales outside the United States. We expect that
international sales will continue to represent a significant
portion of total sales.* Sales to customers outside the United
States involve a number of risks, including the following:
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imposition of government controls;
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compliance with U.S. export laws and foreign laws;
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political and economic instability;
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trade restrictions;
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changes in taxes and tariffs;
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longer payment cycles;
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difficulty of administering business overseas; and
|
|
|
|
general economic conditions.
|
In particular, the Japanese and Asia Pacific markets are
extremely competitive. The semiconductor device manufacturers
located in these markets are very aggressive in seeking price
concessions from suppliers, including equipment manufacturers
like us.
We seek to meet technical standards imposed by foreign
regulatory bodies. However, we cannot guarantee that we will be
able to comply with those standards in the future. Any failure
by us to design products to comply with foreign standards could
have a significant negative impact on us.
Because
of the significant financial resources needed to offer a broad
range of products, to maintain customer service and support and
to invest in research and development, we may be unable to
compete with larger, better established
competitors.
The microelectronics equipment industry is highly competitive.
We face substantial competition throughout the world. We believe
that to remain competitive, we will need significant financial
resources to offer a broad range of products, to maintain
customer service and support, and to invest in research and
development. We believe that the microelectronics industry is
becoming increasingly dominated by large manufacturers who have
the resources to support customers on a worldwide basis. Some of
our competitors have substantially greater financial, marketing,
and customer-support capabilities than us. Large equipment
manufacturers have or may enter the market areas in which we
compete. In addition, smaller, emerging microelectronics
equipment companies provide innovative technology. We expect
that our competitors will continue to improve
16
the design and performance of their existing products and
processes. We also expect them to introduce new products and
processes with better performance and pricing. We cannot
guarantee that we will continue to compete effectively in the
United States or elsewhere. We may be unable to continue to
invest in marketing, research and development and engineering at
the levels we believe necessary to maintain our competitive
position. Our failure to make these investments could have a
significant negative impact on our business, operating results
and financial condition.
Manufacturing
interruptions or delays could affect our ability to meet
customer demand, while the failure to estimate customer demand
accurately could result in excess or obsolete
inventory.
Our business depends on our ability to supply equipment,
services and related products that meet the rapidly changing
requirements of our customers, which depends in part on the
timely delivery of parts, components and subassemblies
(collectively, parts) from suppliers. Some key parts may be
subject to long lead-times
and/or
obtainable only from a single supplier or limited group of
suppliers. Significant interruptions of manufacturing operations
or the delivery of services could result in delayed deliveries
to our customers, manufacturing inefficiencies, increased costs
or order cancellations as a result of:
|
|
|
|
|
the failure or inability of suppliers to timely deliver quality
parts;
|
|
|
|
volatility in the availability and cost of materials;
|
|
|
|
difficulties or delays in obtaining required export approvals;
|
|
|
|
information technology or infrastructure failures;
|
|
|
|
difficulties related to planning or effecting business process
changes;
|
|
|
|
natural disasters (such as earthquakes, floods or
storms); or
|
|
|
|
other causes (such as regional economic downturns, pandemics,
political instability, terrorism or acts of war).
|
Moreover, if actual demand for our products is different that
expected, we may purchase more/fewer parts than necessary or
incur costs for canceling, postponing or expediting delivery of
parts. Any or all of these factors could materially and
adversely affect our business, financial condition and results
of operations.
Because
we do not have long-term sales commitments with our customers,
our results will be adversely affected if customers decide to
reduce, delay or cancel orders or choose to deal with our
competitors.
If our significant customers reduce, delay, or cancel orders,
then our operating results could suffer. Our largest customers
have changed from year to year, however, sales to our top five
customers accounted for approximately 55% of total revenues in
fiscal 2009, 51% of total revenues in fiscal 2008 and 42% of
total revenues in fiscal 2007. Samsung Electronics accounted for
approximately 34% of our total sales in fiscal 2009, 19% of our
total sales in fiscal 2008 and 13% of our total sales in fiscal
2007. ST Microelectronics accounted for approximately 12% of our
total sales in fiscal 2008. Intel Corporation accounted for
approximately 11% of our total sales in fiscal 2007. We
currently have no long-term sales commitments with any of our
customers. Instead, we generally make sales under purchase
orders. All orders are subject to cancellation or delay by the
customer.
Our
backlog may not result in future net sales.
We schedule the production of our systems based in part upon
order backlog. Due to possible customer changes in delivery
schedules and cancellations of orders, our backlog at any
particular date is not necessarily indicative of actual sales
for any succeeding period. In addition, while we evaluate each
customer order on a case by case basis to determine
qualification for inclusion in backlog, there can be no
assurance that amounts included in backlog ultimately will
result in future sales. A reduction in backlog during any
particular period, or the failure of our backlog to result in
future sales, could harm our business.
17
Because
we depend upon our management and technical personnel for our
success, the loss of key personnel could place us at a
competitive disadvantage.
Our success depends to a significant extent upon our management
and technical personnel. The loss of a number of these key
persons could have a negative effect on our operations.
Competition is high for such personnel in our industry in all of
our locations. We periodically review our compensation and
benefit packages to ensure that they are competitive in the
marketplace and make adjustments or implement new programs for
that purpose, as appropriate. We cannot guarantee that we will
continue to attract and retain the personnel we require.
Our
employment costs in the short-term are to a large extent fixed,
and therefore any unexpected revenue shortfall could adversely
affect our operating results.
Our operating expense levels are based in significant part on
our headcount, which generally is driven by longer-term revenue
goals. For a variety of reasons, particularly the high cost and
disruption of lay-offs and the costs of recruiting and training,
our headcount in the short-term is, to a large extent, fixed.
Accordingly, we may be unable to reduce employment costs in a
timely manner to compensate for any unexpected revenue or gross
margin shortfall, which could have a material adverse effect on
our operating results.
Because
our intellectual property is important to our success, the loss
or diminution of our intellectual property rights through legal
challenge by others or from independent development by others,
could adversely affect our business.
We attempt to protect our intellectual property rights through
patents, copyrights, trade secrets, and other measures. However,
we believe that our financial performance will depend more upon
the innovation, technological expertise, and marketing abilities
of our employees than on such protection. In connection with our
intellectual property rights, we face the following risks:
|
|
|
|
|
our pending patent applications may not be issued or may be
issued with more narrow claims;
|
|
|
|
patents issued to us may be challenged, invalidated, or
circumvented;
|
|
|
|
rights granted under issued patents may not provide competitive
advantages to us;
|
|
|
|
foreign laws may not protect our intellectual property
rights; and
|
|
|
|
others may independently develop similar products, duplicate our
products, or design around our patents.
|
As is typical in the semiconductor industry, we occasionally
receive notices from others alleging infringement claims. We
have been involved in patent infringement litigation in the past
and we could become involved in similar lawsuits or other patent
infringement claims in the future. We cannot guarantee the
outcome of such lawsuits or claims, which may have a significant
negative effect on our business or operating results.
We are
currently exposed to various risks related to legal proceedings
or claims.
We have in the past and may in the future be involved in legal
proceedings or claims regarding patent infringement,
intellectual property rights, contracts and other matters. These
legal proceedings and claims, whether with or without merit,
could be time-consuming and expensive to prosecute or defend,
and could divert managements attention and resources.
There can be no assurance regarding the outcome of future legal
proceedings or claims. If we are not able to resolve a claim,
negotiate a settlement of the matter, obtain necessary licenses
on commercially reasonable terms
and/or
successfully prosecute or defend its position, our business,
financial condition and results of operations could be
materially and adversely affected.
We generate minor amounts of liquid and solid hazardous waste
and use licensed haulers and disposal facilities to ship and
dispose of such waste. In the past, we have received notice from
state or federal enforcement agencies that we are a potentially
responsible party (PRP) in connection with the
investigation
18
of several hazardous waste disposal sites owned and operated by
third parties. In each matter, we have elected to participate in
settlement offers made to all de minimis parties with
respect to such sites. The risk of being named a PRP is that if
any of the other PRPs are unable to contribute their
proportionate share of the liability, if any, associated with
the site, those PRPs that are financially able could be held
financially responsible for the shortfall.
There has and continues to be substantial litigation regarding
patent and other intellectual property rights in the
microelectronics industry. Commercialization of new products or
further commercialization of our current products could provoke
claims of infringement by third parties. In the future,
litigation may be necessary to enforce patents issued to us, to
protect trade secrets or know-how owned by us or to defend us
against claimed infringement of the rights of others and to
determine the scope and validity of our proprietary rights. Any
such litigation could result in substantial costs and diversion
of our effort, which alone could have a material adverse impact
on our financial condition and operating results. Further,
adverse determinations in such litigation could result in our
loss of proprietary rights, subject us to significant
liabilities to third parties, require us to seek licenses from
third parties or prevent us from manufacturing or selling one or
more products, any of which could have a material adverse effect
on our financial condition and results of operations.
Certain of our product lines are intended for use with hazardous
chemicals. As a result, we are notified by our customers from
time to time of incidents involving our equipment that have
resulted in a spill or release of a hazardous chemical. We
maintain product liability insurance in an effort to minimize
our risk. However, in some cases it may be alleged that we or
our equipment are at fault. There can be no assurance that any
future litigation resulting from such claims would not have a
material adverse effect on our business or financial results.
Our
sales cycle is long and unpredictable, which could require us to
incur high sales and marketing expenses with no assurance that a
sale will result.
Sales cycles for some of our products can run as long as 12 to
18 months. As a result, we may not recognize revenue from
efforts to sell particular products for extended periods of
time. We believe that the length of the sales cycle may increase
as some current and potential customers centralize purchasing
decisions into one decision-making entity. We expect this may
intensify the evaluation process and require us to make
additional sales and marketing expenditures with no assurance
that a sale will result.
We do
not intend to pay dividends.
We have never declared or paid any cash dividends on our common
stock. We currently intend to retain any future earnings for
funding growth and, therefore, do not expect to pay any
dividends in the foreseeable future.
|
|
Item 1.B.
|
Unresolved
Staff Comments
|
We do not have any unresolved staff comments.
We own a 197,000-square-foot facility in Chaska, Minnesota. The
facility contains certain product engineering, manufacturing,
sales, administrative and support functions. It includes a
research laboratory and 40,000 square feet of
Class 1,000 and 10,000 cleanroom space, manufacturing
support operations and a customer training center.
In February 2005, we sold our 162,000 square foot facility
in Allen, Texas. We currently have a sublease for approximately
8,000 square feet of space in the facility. The lease
expires on September 1, 2011.
We also maintain small leased sales and service offices
throughout Europe and Asia near our customer locations.
19
|
|
ITEM 3.
|
LEGAL
PROCEEDINGS
|
We are not subject to any material pending legal proceedings.
|
|
ITEM 4.
|
SUBMISSION
OF MATTERS TO A VOTE OF SHAREHOLDERS
|
There were no matters submitted to a vote of shareholders during
the fourth quarter ended August 29, 2009.
|
|
ITEM 4A.
|
EXECUTIVE
OFFICERS OF THE COMPANY
|
The executive officers are elected by the board of directors,
generally for a term of one year, and serve until their
successor is elected and qualified. The following table and
discussion contains information regarding our current executive
officers.
|
|
|
|
|
|
|
Name
|
|
Age
|
|
Position
|
|
John C. Ely(1)
|
|
|
50
|
|
|
Vice President, Global Sales and Service
|
Patricia M. Hollister(2)
|
|
|
49
|
|
|
Chief Financial Officer and Assistant Secretary
|
Donald S. Mitchell(3)
|
|
|
54
|
|
|
Chairman and Chief Executive Officer
|
Benno G. Sand(4)
|
|
|
55
|
|
|
Executive Vice President, Business Development and Investor
Relations and Secretary
|
|
|
|
(1) |
|
John Ely was named Vice President of Global Sales, Marketing and
Service in March 2009. He previously served as Executive Vice
President of Global Sales and Service from May 2003 to March
2009. Mr. Ely was the Executive Vice President; President,
of our SC Division from August 2000 to June 2003. Mr. Ely
was the SC Divisions Sales/ Marketing/Applications Manager
from 1997 to 2000; General Manager from 1995 to 1997; Product
Specialist/Product Manager from 1989 to 1995; and in direct
sales from 1985 to 1989. Prior to joining FSI, Mr. Ely was
in sales and served as the Western Territory Manager of Galtek,
a subsidiary of Entegris, Inc. Mr. Ely is a director of SCD
Mountain View, Inc., one of our subsidiaries. |
|
(2) |
|
Patricia Hollister has served as Chief Financial Officer since
January 1998 and as Assistant Secretary since January 2000. She
was our Corporate Controller from March 1995 to January 1998.
Prior to joining FSI, Ms. Hollister was employed by KPMG
LLP in Minneapolis, Minnesota where she served over
12 years on various audit and consulting engagements, most
recently as a Senior Manager. Ms. Hollister is a director
of various FSI-owned foreign subsidiaries as well as NVE
Corporation. |
|
(3) |
|
Donald Mitchell was named Chief Executive Officer and President
of FSI in December 1999, was appointed a director of FSI in
March 2000 and became Chairman of the Board of Directors for FSI
in January 2002. From its formation in 1998 until December 1999,
he was President of Air Products Electronic Chemicals, Inc., a
division of Pennsylvania-based Air Products and Chemicals, Inc.
From 1991 to 1998, he served as President of Schumacher, a
leading global chemical equipment and services supplier to the
semiconductor industry. Throughout his career with Schumacher,
he held various executive positions, including Vice President of
Operations and Vice President of Sales and Marketing.
Mr. Mitchell is a director of FSI. Mr. Mitchell served
as the 1999/2000 Chairman of the Board of Directors for
Semiconductor Equipment and Materials International, a leading
global industry trade association and was a member of the Board
until July 2005. |
|
(4) |
|
Benno Sand has served as Executive Vice President, Business
Development and Investor Relations since January 2000. He has
served as Executive Vice President since January 1992 and
Secretary since March 2002. Mr. Sand also served as Chief
Administrative Officer from January 1998 to December 1999, as
Chief Financial Officer from October 1990 to January 1998, and
as Vice President of Finance from October 1987 to January 1992.
Mr. Sand is a director of various FSI-owned United States
and foreign subsidiaries, as well as Apprecia, MathStar, Inc.
and Digitiliti, Inc. |
PART II
20
|
|
ITEM 5.
|
MARKET
FOR THE REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
|
Our common stock is traded on the NASDAQ Global
Marketsm
under the symbol FSII. The following table sets
forth the highest and lowest daily sale prices, as reported by
the NASDAQ Global Market for the fiscal periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
|
High
|
|
Low
|
|
High
|
|
Low
|
|
Fiscal Quarter
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
|
|
$
|
1.21
|
|
|
$
|
0.31
|
|
|
$
|
2.73
|
|
|
$
|
1.70
|
|
Second
|
|
|
0.54
|
|
|
|
0.25
|
|
|
|
2.02
|
|
|
|
1.52
|
|
Third
|
|
|
0.55
|
|
|
|
0.20
|
|
|
|
1.82
|
|
|
|
1.25
|
|
Fourth
|
|
|
0.99
|
|
|
|
0.32
|
|
|
|
1.74
|
|
|
|
1.08
|
|
There were approximately 475 record holders of our common stock
on October 30, 2009.
We have never declared or paid cash dividends on our common
stock. We currently intend to retain all earnings for use in our
business and do not anticipate paying dividends in the
foreseeable future.*
|
|
ITEM 6.
|
SELECTED
CONSOLIDATED FINANCIAL DATA
|
The table that follows presents portions of our consolidated
financial statements and are not complete. You should read the
following selected consolidated financial data in conjunction
with our Consolidated Financial Statements and with
Managements Discussion and Analysis of Financial
Condition and Results of Operations included elsewhere in
this report. The Consolidated Statement of Operations data for
the years ended August 29, 2009, August 30, 2008 and
August 25, 2007, and the Consolidated Balance Sheet data as
of August 29, 2009 and August 30, 2008, are derived
from our audited consolidated financial statements, which are
included elsewhere in this report. The Consolidated Statements
of Operations data for the years ended August 26, 2006 and
August 27, 2005 and the Consolidated Balance Sheet data as
of August 25, 2007, August 26, 2006 and
August 27, 2005 are derived from our audited consolidated
financial statements which do not appear in this report. We
changed our accounting for stock compensation expense effective
August 28, 2005 in accordance with Statement of Financial
Accounting Standards (SFAS) No. 123R,
Share-Based Payment.
The historical results presented below are not necessarily
indicative of the results to be expected for any future fiscal
year or fiscal period.
Selected
Historical Financial Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
August 29,
|
|
August 30,
|
|
August 25,
|
|
August 26,
|
|
August 27,
|
|
|
2009(5)(9)
|
|
2008(5)(8)
|
|
2007(5)(7)
|
|
2006(5)
|
|
2005
|
|
|
(In thousands, except per share amounts)
|
|
Consolidated Statements of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
50,484
|
|
|
$
|
78,256
|
|
|
$
|
116,233
|
|
|
$
|
113,241
|
|
|
$
|
86,370
|
|
Gross margin(1)
|
|
|
16,427
|
|
|
|
32,985
|
|
|
|
47,123
|
|
|
|
52,850
|
|
|
|
39,994
|
|
Selling, general, and administrative expenses
|
|
|
19,504
|
|
|
|
29,012
|
|
|
|
34,542
|
|
|
|
36,218
|
|
|
|
35,291
|
|
Research and development expenses
|
|
|
14,674
|
|
|
|
18,962
|
|
|
|
24,086
|
|
|
|
24,321
|
|
|
|
22,078
|
|
Gain on sale of facility(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,015
|
|
Operating loss
|
|
|
(17,751
|
)
|
|
|
(14,989
|
)
|
|
|
(11,505
|
)
|
|
|
(7,689
|
)
|
|
|
(10,360
|
)
|
Gain on sale of marketable securities/(impairment of
investments)(3)(4)(6)(10)
|
|
|
110
|
|
|
|
(353
|
)
|
|
|
(4,088
|
)
|
|
|
(500
|
)
|
|
|
5,808
|
|
Equity in earnings (losses) of affiliates
|
|
|
|
|
|
|
|
|
|
|
27
|
|
|
|
(274
|
)
|
|
|
450
|
|
Net loss
|
|
$
|
(17,624
|
)
|
|
$
|
(13,639
|
)
|
|
$
|
(14,586
|
)
|
|
$
|
(7,287
|
)
|
|
$
|
(3,302
|
)
|
Loss per share diluted
|
|
$
|
(0.57
|
)
|
|
$
|
(0.45
|
)
|
|
$
|
(0.48
|
)
|
|
$
|
(0.24
|
)
|
|
$
|
(0.11
|
)
|
Weighted average common shares used in per share
calculations diluted
|
|
|
31,129
|
|
|
|
30,648
|
|
|
|
30,413
|
|
|
|
30,042
|
|
|
|
29,928
|
|
Consolidated Balance Sheets Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
63,685
|
|
|
$
|
87,653
|
|
|
$
|
101,404
|
|
|
$
|
127,544
|
|
|
$
|
123,461
|
|
Total long-term debt
|
|
|
|
|
|
|
|
|
|
|
616
|
|
|
|
|
|
|
|
|
|
Stockholders equity
|
|
|
50,657
|
|
|
|
67,658
|
|
|
|
80,766
|
|
|
|
93,972
|
|
|
|
99,136
|
|
Dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21
|
|
|
(1) |
|
We had sales of POLARIS system product inventory that had
previously been written down to zero with an original cost of
$0.6 million during fiscal 2009, $0.9 million during
fiscal 2008 and 2007, $2.1 million during fiscal 2006 and
$0.05 million during fiscal 2005. |
|
(2) |
|
During fiscal 2005, we recorded a $7.0 million gain on the
sale of the Allen, Texas facility. |
|
(3) |
|
During fiscal 2005, we recorded a gain of $5.8 million on
the Nortem (formerly Metron Technology) distributions. |
|
(4) |
|
During fiscal 2006, we recorded an impairment charge of
$0.5 million related to an investment in a Malaysian
foundry. |
|
(5) |
|
We recorded stock-based compensation expense of $52,000 in cost
of goods sold, $301,000 in selling, general and administrative
expenses and $129,000 in research and development expenses in
fiscal 2009, $43,000 in cost of goods sold, $401,000 in selling,
general and administrative expenses and $121,000 in research and
development expenses in fiscal 2008, $28,000 in cost of goods
sold, $439,000 in selling, general and administrative expenses
and $126,000 in research and development expenses during fiscal
2007 and $54,000 in cost of goods sold, $743,000 in selling,
general and administrative expenses and $342,000 in research and
development expenses during fiscal 2006. |
|
(6) |
|
During fiscal 2007, we recorded an impairment and loss on sale
of investment of $4.1 million related to transactions with
Apprecia. See Note 3 of the Notes to Consolidated Financial
Statements for a discussion of our ownership of Apprecia. |
|
(7) |
|
During fiscal 2007, we recorded severance and outplacement costs
of $296,000 to cost of goods sold, $923,000 to selling, general
and administrative expense and $592,000 to research and
development expense. See Note 17 of the Notes to
Consolidated Financial Statements for a discussion of these
costs. |
|
(8) |
|
During fiscal 2008, we recorded severance and outplacement costs
of $142,000 to cost of goods sold, $1,314,000 to selling,
general and administrative expense and $536,000 to research and
development expense. See Note 17 of the Notes to
Consolidated Financial Statements for a discussion of these
costs. |
|
(9) |
|
During fiscal 2009, we recorded severance and outplacement costs
of $604,000 to cost of goods sold, $1,133,000 to selling,
general and administrative expense and $875,000 to research and
development expense. See Note 17 of the Notes to
Consolidated Financial Statements for a discussion of these
costs. |
|
(10) |
|
During fiscal 2008, we recorded an other than temporary
impairment of $353,000 related to our investment in auction rate
securities. During fiscal 2009, $110,000 of this other than
temporary impairment was recovered through the sale of certain
auction rate securities. See Note 18 of the Notes to
Consolidated Financial Statements for a discussion of this
impairment. |
|
|
ITEM 7.
|
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
Application
of Critical Accounting Policies and Estimates
In accordance with Securities and Exchange Commission guidance,
those material accounting policies that we believe are the most
critical to an investors understanding of our financial
results and condition and require complex management judgment
are discussed below.
