-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, UBMmZEJPPzAlocZC003GKQDEFz2D2nQcv1IL1Sp41NEcNZTP4XuTmed+98tbO6/y apUU+SQ0Ha2+hzeRzwYv2g== 0000912057-96-017111.txt : 19960813 0000912057-96-017111.hdr.sgml : 19960813 ACCESSION NUMBER: 0000912057-96-017111 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960812 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: TENCOR INSTRUMENTS CENTRAL INDEX KEY: 0000711808 STANDARD INDUSTRIAL CLASSIFICATION: INSTRUMENTS FOR MEAS & TESTING OF ELECTRICITY & ELEC SIGNALS [3825] IRS NUMBER: 942464767 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-20007 FILM NUMBER: 96608268 BUSINESS ADDRESS: STREET 1: 3333 OCTAVIUS STREET CITY: SANTA CLARA STATE: CA ZIP: 95054 BUSINESS PHONE: 4159696784 MAIL ADDRESS: STREET 1: 3333 OCTAVIUS STREET CITY: SANTA CLARA STATE: CA ZIP: 95054 10-Q 1 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark one) [X] QUARTERLY report pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934. For the quarterly period ended June 30, 1996 OR [ ] TRANSITION report pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934. For the transition period from _____________ to ____________ COMMISSION FILE NUMBER 0-20007 TENCOR INSTRUMENTS (exact name of registrant as specified in its charter) CALIFORNIA 94-2464767 (State of Incorporation) (I.R.S. Employer Identification No.) 2400 CHARLESTON ROAD MOUNTAIN VIEW, CALIFORNIA 94043 (Address of principal executive offices, zip code) Registrant's telephone number: (415) 969-6784 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES _X_ NO ___ Indicate number of shares outstanding of each of the issuer's classes of stock, as of the latest practical date: Common Shares outstanding as of July 31, 1996: 30,798,708 This report, including all exhibits and attachments, contains 12 pages. page 1 of 12 INDEX TENCOR INSTRUMENTS Page PART I - FINANCIAL INFORMATION Number - ------------------------------ ------ Item 1: Consolidated Interim Financial Statements: Consolidated Interim Balance Sheets - June 30, 1996 and December 31, 1995 3 Consolidated Interim Statements of Income - Three months and six months ended June 30, 1996 and 1995 4 Consolidated Interim Statements of Shareholders' Equity - Year ended December 31, 1995 and six months ended June 30, 1996 5 Consolidated Interim Statements of Cash Flows - Six months ended June 30, 1996 and 1995 6 Notes to Consolidated Interim Financial Statements 7 Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations 8-10 PART II - OTHER INFORMATION 11 - --------------------------- SIGNATURES 12 - ---------- page 2 of 12 PART 1. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS TENCOR INSTRUMENTS CONSOLIDATED INTERIM BALANCE SHEETS (in thousands) (unaudited) June 30, 1996 December 31, 1995 ------------- ----------------- ASSETS Current assets: Cash and cash equivalents $ 92,300 $ 86,944 Short-term investments 94,012 76,889 Accounts receivable, net 106,607 122,859 Inventories 65,426 46,725 Deferred income taxes 8,869 8,869 Prepaid expenses and other assets 4,055 2,664 -------- -------- Total current assets 371,269 344,950 Property and equipment, net 33,012 22,447 Other assets 35,494 27,643 -------- -------- Total assets $439,775 $395,040 -------- -------- LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Bank borrowings $ 32,714 $ 34,123 Accounts payable 17,488 16,858 Accrued compensation 22,177 16,526 Other accrued expenses 26,037 22,816 Income taxes payable 5,321 13,545 -------- -------- Total current liabilities 103,737 103,868 -------- -------- Long-term obligations 2,288 3,027 -------- -------- Shareholders' equity: Common stock 149,068 151,675 Retained earnings 177,533 138,736 Accumulated unrealized gain on investments, net 9,334 -- Cumulative translation adjustment (2,185) (2,266) -------- -------- Total shareholders' equity 333,750 288,145 -------- -------- Total liabilities and shareholders' equity $439,775 $395,040 -------- -------- -------- -------- See accompanying notes to consolidated interim financial statements. page 3 of 12 TENCOR INSTRUMENTS CONSOLIDATED INTERIM STATEMENTS OF INCOME (in thousands, except per share data) (unaudited) Three months ended Six months ended June 30, June 30, 1996 1995 1996 1995 ---- ---- ---- ---- Revenues $109,417 $ 78,664 $215,700 $146,272 Cost of goods sold 44,224 28,435 85,071 53,485 -------- -------- -------- -------- Gross profit 65,193 50,229 130,629 92,787 -------- -------- -------- -------- Operating expenses: Research and development 11,625 7,925 22,620 14,743 Marketing and selling 17,133 13,403 33,253 24,145 General and administrative 8,042 4,336 14,994 8,503 -------- -------- -------- -------- Total operating expenses 36,800 25,664 70,867 47,391 -------- -------- -------- -------- Income from operations 28,393 24,565 59,762 45,396 Other income, net 1,519 1,698 2,812 2,691 -------- -------- -------- -------- Income before income taxes 29,912 26,263 62,574 48,087 Provision for income taxes 11,366 10,768 23,777 19,716 -------- -------- -------- -------- Net income $ 18,546 $ 15,495 $ 38,797 $ 28,371 -------- -------- -------- -------- -------- -------- -------- -------- Net income per share $0.59 $0.49 $1.22 $0.93 Weighted average common shares and equivalents 31,650 31,417 31,684 30,346 See accompanying notes to consolidated interim financial statements. page 4 of 12 TENCOR INSTRUMENTS CONSOLIDATED INTERIM STATEMENTS OF SHAREHOLDERS' EQUITY (in thousands) (unaudited)
