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 0-20007
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 common
stock, as of the latest practical date:
Common Shares outstanding as of April 30, 1996: 30,678,967
This report, including all exhibits and attachments, contains 11 pages.
page 1 of 11
INDEX
TENCOR INSTRUMENTS
Page
PART I - FINANCIAL INFORMATION Number
Item 1: Consolidated Interim Financial Statements:
Consolidated Interim Balance Sheets -
March 31, 1996 and December 31, 1995 3
Consolidated Interim Statements of Income -
Three months ended March 31, 1996 and 1995 4
Consolidated Interim Statements of Shareholders' Equity -
Year ended December 31, 1995 and three months ended
March 31, 1996 5
Consolidated Interim Statements of Cash Flows -
Three months ended March 31, 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
SIGNATURES 11
page 2 of 11
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TENCOR INSTRUMENTS
CONSOLIDATED INTERIM BALANCE SHEETS
(in thousands)
(unaudited)
March 31, 1996 December 31, 1995
-------------- -----------------
ASSETS
Current assets:
Cash and cash equivalents $104,686 $ 86,944
Short-term investments 72,148 76,889
Accounts receivable, net 117,890 122,859
Inventories 57,957 46,725
Deferred income taxes 8,869 8,869
Prepaid expenses and other assets 3,084 2,664
--------- ---------
Total current assets 364,634 344,950
Property and equipment, net 27,943 22,447
Other assets 27,619 27,643
--------- ---------
Total assets $420,196 $395,040
--------- ---------
--------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Bank borrowings $ 34,810 $ 34,123
Accounts payable 15,554 16,858
Accrued compensation 17,570 16,526
Other accrued expenses 25,076 22,816
Income taxes payable 20,152 13,545
--------- ---------
Total current liabilities 113,162 103,868
--------- ---------
Long-term obligations 2,765 3,027
--------- ---------
Shareholders' equity:
Common stock 147,379 151,675
Retained earnings 158,987 138,736
Cumulative translation adjustment (2,097) (2,266)
--------- ---------
Total shareholders' equity 304,269 288,145
--------- ---------
Total liabilities and shareholders' equity $420,196 $395,040
--------- ---------
--------- ---------
See accompanying notes to consolidated interim financial statements.
page 3 of 11
TENCOR INSTRUMENTS
CONSOLIDATED INTERIM STATEMENTS OF INCOME
(in thousands, except per share data)
(unaudited)
Three months ended
March 31,
1996 1995
---- ----
Revenues $106,283 $ 67,608
Cost of goods sold 40,847 25,050
---------- ----------
Gross profit 65,436 42,558
---------- ----------
Operating expenses:
Research and development 10,995 6,818
Marketing and selling 16,120 10,742
General and administrative 6,952 4,167
---------- ----------
Total operating expenses 34,067 21,727
---------- ----------
Income from operations 31,369 20,831
Other income 1,293 993
---------- ----------
Income before income taxes 32,662 21,824
Provision for income taxes 12,411 8,948
---------- ----------
Net income $ 20,251 $ 12,876
---------- ----------
---------- ----------
Net income per share $0.64 $0.44
Weighted average common shares
and equivalents 31,721 29,167
See accompanying notes to consolidated interim financial statements.
page 4 of 11
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, 1993 22,990 $ 21,107 $49,446 $ (361) $ 70,192
Adjustment to conform fiscal year of Prometrix -- -- (350) -- (350)
Net issuance under employee stock plans 1,428 5,511 -- -- 5,511
Equity offering, net of offering costs 2,466 38,187 -- -- 38,187
Release of FleXus escrowed shares 178 3,422 -- -- 3,422
Release of Prometrix escrowed shares 394 -- -- -- --
Tax benefits of stock option transactions -- 3,150 -- -- 3,150
Cumulative translation adjustment -- -- -- 301 301
Net income -- -- 24,316 -- 24,316
------- ------- ------- ------- -------
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 90 1,010 -- -- 1,010
Repurchase of Common Stock (250) (5,456) -- -- (5,456)
Tax benefits of stock option transactions -- 150 -- -- 150
Cumulative translation adjustment -- -- -- 169 169
Net income -- -- 20,251 -- 20,251
------- ------- ------- ------- -------
Balance at March 31, 1996 30,591 $147,379 $158,987 $(2,097) $304,269
------- ------- ------- ------- -------
------- ------- ------- ------- -------
See accompanying notes to consolidated interim financial statements.