Our critical accounting policies and estimates are as follows:
|
|
|
|
|
revenue recognition;
|
|
|
|
valuation of long-lived assets;
|
|
|
|
estimation of valuation allowances and accrued liabilities,
specifically product warranty, inventory provisions and
allowance for doubtful accounts;
|
|
|
|
stock-based compensation; and
|
|
|
|
income taxes.
|
22
Revenue
Recognition
We recognize revenue when persuasive evidence of an arrangement
exists, delivery has occurred or services have been rendered,
the purchase price is fixed or determinable and collectibility
is reasonably assured. If our equipment sales involve sales to
our existing customers who have previously accepted the same
type(s) of equipment with the same type(s) of specifications, we
account for the product sales as a multiple element arrangement.
Revenue from multiple element arrangements is allocated among
the separate accounting units based on the residual method.
Under the residual method, the revenue is allocated to
undelivered elements based on fair value of such undelivered
elements and the residual amounts of revenue allocated to
delivered elements. We recognize the equipment revenue upon
shipment and transfer of title. The other multiple elements also
include installation, service contracts and training. Equipment
installation revenue is valued based on estimated service person
hours to complete installation and quoted service labor rates
and is recognized when the installation has been completed and
the equipment has been accepted by the customer. Service
contract revenue is valued based on estimated service person
hours to complete the service and published or quoted service
labor rates and is recognized over the contract period. Training
revenue is valued based on quoted training class prices and is
recognized when the customers complete the training classes or
when a customer-specific training period has expired. The quoted
service labor rates and training class prices are rates actually
charged and billed to our customers.
All other product sales with customer-specific acceptance
provisions are recognized upon customer acceptance. Future
revenues may be negatively impacted if we are unable to meet
customer-specific acceptance criteria. Revenue related to spare
part sales is recognized upon shipment or delivery based on the
title transfer terms. Revenues related to maintenance and
service contracts are recognized ratably over the duration of
such contracts.
The timing and amount of revenue recognized depends on whether
revenue is recognized upon shipment versus acceptance. For
revenue recognized upon acceptance, it is dependent upon when
customer-specific criteria are met.
Valuation
of Long-Lived Assets
We assess the impairment of long-lived assets whenever events or
changes in circumstances indicate that the carrying amount may
not be recoverable, in accordance with Financial Accounting
Standards Board (FASB) SFAS No. 144,
Accounting for the Impairment or Disposal of Long-Lived
Assets. An asset or asset group is considered impaired if
its carrying amount exceeds the undiscounted future net cash
flow the asset or asset group is expected to generate. If an
asset or asset group is considered to be impaired, the
impairment to be recognized is measured by the amount by which
the carrying amount of the asset exceeds its fair value. If
estimated fair value is less than the book value, the asset is
written down to the estimated fair value and an impairment loss
is recognized.
If we determine that the carrying amount of long-lived assets
may not be recoverable, we measure any impairment based on the
fair value of the long-lived assets. Net long-lived assets
amounted to $15.1 million as of August 29, 2009.
In fiscal 2009, we did not generate positive cash flows from
operations. If our long-term future plans do not yield positive
cash flows in excess of the carrying amount of our long-lived
assets, we would anticipate possible future impairments of those
assets.*
Considerable management judgment is necessary in estimating
future cash flows and other factors affecting the valuation of
long-lived assets, including intangible assets, including the
operating and macroeconomic factors that may affect them. We use
historical financial information, internal plans and projections
and industry information in making such estimates.
Product
Warranty
We record a liability for warranty claims at the time of sale.
The amount of the liability is based on the trend in the
historical ratio of claims to sales, releases of new products
and other factors. The warranty periods
23
for new equipment manufactured by us range from six months to
two years. Special warranty provisions are also accrued for
major rework campaigns. Although management believes the
likelihood to be relatively low, claims experience could be
materially different from actual results because of the
introduction of new, more complex products; competition or other
external forces; manufacturing changes that could impact product
quality; or as of yet unrecognized defects in products sold.
Warranty provisions and claims for the fiscal years ended
August 29, 2009, August 30, 2008, and August 27,
2007 were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
August 29,
|
|
|
August 30,
|
|
|
August 25,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Beginning balance
|
|
$
|
2,757
|
|
|
$
|
3,811
|
|
|
$
|
3,964
|
|
Warranty provisions
|
|
|
405
|
|
|
|
1,153
|
|
|
|
1,514
|
|
Warranty claims
|
|
|
(1,460
|
)
|
|
|
(2,207
|
)
|
|
|
(1,667
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
1,702
|
|
|
$
|
2,757
|
|
|
$
|
3,811
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventory
Provisions
We record provisions for inventory shrinkage and for potentially
excess, obsolete and slow moving inventory. The amounts of these
provisions are based upon historical loss trends, inventory
levels, physical inventory and cycle count adjustments, expected
product lives, forecasted sales demand and recoverability.
Results could be materially different if demand for our products
decreased because of economic or competitive conditions, length
of the industry downturn, or if products become obsolete because
of technical advancements in the industry or by us.
Since we recorded the POLARIS system product inventory
provisions as a result of the wind-down of our Microlithography
business in the second quarter of fiscal 2003, we have had sales
of POLARIS system product inventory that had previously been
written down to zero and reductions in inventory buyback
requirements of $11.3 million and have disposed of
$13.3 million of POLARIS system product inventory. The
original cost of POLARIS system product inventory available for
sale or to be disposed of as of August 29, 2009 that has
been written down to zero was approximately $1.8 million.
Allowance
for Doubtful Accounts
Management must make estimates of the uncollectibility of our
accounts receivable. The most significant risk is the risk of
sudden unexpected deterioration in the financial condition of a
significant customer who is not considered in the allowance.
Management specifically analyzes accounts receivable and
analyzes historical bad debts, customer concentrations, customer
credit-worthiness, current economic trends and changes in our
customer payment terms when evaluating the adequacy of the
allowance for doubtful accounts. Results could be materially
impacted if the financial condition of a significant customer
deteriorated and related accounts receivable are deemed
uncollectible. Accounts receivable are determined to be past due
based on payment terms and are charged off after management
determines that they are uncollectible. As of the end of fiscal
2009, our accounts receivable included $2.0 million
attributable to a past due receivable with a customer in Asia.
The customer has delayed payment due to their cash flow issues
and lower than expected capacity utilization. Management is
working on obtaining a letter of credit for the outstanding
amount with expected redemption in January 2010.* Management
still believes that this receivable is collectible and will
continue to monitor the situation closely.*
A rollforward of the allowance for doubtful accounts for the
fiscal years ended August 29, 2009, August 30, 2008
and August 25, 2007 is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
|
|
|
|
|
|
|
|
|
|
Balance at
|
|
|
Beginning of
|
|
|
|
Bad Debt
|
|
|
|
|
|
End of
|
|
|
Year
|
|
Recoveries
|
|
Expense
|
|
Adjustments
|
|
Write-offs
|
|
Year
|
|
Fiscal year ended August 29, 2009
|
|
$
|
128
|
|
|
$
|
(21
|
)
|
|
$
|
18
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
125
|
|
Fiscal year ended August 30, 2008
|
|
$
|
196
|
|
|
$
|
(68
|
)
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
128
|
|
Fiscal year ended August 25, 2007
|
|
$
|
520
|
|
|
$
|
(55
|
)
|
|
|
|
|
|
$
|
(43
|
)
|
|
$
|
(226
|
)
|
|
$
|
196
|
|
24
We collected $21,000 of receivables in fiscal 2009, $68,000 of
receivables in fiscal 2008 and $55,000 in fiscal 2007 that had
previously been written off resulting in credits to selling,
general and administrative expenses.
Stock-Based
Compensation
We implemented the fair value recognition provisions of
SFAS No. 123R effective August 28, 2005 using the
modified prospective method. Under this method, we recognize
compensation expense for all stock-based awards granted on or
after August 28, 2005 and for previously granted awards not
yet vested as of August 28, 2005. We recorded stock
compensation expense of $482,000 in fiscal 2009, $565,000 in
fiscal 2008 and $593,000 in fiscal 2007.
We utilize a Black-Scholes option-pricing model to estimate fair
value of each award on the date of grant. The Black-Scholes
model requires the input of certain assumptions that involve
management judgment. Key assumptions that affect the calculation
of fair value include the expected life of stock-based awards
and our stock price volatility. Additionally, we expense for
only those shares expected to vest. The assumptions used in
calculating the fair value of stock-based awards and the
forfeiture rate of such awards reflect managements best
estimates. However, circumstances may change and additional data
may become available over time, which could result in changes to
these assumptions that materially impact the fair value
determination of future awards or their estimated rate of
forfeiture. If factors change and we use different assumptions
in the application of SFAS 123R in future periods, the
compensation expense recorded under SFAS 123R may differ
significantly from the expense recorded in the current period.
See Note 12 of Notes to Consolidated Financial Statements
for additional information on stock-based compensation.
Income
Taxes
Our effective income tax rate is based on income, statutory tax
rates and tax planning opportunities available to us in the
various jurisdictions in which we operate. We have established
valuation allowances against a portion of the U.S. and
non-U.S. net
operating losses to reflect the uncertainty of our ability to
fully utilize these benefits given the limited carryforward
periods permitted by the various jurisdictions. The evaluation
of the realizability of our net operating losses requires the
use of considerable management judgment to estimate the future
taxable income for the various jurisdictions, for which the
ultimate amounts and timing of such estimates may differ. The
valuation allowance can also be impacted by changes in the tax
regulations.
Significant judgment is required in determining our unrecognized
tax benefits. We have established accruals using
managements best judgment and adjust these accruals as
warranted by changing facts and circumstances. A change in our
tax liabilities in any given period could have a significant
impact on our results of operations and cash flows for that
period.
We adopted the provisions of FASB Interpretation No. 48
(FIN 48), Accounting for Uncertainty in
Income Taxes an Interpretation of FASB Statement
No. 109, during the first quarter of fiscal 2008.
During fiscal 2009, the accrual for unrecognized tax benefits
decreased by $0.1 million as a result of a lapse of the
applicable statue of limitations. During fiscal 2008, we
effectively settled tax audits in foreign tax jurisdictions
which resulted in a $0.6 million decrease in the accrual
for unrecognized tax benefits. The benefit was partially offset
by state income tax expense and foreign tax expense.
Industry
Update
It appears that the global economic conditions that led to one
of the worst declines in the history of the microelectronic
industry may be slowly subsiding. However, even with the modest
improvement in semiconductor and semiconductor equipment
industry fundamentals that began in the summer of 2009, Gartner,
Inc., a leading equipment industry research group, recently
forecasted that calendar 2009 worldwide semiconductor revenue
will decrease 17.0 percent and equipment spending will
decrease 47.9 percent from the calendar 2008 levels.
25
Many semiconductor manufacturers are increasing their production
capacity as they experience improved factory utilization rates,
particularly foundries that provide outsourcing services for
logic device producers and microprocessor suppliers. It appears
that leading memory device manufacturers are continuing to spend
on equipment that enables technology advancement and increased
productivity. In general, equipment providers are optimistic
that as economic and industry conditions continue to improve,
capacity spending by memory manufacturers, driven by higher
utilization rates and better device pricing, quarterly spending
will begin to increase in 2010.*
As a result of the improving industry conditions, Gartner
recently forecasted that semiconductor revenues will grow
10.3 percent, to $233 billion, in calendar 2010, from
the expected $212 billion level in calendar 2009. Along
with higher chip unit prices, demand for smart phones, personal
computers and other consumer electronics are expected to fuel
the
year-over-year
growth. Gartner recently forecasted that equipment revenues will
increase 39.1 percent in calendar 2010, to
$22.2 billion, from the expected $16.0 billion level
in calendar 2009. In addition to continued logic capacity
spending, memory capacity additions are expected to contribute
to the
year-over-year
revenue increase.
Overview
Industry conditions began to improve during the fourth quarter
of fiscal 2009 as end-use electronic product demand started to
improve and semiconductor manufacturers continued to receive
restocking orders. Some of the product demand improvement was
driven by economic stimulus programs. With many of our customers
experiencing higher utilization of their factories, they
increased spending for spare parts and services during the
fourth quarter as compared to the third quarter of fiscal 2009.
The fiscal 2009 protracted industry downturn led to our
implementation of cost reductions in September 2008 and March
2009, including a reduction in our headcount by approximately
150 positions, representing 38 percent of our workforce as
of the end of fiscal 2008. In conjunction with the staff
reductions, we consolidated our European and U.S. sales and
service organizations to better serve our customers. In
addition, we transferred some of the activities from our Allen,
Texas facility to our Chaska, Minnesota facility and
significantly reduced the amount of space being leased in Allen.
The salary reductions implemented in January 2009 remain in
effect.
Despite the impact that weak economic conditions had upon the
industry and the Company during fiscal 2009, we accomplished
several key milestones, including:
|
|
|
|
|
Market share gains Worldwide revenues for
surface conditioning clean and dry equipment as reported by
Semiconductor Equipment and Materials Industry, a leading
industry organization, declined approximately 50 percent
from fiscal 2008 to fiscal 2009 while the Companys revenue
declined only approximately 36 percent over the same
period, reflecting a modest market share gain for the Company.
|
|
|
|
Improved earnings leverage From fiscal 2008
to fiscal 2009, through restructuring and other cost reduction
initiatives, the Company reduced its total operating expenses by
28.8 percent, thereby lowering its breakeven levels.
|
|
|
|
ORION®
acceptance The Company gained acceptance for its
ORION single wafer cleaning system, for both 45 and 32nm BEOL
applications, at a major U.S. semiconductor manufacturer
and shipped an evaluation FSI ORION system to a major Korean
producer for FEOL applications development, including the
Companys patented
ViPRtm
technology. Recently, the Company received a follow-on order for
an ORION system that will be used for 32nm production and 22nm
development.
|
|
|
|
ZETA®
market expansion The Company successfully placed
its ZETA ViPR batch spray cleaning system at several new
customers and expanded the number of applications and
manufacturing lines within customers that are utilizing the ZETA
ViPRtm
technology.
|
Going forward, the Company remains focused on aligning its cost
structure to support the anticipated revenue run rate increase
while funding the programs that provide the most significant
opportunity for near-
26
term revenue and future market share gains.* For a discussion of
our limited capital resources, see Liquidity and Capital
Resources below.
Results
of Operations
Sales
Revenue and Shipments
Fiscal 2009 sales revenue decreased to $50.5 million as
compared to $78.3 million in fiscal 2008. The decrease in
sales revenue in fiscal 2009 related to the decline in shipments
from $77.9 million in fiscal 2008 to $47.8 million in
fiscal 2009 associated with industry and global economic
conditions. Fiscal 2008 sales revenue decreased to
$78.3 million as compared to $116.2 million in fiscal
2007. The decrease in sales in fiscal 2008 related to the
decline in shipments from $116.9 million in fiscal 2007 to
$77.9 million in fiscal 2008 associated with industry
conditions.
Based upon our revenue recognition policy, certain shipments to
customers are not recognized until customer acceptance.
Therefore, depending on timing of shipments and customer
acceptances, there are time periods where shipments may exceed
sales revenue or due to timing of acceptances, sales revenue may
exceed shipments.
International sales were $35.8 million for fiscal 2009,
representing 71% of total sales during fiscal 2009,
$59.3 million for fiscal 2008, representing 76% of total
sales during fiscal 2008, and $79.6 million for fiscal
2007, representing 69% of total sales during fiscal 2007. The
decrease in fiscal 2009 international sales dollar amount as
compared to fiscal 2008 was related to decreases in sales in
Europe, Southeast Asia and Japan of $25.9 million,
partially offset by an increase of $2.4 million in Korea.
The decrease in fiscal 2008 international sales dollar amount as
compared to fiscal 2007 was related to decreases in Europe,
Southeast Asia and Japan of $21.6 million, partially offset
by an increase of $1.6 million in Korea. See Note 14
of the Notes to Consolidated Financial Statements for additional
information regarding our international sales.
We ended fiscal 2009 with a backlog of approximately
$7.9 million as compared to $5.6 million at the end of
fiscal 2008. Backlog consists of orders with delivery dates
within the next 12 months for which a customer purchase
order has been received. Because of the timing and relative size
of orders and the possibility of cancellations or customer
delays, backlog is not necessarily indicative of sales for
future periods.
We expect first quarter fiscal 2010 orders to be between
$15 million and $18 million.* This assumes the receipt
of several follow-on orders that are anticipated late in the
quarter.* We expect first quarter fiscal 2010 revenue to be in
the range of $13 million to $16 million, which assumes
continued increases in spares and service revenue along with
receipt of the anticipated follow-on orders in the first quarter
of fiscal 2010.*
Gross
Margin
Our gross profit margin fluctuates due to a number of factors,
including the mix of products sold; the geographic mix of
products sold, with international sales generally having lower
gross profit than domestic sales; initial product placement
discounts; utilization of manufacturing capacity; sales of
POLARIS system product inventory previously written down to
zero; and the competitive pricing environment.
Gross margin as a percentage of sales was 32.5% for fiscal 2009
as compared to 42.1% for fiscal 2008 and 40.5% for fiscal 2007.
The decrease in gross margin from fiscal 2008 to fiscal 2009
related primarily to a decrease in utilization of manufacturing
capacity in fiscal 2009 as compared to fiscal 2008 related to
the decline in shipments from $77.9 million in fiscal 2008
to $47.8 million in fiscal 2009. The increase in gross
margin from fiscal 2007 to fiscal 2008 related primarily to a
change in product mix in which the sale of spare parts and
service represented 34% of our total sales in fiscal 2008 as
compared to 26% in fiscal 2007, as spare parts and service
generally have higher margins. This positive impact was
partially offset by a decrease in utilization of manufacturing
capacity in fiscal 2008 as compared to fiscal 2007 related to
the decline in shipments from $116.9 million in fiscal 2007
to $77.9 million in fiscal 2008. Severance costs included
in cost of sales were $604,000 in fiscal 2009, $142,000 in
fiscal 2008 and $296,000 in fiscal 2007. We had sales of POLARIS
system inventory previously written down to zero of
$0.6 million in fiscal 2009 and $0.9 million in both
fiscal 2008 and 2007.
27
We will continue to try to sell the POLARIS system product
inventory that had previously been written down to zero to our
customers as spares, refurbished systems and upgrades to
existing systems. If unsuccessful, some of the items will be
disposed. Any material sales of the impaired inventory will be
disclosed. The original cost of POLARIS system product inventory
available for sale or to be disposed of as of August 29,
2009 that has been written down to zero was approximately
$1.8 million.
Due to an expected change in our product mix, partially offset
by improved factory utilization, we expect the gross profit
margins for the first quarter of fiscal 2010 to be approximately
38% to 40% of revenues.*
Selling,
General and Administrative Expenses
Selling, general and administrative expenses were
$19.5 million, or 38.6% of total sales, in fiscal 2009, as
compared to $29.0 million, or 37.1% of total sales, in
fiscal 2008 and $34.5 million, or 29.7% of total sales, in
fiscal 2007. The decrease in selling, general and administrative
dollar amount in fiscal 2009 as compared to fiscal 2008 related
primarily to the cost reduction initiatives associated with
reductions in headcount and salary reductions taken in fiscal
2009 and improved service technician utilization rates.