Common Stock Cumulative ------------ Retained Translation Shares Amount Earnings Adjustment Totals ------ ------- -------- ----------- ------- Balance at December 31, 1994 27,456 71,377 73,412 (60) 144,729 Net issuance under employee stock plans 965 5,630 -- -- 5,630 Equity offering, net of offering costs 2,330 65,865 -- -- 65,865 Tax benefits of stock option transactions -- 8,803 -- -- 8,803 Cumulative translation adjustment -- -- -- (2,206) (2,206) Net income -- -- 65,324 -- 65,324 -------- ------- ------- ------- ------- Balance at December 31, 1995 30,751 151,675 138,736 (2,266) 288,145 Net issuance under employee stock plans 215 2,422 -- -- 2,422 Repurchase of Common Stock (250) (5,456) -- -- (5,456) Tax benefits of stock option transactions -- 427 -- -- 427 Cumulative translation adjustment -- -- -- 81 81 Accum. unrealized gain on investments, net -- -- 9,334 -- 9,334 Net income - -- 38,797 -- 38,797 -------- ------- ------- ------- -------- Balance at June 30, 1996 30,716 $149,068 $186,867 $(2,185) $333,750 -------- ------- ------- ------- -------- -------- ------- ------- ------- --------
See accompanying notes to consolidated interim financial statements. page 5 of 12 TENCOR INSTRUMENTS CONSOLIDATED INTERIM STATEMENTS OF CASH FLOWS Increase (decrease) in cash and cash equivalents (in thousands) (unaudited) Six months ended June 30, -------- 1996 1995 ---- ---- Cash flows from operating activities: Net income $38,797 $28,371 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 4,738 3,673 Changes in assets and liabilities: Accounts receivable 13,424 (31,457) Inventories (19,524) (10,804) Prepaid expenses and other assets (1,454) (761) Accounts payable 695 1,684 Accrued compensation 5,787 3,146 Other accrued expenses 2,825 5,273 Income taxes payable (7,628) 3,788 -------- ------- Net cash provided by operating activities 37,660 2,913 -------- ------- Cash flows from investing activities: Purchase of property and equipment (14,855) (5,848) Purchases of short-term investments (51,855) (57,672) Proceeds from sale of short-term investments 34,732 14,150 -------- ------- Net cash used in investing activities (31,978) (49,370) -------- ------- Cash flows from financing activities: Issuance of common stock, net 2,422 2,425 Proceeds from equity offering, net - 65,865 Repurchase of common stock (5,456) - Proceeds from debt obligations 21,568 4,737 Payments under debt obligations (21,214) (1,937) -------- ------- Net cash provided by (used in) financing activities (2,680) 71,090 -------- ------- Effect of exchange rate changes on cash 2,354 (1,693) -------- ------- Net increase in cash and cash equivalents 5,356 22,940 Cash and cash equivalents at beginning of period 86,944 37,121 -------- ------- Cash and cash equivalents at end of period $92,300 $60,061 -------- ------- -------- ------- Supplemental cash flow disclosures: Income taxes paid $31,366 $21,527 Interest paid $ 662 $ 159 See accompanying notes to consolidated interim financial statements. page 6 of 12 NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS NOTE 1. BASIS OF PRESENTATION The consolidated interim financial statements included herein have been prepared by Tencor Instruments (the Company), without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures, normally included in financial statements prepared in accordance with generally accepted accounting principles, have been condensed or omitted as permitted by such rules and regulations. The Company believes the disclosures included herein are adequate; however, these consolidated interim financial statements should be read in conjunction with the financial statements and the notes thereto for the year ended December 31, 1995, included in the Company's 1995 Annual Report to Shareholders. In the opinion of management, these unaudited financial statements contain all of the adjustments (consisting only of normal recurring adjustments) necessary to present fairly the financial position of the Company at June 30, 1996, the results of its operations, changes in shareholders' equity and cash flows for the periods presented. The results of operations for the periods presented may not be indicative of those which may be expected for the full year. NOTE 2. CASH EQUIVALENTS AND