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 March 31, 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 0-17139
GENUS, INC.
(Exact name of registrant as specified in its charter)
California 94-279080
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1139 Karlstad Drive, Sunnyvale, California 94089
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(Address of principal executive offices) (Zip code)
(408) 747-7120
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(Registrant's telephone number, including area code)
Not Applicable
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(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Sections 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes ___X___ No _______
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Common shares outstanding at May 13, 1996: 16,249,389
GENUS, INC.
Index
PART I. FINANCIAL INFORMATION Page No.
Item 1. Financial Statements
Consolidated Statements of Operations -
Three months ended March 31, 1996
and March 31, 1995 3
Consolidated Balance Sheets -
March 31, 1996 and December 31, 1995 4
Consolidated Statements of Cash Flows -
Three months ended March 31, 1996
and March 31, 1995 5
Notes to Consolidated Financial Statements 6-7
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 8-9
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 10
Signatures 11
Index to Exhibits 12
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
GENUS, INC.
Consolidated Statements of Operations (Unaudited)
(Amounts in thousands, except per share data)
Three Months Ended
March 31,
1996 1995
Net sales $26,360 $ 22,526
Costs and expenses:
Cost of goods sold 16,922 13,306
Research and development 3,970 2,976
Selling, general & administrative 4,520 4,218
------- --------
Income from operations 948 2,026
Other income, net 17 58
------- --------
Income before provision for income taxes 965 2,084
Provision for income taxes 372 146
------- --------
Net income $ 593 $ 1,938
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Net income per share $ 0.04 $ 0.13
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Shares used in per share calculation 16,540 14,579
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The accompanying notes are an integral part of these financial statements.
3
GENUS, INC.
Consolidated Balance Sheets (Unaudited)
(Amounts in thousands, except share data)
March 31, December 31,
1996 1995
ASSETS
Current assets:
Cash and cash equivalents $15,259 $12,630
Accounts receivable
(net of allowance for doubtful
accounts of $250 in 1996 and 1995) 23,180 26,796
Inventories, net 24,517 24,437
Other current assets 802 623
Current deferred taxes 4,427 4,427
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Total current assets 68,185 68,913
Property and equipment, net 15,153 14,627
Other assets, net 3,998 3,824
Noncurrent deferred taxes 7,543 7,883
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$94,879 $95,247
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LIABILITIES
Current liabilities:
Accounts payable 6,365 7,129
Accrued expenses 10,524 11,042
Current portion of long-term debt 784 681
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Total current liabilities 17,673 18,852
Long-term debt, less current portion 1,031 1,034
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SHAREHOLDERS' EQUITY
Preferred stock, no par value:
Authorized, 2,000,000 shares;
Issued and outstanding, none
Common stock, no par value:
Authorized, 20,000,000 shares;
Issued and outstanding, 16,250,811 shares at
March 31, 1996 and 16,163,539 shares at
December 31, 1995 95,904 95,683
Accumulated deficit (19,729) (20,322)
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Total shareholders' equity 76,175 75,361
------- -------
$94,879 $95,247
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4
The accompanying notes are an integral part of these financial statements.
GENUS, INC
Consolidated Statements of Cash Flows (Unaudited)
(Amounts in thousands)
Three Months Ended
March 31,
1996 1995
Cash flows from operating activities:
Net income $ 593 $1,938
Adjustments to reconcile to net cash
from operating activities:
Depreciation and amortization 1,765 934
Changes in assets and liabilities:
Accounts receivable 3,616 (6,784)
Inventories (80) (2,922)
Other current assets (179) (229)
Accounts payable (764) 2,775
Accrued expenses (518) 243
Other, net 138 44
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Net cash provided by (used in)
operating activities 4,571 (4,001)
====== ======
Cash flows from investing activities:
Acquisition of property and equipment (1,752) (640)
Capitalization of software development costs (185) (263)
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Net cash used in investing activities (1,937) (903)
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Cash flows from financing activities:
Proceeds from issuance of common stock 221 16,387
Payment of short-term bank borrowings - (3,800)
Payments of long-term debt (226) (340)
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Net cash provided by (used in)
financing activities (5) 12,247
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Increase in cash 2,629 7,343
Cash and cash equivalents, beginning of period 12,630 10,188
------- -------
Cash and cash equivalents, end of period $15,259 $17,531
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The accompanying notes are an integral part of these financial statements.
5
GENUS, INC.