Severance costs included in fiscal 2009 selling, general and
administrative expense were $1.1 million. The decrease in
selling, general and administrative dollar amount in fiscal 2008
as compared to fiscal 2007 related to the decrease in sales and
the cost reduction initiatives associated with reductions in
headcount taken in the second half of fiscal 2007, partially
offset by realignment expenses of $1.3 million in fiscal
2008 compared to severance costs of $0.9 million in fiscal
2007.
Selling, general and administrative expenses for the first
quarter of fiscal 2010 are expected to be in the range of
$3.6 million to $3.8 million, as we experience the
full benefit of prior year cost reductions.*
Research
and Development Expenses
Research and development expenses for fiscal 2009 were
$14.7 million, or 29.1% of total sales, as compared to
$19.0 million, or 24.2% of total sales, in fiscal 2008, and
$24.1 million, or 20.7% of total sales, in fiscal 2007. The
decrease in dollar amount in fiscal 2009 as compared to fiscal
2008 related primarily to the cost reduction initiatives
associated with reductions in headcount and salary reductions
taken in fiscal 2009, partially offset by $0.9 million of
severance costs in fiscal 2009 as compared to $0.5 million
in fiscal 2008. The decrease in dollar amounts in fiscal 2008 as
compared to fiscal 2007 related primarily to cost reduction
efforts associated with headcount reductions taken in the second
half of fiscal 2007.
A significant portion of our fiscal 2009 research and
development resources were focused on broadening the
applications capabilities of our products and supporting
demonstrations and customer evaluations of our products.
We expect research and development expenses to range from
$2.6 million to $2.8 million for the first quarter of
fiscal 2010, as we continue to invest in our
ORION®
single wafer and
ZETA®
ViPRtm
programs and product cost reduction initiatives.*
Gain on
Sale of Marketable Securities/(Impairment of
Investments)
We recorded a gain on sale of marketable securities of $110,000
associated with ARS redemptions in fiscal 2009. We recorded an
other than temporary impairment of $353,000 in fiscal 2008
associated with our ARS. See further discussion related to ARS
transactions at Note 18 of Notes to Consolidated Financial
Statements. We recorded $4.1 million of impairment and loss
on the sale of investment in fiscal 2007 related to transactions
with Apprecia. See further discussion related to the
transactions and the impairment at Note 3 of the Notes to
Consolidated Financial Statements.
Income
Tax Expense
We recorded an income tax benefit of $84,000 in fiscal 2009
related primarily to R&D credit utilization in lieu of
bonus depreciation and the expiration of uncertain tax positions
as a result of a lapse of the applicable statue of limitations.
We recorded income tax benefit of $624,000 in fiscal 2008
related to uncertain
28
tax positions that were effectively settled with tax authorities
during fiscal 2008, partially offset by state income tax expense
and foreign tax expense. We recorded income tax expense of
$122,000 in fiscal 2007, primarily as a result of foreign and
state taxes. As of August 29, 2009 and August 30,
2008, we had $0.5 million and $0.6 million,
respectively, of liabilities recorded related to unrecognized
tax benefits. Accrued interest and penalties on these
unrecognized tax benefits were $0.1 million as of
August 29, 2009 and August 30, 2008. We recognize
potential interest and penalties related to income tax
positions, if any, as a component of provision for income taxes
on the consolidated statements of operations. Included in the
liability balance as of August 29, 2009 are approximately
$0.4 million of unrecognized tax benefits that, if
recognized, will affect our effective tax rate.
Our deferred tax assets on the balance sheet as of
August 29, 2009 have been fully reserved for with a
valuation allowance. We do not expect to reduce our valuation
allowance until we are consistently profitable on a quarterly
basis.*
We have net operating loss carryforwards for federal income tax
purposes of approximately $188.0 million at August 29,
2009, which will begin to expire in fiscal 2011 through fiscal
2030 if not utilized. Of this amount, approximately
$15.0 million is subject to Internal Revenue Code
Section 382 limitations on utilization, which limits the
amount that we can offset taxable income to approximately
$1.4 million per year.
Net
Loss
Net loss was $17.6 million in fiscal 2009 as compared to
$13.6 million in fiscal 2008 and $14.6 million in
fiscal 2007. The increase in net loss in fiscal 2009 as compared
to fiscal 2008 is primarily due to lower sales and gross margin
in fiscal 2009 and higher severance costs in fiscal 2009,
partially offset by lower operating expenses. The decrease in
net loss in fiscal 2008 as compared to fiscal 2007 is primarily
due to the impairment and loss on sale of investment of
$4.1 million related to transactions with Apprecia in
fiscal 2007 offset by lower sales in fiscal 2008. The decrease
in net loss in fiscal 2008 as compared to fiscal 2007 also
related to a net income tax benefit of $624,000 in fiscal 2008
as compared to income tax expense of $122,000 in fiscal 2007.
Based upon achieving anticipated revenue, gross margin and
operating expense levels, we expect to record a net loss of less
than $1.0 million in the first quarter of fiscal 2010.*
Liquidity
and Capital Resources
Our cash, restricted cash, cash equivalents and marketable
securities were approximately $12.0 million as of
August 29, 2009, a decrease of $10.8 million from the
end of fiscal 2008. The net decrease was primarily due to
$10.1 million used in operations, $0.3 million in
capital expenditures and $0.8 million of principal payments
on capital leases. The decreases were net of $0.2 million
of proceeds from the issuance of common stock.
As of August 29, 2009, we had investments in ARS reported
at a fair value of $4.5 million after reflecting a
$0.2 million other than temporary impairment against
$4.7 million par value. The other than temporary impairment
was recorded in fiscal 2008. We value the majority of our ARS
using a
mark-to-model
approach that relies on discounted cash flows, market data and
inputs derived from similar instruments. This model takes into
account, among other variables, the base interest rate, credit
spreads, downgrade risks and default/recovery risk, the
estimated time required to work out the disruption in the
traditional auction process and its effect on liquidity, and the
effects of insurance and other credit enhancements. However, we
value certain ARS based on the price at which the issuer offered
to repurchase such ARS in a conditional tender offer we received
in October 2008 from the issuer.
The ARS we hold are marketable securities with long-term stated
maturities for which the interest rates are reset every
28 days through an auction process. The auctions have
historically provided a liquid market for these securities as
investors historically could readily sell their investments at
auction. Due to the liquidity issues experienced in global
credit and capital markets, the ARS held by us have experienced
multiple failed auctions, beginning on February 19, 2008,
as the amount of securities submitted for sale has exceeded the
29
amount of purchase orders. During the second quarter of fiscal
2008, we reclassified $8.5 million of ARS from current
marketable securities to long-term marketable securities on the
condensed consolidated balance sheet due to difficulties
encountered at auction and the conditions in the general debt
markets, creating uncertainty as to when successful auctions may
be reestablished. During the third and fourth quarters of fiscal
2008, $0.8 million of ARS were partially redeemed. An
additional $3.0 million were redeemed in fiscal 2009.
All of the ARS held by us continue to carry investment grade
ratings and have not experienced any payment defaults. The
$4.7 million par value ARS held by us are backed by student
loans and are collateralized, insured and guaranteed by the
United States Federal Department of Education and are classified
as long-term. ARS that did not successfully auction reset to the
maximum interest rate as prescribed in the underlying indenture
and all of our holdings continue to be current with their
interest payments. If uncertainties in the credit and capital
markets continue, these markets deteriorate further or any ARS
we hold are downgraded by the rating agencies, the Company may
be required to recognize additional impairment charges.
In addition, these ARS may not provide the liquidity to us as we
need it, and it could take until the final maturity of the
underlying notes (from 26 to 34 years) to realize our
investments recorded value. Currently, there is a very
limited market for any of these securities and future
liquidations at this time, if possible, would likely be at a
significant discount.
Accounts receivable decreased $0.9 million from the end of
fiscal 2008. The decrease in trade accounts receivable related
primarily to the decrease in shipments from $13.0 million
in the fourth quarter of fiscal 2008 to $12.5 million in
the fourth quarter of fiscal 2009. The balance at the end of
fiscal 2009 included $2.0 million attributed to a past due
receivable with a customer in Asia. The customer has delayed
payment due to their cash flow issues and lower than expected
capacity utilization. We are working on obtaining a letter of
credit for the balance with expected payment in January 2010.
Trade receivables will fluctuate quarter to quarter depending on
individual customers timing of ship dates, payment terms
and cash flow conditions. In certain situations, extended
payment terms may be granted to customers.
Inventory decreased approximately $6.0 million to
$21.2 million at the end of fiscal 2009, as compared to
$27.2 million at the end of fiscal 2008. The decrease in
inventory related to decreases in work in process and raw
materials inventory attributable primarily to inventory
initiatives implemented during fiscal 2009. Inventory provisions
were $9.2 million at August 29, 2009, as compared to
provisions of $15.9 million at the end of fiscal 2008. The
decrease in inventory provisions related primarily to the
disposal of $8.2 million of excess and obsolete inventory
during fiscal 2009.
Trade accounts payable decreased approximately $1.1 million
to $3.2 million as of August 29, 2009, as compared to
$4.3 million at the end of fiscal 2008, related to the
timing of inventory receipts and vendor payments.
Deferred profit was $2.4 million at the end of fiscal 2009
and $3.9 million at the end of fiscal 2008. The decrease in
deferred profit related primarily to the timing of tool
acceptances.
As of August 29, 2009, our current ratio was 3.3 to 1.0,
and working capital was $29.3 million.
The following table provides aggregate information about our
contractual payment obligations and the periods in which
payments are due (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period
|
|
|
|
|
|
|
Less than
|
|
|
1-3
|
|
|
3-5
|
|
|
More than
|
|
Contractual Obligations
|
|
Total
|
|
|
1 Year
|
|
|
Years
|
|
|
Years
|
|
|
5 Years
|
|
|
Operating Lease Obligations
|
|
$
|
1,055
|
|
|
$
|
591
|
|
|
$
|
428
|
|
|
$
|
25
|
|
|
$
|
11
|
|
Purchase Obligations
|
|
|
3,653
|
|
|
|
3,653
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Royalty Obligations
|
|
|
226
|
|
|
|
226
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Long-Term Obligations(1)
|
|
|
1,368
|
|
|
|
118
|
|
|
|
500
|
|
|
|
500
|
|
|
|
250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
6,302
|
|
|
$
|
4,588
|
|
|
$
|
928
|
|
|
$
|
525
|
|
|
$
|
261
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30
|
|
|
(1) |
|
Other long-term obligations represent payments related to
minimum royalty payments or discounts granted under a license
agreement. |
The contractual obligations table above does not include
$0.5 million accruals for unrecognized tax benefits, as the
timing of payments or reversals is uncertain.
Capital expenditures were $0.3 million in fiscal 2009,
$1.7 million in fiscal 2008, and $1.6 million in
fiscal 2007. We expect capital expenditures to be less than
$400,000 in the first quarter of fiscal 2010, primarily
associated with the buyout of a lease for laboratory equipment.*
Depreciation is expected to be between approximately
$0.6 million and $0.7 million in the first quarter of
fiscal 2010.*
In October 2008, we authorized the use of up to $3 million
of our cash to repurchase outstanding shares of our common stock
to be effected from time to time in transactions in the public
markets or in private purchases. The timing and extent of any
repurchases will depend upon market conditions, the trading
price of our shares and other factors, subject to the
restrictions relating to volume, price and timing of share
repurchases under applicable law. The repurchase program may be
modified, suspended or terminated at any time by us without
notice. We did not repurchase any of our common stock in fiscal
2009.
In light of our financial condition, we implemented a number of
cost reduction steps in fiscal 2009 to reduce our use of cash,
as discussed in Note 17 of the Notes to Condensed
Consolidated Financial Statements. Our cost reduction actions in
fiscal 2009 are expected to lower our annual operating expenses
by $11 to $12 million, which is expected to reduce our cash
flow breakeven revenue level to approximately $12 to
$14 million per quarter, depending on the gross margins and
the timing of shipments and accounts receivable collections.* In
addition, we plan to manage cash flows by reducing capital
expenditures to less than $500,000 in fiscal 2010 and to
aggressively improve our working capital levels in the second
half of fiscal 2010.* Management believes that these actions
will allow us to have sufficient cash to fund our operations
through at least fiscal 2010.*
We do not have any revolving line of credit or other form of
debt financing. If the economic environment does not improve in
early fiscal 2010 and, notwithstanding our cash management
initiatives, more cash is needed to fund operations than
expected, we may need to take additional actions.* These
actions could include additional cost reduction measures and
possible cash generating activities, including exploring a
sale-leaseback arrangement for our Chaska, Minnesota facility,
entering into an asset-based lending arrangement, borrowing up
to $3.2 million against or liquidating our remaining life
insurance investments of $3.5 million, borrowing up to 50%
against or selling some or all of our currently illiquid ARS,
possibly at a loss, or selling additional equity.* We can
provide no assurance that any of these cash-generating
activities will be available to us when needed, or if available,
on such terms that will be acceptable or in sufficient amounts
to cover our operating expenses at such time. The sale of
additional equity would likely result in additional dilution to
our shareholders.* In addition, without substantial
available capital, we may be unable to take advantage of
strategic opportunities as they arise, such as investments in or
acquisitions of businesses, products or technologies.*
At the expected revenue and expense run rate, we anticipate
using less than $2.0 million of cash for operations in the
first quarter of fiscal 2010.* We believe that with existing
cash, cash receipts, cash equivalents, marketable securities and
internally generated funds, there will be sufficient funds to
meet our currently projected working capital requirements, and
to meet other cash requirements through at least fiscal 2010.*
We believe that success in our industry requires substantial
capital to maintain the flexibility to take advantage of
opportunities as they arise. One of our strategic objectives is,
as market and business conditions warrant, to consider
divestitures, investments or acquisitions of businesses,
products or technologies. We may fund such activities with
additional equity or debt financing.* The sale of additional
equity or debt securities, whether to maintain flexibility or to
meet strategic objectives, could result in additional dilution
to our shareholders.*
Off-Balance
Sheet Arrangements
We do not have any off balance sheet arrangements.
31
New
Accounting Pronouncements
In September 2006, the FASB issued SFAS No. 157,
Fair Value Measurements. SFAS No. 157
establishes a single authoritative definition of fair value,
sets out a framework for measuring fair value and requires
additional disclosures about fair-value measurements. This
statement applies only to fair-value measurements that are
already required or permitted by other accounting standards,
except for measurements of share-based payments and measurements
that are similar to, but not intended to be, fair value. This
statement is expected to increase the consistency of fair value
measurements, but imposes no requirements for additional
fair-value measures in financial statements. The provisions
under SFAS No. 157 were effective for us beginning in
the first quarter of fiscal 2009. The adoption of this
pronouncement did not have an impact on our consolidated
financial statements.
In February 2007, the FASB issued SFAS No. 159,
The Fair Value Option for Financial Assets and Financial
Liabilities. SFAS No. 159 amends
SFAS No. 115, Accounting for Certain Investments
in Debt and Equity Securities, and permits entities to
choose to measure many financial instruments and certain other
items at fair value. SFAS No. 159 was effective for us
beginning in the first quarter of fiscal 2009. We do not measure
any of our financial instruments at fair value as permitted
under SFAS 159.
In December 2007, the FASB issued SFAS 141 (revised 2007)
(SFAS 141R), Business Combinations,
and SFAS 160, Noncontrolling Interests in
Consolidated Financial Statements, to improve, simplify,
and converge internationally the accounting for business
combinations and the reporting of noncontrolling interests in
consolidated financial statements, respectively. The provisions
of SFAS 141R and SFAS 160 are effective for us
beginning in the first quarter of fiscal 2010. We do not expect
the adoption of these pronouncements to have an impact on our
consolidated financial statements.
In April 2009, the FASB issued FASB Staff Position
(FSP),
FAS 115-2
and
FAS 124-2,
Recognition and Presentation of
Other-Than-Temporary
Impairments (FSP
FAS 115-2
and
FAS 124-2),
which amends current
other-than-temporary
impairment guidance in generally accepted accounting principles
in the United States for debt securities to make the guidance
more operational and to improve the presentation and disclosure
of
other-than-temporary
impairments on debt and equity securities in the financial
statements. This FSP does not amend existing recognition and
measurement guidance related to
other-than-temporary
impairments of equity securities. The provisions of FSP
FAS 115-2
and
FAS 124-2
are effective for our fiscal year ending August 29, 2009.
The implementation of FSP
FAS 115-2
and
FAS 124-2
did not have an impact on our financial position and results of
operations.
In May 2009, the FASB issued SFAS No. 165, Subsequent
Events. SFAS No. 165 is intended to establish general
standards of accounting for and disclosure of events that occur
after the balance sheet date but before financial statements are
issued or are available to be issued. This SFAS requires the
disclosure of the date through which an entity has evaluated
subsequent events and the basis for that date. The disclosure
requirement under this SFAS is effective for our annual
reporting for our fiscal year ending August 29, 2009. We
evaluated subsequent events through the date and time the
financial statements were issued on November 12, 2009.
In June 2009, the FASB issued SFAS No. 168, The
FASB Accounting Standards Codification and the Hierarchy of
Generally Accepted Accounting Principles-a replacement of FASB
Statement No. 162. SFAS No. 168 establishes
the FASB Accounting Standards Codification as the source of
authoritative accounting principles and the framework for
selecting the principles used in the preparation of financial
statements of nongovernmental entities that are presented in
conformity with generally accepted accounting principles in the
United States. This SFAS is effective for our fiscal 2010 first
quarter. This SFAS is not expected to have a material impact on
our consolidated financial statements.
On September 23, 2009, the FASB reached a consensus on two
new pronouncements, Emerging Issues Task Force
(EITF)
No. 08-1,
Revenue Arrangements with Multiple Deliverables
(previously titled, Revenue Recognition for a Single Unit
of Accounting) and EITF
No. 09-3,
Applicability of Statement of Position
97-2 to
Certain Arrangements That Include Software Elements. These
new pronouncements are effective for revenue arrangements
entered into or materially modified in fiscal years beginning on
or after
32
June 15, 2010. Early adoption is permitted and we are
evaluating the timing of adoption and the impact that adoption
of these EITFs will have on our consolidated financial
statements.
|
|
ITEM 7A.
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
Our cash flows and earnings are subject to fluctuations in
foreign exchange rates due to certain foreign investments. As of
August 29, 2009, our investments included a 100% interest
in our Europe and Asia sales and service offices and a 20%
interest in Apprecia Technology, Inc. (formerly known as
mFSI LTD), which operates in Japan. We denominate the
majority of our sales outside of the U.S. in
U.S. dollars.
We have direct sales, service and applications support and
logistics responsibilities for our products in Europe and the
Asia-Pacific regions and incur labor, service and other expenses
in foreign currencies. As a result, we may be exposed to
fluctuations in foreign exchange rate risks.* As of
August 29, 2009, we had not entered into any hedging
activities and our foreign currency transaction gains and losses
for fiscal 2009 were insignificant. We are currently evaluating
various hedging activities and other options to minimize these
risks.
We do not have significant exposure to changing interest rates
as we currently have no material long-term debt. As of the end
of fiscal 2009, amortized cost approximated market value for all
outstanding marketable securities. We do not undertake any
specific actions to cover our exposure to interest rate risk and
we are not party to any interest rate risk management
transactions. The impact on loss before income taxes of a 1%
change in short-term interest rates would be approximately
$120,000 based on our cash, restricted cash, cash equivalents
and marketable securities balances as of August 29, 2009.
As of August 29, 2009, our investment portfolio included
ARS reported at a fair value of $4.5 million after
reflecting a $0.2 million other than temporary impairment
against $4.7 million par value. The other than temporary
impairment was recorded in fiscal 2008. The interest rates of
our ARS are reset every 28 days through an auction process
and at the end of each reset period, investors can sell or
continue to hold the securities at par.
The ARS held by us are backed by student loans and are
collateralized, insured and guaranteed by the United States
Federal Department of Education. All ARS held by us are rated by
the major independent rating agencies and carry investment grade
ratings and have not experienced any payment defaults.
All of our ARS have experienced failed auctions due to sell
orders exceeding buy orders. These failures are not believed to
be a credit issue, but rather reflect a lack of liquidity in the
market for these securities. Under the contractual terms, the
issuer is obligated to pay penalty interest rates should an
auction fail. In the event we need to access funds associated
with failed auctions, they are not expected to be accessible
until a successful auction occurs, the issuer redeems the issue,
a buyer is found outside of the auction process or the
underlying securities have matured and are paid upon maturity in
accordance with their terms.
We determined and recorded an other than temporary impairment of
approximately $0.4 million as of August 28, 2008.