INVESTMENTS At June 30, 1996, the Company's cash equivalents and short-term investments consisted primarily of U.S. Government Treasury bills and notes, municipal bonds and money market instruments. Cash equivalents and short-term investments held at June 30, 1996, are recorded at fair market value. At June 30, 1996, the Company marked to market long-term investments (included in other assets) at their then fair market value resulting in an unrealized gain of $9.3M, net of tax (included as a component of shareholders equity). NOTE 3. INVENTORIES Inventories are stated at the lower of standard cost, which approximates actual cost (on a first in, first out basis) or market value and consists of the following (in thousands): June 30, December 31, 1996 1995 ---- ---- Raw materials $33,545 $24,829 Work-in-process 17,520 12,948 Finished goods 14,361 8,948 ------- ------- $65,426 $46,725 ------- ------- ------- ------- page 7 of 12 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS To the extent that this Quarterly Report discusses financial projections, information or expectations about products or markets of Tencor Instruments (the Company), or otherwise makes statements about future events, such statements are forward-looking and are subject to a number of risks and uncertainties that could cause actual results to differ materially from the statements made. These include, among others, uncertainties associated with meeting product delivery timetables, acceptance of new products, and costs associated with new product introductions, as well as other factors described herein. The following discussion should be read in conjunction with the unaudited consolidated interim financial statements and notes thereto included in Part I - Item 1 of this Quarterly Report, the audited financial statements and notes thereto and Management's Discussion and Analysis of Financial Condition and Results of Operations contained in the Company's Annual Report to Shareholders for the year ended December 31, 1995, and the discussion under the heading "Factors Affecting Future Results", as well as the matters identified in the description of the Company's business in Item 1 of the Company's Annual Report on Form 10-K for the year ended December 31, 1995. Revenues for the quarter and six months ended June 30, 1996, were $109.4M and $215.7M, respectively. Compared to the corresponding periods of 1995, revenues increased $30.8M, or 39.1%, and $69.4M, or 47.5%, respectively, due to both increased unit sales and a change in mix to products with higher average selling prices. International revenues comprised 63.6% and 64.1% of worldwide revenues in the current quarter and six months ended June 30, 1996, respectively. This compared to 70.2% and 65.7%, respectively, of total revenues in the corresponding periods of the prior year. Geographically, revenues from Asia for the three-month and six-month periods ended June 30, 1996, were $58.3M, or 53.3%, and $111.7M, or 51.8%, of worldwide revenues, respectively, compared to revenues of $34.9M, or 44.4%, and $66.9M, or 45.7%, of worldwide revenues, respectively, for the same periods in the prior year. The Company's revenues in Europe were $10.1M and $25M for the three-month and six month periods ended June 30, 1996, respectively, a 47% decrease and 3.8% increase over the same periods in 1995. Gross profit margins for the second quarter and six months ended June 30, 1996, were 59.6% and 60.6%, respectively, compared to 63.9% and 63.4% for the same periods of 1995, respectively. The decrease in gross margins is due in part to an increase in costs related to new product introductions and in part to an increase in support related costs as the Company continues to add infrastructure to its customer satisfaction organization to support its growth. The Company anticipates a modest percentage decline in gross margins for the remainder of 1996. Research and development expenses were $11.6M and $22.6M for the three month and six month periods ended June 30, 1996, respectively, compared to $7.9M and $14.7M, respectively, for the same periods of the prior year. As a percentage of revenue, research and development expenses increased slightly to 10.6% and 10.5% for the three and six month periods ended June 30, 1996, respectively, compared to 10.1% in both of the corresponding periods of 1995. page 8 of 12 Research and development expenses consist primarily of employee compensation-related costs, project material and other costs associated with the Company's ongoing efforts of product development and enhancements. The increase in absolute dollars is attributable to increases in salaries and benefits expenses resulting from increased headcount during the periods and increases in new product development spending, particularly related to the Company's Surfscan AIT (Advanced Inspection