page 5 of 11
TENCOR INSTRUMENTS
CONSOLIDATED INTERIM STATEMENTS OF CASH FLOWS
Increase (decrease) in cash and cash equivalents
(in thousands)
(unaudited)
Three months ended
March 31,
---------
1996 1995
---- ----
Cash flows from operating activities:
Net income $20,251 $12,876
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation and amortization 2,290 1,908
Changes in assets and liabilities:
Accounts receivable 3,048 (9,309)
Inventories (11,648) (3,593)
Prepaid expenses and other assets (1,338) (1,126)
Accounts payable (1,266) 1,052
Accrued compensation 1,107 1,668
Other accrued expenses 2,185 1,637
Income taxes payable 6,872 5,674
-------- --------
Net cash provided by operating activities 21,501 10,787
-------- --------
Cash flows from investing activities:
Purchase of property and equipment (7,105) (3,405)
Purchases of short-term investments (13,891) (9,494)
Proceeds from sales of short-term investments 18,632 5,634
-------- --------
Net cash used in investing activities (2,364) (7,265)
-------- --------
Cash flows from financing activities:
Issuance of common stock, net 1,010 1,631
Repurchase of common stock (5,456) --
Proceeds from debt obligations 7,379 4,546
Payments under debt obligations (5,548) (259)
-------- --------
Net cash provided by/(used in) financing activities (2,615) 5,918
-------- --------
Effect of exchange rate changes on cash 1,220 (1,131)
-------- --------
Net increase in cash and cash equivalents 17,742 8,309
Cash and cash equivalents at beginning of period 86,944 37,121
-------- --------
Cash and cash equivalents at end of period $104,686 $45,430
-------- --------
-------- --------
Supplemental cash flow disclosures:
Income taxes paid $ 5,370 $ 4,027
Interest paid $ 438 $ 108
Supplemental non-cash investing cash flow disclosures:
Tax benefits from exercise of stock options $ 150 $ 2,840
See accompanying notes to consolidated interim financial statements.
page 6 of 11
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 March 31, 1996, the
results of operations, the changes in shareholders' equity and the 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. 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):
March 31, December 31,
1996 1995
---- ----
Raw materials $29,966 $24,829
Work-in-process 15,557 12,948
Finished goods 12,434 8,948
-------- --------
$57,957 $46,725
-------- --------
-------- --------
NOTE 3. BORROWING ARRANGEMENTS - During the latter part of the quarter ended
March 31, 1996, the Company's Japanese subsidiary entered into an agreement with
a local bank to transfer certain of its trade receivables with recourse. As of
March 31, 1996, the subsidiary has transferred the yen equivalent of $16.3
million. The Company has accounted for the transfer as an off-balance sheet
financing arrangement. The Company does not believe it is materially at risk
for any losses as a result of this agreement. However, allowances for bad debt
losses and the related costs of collection have been recorded.
page 7 of 11
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, costs associated with new product
introductions and managing growth, 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
"Other Factors Affecting Company 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.
Revenue for the quarter ended March 31, 1996, was $106,283,000. Compared to the
corresponding quarter of 1995, revenues increased $38,675,000, or 57.2%, due to
both increased unit sales and a change in mix to products with higher average
selling prices. International revenues comprised 64.6% of worldwide revenues in
the current quarter. This compared to 60.3% of total revenues in the
corresponding period of the prior year. Geographically, revenues from Japan and
Taiwan were $30,661,000 and $11,818,000, respectively, or 28.8% and 11.1%,
respectively, of worldwide revenues for the three months ended March 31, 1996,
compared to revenues of $17,537,000 and $2,706,000, respectively, or 25.9% and
4.0%, respectively, of worldwide revenues for the same period in the prior year.