Approximately $0.1 million of this other than temporary
impairment was reversed in fiscal 2009 associated with the
redemption of approximately $3.0 million ARS at par. If the
issuers of the ARS are unable to successfully close future
auctions or do not redeem the ARS, or the United States
government fails to support its guaranty of the obligations, we
may be required to record additional impairment charges.
33
|
|
ITEM 8.
|
FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA
|
FSI
INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF OPERATIONS
Years ended August 29, 2009, August 30, 2008 and
August 25, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands, except per share amounts)
|
|
|
Sales (including sales to affiliates of $0, $0, and $5,355,
respectively)
|
|
$
|
50,484
|
|
|
$
|
78,256
|
|
|
$
|
116,233
|
|
Cost of goods sold
|
|
|
34,057
|
|
|
|
45,271
|
|
|
|
69,110
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
|
16,427
|
|
|
|
32,985
|
|
|
|
47,123
|
|
Selling, general and administrative expenses
|
|
|
19,504
|
|
|
|
29,012
|
|
|
|
34,542
|
|
Research and development expenses
|
|
|
14,674
|
|
|
|
18,962
|
|
|
|
24,086
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(17,751
|
)
|
|
|
(14,989
|
)
|
|
|
(11,505
|
)
|
Interest expense
|
|
|
(41
|
)
|
|
|
(144
|
)
|
|
|
(196
|
)
|
Interest income
|
|
|
261
|
|
|
|
918
|
|
|
|
916
|
|
Gain on sale of marketable securities (impairment of investments)
|
|
|
110
|
|
|
|
(353
|
)
|
|
|
(4,088
|
)
|
Other (expense) income, net
|
|
|
(287
|
)
|
|
|
305
|
|
|
|
382
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
|
(17,708
|
)
|
|
|
(14,263
|
)
|
|
|
(14,491
|
)
|
Income tax (benefit) expense
|
|
|
(84
|
)
|
|
|
(624
|
)
|
|
|
122
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before equity in earnings of affiliate
|
|
|
(17,624
|
)
|
|
|
(13,639
|
)
|
|
|
(14,613
|
)
|
Equity in earnings of affiliate
|
|
|
|
|
|
|
|
|
|
|
27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(17,624
|
)
|
|
$
|
(13,639
|
)
|
|
$
|
(14,586
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per share
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.57
|
)
|
|
$
|
(0.45
|
)
|
|
$
|
(0.48
|
)
|
Diluted
|
|
$
|
(0.57
|
)
|
|
$
|
(0.45
|
)
|
|
$
|
(0.48
|
)
|
Weighted average common shares basic
|
|
|
31,129
|
|
|
|
30,648
|
|
|
|
30,413
|
|
Weighted average common shares diluted
|
|
|
31,129
|
|
|
|
30,648
|
|
|
|
30,413
|
|
The accompanying notes are an integral part of the consolidated
financial statements.
34
FSI
INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
August 29,
|
|
|
August 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
6,760
|
|
|
$
|
14,788
|
|
Restricted cash
|
|
|
818
|
|
|
|
275
|
|
Marketable securities
|
|
|
|
|
|
|
850
|
|
Trade accounts receivable, less allowance for doubtful accounts
of $125 and $128, respectively
|
|
|
8,697
|
|
|
|
9,614
|
|
Inventories, net
|
|
|
21,171
|
|
|
|
27,169
|
|
Other receivables
|
|
|
2,624
|
|
|
|
4,813
|
|
Prepaid expenses and other current assets
|
|
|
1,710
|
|
|
|
3,339
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
41,780
|
|
|
|
60,848
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
|
15,147
|
|
|
|
18,266
|
|
Restricted cash
|
|
|
|
|
|
|
500
|
|
Long-term marketable securities
|
|
|
4,458
|
|
|
|
6,447
|
|
Investment
|
|
|
460
|
|
|
|
460
|
|
Intangible assets, net
|
|
|
|
|
|
|
61
|
|
Other assets
|
|
|
1,840
|
|
|
|
1,071
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
63,685
|
|
|
$
|
87,653
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Trade accounts payable
|
|
$
|
3,170
|
|
|
$
|
4,305
|
|
Accrued expenses
|
|
|
6,972
|
|
|
|
10,392
|
|
Current portion of capital lease obligations
|
|
|
|
|
|
|
841
|
|
Customer deposits
|
|
|
12
|
|
|
|
7
|
|
Deferred profit
|
|
|
2,362
|
|
|
|
3,867
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
12,516
|
|
|
|
19,412
|
|
Long-term accrued expenses
|
|
|
512
|
|
|
|
583
|
|
Commitments and contingencies (Notes 4 and 19)
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
Preferred stock, no par value; 9,700 shares authorized;
none issued and outstanding
|
|
|
|
|
|
|
|
|
Series A Junior Participating Preferred stock, no par
value; 300 shares authorized; none issued and outstanding
|
|
|
|
|
|
|
|
|
Common stock, no par value; 50,000 shares authorized;
issued and outstanding, 31,636 and 30,839 shares,
respectively
|
|
|
226,562
|
|
|
|
226,352
|
|
Accumulated deficit
|
|
|
(177,591
|
)
|
|
|
(159,967
|
)
|
Accumulated other comprehensive loss
|
|
|
(1,027
|
)
|
|
|
(997
|
)
|
Other stockholders equity
|
|
|
2,713
|
|
|
|
2,270
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
50,657
|
|
|
|
67,658
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
63,685
|
|
|
$
|
87,653
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the consolidated
financial statements.
35
FSI
INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY AND
COMPREHENSIVE LOSS
Years ended August 29, 2009,
August 30, 2008 and August 25, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
|
|
|
Other
|
|
|
Other
|
|
|
|
|
|
|
Number of
|
|
|
|
|
|
Accumulated
|
|
|
Comprehensive
|
|
|
Stockholders
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Deficit
|
|
|
(Loss) Income
|
|
|
Equity
|
|
|
Total
|
|
|
|
(In thousands)
|
|
|
Balance August 26, 2006
|
|
|
30,309
|
|
|
$
|
225,169
|
|
|
$
|
(132,052
|
)
|
|
$
|
(218
|
)
|
|
$
|
1,073
|
|
|
$
|
93,972
|
|
Cumulative effect adjustment as a result of the adoption of
SAB 108
|
|
|
|
|
|
|
|
|
|
|
310
|
|
|
|
|
|
|
|
|
|
|
|
310
|
|
Stock issuance
|
|
|
236
|
|
|
|
805
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
805
|
|
Comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(357
|
)
|
|
|
|
|
|
|
(357
|
)
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
(14,586
|
)
|
|
|
|
|
|
|
|
|
|
|
(14,586
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(14,943
|
)
|
Stock compensation expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
622
|
|
|
|
622
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance August 25, 2007
|
|
|
30,545
|
|
|
|
225,974
|
|
|
|
(146,328
|
)
|
|
|
(575
|
)
|
|
|
1,695
|
|
|
|
80,766
|
|
Stock issuance
|
|
|
294
|
|
|
|
378
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
378
|
|
Comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(422
|
)
|
|
|
|
|
|
|
(422
|
)
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
(13,639
|
)
|
|
|
|
|
|
|
|
|
|
|
(13,639
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(14,061
|
)
|
Stock compensation expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
575
|
|
|
|
575
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance August 30, 2008
|
|
|
30,839
|
|
|
|
226,352
|
|
|
|
(159,967
|
)
|
|
|
(997
|
)
|
|
|
2,270
|
|
|
|
67,658
|
|
Stock issuance
|
|
|
797
|
|
|
|
210
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
210
|
|
Comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(30
|
)
|
|
|
|
|
|
|
(30
|
)
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
(17,624
|
)
|
|
|
|
|
|
|
|
|
|
|
(17,624
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(17,654
|
)
|
Stock compensation expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
443
|
|
|
|
443
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance August 29, 2009
|
|
|
31,636
|
|
|
$
|
226,562
|
|
|
$
|
(177,591
|
)
|
|
$
|
(1,027
|
)
|
|
$
|
2,713
|
|
|
$
|
50,657
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the consolidated
financial statements.
36
FSI
INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended August 29, 2009,
August 30, 2008 and August 25, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Operating Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(17,624
|
)
|
|
$
|
(13,639
|
)
|
|
$
|
(14,586
|
)
|
Adjustments to reconcile net loss to net cash provided by (used
in)
|
|
|
|
|
|
|
|
|
|
|
|
|
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock compensation expense
|
|
|
482
|
|
|
|
565
|
|
|
|
593
|
|
Gain on sale of marketable securities/impairment of investments
|
|
|
(110
|
)
|
|
|
353
|
|
|
|
4,088
|
|
Depreciation
|
|
|
3,398
|
|
|
|
3,818
|
|
|
|
3,663
|
|
Amortization
|
|
|
61
|
|
|
|
436
|
|
|
|
508
|
|
Equity in earnings of affiliate
|
|
|
|
|
|
|
|
|
|
|
(27
|
)
|
Loss (gain) on sale or disposal of equipment
|
|
|
46
|
|
|
|
9
|
|
|
|
(17
|
)
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted cash
|
|
|
(43
|
)
|
|
|
(124
|
)
|
|
|
(6
|
)
|
Trade accounts receivable
|
|
|
916
|
|
|
|
7,995
|
|
|
|
5,564
|
|
Inventories
|
|
|
5,998
|
|
|
|
2,455
|
|
|
|
6,057
|
|
Prepaid expenses and other current assets
|
|
|
2,933
|
|
|
|
(650
|
)
|
|
|
3,837
|
|
Trade accounts payable
|
|
|
(1,135
|
)
|
|
|
846
|
|
|
|
(5,345
|
)
|
Accrued expenses
|
|
|
(3,530
|
)
|
|
|
(307
|
)
|
|
|
(3,520
|
)
|
Customer deposits
|
|
|
5
|
|
|
|
(1,299
|
)
|
|
|
(4,102
|
)
|
Deferred profit
|
|
|
(1,505
|
)
|
|
|
536
|
|
|
|
(817
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by operating activities
|
|
|
(10,108
|
)
|
|
|
994
|
|
|
|
(4,110
|
)
|
Investing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(325
|
)
|
|
|
(1,702
|
)
|
|
|
(1,590
|
)
|
Purchases of marketable securities
|
|
|
|
|
|
|
(49,650
|
)
|
|
|
(85,850
|
)
|
Sales of marketable securities
|
|
|
2,950
|
|
|
|
50,800
|
|
|
|
88,150
|
|
Proceeds from sale of investment
|
|
|
|
|
|
|
|
|
|
|
1,238
|
|
Dividend from affiliate
|
|
|
|
|
|
|
|
|
|
|
2,047
|
|
Decrease (increase) in other assets
|
|
|
116
|
|
|
|
128
|
|
|
|
(39
|
)
|
Proceeds from sale of property, plant and equipment
|
|
|
|
|
|
|
|
|
|
|
17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
2,741
|
|
|
|
(424
|
)
|
|
|
3,973
|
|
Financing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net proceeds from issuance of common stock
|
|
|
210
|
|
|
|
378
|
|
|
|
805
|
|
Increase in restricted cash
|
|
|
|
|
|
|
|
|
|
|
(500
|
)
|
Principle payments on capital leases
|
|
|
(841
|
)
|
|
|
(778
|
)
|
|
|
(511
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(631
|
)
|
|
|
(400
|
)
|
|
|
(206
|
)
|
Effect of exchange rate on cash
|
|
|
(30
|
)
|
|
|
(422
|
)
|
|
|
(289
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Decrease in cash and cash equivalents
|
|
|
(8,028
|
)
|
|
|
(252
|
)
|
|
|
(632
|
)
|
Cash and cash equivalents at beginning of year
|
|
|
14,788
|
|
|
|
15,040
|
|
|
|
15,672
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
$
|
6,760
|
|
|
$
|
14,788
|
|
|
$
|
15,040
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the consolidated
financial statements.
37
FSI
INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
|
|
(1)
|
Description
of Business and Summary of Significant Accounting
Policies
|
Description
of Business
FSI International, Inc. (the Company) is a global
supplier of surface conditioning equipment (process equipment
used to etch and clean organic and inorganic materials from the
surface of a silicon wafer) and technology and support services
for microelectronics manufacturing. The Companys broad
portfolio of batch and single-wafer cleaning products includes
process technologies for immersion (a method used to clean
silicon wafers by immersing the wafer in multiple tanks filled
with process chemicals), spray (sprays chemical mixtures, water
and nitrogen in a variety of sequences on to the microelectronic
substrate), vapor (utilizes gas phase chemistries to selectively
remove sacrificial surface films) and CryoKinetic (a momentum
transfer process used to remove non-chemically bonded particles
from the surface of a microelectronic device). The
Companys support services programs provide product and
process enhancements to extend the life of installed FSI
equipment.
The Companys customers include microelectronics
manufacturers located throughout North America, Europe, Japan
and the Asia Pacific region.
Principles
of Consolidation
The accompanying consolidated financial statements include the
accounts of FSI International, Inc. and its wholly owned
subsidiaries, FSI International Asia, Ltd., FSI International
Semiconductor Equipment Pte. Ltd., FSI International (France)
SARL, FSI International (Germany) GmbH, FSI International
(Italy) S.r.l., FSI International (Holding) B.V., FSI
International (Netherlands) B.V., FSI International (UK)
Limited, FSI International (Shanghai) Co., Ltd., FSI
International (Korea) Co., Ltd., FSI International Israel, Ltd.,
SCD Mountain View, Inc., and Semiconductor Systems, Inc. All
intercompany balances and transactions have been eliminated in
consolidation. During fiscal 2007, the Company closed its branch
office, FSI Malaysia SDN GHD.
The Companys fiscal year ends on the last Saturday in
August and is comprised of 52 or 53 weeks. Fiscal 2009
consisted of a 52-week period. Fiscal 2008 consisted of a
53-week period and fiscal 2007 consisted of a 52-week period.
New
Accounting Pronouncements
In September 2006, the Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting
Standards (SFAS) No. 157, Fair Value
Measurements. SFAS No. 157 establishes a single
authoritative definition of fair value, sets out a framework for
measuring fair value and requires additional disclosures about
fair-value measurements. This statement applies only to
fair-value measurements that are already required or permitted
by other accounting standards, except for measurements of
share-based payments and measurements that are similar to, but
not intended to be, fair value. This statement is expected to
increase the consistency of fair value measurements, but imposes
no requirements for additional fair-value measures in financial
statements. The provisions under SFAS No. 157 were
effective for the Company beginning in the first quarter of
fiscal 2009. The adoption of this pronouncement did not have an
impact on the Companys consolidated financial statements.
In February 2007, the FASB issued SFAS No. 159,
The Fair Value Option for Financial Assets and Financial
Liabilities. SFAS No. 159 amends
SFAS No. 115, Accounting for Certain Investments
in Debt and Equity Securities, and permits entities to
choose to measure many financial instruments and certain other
items at fair value. SFAS No. 159 was effective for
the Company beginning in the first quarter of fiscal 2009. The
Company does not measure any of its financial instruments at
fair value as permitted under SFAS 159.
38
FSI
INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
In December 2007, the FASB issued SFAS 141 (revised 2007)
(SFAS 141R), Business Combinations,
and SFAS 160, Noncontrolling Interests in
Consolidated Financial Statements, to improve, simplify,
and converge internationally the accounting for business
combinations and the reporting of noncontrolling interests in
consolidated financial statements, respectively. The provisions
of SFAS 141R and SFAS 160 are effective for the
Company beginning in the first quarter of fiscal 2010. The
Company does not expect the adoption of these pronouncements to
have an impact on its consolidated financial statements.
In April 2009, the FASB issued FASB Staff Position
(FSP),
FAS 115-2
and
FAS 124-2,
Recognition and Presentation of Other-Than-Temporary
Impairments (FSP
FAS 115-2
and
FAS 124-2),
which amends current other-than-temporary impairment guidance in
generally accepted accounting principles in the United States
(U.S. GAAP) for debt securities to make the
guidance more operational and to improve the presentation and
disclosure of other-than-temporary impairments on debt and
equity securities in the financial statements. This FSP does not
amend existing recognition and measurement guidance related to
other-than-temporary impairments of equity securities. The
provisions of FSP
FAS 115-2
and
FAS 124-2
are effective for the Companys fiscal year ending
August 29, 2009. The implementation of FSP
FAS 115-2
and
FAS 124-2
did not have an impact on the Companys financial position
and results of operations.
In May 2009, the FASB issued SFAS No. 165, Subsequent
Events. SFAS No. 165 is intended to establish general
standards of accounting for and disclosure of events that occur
after the balance sheet date but before financial statements are
issued or are available to be issued. This SFAS requires the
disclosure of the date through which an entity has evaluated
subsequent events and the basis for that date. The disclosure
requirement under this SFAS is effective for the Companys
annual reporting for its fiscal year ending August 29,
2009. The Company evaluated subsequent events through the date
and time the financial statements were issued on
November 12, 2009.
In June 2009, the FASB issued SFAS No. 168, The
FASB Accounting Standards Codification and the Hierarchy of
Generally Accepted Accounting Principles-a replacement of FASB
Statement No. 162. SFAS No. 168 establishes
the FASB Accounting Standards Codification as the source of
authoritative accounting principles and the framework for
selecting the principles used in the preparation of financial
statements of nongovernmental entities that are presented in
conformity with generally accepted accounting principles in the
United States. This SFAS is effective for the Companys
fiscal 2010 first quarter. This SFAS is not expected to have a
material impact on the Companys consolidated financial
statements.
On September 23, 2009, the FASB reached a consensus on two
new pronouncements, Emerging Issues Task Force
(EITF)
No. 08-1,
Revenue Arrangements with Multiple Deliverables
(previously titled, Revenue Recognition for a Single Unit
of Accounting) and EITF
No. 09-3,
Applicability of Statement of Position
97-2 to
Certain Arrangements That Include Software Elements. These
new pronouncements are effective for revenue arrangements
entered into or materially modified in fiscal years beginning on
or after June 15, 2010. Early adoption is permitted and the
Company is evaluating the timing of adoption and the impact that
adoption of these EITFs will have on its consolidated financial
statements.
Revenue
Recognition
The Company recognizes revenue when persuasive evidence of an
arrangement exists, delivery has occurred or services have been
rendered, the purchase price is fixed or determinable and
collectibility is reasonably assured. If the Companys
equipment sales involve sales to its existing customers who have
previously accepted the same type(s) of equipment with the same
type(s) of specifications, the Company accounts for the product
sale as a multiple element arrangement. Revenue from multiple
element arrangements is allocated among the separate accounting
units based on the residual method. Under the residual method,
the revenue is allocated to undelivered elements based on fair
value of such undelivered elements and the residual amounts of
revenue allocated to delivered elements. The Company recognizes
the equipment revenue upon shipment and transfer of title. The
other elements may include installation, service contracts and
training.
39
FSI
INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Equipment installation revenue is valued based on estimated
service person hours to complete installation and quoted service
labor rates and is recognized when the labor has been completed
and the equipment has been accepted by the customer. Service
contract revenue is valued based on estimated service person
hours to complete the service and quoted service labor rates and
is recognized over the contract period. Training revenue is
valued based on quoted training class prices and is recognized
when the customers complete the training classes or when a
customer-specific training period has expired. The quoted
service labor rates and training class prices are rates actually
charged and billed to the Companys customers.
All other product sales with customer specific acceptance
provisions are recognized upon customer acceptance. Revenue
related to spare parts sales is recognized upon shipment or
delivery based on the title transfer terms. Revenue related to
maintenance and service contracts are recognized ratably over
the duration of the contracts.
Other
Comprehensive Loss
Other comprehensive loss pertains to revenues, expenses, gains,
and losses that are not included in net loss, but rather are
recorded directly in stockholders equity. For fiscal 2009,
2008 and 2007, other comprehensive loss consisted of foreign
currency translation adjustments.
Cash and
Cash Equivalents
All highly liquid investments purchased with an original
maturity of three months or less are considered to be cash
equivalents.
Marketable
Securities
The Company accounts for its marketable securities as
available-for-sale and reports them at fair market value. Fair
market values, other than for auction rate securities
(ARS), are based on quoted market prices. Fair
market values of the majority of the Companys ARS are
based on a mark-to-model approach. Other ARS are valued based on
the price at which the issuer offered to repurchase such ARS in
a conditional tender offer the Company received in October 2008
from the issuer. In determining the fair market value of its
ARS, the Company has made assumptions related to interest rates,
credit worthiness of the issuer and the Companys ability
and intent to hold the investments until recovery of fair value.