Technology) and Surfscan SP1, the industry's first unpatterned wafer inspection system designed for 300mm and device technologies of 0.25 micron. The Company expects the total dollars spent on research and development to continue to increase during the remainder of 1996. Marketing and selling, general and administrative expenses increased to $25.2M and $48.2 for the three-month and six-month periods ended June 30, 1996, respectively, compared to $17.7M and $32.6M, respectively, for the same periods in 1995. The increase in absolute dollars can be attributed in part to higher employee compensation-related costs as a result of an increase in worldwide headcount, and higher commission expense as a result of the increase in revenues, as well as higher contract labor costs to support a worldwide upgrade of the Company's management information system. As a percentage of revenues, marketing, selling and general and administrative expenses increased slightly to 23.0% and 22.4% for the three-month and six month periods ended June 30, 1996, respectively, from 22.6% and 22.3%, respectively, in the same periods of 1995. The Company established new sales and service organizations in Singapore and Taiwan in January and April of 1996, respectively, and expects to continue to increase its presence in Asia by adding infrastructure related to both new and existing sales and support operations. The Company expects total dollars spent in marketing and selling, general and administrative expenses consistent with the expenses reported in the three-month period ended June 30, 1996. Other income, net, decreased to $1.5M and increased to $2.8M for the three-month and six-month periods ended June 30, 1996, respectively, compared to $1.7M and $2.7M, respectively, for the same periods in 1995. Both three-month and six-month periods ended June 30, 1996, reflect increases in interest income due to an increase in cash, cash equivalents and short-term investments. The net decrease in other income, during the three-month period ended June 30, 1996, as compared to the same period of the prior year was attributable to foreign currency transactions. Income taxes as a percentage of income before income taxes decreased to 38% during the six-month period ended June 30, 1996, compared to 41% during the same period in the prior year. The decrease is primarily due to an estimated decrease in profits in jurisdictions with higher relative tax rates. Net income increased to $18.5M and $38.8M, or $0.59 and $1.22 per share, for the three-month and six-month periods ended June 30, 1996, respectively, compared to $15.5M and $28.4M, or $0.49 and $0.93 per share, respectively, for the same periods last year. Management does not believe inflation had a significant effect on the operating results. LIQUIDITY AND CAPITAL RESOURCES Total assets as of June 30, 1996, were $439.8M compared to $395M at December 31, 1995. Working capital increased to $267.5M at June 30, 1996, from $241.1M at December 31, 1995. During the six-month period ended June 30, 1996, cash, cash equivalents and short-term investments increased $22.5M to $186.3M from $163.8M, due primarily to cash generated from operations of $37.7M (which includes the yen equivalent of $22.5 million resulting from the transfer with recourse of certain of the Company's Japanese subsidiary accounts receivable) offset in part by fixed asset purchases of $14.9M as well as the repurchase of $5.5M of the Company's Common Stock. page 9 of 12 The Company currently has a revolving line of credit with a bank for which up to $20M may be borrowed based upon meeting certain covenants. As of June 30, 1996, the Company had approximately $16.3M available for borrowing under the line of credit. In addition, the Company's Japanese subsidiary currently has loans outstanding with local banks in the yen equivalent of $30.4M. The Company believes that cash and cash equivalents, funds generated from operations, and funds available under its bank lines of credit will be sufficient to satisfy working capital and capital equipment requirements for the next twelve months. The Company plans to move the majority of its California-based employees into a new facility in Milpitas, California, beginning in late 1996. As described in the Company's 1995 Annual Report, the Company has entered into significant material commitments in connection with this new facility. The Company believes that success in its industry requires substantial capital in order to maintain the flexibility to take advantage of opportunities as they may arise. Accordingly, the Company may, from time to time, as market and business conditions warrant, invest in or acquire complementary businesses, products or technologies. The Company may effect additional equity or debt financing to fund such activities. The sale of additional equity or convertible