Notes to Consolidated Financial Statements (Unaudited)
March 31, 1996
(Amounts in thousands)
Basis of Presentation
The accompanying consolidated financial statements have been prepared in
accordance with SEC requirements for interim financial statements. These
financial statements should be read in conjunction with the consolidated
financial statements and notes thereto included in the Company's 1995 Annual
Report to Shareholders which is incorporated by reference into the Company's
Annual Report on Form 10-K for the year ended December 31, 1995.
The information furnished reflects all adjustments (consisting only of normal
recurring adjustments) which are, in the opinion of management, necessary for
the fair statement of the consolidated financial position, results of operations
and cash flows for the interim periods. The results of operations for the
periods presented are not necessarily indicative of results to be expected for
the full year.
Net Income Per Share
Net income per share is computed by dividing net income by the weighted average
number of common and common equivalent shares of common stock outstanding
during each period.
Reclassification
Certain amounts in prior years' financial statements have been reclassified to
conform to the current year's presentation. These reclassifications did not
change previously reported results.
Statement of Cash Flows Information (Unaudited)
Three Months Ended
March 31,
1996 1995
Supplemental Cash Flow Information:
Cash paid during the period for:
Interest $59 $59
Income taxes $41 $25
Noncash investing activities:
Purchase of property and equipment under
long-term debt obligations $326 $365
Line of Credit
The Company has a revolving line of credit agreement with a bank that provides
for maximum borrowings of $10.0 million and expires in July 1996. Borrowings
under the line of credit, which are secured by substantially all of the assets
of the Company, bear interest at the bank's prime rate. The line of credit
agreement requires the Company to comply with certain financial covenants and
restricts the payment of dividends. At March 31, 1996, the Company had no
borrowings outstanding under the line of credit
6
GENUS, INC.
Notes to Consolidated Financial Statements (Unaudited) (continued)
(Amounts in thousands)
Inventories
Inventories comprise the following:
March 31, December 31,
1996 1995
Raw materials and spare parts $13,608 $12,922
Work in process 8,698 10,048
Finished goods 2,211 1,467
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$24,517 $24,437
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Property and Equipment
Property and equipment are stated at cost and comprise the following:
March 31, December 31,
1996 1995
Demonstration equipment $14,337 $12,877
Equipment 13,439 12,512
Furniture and fixtures 1,962 1,960
Leasehold improvements 6,239 6,366
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35,977 33,715
Less accumulated depreciation and amortization (21,307) (19,944)
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14,670 13,771
Construction in process 483 856
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$15,153 $14,627
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Accrued Expenses
Accrued expenses comprise the following:
March 31, December 31,
1996 1995
System installation and warranty $4,958 $4,318
Accrued commissions and incentives 1,942 3,227
Accrued payroll and related items 1,634 1,104
Other 1,990 2,393
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$10,524 $11,042
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GENUS, INC.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
RESULTS OF OPERATIONS
Net sales for the quarter ended March 31, 1996 were $26.4 million compared with
net sales of $22.5 million in the same period of 1995, representing a 17
percent increase. This increase was primarily due to higher unit sales of ion
implantation systems with higher average selling prices (ASP), and greater
spares revenue. The Company's net sales results continue to benefit from
strong market conditions in Korea.
Gross margin for the quarter ended March 31, 1996 was 36 percent compared to 41
percent for the same period in 1995. The decline in gross margin was primarily
due to higher costs on the initial shipments of the Company's ion implantation
(MeV) 1520 systems, higher product costs on the Company's tungsten chemical
vapor deposition (CVD) system shipments as a result of a change in product mix
and higher service costs associated with the opening of Genus Korea, Ltd. The
Company's gross margins have historically been affected by variations in ASP,
changes in the mix of product sales, unit shipment levels, the level of foreign
sales, and competitive pricing pressures.
During the first quarter of 1996, research and development (R&D) expenses as a
percentage of net sales, were 15 percent compared to 13 percent in the same
period of 1995. On an absolute dollar basis, R&D expenses during the first
quarter of 1996 increased $1.0 million when compared with the same period in
1995. The increases in absolute dollars and as a percentage of sales were
primarily due to increased headcount and associated payroll costs, higher
product development material costs and depreciation expenses on engineering
tools for new product development. The Company continually evaluates its R&D
investment in view of evolving competitive and market conditions.
Selling, general and administrative expenses (S,G&A) were 17 percent of net
sales during the first quarter of 1996 compared to 19 percent in the same
period of 1995. The change was primarily due to higher sales volume. On an
absolute dollar basis, S,G&A increased $0.3 million when compared with the same
period in 1995. The change was primarily due to increased headcount and
related payroll costs, higher sales commissions and increased depreciation
expense.