FSP
SFAS 115-2
and
SFAS 124-2
categorize losses on debt securities available-for-sale or
held-to-maturity determined by management to be
other-than-temporarily impaired into losses due to credit issues
and losses related to all other factors. Other-than-temporary
impairment (OTTI) exists when it is more likely than not that
the security will mature or be sold before its amortized cost
basis can be recovered. An OTTI related to credit losses should
be recognized through earnings. An OTTI related to other factors
should be recognized in other comprehensive income. The FSP does
not amend existing recognition and measurement guidance related
to other-than-temporary impairments of equity securities. Annual
disclosures required in SFAS 115, FSP
SFAS 115-1
and
SFAS 124-1
are also required for interim periods (including the aging of
securities with unrealized losses).
Allowance
for Doubtful Accounts
The Company makes estimates of the uncollectibility of accounts
receivable. Management specifically analyzes accounts receivable
and analyzes historical bad debts, customer concentrations,
customer credit-worthiness, current economic trends and changes
in customer payment terms when evaluating the adequacy of the
allowance for doubtful accounts. Accounts receivable are
determined to be past due based on payment terms and are charged
off after management determines that they are uncollectible.
40
FSI
INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
A rollforward of the allowance for doubtful accounts for the
fiscal years ended August 29, 2009, August 30, 2008
and August 25, 2007 is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
|
|
|
|
|
|
|
|
|
|
Balance
|
|
|
Beginning
|
|
|
|
Bad Debt
|
|
|
|
|
|
at End
|
|
|
of Year
|
|
Recoveries
|
|
Expense
|
|
Adjustments
|
|
Write-offs
|
|
of Year
|
|
Fiscal year ended August 29, 2009
|
|
$
|
128
|
|
|
$
|
(21
|
)
|
|
$
|
18
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
125
|
|
Fiscal year ended August 30, 2008
|
|
$
|
196
|
|
|
$
|
(68
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
128
|
|
Fiscal year ended August 25, 2007
|
|
$
|
520
|
|
|
$
|
(55
|
)
|
|
$
|
|
|
|
$
|
(43
|
)
|
|
$
|
(226
|
)
|
|
$
|
196
|
|
The Company collected $21,000 of receivables in fiscal 2009,
$68,000 of receivables in fiscal 2008 and $55,000 in fiscal 2007
that had previously been written down to zero, resulting in
credits to selling, general and administrative expenses.
Inventories
Inventories are valued at the lower of cost, determined by the
first-in,
first-out method, or net realizable value. The Company records
provisions for inventory shrinkage and for potentially excess,
obsolete and slow moving inventory. The amounts of these
provisions are based upon historical loss trends, inventory
levels, physical inventory and cycle count adjustments, expected
product lives, forecasted sales demand and recoverability.
Property,
Plant and Equipment
Building and related costs are carried at cost and depreciated
on a straight-line basis over a 5 to
30-year
period. Leasehold improvements are carried at cost and
depreciated over a three- to fifteen-year period or the term of
the underlying lease, whichever is shorter. All other property,
plant and equipment assets are carried at cost and depreciated
on a straight-line method over their estimated economic lives.
Principal economic lives for these assets are one to seven
years. Software developed for internal use is depreciated over
three to five years beginning when the system is placed in
service. Maintenance and repairs are expensed as incurred;
significant renewals and improvements are capitalized.
Intangible
Assets
The Company amortizes intangible assets on a straight-line basis
over their estimated economic lives which range from two to nine
years.
Impairment
of Long-Lived Assets
The Company assesses the impairment of long-lived assets,
whenever events or changes in circumstances indicate that the
carrying amount may not be recoverable, in accordance with FASB
SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets. An asset or asset group is
considered impaired if its carrying amount exceeds the
undiscounted future net cash flow the asset or asset group is
expected to generate. If an asset or asset group is considered
to be impaired, the impairment to be recognized is measured by
the amount by which the carrying amount of the asset exceeds its
fair value. If estimated fair value is less than the book value,
the asset is written down to the estimated fair value and an
impairment loss is recognized.
The Company routinely considers whether indicators of impairment
of its property and equipment assets are present. If such
indicators are present, the Company determines whether the sum
of the estimated undiscounted cash flows attributable to the
asset in question is less than the carrying amount of the asset.
If less, an impairment loss is recognized based on the excess of
the carrying amount of the asset over its fair value. Fair value
is determined by discounted estimated future cash flows,
appraisals or other methods deemed
41
FSI
INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
appropriate. If the asset determined to be impaired is to be
held and used, the Company recognizes an impairment charge to
the extent that the carrying amount of the asset exceeds its
fair value. Long-lived assets amounted to $15.1 million as
of August 29, 2009.
Considerable management judgment is necessary in estimating
future cash flows and other factors affecting the valuation of
long-lived assets, including intangible assets, which includes
the operating and macroeconomic factors that may affect them.
The Company uses historical financial information, internal
plans and projections and industry information in making such
estimates.
Income
Taxes
Deferred income taxes are provided in amounts sufficient to give
effect to temporary differences between financial and tax
reporting. The Company accounts for tax credits as reductions of
income tax expense in the year in which such credits are
allowable for tax purposes.
The Companys effective income tax rate is based on income,
statutory tax rates and tax planning opportunities available to
it in the various jurisdictions in which it operates. The
Company has established valuation allowances against its
U.S. and
non-U.S. net
operating losses to reflect the uncertainty of its ability to
fully utilize these benefits given the limited carryforward
periods permitted by the various jurisdictions. The evaluation
of the realizability of the Companys net operating losses
requires the use of considerable management judgment to estimate
the future taxable income for the various jurisdictions, for
which the ultimate amounts and timing of such estimates may
differ. The valuation allowance can also be impacted by changes
in the tax regulations.
As of August 26, 2007, the Company adopted the provisions
of the FASB Interpretation No. 48
(FIN 48), Accounting for Uncertainty in
Income Taxes an interpretation of FASB Statement
No. 109. The adoption of FIN 48 had no impact on
our financial position or results of operations. As of
August 29, 2009 and August 30, 2008, the Company had
$0.5 million and $0.6 million, respectively, of
liabilities recorded related to unrecognized tax benefits.
Included in the liability balance as of August 29, 2009 and
August 30, 2008 are approximately $0.4 million and
$0.5 million, respectively, of unrecognized tax benefits
that, if recognized, will affect the Companys effective
tax rate. Accrued interest and penalties on these unrecognized
tax benefits were $0.1 million as of both August 29,
2009 and August 30, 2008. The Company recognizes potential
interest and penalties related to income tax positions, if any,
as a component of provision for income taxes on the consolidated
statements of operations. The Company does not anticipate that
the total amount of unrecognized tax benefits will significantly
change during the next twelve months.
Product
Warranty
Generally, the Company warrants to the original purchaser that
new equipment manufactured by it is free from defects in
material and workmanship for six months to two years, depending
upon the product or customer agreement. Provision is made for
the estimated cost of maintaining product warranties at the time
the product is sold. Special warranty provisions are also
accrued for major rework campaigns.
Warranty provisions and claims for the fiscal years ended
August 29, 2009, August 30, 2008 and August 25,
2007 were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
August 29,
|
|
|
August 30,
|
|
|
August 25,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Beginning balance
|
|
$
|
2,757
|
|
|
$
|
3,811
|
|
|
$
|
3,964
|
|
Warranty provisions
|
|
|
405
|
|
|
|
1,153
|
|
|
|
1,514
|
|
Warranty claims
|
|
|
(1,460
|
)
|
|
|
(2,207
|
)
|
|
|
(1,667
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance
|
|
$
|
1,702
|
|
|
$
|
2,757
|
|
|
$
|
3,811
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
42
FSI
INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Foreign
Currency Translation
For each of our foreign operating subsidiaries the functional
currency is generally its local currency. Assets and liabilities
of foreign operations are translated into U.S. dollars
using month-end exchange rates, and revenue and expenses are
translated into U.S. dollars using average exchange rates.
The effects of foreign currency translation adjustments are
included as a component of accumulated other comprehensive
(loss) income in stockholders equity.
Foreign currency transaction gains and losses are a result of
the effect of exchange rate changes on transactions denominated
in currencies other than the functional currency. Foreign
currency transaction gains (losses) are included in other
income, net.
Loss Per
Common Share
Basic loss per share is computed by dividing net loss by the
weighted average number of shares of common stock outstanding
during the period. Diluted loss per common share for fiscal
years 2009, 2008 and 2007 does not include the effect of
potential dilutive common shares as their inclusion would be
antidilutive. The number of potential dilutive common shares
excluded from the computation of diluted loss per share was
3,424,000 for fiscal 2009, 3,679,000 for fiscal 2008 and
3,578,000 for fiscal 2007.
Use of
Estimates
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions
that could affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of sales
revenue and expenses during the reporting period. Actual results
could differ from those estimates.
Employee
Stock Plans
For fiscal 2009, 2008 and 2007, the Companys results of
operations reflect compensation expense for new stock options
granted and vested under its stock incentive plan and employees
stock purchase plan during the fiscal year and the unvested
portion of previous stock option grants which vested during the
fiscal year.
|
|
(2)
|
Concentration
of Risk and Financial Instruments
|
Financial instruments that potentially subject the Company to
significant concentrations of credit risk consist principally of
cash equivalents, marketable securities and trade accounts
receivable.
The Companys customers consist of microelectronics
manufacturers located throughout the world. The Company performs
ongoing credit evaluations of its customers financial
conditions and generally requires no collateral from them. The
Company maintains an allowance for doubtful accounts receivable
based upon expected collectibility of all accounts receivable.
The Company invests in a variety of financial instruments such
as municipal bonds, auction-rate securities, commercial paper
and money market fund shares. The Company, by policy, limits the
amount of credit exposure with any one financial or commercial
issuer.
The carrying amount of the Companys financial instruments,
which includes cash equivalents, short-term marketable
securities, accounts receivable, accounts payable and accrued
expenses, approximate fair value at August 30, 2008, due to
their short maturities. At the end of fiscal 2009, the
Companys accounts receivable included $2.0 million
attributable to a past due receivable with a customer in Asia.
The customer has delayed payment due to their cash flow issues
and lower than expected capacity utilization. The Company is
working
43
FSI
INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
on obtaining a letter of credit for the outstanding amount with
expected payment in January 2010. Management still believes that
this receivable is collectible and will continue to monitor the
situation closely.
As of August 29, 2009 and August 30, 2008, all
marketable securities were classified as available-for-sale. The
carrying amount of short-term marketable securities was $0 as of
August 29, 2009 and $850,000 as of August 30, 2008.
The carrying amount of long-term marketable securities was
$4,458,000 as of August 29, 2009 and $6,447,000 as of
August 30, 2008. The balance is net of an
other-than-temporary impairment of $242,000 as of
August 29, 2009 and $353,000 as of August 30, 2008.
See Note 18 of the Notes to Consolidated Financial
Statements for further discussion related to the impairment.
The Company manages its cash equivalents and short-term
investments as a single portfolio of highly marketable
securities, all of which are intended to be available to meet
the Companys current cash requirements.
|
|
(3)
|
Related
Party Transactions
|
Prior to the transaction described below, the Company owned a
49 percent equity interest in Apprecia Technology, Inc.
(Apprecia), formerly known as mFSI LTD, a
Japanese joint venture company formed in 1991 among the Company,
Mitsui & Co., Ltd. (Mitsui) and
Mitsuis wholly owned subsidiary, Chlorine Engineers Corp.,
Ltd. (CEC). Apprecia is engaged in the manufacturing
and distribution in the Japanese market of semiconductor
equipment and products, including certain products of the
Company. On May 15, 2007 (the Closing Date),
the Company, CEC, Mizuho Capital Co., Ltd, (Mizuho),
The Yasuda Enterprise Development III, Limited Partnership
(Yasuda) and certain Apprecia managers
(Apprecia Management Group) entered into a Stock
Purchase Agreement (the Agreement). The Apprecia
Management Group did not include any officers or employees of
the Company. Under the Agreement, Apprecia paid on the Closing
Date, a $4.2 million dividend to its shareholders prior to
the sales contemplated in the Agreement, of which the Company
received approximately $2.0 million. Under the Agreement,
CEC and MBK Project Holdings Ltd. (MPH), a wholly
owned subsidiary of Mitsui, sold all of their combined
51 percent equity ownership in Apprecia and the Company
sold 28.4 percent of its equity ownership in Apprecia, or a
total of 79.4 percent, to Yasuda, Mizuho and the Apprecia
Management Group for a total purchase price of
$1.8 million. On the Closing Date, the Company received
total proceeds of $3.2 million, net of applicable taxes. At
the end of fiscal 2007, the Company had a 20% equity ownership
in Apprecia. As a result of the transaction, the Companys
ownership and business relationship with Apprecia changed such
that the Company no longer had the ability to exercise
significant influence over Apprecia. Therefore, the Company
began to account for its investment in Apprecia under the cost
method after completion of the transaction. Previously, the
Company accounted for its investment in Apprecia under the
equity method. On the Closing Date, the Company entered into a
Termination and Release Agreement with Mitsui, CEC, MPH and
Apprecia, for the termination of the following agreements and
any amendments thereto:
(i) the Apprecia Distribution Agreement, dated
September 17, 2004, providing the Company with the
exclusive rights to distribute Apprecia surface conditioning
products outside of Japan,
(ii) the FSI Distribution Agreement, dated June 5,
1991, providing Apprecia with exclusive rights to distribute the
Company surface conditioning products in Japan,
(iii) the Apprecia License Agreement, dated
September 17, 2004, pursuant to which Apprecia granted to
the Company a license to certain Apprecia intellectual property
and technology,
(iv) the FSI License Agreement, dated June 5, 1991,
pursuant to which the Company granted to Apprecia a license to
certain of the Companys intellectual property and
technology, and
(v) the Shareholders Agreement, dated June 5, 1991,
among the Company, CEC and MPH related to the establishment of
Apprecia.
The Company and Apprecia also entered into a new distribution
agreement, with an initial five-year term, providing Apprecia
with the exclusive right to sell, lease or otherwise distribute
the Companys SC products in Japan.
44
FSI
INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The Company sold approximately $5,355,000 in fiscal 2007 of its
products in the aggregate to Apprecia as an affiliate.
The Company has capital and operating lease agreements for
equipment and manufacturing and office facilities. The future
net minimum lease payments for all leases with noncancellable
lease terms in excess of one year at August 29, 2009 are as
follows (in thousands):
|
|
|
|
|
|
|
Operating
|
|
|
|
Leases
|
|
|
Fiscal Year Ending August:
|
|
|
|
|
2010
|
|
$
|
591
|
|
2011
|
|
|
371
|
|
2012
|
|
|
57
|
|
2013
|
|
|
15
|
|
2014
|
|
|
10
|
|
Thereafter
|
|
|
11
|
|
|
|
|
|
|
Total minimum lease payments
|
|
$
|
1,055
|
|
|
|
|
|
|
Rental expense for all operating leases consisted of the
following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
August 29,
|
|
August 30,
|
|
August 25,
|
|
|
2009
|
|
2008
|
|
2007
|
|
Rent expense for operating leases
|
|
$
|
1,213
|
|
|
$
|
1,578
|
|
|
$
|
1,723
|
|
Inventories are summarized as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
August 29,
|
|
|
August 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
Finished goods
|
|
$
|
3,013
|
|
|
$
|
1,999
|
|
Work in process
|
|
|
4,797
|
|
|
|
11,314
|
|
Raw materials and purchased parts
|
|
|
13,361
|
|
|
|
13,856
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
21,171
|
|
|
$
|
27,169
|
|
|
|
|
|
|
|
|
|
|
|
|
(6)
|
Property,
Plant and Equipment
|
The components of property, plant and equipment are as follows
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
August 29,
|
|
|
August 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
Land
|
|
$
|
224
|
|
|
$
|
224
|
|
Building and leasehold improvements
|
|
|
33,270
|
|
|
|
33,185
|
|
Office furniture and equipment
|
|
|
4,200
|
|
|
|
4,240
|
|
Computer hardware and software
|
|
|
14,782
|
|
|
|
17,972
|
|
Manufacturing equipment
|
|
|
1,772
|
|
|
|
1,954
|
|
Lab equipment
|
|
|
19,715
|
|
|
|
20,731
|
|
Tooling
|
|
|
248
|
|
|
|
265
|
|
Capital programs in progress
|
|
|
446
|
|
|
|
505
|
|
|
|
|
|
|
|
|
|
|
|
|
|
74,657
|
|
|
|
79,076
|
|
Less accumulated depreciation and amortization
|
|
|
(59,510
|
)
|
|
|
(60,810
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
15,147
|
|
|
$
|
18,266
|
|
|
|
|
|
|
|
|
|
|
45
FSI
INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The Company amortizes intangible assets on a straight-line basis
over their estimated economic lives, which range from two to
nine years. The intangible assets were fully amortized in fiscal
2009.
The Company has no intangible assets with indefinite useful
lives. Intangible assets as of August 29, 2009 and
August 30, 2008 consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of August 29, 2009
|
|
|
|
Gross Carrying
|
|
|
Accumulated
|
|
|
Net Carrying
|
|
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
|
Developed technology
|
|
$
|
9,150
|
|
|
$
|
9,150
|
|
|
$
|
|
|
Patents
|
|
|
4,285
|
|
|
|
4,285
|
|
|
|
|
|
License fees
|
|
|
500
|
|
|
|
500
|
|
|
|
|
|
Other
|
|
|
420
|
|
|
|
420
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
14,355
|
|
|
$
|
14,355
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of August 30, 2008
|
|
|
|
Gross Carrying
|
|
|
Accumulated
|
|
|
Net Carrying
|
|
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
|
Developed technology
|
|
$
|
9,150
|
|
|
$
|
9,150
|
|
|
$
|
|
|
Patents
|
|
|
4,285
|
|
|
|
4,224
|
|
|
|
61
|
|
License fees
|
|
|
500
|
|
|
|
500
|
|
|
|
|
|
Other
|
|
|
420
|
|
|
|
420
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
14,355
|
|
|
$
|
14,294
|
|
|
$
|
61
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued expenses are summarized as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
August 29,
|
|
|
August 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
Salaries and benefits
|
|
$
|
1,507
|
|
|
$
|
1,934
|
|
Vacation
|
|
|
1,157
|
|
|
|
1,582
|
|
Realignment
|
|
|
986
|
|
|
|
1,992
|
|
Product warranty
|
|
|
1,702
|
|
|
|
2,757
|
|
Other
|
|
|
1,620
|
|
|
|
2,127
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
6,972
|
|
|
$
|
10,392
|
|
|
|
|
|
|
|
|
|
|
Deferred profit as of the end of the fiscal year consists of (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
August 29,
|
|
|
August 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
Deferred revenue
|
|
$
|
2,739
|
|
|
$
|
5,439
|
|
Deferred cost of goods sold
|
|
|
(377
|
)
|
|
|
(1,572
|
)
|
|
|
|
|
|
|
|
|
|
Deferred profit
|
|
$
|
2,362
|
|
|
$
|
3,867
|
|
|
|
|
|
|
|
|
|
|
46
FSI
INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Loss before income taxes and equity in earnings (losses) of
affiliate was derived from the following sources (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
August 29,
|
|
|
August 20,
|
|
|
August 25,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Domestic
|
|
$
|
(16,984
|
)
|
|
$
|
(14,526
|
)
|
|
$
|
(10,574
|
)
|
Foreign
|
|
|
(724
|
)
|
|
|
263
|
|
|
|
(3,917
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(17,708
|
)
|
|
$
|
(14,263
|
)
|
|
$
|
(14,491
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense is summarized as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
August 29,
|
|
|
August 30,
|
|
|
August 25,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
(83
|
)
|
|
$
|
|
|
|
$
|
|
|
Foreign
|
|
|
(32
|
)
|
|
|
(598
|
)
|
|
|
102
|
|
State
|
|
|
31
|
|
|
|
(26
|
)
|
|
|
20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(84
|
)
|
|
|
(624
|
)
|
|
|
122
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
|
|
|
|
|
|
|
|
|
|
|
|
|
State
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(84
|
)
|
|
$
|
(624
|
)
|
|
$
|
122
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The tax effects of temporary differences that give rise to
significant portions of the deferred tax assets and deferred tax
liabilities at August 29, 2009 and August 30, 2008 are
as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
August 29,
|
|
|
August 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Inventory
|
|
$
|
4,180
|
|
|
$
|
6,695
|
|
Deferred profit
|
|
|
168
|
|
|
|
833
|
|
Accounts receivable
|
|
|
47
|
|
|
|
48
|
|
Property, plant and equipment, net
|
|
|
922
|
|
|
|
428
|
|
Credit carryforwards
|
|
|
6,725
|
|
|
|
6,640
|
|
Net operating loss carryforwards
|
|
|
70,650
|
|
|
|
61,050
|
|
Accruals
|
|
|
1,147
|
|
|
|
1,608
|
|
|
|
|
|
|
|
|
|
|
Total gross deferred tax assets
|
|
|
83,839
|
|
|
|
77,302
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Intangibles
|
|
|
|
|
|
|
23
|
|
Other, net
|
|
|
421
|
|
|
|
371
|
|
Investment in foreign affiliate
|
|
|
118
|
|
|
|
118
|
|
|
|
|
|
|
|
|
|
|
Total gross deferred tax liabilities
|
|
|
539
|
|
|
|
512
|
|
Less valuation allowance
|
|
|
(83,300
|
)
|
|
|
(76,790
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
47
FSI
INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The effective income tax expense differs from the expected
statutory federal income tax as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
August 29,
|
|
|
August 30,
|
|
|
August 25,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Expected federal income tax benefit
|
|
$
|
(6,198
|
)
|
|
$
|
(4,992
|
)
|
|
$
|
(5,072
|
)
|
State income tax benefit before valuation allowance
|
|
|
(496
|
)
|
|
|
(383
|
)
|
|
|
(413
|
)
|
Research activities credit
|
|
|
(225
|
)
|
|
|
(250
|
)
|
|
|
(390
|
)
|
Nondeductable transfer pricing adjustments
|
|
|
|
|
|
|
809
|
|
|
|
|
|
Valuation allowance
|
|
|
6,660
|
|
|
|
4,614
|
|
|
|
5,627
|
|
Stock compensation expense
|
|
|
169
|
|
|
|
198
|
|
|
|
207
|
|
Foreign withholding tax
|
|
|
|
|
|
|
48
|
|
|
|
102
|
|
Tax contingency
|
|
|
(32
|
)
|
|
|
(709
|
)
|
|
|
|
|
Other items, net
|
|
|
38
|
|
|
|
41
|
|
|
|
61
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(84
|
)
|
|
$
|
(624
|
)
|
|
$
|
122
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We adopted the provisions of FIN 48 on August 26,
2007. Implementation of FIN 48 resulted in no adjustment to
the liability for unrecognized tax benefits. A reconciliation of
the beginning and ending amount of total gross unrecognized tax
benefits is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
August 29,
|
|
|
August 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
Beginning balance
|
|
$
|
583
|
|
|
$
|
1,290
|
|
Increase related to prior year tax position
|
|
|
|
|
|
|
18
|
|
Decrease related to prior year tax position
|
|
|
(139
|
)
|
|
|
(63
|
)
|
Increase related to current year tax positions
|
|
|
68
|
|
|
|
|
|
Settlements
|
|
|
|
|
|
|
(662
|
)
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
512
|
|
|
$
|
583
|
|
|
|
|
|
|
|
|
|
|
The Company recorded a tax benefit of $84,000, for fiscal 2009
related primarily to R&D credit utilization in lieu of
bonus depreciation and the expiration of uncertain tax positions
as a result of a lapse of the applicable statute of limitations.
