<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
TENCOR INSTRUMENTS
CONSOLIDATED INTERIM STATEMENTS OF SHAREHOLDERS' EQUITY
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Common Stock Cumulative
------------ Retained Translation
Shares Amount Earnings Adjustment Totals
------ ------- -------- ----------- -------
<S> <C> <C> <C> <C> <C>
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
-------- ------- ------- ------- --------
-------- ------- ------- ------- --------
</TABLE>
See accompanying notes to consolidated interim financial statements.
page 5 of 12
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
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.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 92,300
<SECURITIES> 94,012
<RECEIVABLES> 106,607
<ALLOWANCES> 0
<INVENTORY> 65,426
<CURRENT-ASSETS> 371,269
<PP&E> 33,012
<DEPRECIATION> 0
<TOTAL-ASSETS> 439,775
<CURRENT-LIABILITIES> 103,737
<BONDS> 0
0
0
<COMMON> 149,068
<OTHER-SE> 184,682
<TOTAL-LIABILITY-AND-EQUITY> 439,775
<SALES> 215,700
<TOTAL-REVENUES> 215,700
<CGS> 85,071
<TOTAL-COSTS> 85,071
<OTHER-EXPENSES> 70,867
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 62,574
<INCOME-TAX> 23,777
<INCOME-CONTINUING> 38,797
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 38,797
<EPS-PRIMARY> 1.22
<EPS-DILUTED> 1.22
</TABLE>