During the first quarter of 1996, the Company earned $17 thousand in other
income compared to $58 thousand for the same period in 1995. The decrease was
principally due to lower interest income as a result of lower cash balances.
The effective tax rate for the first quarter of 1996 was 38.5 percent compared
with the effective tax rate of 7 percent during the same period in 1995. The
significant increase was a result of the one-time recognition of deferred tax
assets during the fourth quarter of 1995 in accordance with Financial
Accounting Standard No. 109, "Accounting for Income Taxes".
The Company has continued to experience positive financial performance in
recent quarters. These results have been primarily due to strong market
conditions for the Company's products in Korea, and one Korean customer in
particular, as a result of investments in semiconductor manufacturing
facilities in this region. However, due to the fluctuation in the Company's
order rates in the last nine months, the Company's continued reliance on one
customer for a significant portion of its orders, the continued competitive
market environment for the Company's products and the historically cyclical
8
nature of the semiconductor equipment market, the Company remains cautious
about the short-term prospects for its business. The Company continues to make
strategic investments in new product development and manufacturing improvements
with a view to improving future performance by enhancing product offerings;
however, such investment may adversely affect short-term operating performance.
The Company is also continuing its efforts to implement productivity
improvements for future operating performance. The Company believes that the
future economic environment could continue to lengthen the order and sales
cycles for its products, causing it to continue to simultaneously book and ship
some orders during the same quarter.
LIQUIDITY AND CAPITAL RESOURCES
During the first quarter ended March 31, 1996, the Company's cash and cash
equivalents increased $2.6 million principally due to cash provided by
operating activities of $4.6 million, offset by the purchase of property and
equipment of $1.8 million. The positive change in cash from operating
activities primarily resulted from a decrease of $3.6 million in accounts
receivable due to improved cash collections, depreciation and amortization of
$1.8 million and net income of $0.6 million. The increase in cash from
operating activities was offset by a decrease in accounts payable of $0.8
million as a result of lower inventory purchases and a $0.5 million decrease in
accrued expenses related primarily to the payment of year ended 1995 incentives
and profit sharing plans during the first quarter of 1996, offset by increased
warranty accruals.
The Company's primary source of funds at March 31, 1996 consisted of $15.3
million in cash and cash equivalents, and funds available under a $10.0
million revolving line of credit. The line of credit is secured by
substantially all of the assets of the Company and expires in July 1996. At
March 31, 1996, the Company had no borrowings outstanding under the line of
credit.
Capital expenditures during the first quarter of 1996 were $1.8 million and
related primarily to acquisition of machinery and equipment for the Company's
R&D and Applications Laboratories. In September 1995, the Company entered into
an agreement to lease a new facility in Newburyport, Massachusetts for its Ion
Technology Division. The Company estimates that it will expend approximately
$3.0 million for leasehold improvements and equipment associated with the new
facility. The Company intends to finance these expenditures through new or
existing lease lines. Furthermore, the Company anticipates that it will
continue to make additional capital expenditures during 1996 that will be
funded through existing working capital or lease financing.
The Company believes that cash generated from operations, if any, and existing
credit facilities will be sufficient to satisfy its cash needs for the
foreseeable future.
9
GENUS, INC.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 11.1 - Computation of Net Income Per Share
(b) Report on Form 8-K
No report on Form 8-K was filed during the quarter ended March 31, 1996.
10
GENUS, INC.
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.
Date: May 10, 1996 GENUS, INC.
William W.R. Elder
------------------------------------
William W.R. Elder
Chairman and Chief Executive Officer
Ernest P. Quinones
-----------------------------------
Ernest P. Quinones
Acting Chief Financial Officer
11
GENUS, INC.
Index to Exhibits
Exhibit Description Page
Exhibit 11.1 Computation of Net Income per Share 13
12
Exhibit 11.1
GENUS, INC.
Computation of Net Income Per Share (a)
(Amounts in thousands, except per share amounts)
Quarter Ended
March 31,
1996 1995
Average common shares outstanding 16,207 13,725
Computation of incremental outstanding shares
Net effect of dilutive stock options
based on treasury stock method 333 854
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16,540 14,579
====== ======
Net income $593 $1,938
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Net income per share (a) $ 0.04 $ 0.13
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Computation Notes:
(a) Presentation of fully diluted earnings per share for the three months
ended March 31, 1996 and 1995 is omitted because such amounts are
materially the same as those presented above.
13