The Company recorded a tax benefit of $624,000 in fiscal 2008
related to tax positions that were effectively settled with tax
authorities during fiscal 2008, partially offset by state income
tax expense. The Company recorded a tax liability of $122,000
for fiscal 2007 which was the result of foreign and state taxes.
The Company has net operating loss carryforwards for federal
income tax purposes of approximately $188.0 million at
August 29, 2009, which will begin to expire in fiscal 2011
through fiscal 2030 if not utilized. Of this amount,
approximately $15.0 million is subject to Internal Revenue
Code Section 382 limitations on utilization. This
limitation is approximately $1.4 million per year. The
Company has net operating loss carryforwards for state purposes
of approximately $85.2 million, which will expire at
various times, beginning with fiscal year 2010, if not utilized.
The Company maintains a valuation allowance to fully reserve
against its net deferred tax assets due to uncertainty over the
ability to realize these assets. The change in the valuation
allowance during the fiscal year 2009 was $6.5 million.
Included in the August 29, 2009 valuation allowance balance
of $83.3 million is
48
FSI
INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
$3.6 million, which will be recorded as a credit to
stockholders equity, if it is determined in the future
that this portion of the valuation allowance is no longer
required.
The Company has an Employee 401(k) Retirement Plan, which allows
for discretionary contributions, covering eligible employees.
Contributions under the plans are 3% or at the discretion of the
Board of Directors. Beginning in January 2005, the Company
contributed 3% of employee salaries to the 401(k). The Company
contributed approximately $537,000 in fiscal 2009, $738,000 in
fiscal 2008 and $877,000 in fiscal 2007.
In addition, the Company has statutory pension plans in Europe
and Asia and contributed approximately $214,000 in fiscal 2009,
$284,000 in fiscal 2008 and $247,000 in fiscal 2007, to such
plans in aggregate.
Stock-based compensation expense for stock options granted or
vested under the Companys stock incentive plans and
employees stock purchase plan (ESPP) was reflected
in the statements of operations for fiscal 2009, 2008 and 2007
as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
August 29, 2009
|
|
|
August 30, 2008
|
|
|
August 25, 2007
|
|
|
Cost of goods sold
|
|
$
|
52
|
|
|
$
|
43
|
|
|
$
|
28
|
|
Selling, general and administrative
|
|
|
301
|
|
|
|
401
|
|
|
|
439
|
|
Research and development
|
|
|
129
|
|
|
|
121
|
|
|
|
126
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount charged against net loss
|
|
$
|
482
|
|
|
$
|
565
|
|
|
$
|
593
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The fair value of each option grant is estimated on the date of
grant using the Black-Scholes option-pricing method. The Company
uses historical data to estimate the expected price volatility,
the expected option life and the expected forfeiture rate. The
risk-free rate is based on the U.S. Treasury yield curve in
effect at the time of grant for the estimated life of an option.
The Company has not made any dividend payments nor does it have
plans to pay dividends in the foreseeable future. The following
assumptions were used to estimate the fair value of options
granted under the Companys plan and the ESPP during fiscal
2009, 2008 and 2007 using the Black-Scholes option-pricing model:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
|
|
ESPP
|
Fiscal Year
|
|
2009
|
|
2008
|
|
2007
|
|
2009
|
|
2008
|
|
2007
|
|
Annualized dividend yield
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
Expected stock price volatility
|
|
|
74.0
|
%
|
|
|
69.3
|
%
|
|
|
69.0
|
%
|
|
|
75.5
|
%
|
|
|
69.3
|
%
|
|
|
69.0
|
%
|
Risk free interest rate
|
|
|
1.6
|
%
|
|
|
3.2
|
%
|
|
|
4.7
|
%
|
|
|
0.3
|
%
|
|
|
2.3
|
%
|
|
|
5.0
|
%
|
Expected life (in years)
|
|
|
5.4
|
|
|
|
5.5
|
|
|
|
5.5
|
|
|
|
0.5
|
|
|
|
0.5
|
|
|
|
0.5
|
|
A summary of the option activity for the stock option plans for
fiscal 2009 is as follows (in thousands, except price per share
and contractual term):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average
|
|
Weighted-Average
|
|
|
|
|
Number of
|
|
Exercise Price per
|
|
Remaining
|
|
Aggregate Intrinsic
|
|
|
Shares
|
|
Share
|
|
Contractual Term
|
|
Value
|
|
Outstanding at August 30, 2008
|
|
|
3,679
|
|
|
$
|
6.58
|
|
|
|
|
|
|
|
|
|
Options granted
|
|
|
362
|
|
|
|
0.35
|
|
|
|
|
|
|
|
|
|
Options forfeited
|
|
|
(55
|
)
|
|
|
1.78
|
|
|
|
|
|
|
|
|
|
Options expired
|
|
|
(562
|
)
|
|
|
6.46
|
|
|
|
|
|
|
|
|
|
Options exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at August 29, 2009
|
|
|
3,424
|
|
|
$
|
6.01
|
|
|
|
4.4
|
|
|
$
|
178
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at August 29, 2009
|
|
|
2,932
|
|
|
$
|
6.86
|
|
|
|
3.7
|
|
|
$
|
18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
49
FSI
INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
There was no intrinsic value for options outstanding or
exercisable at August 29, 2009 as the closing price of the
Companys stock at the end of fiscal 2009 was less than the
exercise price of the options outstanding or exercisable.
The weighted average grant date fair value based on the
Black-Scholes option-pricing model for options granted in fiscal
2009 was $0.22 per share, in fiscal 2008 was $0.98 per share and
for options granted in fiscal 2007 was $3.32 per share. There
were no options exercised during fiscal 2009 or fiscal 2008. The
total intrinsic value of options exercised was $108,000 during
fiscal 2007.
A summary of the status of unvested option shares as of
August 29, 2009 is as follows (in thousands, except fair
value amounts):
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
Weighted-Average Grant-Date
|
|
|
Shares
|
|
Fair Value
|
|
Unvested at August 30, 2008
|
|
|
428
|
|
|
$
|
1.51
|
|
Options granted
|
|
|
362
|
|
|
|
0.22
|
|
Options forfeited
|
|
|
(55
|
)
|
|
|
1.11
|
|
Options vested
|
|
|
(243
|
)
|
|
|
1.52
|
|
|
|
|
|
|
|
|
|
|
Unvested at August 29, 2009
|
|
|
492
|
|
|
$
|
0.60
|
|
|
|
|
|
|
|
|
|
|
As of August 29, 2009, there was $396,000 of total
unrecognized compensation cost related to unvested share-based
compensation granted under our plans. That cost is expected to
be recognized over a weighted-average period of 0.7 years.
The total fair value of option shares vested was $482,000 during
fiscal 2009, $565,000 during fiscal 2008 and $593,000 during
fiscal 2007.
The activity under stock option plans of the Company is as
follows (in thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Shares
|
|
Weighted-Average
|
|
|
Available
|
|
|
|
Exercise Price
|
|
|
for Grant
|
|
Outstanding
|
|
per Share
|
|
Activity Description
|
|
|
|
|
|
|
|
|
|
|
|
|
August 26, 2006
|
|
|
584
|
|
|
|
3,699
|
|
|
$
|
7.42
|
|
Granted
|
|
|
(173
|
)
|
|
|
173
|
|
|
|
5.20
|
|
Exercised
|
|
|
|
|
|
|
(54
|
)
|
|
|
3.50
|
|
Canceled
|
|
|
41
|
|
|
|
(240
|
)
|
|
|
10.24
|
|
Expired Plan
|
|
|
(452
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
August 25, 2007
|
|
|
|
|
|
|
3,578
|
|
|
|
7.19
|
|
Adoption of the 2008 Omnibus Stock Plan
|
|
|
1,000
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
(370
|
)
|
|
|
370
|
|
|
|
1.59
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
Canceled
|
|
|
|
|
|
|
(269
|
)
|
|
|
7.87
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
August 30, 2008
|
|
|
630
|
|
|
|
3,679
|
|
|
|
6.58
|
|
Additional Shares Authorized
|
|
|
500
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
(362
|
)
|
|
|
362
|
|
|
|
0.35
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
Canceled
|
|
|
58
|
|
|
|
(617
|
)
|
|
|
6.05
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
August 29, 2009
|
|
|
826
|
|
|
|
3,424
|
|
|
$
|
6.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50
FSI
INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table summarizes information with respect to
options outstanding and exercisable at August 29, 2009
(number of options outstanding and exercisable in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
Options Exercisable
|
|
|
|
|
|
|
Average
|
|
|
Weighted-
|
|
|
|
|
|
Weighted-
|
|
|
|
Number
|
|
|
Remaining
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
of Options
|
|
|
Contractual
|
|
|
Exercise
|
|
|
|
|
|
Exercise
|
|
Range of Exercise Prices
|
|
Outstanding
|
|
|
Life
|
|
|
Price
|
|
|
Exercisable
|
|
|
Price
|
|
|
$0.32 - $5.00
|
|
|
1,558
|
|
|
|
6.5
|
|
|
$
|
2.50
|
|
|
|
1,086
|
|
|
$
|
3.26
|
|
$5.01 - $8.50
|
|
|
913
|
|
|
|
4.2
|
|
|
|
7.18
|
|
|
|
893
|
|
|
|
7.22
|
|
$8.51 - $12.00
|
|
|
836
|
|
|
|
1.4
|
|
|
|
10.24
|
|
|
|
836
|
|
|
|
10.24
|
|
$12.01 - $15.50
|
|
|
107
|
|
|
|
0.6
|
|
|
|
13.09
|
|
|
|
107
|
|
|
|
13.09
|
|
$15.51 - $16.81
|
|
|
10
|
|
|
|
0.4
|
|
|
|
16.81
|
|
|
|
10
|
|
|
|
16.81
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$0.32 - $16.81
|
|
|
3,424
|
|
|
|
4.4
|
|
|
$
|
6.01
|
|
|
|
2,932
|
|
|
$
|
6.86
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
There were 3,251,000 currently exercisable options at a
weighted-average exercise price of $7.12 at August 30,
2008, and 3,302,000 currently exercisable options at a
weighted-average exercise price of $7.38 at August 25, 2007.
On May 22, 1997, the Company adopted a Shareholder Rights
Plan (the Rights Plan). Pursuant to the Rights Plan,
rights were distributed as a dividend at the rate of one
preferred share purchase right (Right) for each
outstanding share of common stock of the Company. The Rights
Plan and related Rights expired on June 10, 2007.
|
|
(13)
|
Employees
Stock Purchase Plan
|
The Companys ESPP enables employees to contribute up to
10% of their wages toward the purchase of the Companys
common stock at 85% of the lower of market value at the
beginning or the end of the semiannual purchase period.
Stockholders authorized the issuance of 1,000,000 additional
shares of common stock to the ESPP in fiscal 2009.
Shares were issued on the following dates for the following
prices (in thousands except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
Price per
|
Date
|
|
Shares
|
|
Share
|
|
December 31, 2006
|
|
|
75
|
|
|
|
4.39
|
|
June 30, 2007
|
|
|
106
|
|
|
|
2.70
|
|
December 31, 2007
|
|
|
111
|
|
|
|
1.53
|
|
June 30, 2008
|
|
|
183
|
|
|
|
1.14
|
|
December 31, 2008
|
|
|
314
|
|
|
|
0.26
|
|
June 30, 2009
|
|
|
483
|
|
|
|
0.26
|
|
As of August 29, 2009, there were 527,000 shares
reserved for future employee purchases of stock under the ESPP.
|
|
(14)
|
Segment
and Other Information
|
Segment
Information
The Company has two product lines, Surface Conditioning
(SC) and
POLARIS®
Microlithography Systems.
51
FSI
INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The Companys chief operating decision-maker has been
identified as the President and Chief Executive Officer. Due to
the level of integration of the two product lines, the
Companys chief operating decision-maker reviews
consolidated operating results to make decisions about
allocating resources and assessing performance for the entire
Company. The two product lines are a part of one segment for the
manufacture, marketing and servicing of equipment for the
microelectronics industry.
Geographic
Information
International sales were approximately 71% of total sales in
fiscal year 2009, 76% of total sales in fiscal year 2008 and
approximately 69% of total sales in fiscal year 2007. The basis
for determining sales by geographic region is the location that
the product is shipped to. Included in these percentages and the
table below are sales to related parties (see Note 3).
Sales by geographic area are summarized as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
August 29,
|
|
|
August 30,
|
|
|
August 25,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Asia
|
|
$
|
27,869
|
|
|
$
|
33,276
|
|
|
$
|
41,779
|
|
Europe
|
|
|
7,926
|
|
|
|
25,967
|
|
|
|
37,476
|
|
Other
|
|
|
20
|
|
|
|
24
|
|
|
|
381
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total International
|
|
|
35,815
|
|
|
|
59,267
|
|
|
|
79,636
|
|
Domestic
|
|
|
14,669
|
|
|
|
18,989
|
|
|
|
36,597
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
50,484
|
|
|
$
|
78,256
|
|
|
$
|
116,233
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
South Korea accounted for 43% of total sales in fiscal 2009, 25%
of total sales in fiscal 2008 and 15% of total sales in fiscal
2007. Israel accounted for 10% of total sales in fiscal 2007.
Long-lived
Assets
The Company does not have significant long-lived assets in
foreign countries.
Customer
Information
The following summarizes significant customers comprising 10% or
more of the Companys trade accounts receivable as of
August 29, 2009 and August 30, 2008 and 10% or more of
sales for fiscal 2009, 2008 and 2007, which includes sales
through affiliates to end-users:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of Trade Accounts
|
|
|
|
|
|
|
Receivable as of
|
|
|
% of Sales for the Fiscal Year Ended
|
|
|
|
August 29,
|
|
|
August 30,
|
|
|
August 29,
|
|
|
August 30,
|
|
|
August 25,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Customer A
|
|
|
27
|
%
|
|
|
22
|
%
|
|
|
34
|
%
|
|
|
19
|
%
|
|
|
13
|
%
|
Customer B
|
|
|
*
|
|
|
|
17
|
%
|
|
|
*
|
|
|
|
12
|
%
|
|
|
*
|
|
Customer C
|
|
|
*
|
|
|
|
*
|
|
|
|
*
|
|
|
|
*
|
|
|
|
11
|
%
|
Customer D
|
|
|
*
|
|
|
|
21
|
%
|
|
|
*
|
|
|
|
*
|
|
|
|
*
|
|
Customer E
|
|
|
22
|
%
|
|
|
*
|
|
|
|
*
|
|
|
|
*
|
|
|
|
*
|
|
Customer F
|
|
|
10
|
%
|
|
|
*
|
|
|
|
*
|
|
|
|
*
|
|
|
|
*
|
|
|
|
|
* |
|
Trade accounts receivable from or sales to respective customer
were less than 10% as of the end of or during the fiscal year. |
52
FSI
INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The Company, in the ordinary course of business, enters into
various licensing agreements. These agreements generally provide
for technology transfers between the Company and the licensors
in exchange for minimum royalty payments
and/or a
fixed royalty to the licensors. The total accrued royalty
license fees included in accrued expenses were $226,000 at
August 29, 2009 and $312,000 at August 30, 2008. These
agreements can generally be terminated by the Company with
appropriate notice to the licensors.
|
|
(16)
|
Supplementary
Cash Flow Information
|
The following summarizes supplementary cash flow items (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
August 29,
|
|
August 30,
|
|
August 25,
|
|
|
2009
|
|
2008
|
|
2007
|
|
Income taxes (received) paid, net
|
|
$
|
(76
|
)
|
|
$
|
(17
|
)
|
|
$
|
106
|
|
Interest paid, net
|
|
|
41
|
|
|
|
144
|
|
|
|
195
|
|
Assets acquired by a capital lease
|
|
$
|
|
|
|
$
|
442
|
|
|
$
|
1,687
|
|
|
|
(17)
|
Cost
Reductions and Realignment
|
In the second quarter of fiscal 2009, the Company committed to a
plan of additional cost reduction actions, including the
reduction of headcount, salary reductions and scheduled plant
shutdowns. The cost reduction actions were due to the Company
continuing to be impacted by the global economic slowdown and in
particular the reduced demand for the Companys products. A
total of 111 positions were eliminated of which 37 were
manufacturing positions, 37 were sales, service and marketing
positions, 8 were administrative positions and 29 were
engineering positions. Severance and outplacement costs, net of
change in estimate, recorded in fiscal 2009 were allocated as
follows: $1,133,000 to selling, general and administrative
expense, $875,000 to research and development expense and
$604,000 to cost of goods sold.
The fiscal 2009 severance and outplacement costs are summarized
as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount Paid
|
|
|
|
|
|
|
Amount
|
|
|
through
|
|
|
Accrual at
|
|
|
|
Charged
|
|
|
August 29,
|
|
|
August 29,
|
|
|
|
Fiscal 2009
|
|
|
2009
|
|
|
2009
|
|
|
Selling, general and administrative expenses
|
|
$
|
1,133
|
|
|
$
|
739
|
|
|
$
|
394
|
|
Research and development expenses
|
|
|
875
|
|
|
|
534
|
|
|
|
341
|
|
Cost of goods sold
|
|
|
604
|
|
|
|
353
|
|
|
|
251
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,612
|
|
|
$
|
1,626
|
|
|
$
|
986
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In fiscal 2008, the Company committed to a plan to reduce its
headcount by approximately 60 positions, or about 14% of the
Companys global workforce from the end of the third
quarter of fiscal 2008. The plan was implemented in September
2008. In conjunction with the staff reductions, the
Companys European and United States sales and service
organizations were consolidated to better support the customer
base in these regions. Also, the Company refocused its remaining
Allen, TX and Chaska, MN based engineering resources toward
products which the Company believes will provide the most
significant opportunity for near-term revenue and future market
share gains. A total of 63 positions were eliminated in
September 2008 of which 19 were manufacturing positions, 19 were
sales, service and marketing positions, 5 were administration
positions and 20 were engineering positions. Severance and
outplacement costs recorded in fiscal 2008 were allocated as
follows: $1,314,000 to selling, general and administrative
expense, $536,000 to research and development expense and
$142,000 to cost of goods sold.