debt securities could result in additional dilution to the Company's stockholders. FACTORS AFFECTING FUTURE RESULTS The Company experienced significant improvement in operating results, revenues, bookings and profitability during 1995, which has continued in the first six months of 1996. The Company's future results are, however, subject to a variety of uncertainties. During the quarter, evidence of the slowing in the semiconductor industry became more apparent. The Company's book-to-bill rate of 0.84-to-1 in the second quarter of 1996 reflected the slower order rate, although the Company continued to have significant backlog. The Company's expense levels are based, in part, on expectations of future revenues. If revenue levels in a particular period do not meet expectations of increased revenues, operating results will be adversely affected. A variety of factors have an influence on the Company's operating results in a particular period. These factors include specific economic conditions in the semiconductor industry, the timing of the receipt of orders from major customers, customer cancellations or delays of shipments, specific feature requests by customers, production delays or manufacturing inefficiencies, exchange rate fluctuations, management decisions to commence or discontinue product lines, the Company's ability to design, introduce and manufacture new products on a cost effective and timely basis, the introduction of new products by the Company or its competition, the selection of the Company's products by semiconductor manufacturers for new generations of fabrication facilities, the timing of research and development expenditures, and expenses attendant to acquisitions, strategic alliances and the further development of marketing and service capabilities. The Company believes that its success depends in large part on its ability to introduce new products and product enhancements. In 1995, the Company introduced several new products including the Surfscan 6420, the Swift Access system, the Tencor CRS, and the Prometrix UV1250SE, as well as the Surfscan AIT. During the first quarter of 1996, the Company shipped its first production unit of the AIT. Additional units were shipped in the second quarter of 1996 with continued strong interest as the Company completes key customer evaluations. During the second quarter of 1996, the Company introduced the Surfscan SP1. Page 10 of 12 PART II. OTHER INFORMATION Item 1. Legal Proceedings None Item 2. Changes in Securities None Item 3. Defaults Upon Senior Securities None Item 4. Submission of Matters to a Vote of Security Holders At the Company's Annual Meeting of Shareholders held on May 13, 1996, pursuant to the Notice of Annual Meeting of Shareholders and Proxy Statement dated April 8, 1996, the following matters were submitted to the Company's shareholders. (1) To elect seven Directors. Total vote FOR Total vote WITHHELD each Director from each Director Jon D. Tompkins 22,298,082 81,934 Richard J. Elkus, Jr. 22,306,597 73,419 James W. Bagley 22,308,190 71,826 Dean O. Morton 22,309,197 70,819 Dr. Calvin F. Quate 22,305,029 74,987 Lida Urbanek 22,301,797 78,219 Renn Zaphiropoulos 22,298,912 81,104 (2) The approval of an amendment to the Company's 1993 Equity Incentive Plan to increase the number of shares of common stock authorized for issuance thereunder by 1,500,000 shares. 12,025,454 affirmative votes 625,713 negative votes 108,494 abstained 9,620,355 broker non-votes (3) The approval of an amendment to the Company's 1993 Employee Stock Purchase Plans to increase the number of shares of common stock authorized issuance thereunder by 500,000 shares. 13,200,702 affirmative votes 244,715 negative votes 94,411 abstained 8,840,188 broker non-votes (4) The approval of an amendment to the Company's 1993 Nonemployee Director Stock Option Plan to increase the number of shares of common stock authorized for issuance thereunder by 50,000 shares. 12,556,197 affirmative votes 867,663 negative votes 115,968 abstained 8,840,188 broker non-votes Item 5. Other Information None Item 6. Exhibits and Reports on Form 8-K None Page 11 of 12 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. TENCOR INSTRUMENTS August 8, 1996 /s/ Bruce R. Wright ------------------------------------- Bruce R. Wright Senior Vice President and Chief Financial Officer (as Registrant and as Principal Financial Officer) page 12 of 12 EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF OPERATIONS FOUND ON PAGES 3 AND 4 OF THE COMPANY'S FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 6-MOS DEC-31-1996 JAN-01-1996 JUN-30-1996 92,300 94,012 106,607 0 65,426 371,269 33,012 0 439,775 103,737 0 0 0 149,068 184,682 439,775 215,700 215,700 85,071 85,071 70,867 0 0 62,574 23,777 38,797 0 0 0 38,797 1.22 1.22
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