The Company's revenues in Europe were $14,049,000 during the current period, a
174% increase over the same period in 1995.
Gross profit margins for the first quarter ended March 31, 1996, were 61.6%
compared to 62.9% for the same period of 1995. 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 service and 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 during 1996.
Research and development expenses were $10,995,000 for the three month period
ended March 31, 1996, compared to $6,818,000 for the same period of the prior
year. As a percentage of revenue, research and development expenses increased
slightly to 10.3% for the three month period ended March 31, 1996, compared to
10.1% in the corresponding period of 1995. 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
period and increases in new product development spending, particularly related
to the Company's Surfscan AIT (Advanced Inspection Technology), which was
introduced during the third quarter of 1995. The Company expects the total
dollars spent on research and development to continue to increase during the
remainder of 1996.
Selling, general and administrative expenses increased to $23,072,000 for the
three months
page 8 of 11
ended March 31, 1996, compared to $14,909,000 for the same period in 1995. The
increase in absolute dollars can be attributed in part to higher employee
compensation-related costs as a result of the increase in worldwide headcount
and to higher commission expense as a result of the increase in revenues. As a
percentage of revenues, however, marketing, selling and general and
administrative expenses decreased to 21.7% for the three-month period ended
March 31, 1996, from 22.1% in the same period 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
both through the addition of personnel and the increase in infrastructure
related to both new and existing sales and support operations. The Company
expects modest growth in absolute dollars in selling, general and administrative
spending during the remainder of 1996 while remaining relatively flat as a
percentage of revenues.
Other income, net, increased to $1,293,000 for the three-month period ended
March 31, 1996, compared to $993,000 for the same period in 1995. The increase
is attributable mainly to an increase in interest income, which is the result of
a significant increase in cash, cash equivalents and short-term investments
resulting in part from the Company's equity offering in April, 1995.
Income taxes as a percentage of income before income taxes decreased to 38%
during the period ended March 31, 1996, compared to 41% during the same period
in the prior year. The decrease was primarily due to a decrease in foreign
profits in jurisdictions with higher relative tax rates.
Net income during the quarter ended March 31, 1996, increased to $20,251,000,
or $0.64 per share, from $12,876,000, or $0.44 per share, in the same quarter
last year. Weighted shares outstanding increased 2,554,000 shares, or 8.8%,
compared to March 31, 1995.
Management does not believe inflation had a significant effect on operations.
LIQUIDITY AND CAPITAL RESOURCES
Total assets as of March 31, 1996, were $420,196,000 compared to $395,040,000 at
December 31, 1995. Working capital increased to $251,472,000 at March 31,
1996, from $241,082,000 at December 31, 1995.
During the three-month period ended March 31, 1996, cash, cash equivalents and
short-term investments increased $13,001,000 to $176,834,000 from $163,833,000,
due primarily to cash generated from operations of $21,501,000 (including the
yen equivalent of $16.3 million resulting from the transfer with recourse of
certain of the Company's Japanese subsidiary accounts receivable) offset in part
by the repurchase of $5,456,000 of the Company's Common Stock.
The Company currently has a revolving line of credit with a bank for which up to
$20,000,000 may be borrowed based upon meeting certain covenants. As of March
31, 1996, the Company had approximately $15.9 million 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 $31.1
million.
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 in either late 1996
or early 1997. As described in the Company's 1995 Annual Report, the Company
has entered into significant material commitments in connection with this move.
page 9 of 11
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
financings 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 three
months of 1996. The Company's future results are, however, subject to a variety
of uncertainties. 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, 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. The timing of new product
introductions will contribute to fluctuations in the Company's future operating
results. In 1995, the Company introduced several new products including the
Surfscan 6420, the SwiftAccess system, the Tencor CRS, 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 and expects to begin shipping the AIT in
volume during the second half of 1996.
page 10 of 11
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 None
Item 5. Other Information None
Item 6 Exhibits and Reports on Form 8-K None
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
May 10, 1996 /s/ Bruce R. Wright
--------------------------------
Bruce R. Wright
Senior Vice President and
Chief Financial Officer
(as Registrant and as
Principal Financial Officer)
page 11 of 11