53
FSI
INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The fiscal 2008 severance and outplacement costs are summarized
as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount
|
|
|
|
|
|
|
Amount
|
|
|
Paid through
|
|
|
Accrual at
|
|
|
|
Charged
|
|
|
August 29,
|
|
|
August 29,
|
|
|
|
Fiscal 2008
|
|
|
2009
|
|
|
2009
|
|
|
Selling, general and administrative expenses
|
|
$
|
1,314
|
|
|
$
|
1,314
|
|
|
$
|
|
|
Research and development expenses
|
|
|
536
|
|
|
|
536
|
|
|
|
|
|
Cost of goods sold
|
|
|
142
|
|
|
|
142
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total severance and outplacement costs
|
|
$
|
1,992
|
|
|
$
|
1,992
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accruals were paid in fiscal 2009.
In fiscal 2007, the Company implemented cost reduction actions
including a 25% reduction in headcount to approximately
430 employees and other operating cost initiatives. The
cost reduction actions were related to industry conditions in
the semiconductor device and thin film head segments that the
Company serves, coupled with a delay in certain
customer-specific equipment purchases. A total of 136 positions
were eliminated in connection with this reduction of which 61
were manufacturing positions, 28 were sales, service and
marketing positions, 13 were administration positions and 34
were engineering positions. The terminations all occurred in
fiscal 2007. Severance and outplacement costs recorded in fiscal
2007 were allocated as follows: $923,000 to selling, general and
administrative expense, $592,000 to research and development
expense and $296,000 to cost of goods sold.
The fiscal 2007 severance and outplacement costs are summarized
as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount Paid
|
|
|
|
|
|
|
Amount
|
|
|
through
|
|
|
Accrual at
|
|
|
|
Charged
|
|
|
August 30,
|
|
|
August 30,
|
|
|
|
Fiscal 2007
|
|
|
2008
|
|
|
2008
|
|
|
Selling, general and administrative expenses
|
|
$
|
923
|
|
|
$
|
923
|
|
|
$
|
|
|
Research and development expenses
|
|
|
592
|
|
|
|
592
|
|
|
|
|
|
Cost of goods sold
|
|
|
296
|
|
|
|
296
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total severance and outplacement costs
|
|
$
|
1,811
|
|
|
$
|
1,811
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accruals were paid in fiscal 2008.
|
|
(18)
|
Marketable
Securities and Impairment of Investment
|
As of August 29, 2009, the Company had investments in ARS
reported at a fair value of $4.5 million after reflecting a
$0.2 million other than temporary impairment against
$4.7 million par value. The other than temporary impairment
was recorded in fiscal 2008. The Company valued the majority of
ARS using a
mark-to-model
approach that relies on discounted cash flows, market data and
inputs derived from similar instruments. This model takes into
account, among other variables, the base interest rate, credit
spreads, downgrade risks and default/recovery risk, the
estimated time required to work out the disruption in the
traditional auction process and its effect on liquidity, and the
effects of insurance and other credit enhancements. However, the
Company valued certain ARS based on the price at which the
issuer offered to repurchase such ARS in a conditional tender
offer received by the Company in October 2008 from the issuer.
The ARS held by the Company are marketable securities with
long-term stated maturities for which the interest rates are
reset every 28 days through an auction process and at the
end of each reset period, investors can sell or continue to hold
the securities at par. The auctions have historically provided a
liquid market for these securities as investors historically
could readily sell their investments at auction. Due to the
liquidity issues experienced in global credit and capital
markets, the ARS held by the Company have experienced
54
FSI
INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
multiple failed auctions, beginning on February 19, 2008,
as the amount of securities submitted for sale has exceeded the
amount of purchase orders. During the second quarter of fiscal
2008, the Company reclassified $8.5 million of ARS from
current marketable securities to long-term marketable securities
on the condensed consolidated balance sheet due to difficulties
encountered at auction and the conditions in the general debt
markets creating uncertainty as to when successful auctions may
be reestablished. During fiscal 2008 $0.8 million of ARS
were partially redeemed. An additional $3.0 million were
redeemed in fiscal 2009.
The $4.7 million par value ARS held by the Company are
backed by student loans and are collateralized, insured and
guaranteed by the United States Federal Department of Education
and are classified as long-term. All of the ARS held by the
Company continue to carry investment grade ratings and have not
experienced any payment defaults. ARS that did not successfully
auction, reset to the maximum interest rate as prescribed in the
underlying indenture and all of the Companys holdings
continue to be current with their interest payments. If
uncertainties in the credit and capital markets continue, these
markets deteriorate further or any ARS the Company holds are
downgraded by the rating agencies, the Company may be required
to recognize additional impairment charges.
The Company categorizes its assets and liabilities into one of
three levels based on the assumptions (inputs) used in valuing
the asset or liability. Level 1 provides the most reliable
measure of fair value, while Level 3 generally requires
significant management judgment. The three levels are defined as
follows:
Level 1 Quoted prices in active markets for
identical assets or liabilities.
Level 2 Observable inputs other than
Level 1 prices, such as quoted prices for similar assets or
liabilities; quoted prices in markets that are not active; or
other inputs that are observable or can be corroborated by
observable market data for substantially the full term of the
assets or liabilities.
Level 3 Unobservable inputs that are
supported by little or no market activity and that are
significant to the fair value of the assets or liabilities.
The Company valued its ARS based on level 3 inputs in which
values are based on prices or valuation techniques that require
inputs that are both unobservable and significant to the overall
fair value measurement. These level 3 inputs reflect
managements own assumptions about the assumptions a market
participant would use in pricing the ARS.
In late calendar 2006, the Company determined that certain of
its replacement valves, pumps and heaters could fall within the
scope of United States export licensing regulations to products
that could be used in connection with chemical weapons
processes. The Company determined that these regulations require
it to obtain licenses to ship some of its replacement spare
parts, spare parts kits and assemblies to customers in certain
controlled countries as defined in the export licensing
regulations. During the second quarter of fiscal 2007, the
Company was granted licenses to ship replacement spare parts,
spare parts kits and assemblies to all customers in the
controlled countries where the Company conducts business.
The applicable export licensing regulations frequently change.
Moreover, the types and categories of products that are subject
to export licensing are often described in the regulations in
general terms and could be subject to differing interpretations.
In the second quarter of fiscal 2007, the Company made a
voluntary disclosure to the United States Department of Commerce
to clarify its licensing practices and to review its practices
with respect to prior sales of certain replacement valves, pumps
and heaters to customers in several controlled countries as
defined in the licensing regulations.
55
FSI
INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
In October 2009, the Company entered into a settlement agreement
with the Office of Export Enforcement for $450,000. The Company
will pay $5,000 per month for ten months beginning in November
2009. The remaining $400,000 owed under the settlement will be
suspended for 12 months. If the Company does not commit any
export violations during the
12-month
period, it will be released from further payment, including the
suspended $400,000.
|
|
(20)
|
Share
Repurchase Plan
|
In October 2008, the Company authorized the repurchase of up to
$3 million of the Companys common stock to be
effected from time to time in transactions in the public markets
or in private purchases. The timing and extent of any
repurchases will depend upon market conditions, the trading
price of the Companys shares and other factors, subject to
the restrictions relating to volume, price and timing of share
repurchases under applicable law. The repurchase program may be
modified, suspended or terminated at any time by the Company
without notice. The Company did not repurchase any of its common
stock during fiscal 2009.
As of August 29, 2009, the Company had $12.0 million
of cash, cash equivalents, restricted cash and marketable
securities, of which $4.5 million are classified as
long-term due to the lack of liquidity of the ARS as discussed
in Note 18. During fiscal 2009, the Company used
approximately $10.1 million for operations, which included
the liquidation of approximately $2.4 million of life
insurance investments. The cash usage was primarily related to
funding the loss from operations.
In light of its current financial condition, the Company
recognized the need to reduce its use of cash and has
implemented a number of cost reduction steps, as discussed
further in Note 17. The Companys actions in fiscal
2009 are expected to lower the Companys annual operating
expenses.
The Company currently does not have any revolving line of credit
or other form of debt financing. If the economic environment
does not improve in early fiscal 2010, and, not withstanding the
Companys cash management initiatives, if more cash is
needed to fund the Company than expected, the Company may need
to take additional actions. These actions could include entering
into a sale-leaseback arrangement for its facility in Chaska,
Minnesota, entering into an asset-based lending arrangement,
borrowing up to $3.2 against or liquidating its remaining life
insurance investments of $3.5 million
and/or
borrowing up to 50% against or selling some or all of its
currently illiquid ARS, possibly at a loss, selling additional
equity or other cash generating actions. If the Company must
engage in any of the foregoing cash generating actions, there is
no assurance that any such actions will be available to the
Company, particularly those relating to third-party financing
arrangements. Further, there is no assurance on the amount of
cash that may be generated as a result of these actions, or
whether the amount of cash received will be sufficient to cover
the Companys operating expenses at such time. The sale of
additional equity would likely result in additional dilution to
the Companys shareholders.
56
Report of
Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
FSI International, Inc.:
We have audited the accompanying consolidated balance sheets of
FSI International, Inc. and subsidiaries (the
Company) as of August 29, 2009 and
August 30, 2008, and the related consolidated statements of
operations, stockholders equity and comprehensive loss,
and cash flows for each of the years in the three-year period
ended August 29, 2009. These consolidated financial
statements are the responsibility of the Companys
management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). 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 financial
position of FSI International, Inc. and subsidiaries as of
August 29, 2009 and August 30, 2008, and the results
of their operations and their cash flows for each of the years
in the three-year period ended August 29, 2009, in
conformity with U.S. generally accepted accounting
principles.
/s/ KPMG LLP
Minneapolis, Minnesota
November 12, 2009
57
Data for the fiscal quarters of our last two fiscal years is as
follows (in thousands, except per share data):
Quarterly
Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
|
|
Second
|
|
Third
|
|
Fourth
|
|
|
Quarter
|
|
Quarter
|
|
Quarter
|
|
Quarter
|
|
|
(b), (c)
|
|
(a), (b), (c), (d)
|
|
(b), (c), (d)
|
|
(a), (b), (c), (d)
|
|
|
(Unaudited)
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
12,244
|
|
|
$
|
8,640
|
|
|
$
|
15,424
|
|
|
$
|
14,176
|
|
Gross margin
|
|
|
4,627
|
|
|
|
1,207
|
|
|
|
4,313
|
|
|
|
6,280
|
|
Operating loss
|
|
|
(5,423
|
)
|
|
|
(9,495
|
)
|
|
|
(2,669
|
)
|
|
|
(164
|
)
|
Net loss
|
|
|
(5,317
|
)
|
|
|
(9,427
|
)
|
|
|
(2,808
|
)
|
|
|
(73
|
)
|
Diluted net loss per common share
|
|
$
|
(0.17
|
)
|
|
$
|
(0.30
|
)
|
|
$
|
(0.09
|
)
|
|
$
|
0.00
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
22,439
|
|
|
$
|
21,423
|
|
|
$
|
20,331
|
|
|
$
|
14,063
|
|
Gross margin
|
|
|
8,603
|
|
|
|
10,210
|
|
|
|
10,479
|
|
|
|
3,694
|
|
Operating loss
|
|
|
(2,418
|
)
|
|
|
(1,482
|
)
|
|
|
(1,632
|
)
|
|
|
(9,457
|
)
|
Net loss
|
|
|
(2,132
|
)
|
|
|
(1,016
|
)
|
|
|
(1,404
|
)
|
|
|
(9,087
|
)
|
Diluted net loss per common share
|
|
$
|
(0.07
|
)
|
|
$
|
(0.03
|
)
|
|
$
|
(0.05
|
)
|
|
$
|
(0.30
|
)
|
|
|
|
(a) |
|
During fiscal 2009 and 2008, the Company recorded severance and
outplacement costs as follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
|
|
|
Second
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Fiscal
|
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Third
|
|
|
Fourth
|
|
|
2009
|
|
|
Cost of sales
|
|
$
|
|
|
|
$
|
698
|
|
|
$
|
|
|
|
$
|
(94
|
)
|
|
$
|
604
|
|
Selling, general and administrative expenses
|
|
|
|
|
|
|
1,168
|
|
|
|
|
|
|
|
(35
|
)
|
|
|
1,133
|
|
Research and development expenses
|
|
|
|
|
|
|
967
|
|
|
|
|
|
|
|
(92
|
)
|
|
|
875
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
|
|
|
$
|
2,833
|
|
|
$
|
|
|
|
$
|
(221
|
)
|
|
$
|
2,612
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
Fiscal
|
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
2008
|
|
|
Cost of sales
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
142
|
|
|
$
|
142
|
|
Selling, general and administrative expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,314
|
|
|
|
1,314
|
|
Research and development expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
536
|
|
|
|
536
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,992
|
|
|
$
|
1,992
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(b) |
|
During fiscal 2009 and 2008, the Company recorded stock-based
compensation expense as follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
Fiscal
|
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
2009
|
|
|
Cost of sales
|
|
$
|
10
|
|
|
$
|
9
|
|
|
$
|
13
|
|
|
$
|
20
|
|
|
$
|
52
|
|
Selling, general and administrative expenses
|
|
|
79
|
|
|
|
69
|
|
|
|
84
|
|
|
|
69
|
|
|
|
301
|
|
Research and development expenses
|
|
|
20
|
|
|
|
13
|
|
|
|
34
|
|
|
|
62
|
|
|
|
129
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
109
|
|
|
$
|
91
|
|
|
$
|
131
|
|
|
$
|
151
|
|
|
$
|
482
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
58
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
Fiscal
|
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
2008
|
|
|
Cost of sales
|
|
$
|
2
|
|
|
$
|
12
|
|
|
$
|
17
|
|
|
$
|
12
|
|
|
$
|
43
|
|
Selling, general and administrative expenses
|
|
|
112
|
|
|
|
91
|
|
|
|
110
|
|
|
|
88
|
|
|
|
401
|
|
Research and development expenses
|
|
|
23
|
|
|
|
33
|
|
|
|
41
|
|
|
|
24
|
|
|
|
121
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
137
|
|
|
$
|
136
|
|
|
$
|
168
|
|
|
$
|
124
|
|
|
$
|
565
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(c) |
|
During fiscal 2009 and 2008, the Company had sales of POLARIS
systems product inventory with an original cost that had
previously been written down to zero as follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
|
|
Second
|
|
Third
|
|
Fourth
|
|
Fiscal
|
|
|
Quarter
|
|
Quarter
|
|
Quarter
|
|
Quarter
|
|
Year
|
|
Fiscal 2009
|
|
$
|
99
|
|
|
$
|
158
|
|
|
$
|
90
|
|
|
$
|
270
|
|
|
$
|
617
|
|
Fiscal 2008
|
|
$
|
339
|
|
|
$
|
330
|
|
|
$
|
185
|
|
|
$
|
95
|
|
|
$
|
949
|
|
|
|
|
(d) |
|
During the second quarter and third quarter of fiscal 2009, the
Company recorded a gain of $74,000 and $36,000, respectively,
associated with ARS redemptions. During the fourth quarter of
fiscal 2008, the Company recorded an other than temporary
impairment related to its ARS of $0.4 million. |
The Companys fiscal quarters are generally 13 weeks,
all ending on a Saturday. The fiscal year ends on the last
Saturday in August and consists of 52 or 53 weeks.
59
|
|
ITEM 9.
|
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
|
None.
|
|
ITEM 9A.
|
CONTROLS
AND PROCEDURES
|
MANAGEMENTS
REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
The management of the Company is responsible for establishing
and maintaining adequate internal control over financial
reporting, as such term is defined in
Rule 13a-15(f)
under the Exchange Act of 1934 (the Exchange Act).
The Companys internal control system was designed to
provide reasonable assurance to the Companys management
and board of directors regarding the preparation and fair
presentation of published financial statements. Under the
supervision and with the participation of management, including
our Chairman and Chief Executive Officer and Chief Financial
Officer, we conducted an assessment of the effectiveness of our
internal control over financial reporting as of August 29,
2009. In making this assessment, management used the criteria
set forth by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO) in Internal
Control Integrated Framework.
Based on our assessment using the criteria set forth by COSO in
Internal Control Integrated Framework,
management concluded that our internal control over financial
reporting was effective as of August 29, 2009. This annual
report does not include an attestation report of KPMG LLP
(KPMG), our independent registered public accounting
firm, regarding internal control over financial reporting.
Managements report was not subject to attestation by KPMG
pursuant to temporary rules of the SEC that permit us to provide
only managements report in this annual report.
Conclusion
Regarding the Effectiveness of Disclosure Controls and
Procedures
As of the end of the period covered by this report, we conducted
an evaluation, under the supervision and with the participation
of the principal executive officer and principal financial
officer, of our disclosure controls and procedures (as defined
in
Rules 13a-14(c)
and
15d-14(c)
under the Exchange Act). Based on this evaluation, the principal
executive officer and principal financial officer concluded that
our disclosure controls and procedures are effective to ensure
that information required to be disclosed by us in reports that
we file or submit under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in
Securities and Exchange Commission rules and forms.
Changes
in Internal Controls Over Financial Reporting
There were no changes in our internal control over financial
reporting during our most recently completed fiscal quarter that
have materially affected, or were reasonably likely to
materially affect, our internal control over financial reporting.
|
|
ITEM 9B.
|
OTHER
INFORMATION
|
None.
PART III
Certain information required by Part III is incorporated by
reference to our definitive proxy statement for the annual
meeting of shareholders to be held on January 20, 2010 and
which will be filed with the Securities and Exchange Commission
pursuant to Regulation 14A within 120 days after
August 29, 2009.
Except for those portions specifically incorporated in this
report by reference to our proxy statement for the annual
meeting of shareholders to be held on January 20, 2010, no
other portions of the proxy statement are deemed to be filed as
part of this Report on
Form 10-K.
60
|
|
ITEM 10.
|
DIRECTORS
AND EXECUTIVE OFFICERS OF THE REGISTRANT
|
The information concerning our directors and our board
committees required by this item is incorporated by reference to
the information under the captions Election of
Directors and Compliance with Section 16(a) of
the Securities and Exchange Act of 1934 in our proxy
statement for the annual meeting of shareholders to be held on
January 20, 2010. For information concerning executive
officers, see Item 4A of this
Form 10-K
Report.
Code of
Business Conduct and Ethics
We have adopted a code of business conduct and ethics applicable
to all of our directors and employees, including our principal
executive officer, principal financial officer, controller and
other employees performing similar functions. A copy of this
code of business conduct and ethics is available on our website
at www.fsi-intl.com.
We intend to disclose any waiver of our code of business conduct
and ethics for our directors or executive officers in future
Form 8-K
filings within four business days following the date of such
waiver. We also intend to post on our website at
www.fsi-intl.com any amendment to, or waiver from, a provision
of our code of business conduct and ethics that applies to our
principal executive officer, principal financial officer,
controller and other employees performing similar functions
within four business days following the date of such amendment
or waiver.
|
|
ITEM 11.
|
EXECUTIVE
COMPENSATION
|
The information required by this item is incorporated by
reference to the information under the captions Election
of Directors and Compensation of Executive
Officers in our proxy statement for the annual meeting of
shareholders to be held on January 20, 2010.
|
|
ITEM 12.
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
|
The information required by this item is incorporated by
reference to the information under the captions Security
Ownership of Management and Certain Beneficial Owners and
Equity Compensation Plan Information in our proxy
statement for the annual meeting of shareholders to be held on
January 20, 2010.
|
|
ITEM 13.
|
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
|
The information required by this item is incorporated by
reference to the information under the caption Interests
of Management and Others in Certain Transactions in our
proxy statement for the annual meeting of shareholders to be
held on January 20, 2010.
|
|
ITEM 14.
|
PRINCIPAL
ACCOUNTANT FEES AND SERVICES
|
The information required by this item is incorporated by
reference to the information under the captions
Independent Registered Public Accountant Fees and
Auditor Independence in our proxy statement for the
annual meeting of shareholders to be held on January 20,
2010.
61
PART IV
|
|
ITEM 15.
|
EXHIBITS AND
FINANCIAL STATEMENT SCHEDULES
|
|
|
|
|
|
|
|
|
|
|
|
Page Number
|
|
|
|
|
|
in this Report
|
|
|
(a)(1)
|
|
Index to Financial Statements
|
|
|
|
|
|
|
Consolidated Statements of Operations Years ended
August 29, 2009, August 30, 2008 and August 25,
2007
|
|
|
34
|
|
|
|
Consolidated Balance Sheets August 29, 2009 and
August 30, 2008
|
|
|
35
|
|
|
|
Consolidated Statements of Stockholders Equity and
Comprehensive Loss Years ended August 29, 2009,
August 30, 2008 and August 25, 2007
|
|
|
36
|
|
|
|
Consolidated Statements of Cash Flows Years ended
August 29, 2009, August 30, 2008 and August 25,
2007
|
|
|
37
|
|
|
|
Notes to Consolidated Financial Statements
|
|
|
38
|
|
|
|
Report of Independent Registered Public Accounting Firm
|
|
|
57
|
|
|
|
Quarterly financial data for fiscal 2009 and 2008 (unaudited)
|
|
|
58
|
|
(a)(2)
|
|
Financial Statement Schedules
|
|
|
|
|
|
|
All schedules are omitted because they are not applicable or the
required information is shown in the consolidated financial
statements or notes thereto
|
|
|
|
|
(a)(3) Exhibits
|
|
|
|
|
|
|
|
2
|
.1
|
|
|
|
Agreement and Plan of Reorganization, dated as of January 21,
1999 among FSI International, Inc., BMI International, Inc. and
YieldUP International Corporation.(6)
|
|
2
|
.2
|
|
|
|
Agreement and Plan of Reorganization by and Among FSI
International, Inc., Spectre Acquisition Corp., and
Semiconductor Systems, Inc.(1)
|
|
2
|
.3
|
|
|
|
Asset Purchase Agreement dated as of June 9, 1999 between FSI
International, Inc. and The BOC Group, Inc.(7)
|
|
3
|
.1
|
|
|
|
Restated Articles of Incorporation of the Company.(2)
|
|
3
|
.2
|
|
|
|
Restated and Amended By-Laws.(14)
|
|
3
|
.3
|
|
|
|
Articles of Amendment of Restated Articles of Incorporation.(8)
|
|
10
|
.1
|
|
|
|
FSI International, Inc. 1997 Omnibus Stock Plan (as amended and
restated April 2001).(12)
|
|
10
|
.2
|
|
|
|
Form of Incentive Stock Option Agreement for the FSI
International, Inc. 1997 Omnibus Stock Plan, as amended.(15)
|
|
10
|
.3
|
|
|
|
Form of Incentive Stock Option Agreement for Outside Directors
for the FSI International, Inc. 1997 Omnibus Stock Plan, as
amended.(15)
|
|
10
|
.4
|
|
|
|
FSI International, Inc. 2008 Omnibus Stock Plan.(17)
|
|
10
|
.5
|
|
|
|
Amended and Restated Employees Stock Purchase Plan.(17)
|
|
10
|
.6
|
|
|
|
Management Agreement entered into as of March 28, 2008, by and
between FSI International, Inc. and Donald S. Mitchell.
(Identical Management Agreements were entered into on March 28,
2008 between the Company and each of Benno G. Sand, Patricia M.
Hollister and John C. Ely. These Management Agreements have
been omitted but will be filed if requested in writing by the
Commission)(18)
|
|
10
|
.7
|
|
|
|
Severance Agreement entered into as of March 28, 2008, by and
between FSI International, Inc. and Benno G. Sand.(18)
|
|
10
|
.8
|
|
|
|
Employment Agreement entered into as of March 28, 2008, by and
between FSI International, Inc. and Donald S. Mitchell.(18)
|
|
10
|
.9
|
|
|
|
Amended and Restated Summary of Terms of Employment entered into
as of March 28, 2008 between FSI International and Donald S.
Mitchell.(18)
|
62
|
|
|
|
|
|
|
|
10
|
.10
|
|
|
|
Severance Agreement entered into as of March 28, 2008, by and
between FSI International, Inc. and Patricia M. Hollister. (An
identical Severance Agreement was entered into on March 28, 2008
between the Company and John C. Ely. This Severance Agreement
has been omitted but will be filed if requested in writing by
the Commission.)(18)
|
|
10
|
.11
|
|
|
|
License Agreement, dated October 15, 1991, between the Company
and Texas Instruments Incorporated.(3)
|
|
10
|
.12
|
|
|
|
Amendment No. 1, dated April 10, 1992, to the License Agreement,
dated October 15, 1991, between the Company and Texas
Instruments Incorporated.(3)
|
|
10
|
.13
|
|
|
|
Amendment effective October 1, 1993 to the License Agreement,
dated October 15, 1991 between the Company and Texas Instruments
Incorporated.(4)
|
|
10
|
.14
|
|
|
|
Amended and Restated Directors Nonstatutory Stock Option
Plan.(5)
|
|
10
|
.15
|
|
|
|
Management Agreement between FSI International, Inc. and Donald
S. Mitchell, effective as of January 2, 2001.(Similar agreements
between the Company and its executive officers have been omitted
but will be filed if requested in writing by the
commission.)(11)#
|
|
10
|
.16
|
|
|
|
Summary of Employment Arrangement between the Company and Don
Mitchell dated December 12, 1999.(10)#
|
|
10
|
.17
|
|
|
|
Employment Agreement entered into as of December 12, 1999 by and
between FSI International, Inc. and Donald S. Mitchell.(9)#
|
|
10
|
.18
|
|
|
|
Agreement made and entered into as of March 4, 2001 by and
between FSI International, Inc. and Benno G. Sand.(13)#
|
|
10
|
.19
|
|
|
|
Termination and Release Agreement dated as of May 15, 2007 with
Mitsui & Co., Ltd., Chlorine engineers Corp., Ltd., MBK
Project Holdings Ltd. and Apprecia.(16)
|
|
10
|
.20
|
|
|
|
Stock Purchase Agreement dated as of May 15, 2007 by an among
FSI International, Inc., MBK Project Holdings Ltd., Chlorine
Engineers Corp. Ltd., Yasuda Enterprise Development III
Limited Partnership, Mizuho Capital Co., Ltd., Mr. Hideki Kawai,
Mr. Takanori Yoshioka and Mr. Satoshi Shikami. (exhibits
omitted)(16)
|
|
21
|
.0
|
|
|
|
Subsidiaries of the Company. (filed herewith)
|
|
23
|
.0
|
|
|
|
Consent of KPMG LLP, independent registered public accounting
firm. (filed herewith)
|
|
24
|
.0
|
|
|
|
Powers of Attorney from the Directors of FSI International, Inc.
(filed herewith)
|
|
31
|
.1
|
|
|
|
Certification by Principal Executive Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 2002. (filed herewith)
|
|
31
|
.2
|
|
|
|
Certification by Principal Financial and Accounting Officer
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
(filed herewith)
|
|
32
|
.1
|
|
|
|
Certification of Chief Executive Officer and Chief Financial
Officer Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
(filed herewith)
|
|
|
|
# |
|
Identified exhibit is a management contract, compensation plan
or arrangement. |
|
(1) |
|
Filed as an Exhibit to the Companys Registration Statement
on
Form S-4
(as amended) dated March 21, 1996, SEC File
No. 333-1509
and incorporated by reference. |
|
(2) |
|
Filed as an Exhibit to the Companys Report on
Form 10-Q
for the quarter ended February 24, 1990, SEC File
No. 0-17276,
and incorporated by reference. |
|
(3) |
|
Filed as an Exhibit to the Companys Report on
Form 10-K
for the fiscal year ended August 29, 1992, File
No. 0-17276,
and incorporated by reference. |
|
(4) |
|
Filed as an Exhibit to the Companys Report on
Form 10-K
for the fiscal year ended August 28, 1993, SEC File
No. 0-17276,
and incorporated by reference. |
|
(5) |
|
Filed as an Exhibit to the Companys Report on
Form 10-Q
for the fiscal quarter ended May 28, 1994, SEC File
No. 0-17276,
and incorporated by reference. |
|
(6) |
|
Filed as an Exhibit to the Companys Report on
Form 8-K,
filed by the Company on January 27, 1999, SEC File
No. 0-17276
and incorporated by reference. |
63
|
|
|
(7) |
|
Filed as an Exhibit to the Companys Report on
Form 8-K,
filed by the Company on June 24, 1999, SEC File
No. 0-17276
and incorporated by reference. |
|
(8) |
|
Filed as an Exhibit to the Companys Report on
Form 10-K
for the fiscal year ended August 28, 1999, SEC File
No. 0-17276,
and incorporated by reference. |
|
(9) |
|
Filed as an Exhibit to the Companys Report on
Form 10-Q
for the fiscal quarter ended February 26, 2000, SEC File
No. 0-17276
and incorporated by reference. |
|
(10) |
|
Filed as an Exhibit to the Companys Report on
Form 10-K
for the fiscal year ended August 26, 2000, SEC File
No. 0-17276
and incorporated by reference. |
|
(11) |
|
Filed as an Exhibit to the Companys Report on
Form 10-Q
for the fiscal quarter ended February 24, 2001, SEC File
No. 0-17276
and incorporated by reference. |
|
(12) |
|
Filed as an Exhibit to the Companys Registration Statement
on
Form S-8,
filed by the Company on March 28, 2003, SEC File
No. 333-104088
and incorporated by reference. |
|
(13) |
|
Filed as an Exhibit to the Companys Report on
Form 10-K
for the fiscal year ended August 31, 2002, SEC File
No. 0-17276
and incorporated by reference. |
|
(14) |
|
Filed as an Exhibit to the Companys Report on
Form 10-Q
for the fiscal quarter ended February 23, 2002, SEC File
No. 0-17276
and incorporated by reference. |
|
(15) |
|
Filed as an Exhibit to the Companys Current Report on
Form 8-K,
filed by the Company on October 20, 2004, SEC File
No. 0-17276
and incorporated by reference. |
|
(16) |
|
Filed as an Exhibit to the Companys Report on
Form 10-Q
for the quarter ended May 26, 2007, SEC File
No. 0-17276
and incorporated by reference. |
|
(17) |
|
Filed as an Exhibit to the Companys Registration Statement
on
Form S-8,
filed by the Company on March 21, 2008, SEC File
No. 333-149852
and incorporated by reference. |
|
(18) |
|
Filed as an Exhibit to the Companys Report on
Form 10-Q
for the fiscal quarter ended March 1, 2008, SEC File
No. 0-17276
and incorporated by reference. |
64
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.
FSI INTERNATIONAL, INC.
|
|
|
|
By:
|
/s/ Donald
S. Mitchell
|
Donald S. Mitchell, Chairman and
Chief Executive Officer
(Principal Executive Officer)
Dated: November 12, 2009
|
|
|
|
By:
|
/s/ Patricia
M. Hollister
|
Patricia M. Hollister, Chief Financial Officer
(Principal Financial and Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following
persons, constituting a majority of the Board of Directors, on
behalf of the Registrant and in the capacities and on the dates
indicated.
James A. Bernards, Director*
Terrence W. Glarner, Director*
Willem D. Maris, Director*
Donald S. Mitchell, Director*
David V. Smith, Director*
|
|
|
|
*By:
|
/s/ Patricia
M. Hollister
|
Patricia M. Hollister, Attorney-in-fact
Dated: November 12, 2009
65
INDEX TO
EXHIBITS
|
|
|
|
|
|
|
Exhibit
|
|
Description
|
|
Method of Filing
|
|
|
2
|
.1
|
|
Agreement and Plan of Reorganization, dated as of
January 21, 1999 among FSI International, Inc., BMI
International, Inc. and YieldUP International Corporation.(6)
|
|
Incorporated by reference
|
|
2
|
.2
|
|
Agreement and Plan of Reorganization by and Among FSI
International, Inc., Spectre Acquisition Corp., and
Semiconductor Systems, Inc.(1)
|
|
Incorporated by reference
|
|
2
|
.3
|
|
Asset Purchase Agreement dated as of June 9, 1999 between
FSI International, Inc. and The BOC Group, Inc.(7)
|
|
Incorporated by reference
|
|
3
|
.1
|
|
Restated Articles of Incorporation of the Company.(2)
|
|
Incorporated by reference
|
|
3
|
.2
|
|
Restated and Amended By-Laws.(14)
|
|
Incorporated by reference
|
|
3
|
.3
|
|
Articles of Amendment of Restated Articles of Incorporation.(8)
|
|
Incorporated by reference
|
|
10
|
.1
|
|
FSI International, Inc. 1997 Omnibus Stock Plan (as amended and
restated April 2001).(12)
|
|
Incorporated by reference
|
|
10
|
.2
|
|
Form of Incentive Stock Option Agreement for the FSI
International, Inc. 1997 Omnibus Stock Plan, as amended.(15)
|
|
Incorporated by reference
|
|
10
|
.3
|
|
Form of Incentive Stock Option Agreement for Outside Directors
for the FSI International, Inc. 1997 Omnibus Stock Plan, as
amended.(15)
|
|
Incorporated by reference
|
|
10
|
.4
|
|
FSI International, Inc. 2008 Omnibus Stock Plan.(17)
|
|
Incorporated by reference
|
|
10
|
.5
|
|
Amended and Restated Employees Stock Purchase Plan.(17)
|
|
Incorporated by reference
|
|
10
|
.6
|
|
Management Agreement entered into as of March 28, 2008, by
and between FSI International, Inc. and Donald S. Mitchell.
(Identical Management Agreements were entered into on
March 28, 2008 between the Company and each of Benno G.
Sand, Patricia M. Hollister and John C. Ely. These Management
Agreements have been omitted but will be filed if requested in
writing by the Commission)(18)
|
|
Incorporated by reference
|
|
10
|
.7
|
|
Severance Agreement entered into as of March 28, 2008, by
and between FSI International, Inc. and Benno G. Sand.(18)
|
|
Incorporated by reference
|
|
10
|
.8
|
|
Employment Agreement entered into as of March 28, 2008, by
and between FSI International, Inc. and Donald S. Mitchell.(18)
|
|
Incorporated by reference
|
|
10
|
.9
|
|
Amended and Restated Summary of Terms of Employment entered into
as of March 28, 2008 between FSI International and Donald
S. Mitchell.(18)
|
|
Incorporated by reference
|
|
10
|
.10
|
|
Severance Agreement entered into as of March 28, 2008, by
and between FSI International, Inc. and Patricia M. Hollister.
(An identical Severance Agreement was entered into on
March 28, 2008 between the Company and John C. Ely. This
Severance Agreement has been omitted but will be filed if
requested in writing by the Commission.)(18)
|
|
Incorporated by reference
|
|
10
|
.11
|
|
License Agreement, dated October 15, 1991, between the
Company and Texas Instruments Incorporated.(3)
|
|
Incorporated by reference
|
|
10
|
.12
|
|
Amendment No. 1, dated April 10, 1992, to the License
Agreement, dated October 15, 1991, between the Company and
Texas Instruments Incorporated.(3)
|
|
Incorporated by reference
|
|
10
|
.13
|
|
Amendment effective October 1, 1993 to the License
Agreement, dated October 15, 1991 between the Company and
Texas Instruments Incorporated.(4)
|
|
Incorporated by reference
|
|
10
|
.14
|
|
Amended and Restated Directors Nonstatutory Stock Option
Plan.(5)
|
|
Incorporated by reference
|
|
10
|
.15
|
|
Management Agreement between FSI International, Inc. and Donald
S. Mitchell, effective as of January 2, 2001. (Similar
agreements between the Company and its executive officers have
been omitted but will be filed if requested in writing by the
commission.)(11)#
|
|
Incorporated by reference
|
66
|
|
|
|
|
|
|
Exhibit
|
|
Description
|
|
Method of Filing
|
|
|
10
|
.16
|
|
Summary of Employment Arrangement between the Company and Don
Mitchell dated December 12, 1999.(10)#
|
|
Incorporated by reference
|
|
10
|
.17
|
|
Employment Agreement entered into as of December 12, 1999
by and between FSI International, Inc. and Donald S.
Mitchell.(9)#
|
|
Incorporated by reference
|
|
10
|
.18
|
|
Agreement made and entered into as of March 4, 2001 by and
between FSI International, Inc. and Benno G. Sand.(13)#
|
|
Incorporated by reference
|
|
10
|
.19
|
|
Termination and Release Agreement dated as of May 15, 2007
with Mitsui & Co., Ltd., Chlorine engineers Corp.,
Ltd., MBK Project Holdings Ltd. and Apprecia.(16)
|
|
Incorporated by reference
|
|
10
|
.20
|
|
Stock Purchase Agreement dated as of May 15, 2007 by an
among FSI International, Inc., MBK Project Holdings Ltd.,
Chlorine Engineers Corp. Ltd., Yasuda Enterprise
Development III Limited Partnership, Mizuho Capital Co.,
Ltd., Mr. Hideki Kawai, Mr. Takanori Yoshioka and
Mr. Satoshi Shikami. (exhibits omitted)(16)
|
|
Incorporated by reference
|
|
21
|
.0
|
|
Subsidiaries of the Company.
|
|
Filed herewith
|
|
23
|
.0
|
|
Consent of KPMG LLP, independent registered public accounting
firm.
|
|
Filed herewith
|
|
24
|
.0
|
|
Powers of Attorney from the Directors of FSI International,
Inc.
|
|
Filed herewith
|
|
31
|
.1
|
|
Certification by Principal Executive Officer Pursuant to
Section 302 of the Sarbanes-Oxley Act.
|
|
Filed herewith
|
|
31
|
.2
|
|
Certification by Principal Financial and Accounting Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act.
|
|
Field herewith
|
|
32
|
.1
|
|
Certification of Chief Executive Officer Pursuant to
18 U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
|
|
Filed herewith
|
|
|
|
# |
|
Identified exhibit is a management contract, compensation plan
or arrangement. |
|
(1) |
|
Filed as an Exhibit to the Companys Registration Statement
on
Form S-4
(as amended) dated March 21, 1996, SEC File
No. 333-1509
and incorporated by reference. |
|
(2) |
|
Filed as an Exhibit to the Companys Report on
Form 10-Q
for the quarter ended February 24, 1990, SEC File
No. 0-17276,
and incorporated by reference. |
|
(3) |
|
Filed as an Exhibit to the Companys Report on
Form 10-K
for the fiscal year ended August 29, 1992, File
No. 0-17276,
and incorporated by reference. |
|
(4) |
|
Filed as an Exhibit to the Companys Report on
Form 10-K
for the fiscal year ended August 28, 1993, SEC File
No. 0-17276,
and incorporated by reference. |
|
(5) |
|
Filed as an Exhibit to the Companys Report on
Form 10-Q
for the fiscal quarter ended May 28, 1994, SEC File
No. 0-17276,
and incorporated by reference. |
|
(6) |
|
Filed as an Exhibit to the Companys Report on
Form 8-K,
filed by the Company on January 27, 1999, SEC File
No. 0-17276
and incorporated by reference. |
|
(7) |
|
Filed as an Exhibit to the Companys Report on
Form 8-K,
filed by the Company on June 24, 1999, SEC File
No. 0-17276
and incorporated by reference. |
|
(8) |
|
Filed as an Exhibit to the Companys Report on
Form 10-K
for the fiscal year ended August 28, 1999, SEC File
No. 0-17276,
and incorporated by reference. |
|
(9) |
|
Filed as an Exhibit to the Companys Report on
Form 10-Q
for the fiscal quarter ended February 26, 2000, SEC File
No. 0-17276
and incorporated by reference. |
|
(10) |
|
Filed as an Exhibit to the Companys Report on
Form 10-K
for the fiscal year ended August 26, 2000, SEC File
No. 0-17276
and incorporated by reference. |
|
(11) |
|
Filed as an Exhibit to the Companys Report on
Form 10-Q
for the fiscal quarter ended February 24, 2001, SEC File
No. 0-17276
and incorporated by reference. |
67
|
|
|
(12) |
|
Filed as an Exhibit to the Companys Registration Statement
on
Form S-8,
filed by the Company on March 28, 2003, SEC File
No. 333-104088
and incorporated by reference. |
|
(13) |
|
Filed as an Exhibit to the Companys Report on
Form 10-K
for the fiscal year ended August 31, 2002, SEC File
No. 0-17276
and incorporated by reference. |
|
(14) |
|
Filed as an Exhibit to the Companys Report on
Form 10-Q
for the fiscal quarter ended February 23, 2002, SEC File
No. 0-17276
and incorporated by reference. |
|
(15) |
|
Filed as an Exhibit to the Companys Current Report on
Form 8-K,
filed by the Company on October 20, 2004, SEC File
No. 0-17276
and incorporated by reference. |
|
(16) |
|
Filed as an Exhibit to the Companys Report on
Form 10-Q
for the quarter ended May 26, 2007, SEC File
No. 0-17276
and incorporated by reference. |
|
(17) |
|
Filed as an Exhibit to the Companys Registration Statement
on
Form S-8,
filed by the Company on March 21, 2008, SEC File
No. 333-149852
and incorporated by reference. |
|
(18) |
|
Filed as an Exhibit to the Companys Report on
Form 10-Q
for the fiscal quarter ended March 1, 2008, SEC File
No. 0-17276
and incorporated by reference. |
68