<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
MAY 12, 2000
----------------------------
Date of Report (Date of earliest event reported)
CREDENCE SYSTEMS CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 000-22366 94-2878499
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(STATE OF INCORPORATION (COMMISSION FILE (IRS EMPLOYER
OR ORGANIZATION) NUMBER) IDENTIFICATION NO.)
215 FOURIER AVENUE, FREMONT, CALIFORNIA 94539
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, (510) 657-7400
INCLUDING AREA CODE ---------------------------------------
NONE
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FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR, IF CHANGED SINCE
LAST REPORT.
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<PAGE>
ITEM 7. FINANCIAL STATEMENTS AND PRO FORMA FINANCIAL INFORMATION
Credence Systems Corporation ("Credence") has included herein the financial
statements of TMT, Incorporated ("TMT") for the year ended October 31, 1999 and
the six month period ended April 30, 2000, and pro forma financial information
giving effect to the merger between Credence and TMT.
The information included herein should be read in conjunction with the Company's
audited consolidated financial statements and notes thereto for the fiscal year
ended October 31, 1999 included in the Company's most recent Annual Report on
Form 10-K/A
Financial Statements, Pro Forma Information and Exhibits
(A) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED
TMT, INC.
Index to Financial Statements
PAGE
Independent Auditors' Report 3
Balance Sheets 4
Statements of Income 5
Statements of Shareholders' Equity 6
Statements of Cash Flows 7
Notes to Financial Statements 8
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
TMT, Inc.:
We have audited the accompanying balance sheet of TMT, Inc. (the Company) as of
October 31, 1999, and the related statements of income, shareholders' equity,
and cash flows for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of TMT, Inc. as of October 31,
1999, and the results of its operations and its cash flows for the year then
ended in conformity with generally accepted accounting principles.
KPMG LLP
December 10, 1999
3
<PAGE>
TMT, INC.
BALANCE SHEETS
(in thousands, except share data)
OCTOBER 31, APRIL 30,
1999 2000
---------- --------
ASSETS (UNAUDITED)
Current assets:
Cash and cash equivalents $ 3,075 $941
Accounts receivable, net
of allowance of $661 and
$702 in 1999 and 2000,
respectively 8,106 11,569
Inventories 4,158 5,581
Prepaid expenses and other
current assets 522 483
Deferred income taxes 1,481 2,273
--------- --------
Total current assets 17,342 20,847
Property and equipment, net 1,765 2,636
Notes receivable from officers 320 390
Investment 100 100
--------- --------
Total assets $ 19,527 $ 23,973
========= ========
LIABILITIES AND STOCKHOLDERS'EQUITY
Current liabilities
Notes payable $ 757 $ 790
Accounts payable 2,703 5,868
Accrued compensation 752 1,139
Other accrued liabilities 1,271 2,473
Deferred revenue 984 820
Income taxes payable 1,808 150
Customer deposits 2,028 755
Notes payable to officers 1,020 --
--------- --------
Total current liabilities 11,323 11,995
Notes payable 2,055 1,625
Deferred income taxes 215 186
--------- --------
Total liabilities 13,593 13,806
--------- --------
Commitments
Shareholders' equity:
Preferred stock, no par
value; 5,000,000
shares authorized; 1,398,837
issued and outstanding -- --
Common stock, no par value;
10,000,000 shares authorized;
4,418,475 and 5,203,646 shares
issued and outstanding in 1999
and 2000, respectively 390 627
Note receivable from shareholder (338) (338)
Distribution in excess of
capital contributed (400) (400)
Retained earnings 6,282 10,278
--------- --------
Total shareholders'equity 5,934 10,167
--------- --------
Total liabilities and
shareholders' equity $19,527 $23,973
========= ========
See accompanying notes to financial statements
4
<PAGE>
TMT, INC.
STATEMENTS OF INCOME
(in thousands)
SIX
YEAR ENDED MONTHS ENDED
OCTOBER 31, 1999 APRIL 30, 2000
------------------ ---------------
(UNAUDITED)
Net sales $ 21,019 $ 26,586
Cost of goods sold 9,212 11,658
----------- -----------
Gross profit 11,807 14,928
Operating expenses:
Research and development 2,647 2,578
Sales and marketing 3,482 4,174
General and administrative 1,624 1,688
----------- -----------
Total operating expenses 7,753 8,440
----------- -----------
Operating income 4,054 6,488
Interest expense (342) (69)
Other income, net 117 --
----------- -----------
Income before
income taxes 3,829 6,419
Income taxes 1,308 2,423
----------- -----------
Net income $ 2,521 $ 3,996
=========== ===========
See accompanying notes to financial statements.
5
<PAGE>
<TABLE>
<CAPTION>
TMT, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
(In thousands)
NOTE DISTRIBUTION
PREFERRED STOCK COMMON STOCK RECEIVABLE IN EXCESS TOTAL
----------------- ----------------- FROM OF CAPITAL RETAINED SHAREHOLDERS'
SHARES AMOUNT SHARES AMOUNT SHAREHOLDER CONTRIBUTED EARNINGS EQUITY
------- -------- -------- -------- ------------- ------------ ---------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at October 31, 1998 1,399 -- 3,874 36 -- (400) 3,761 3,397
Issuance of shares of common
stock upon exercise of options -- -- 545 354 (338) -- -- 16
Net income -- -- -- -- -- 2,521 2,521
------------------------------------------------------------------------------------------------
Balance at October 31, 1999 1,399 -- 4,419 390 (338) (400) 6,282 5,934
------------------------------------------------------------------------------------------------
Issuance of shares of common
stock upon exercise of options -- -- 785 117 -- -- -- 117
Tax benefit associated with the
Exercise of stock options -- -- -- 120 -- -- -- 120
Net income -- -- -- -- -- -- 3,996 3,996
------------------------------------------------------------------------------------------------
Balance at April 30, 2000
(Unaudited) 1,399 -- 5,204 $627 ($338) ($400) $10,278 $10,167
================================================================================================
</TABLE>
See accompanying notes to financial statements
6
<PAGE>
TMT, INC.
STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS
ENDED
OCTOBER 31, 1999 APRIL 30, 2000
------------------- ------------------
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 2,521 $ 3,996
Adjustments to reconcile net income
to net cash provided by operations
Loss on disposal of equipment 20 --
Depreciation and amortization 458 311
Tax benefit from employee stock options -- 120
Deferred income taxes (410) (821)
Changes in operating assets and liabilities:
Accounts receivable (3,394) (3,463)
Inventories (2,319) (1,423)
Prepaid expenses and other current assets (343) 39
Accounts payable 1,303 3,165
Accrued compensation (1,098) 387
Other accrued liabilities 521 1,202
Deferred revenue 880 (164)
Income taxes payable 1,649 (1,658)
Customer deposits 2,028 (1,273)
------- -------
Net cash provided by operations 1,816 418
------- -------
Cash flows from investing activites:
Capital expenditures (769) (1,182)
Purchase of investments (100) --
Issuance of note receivable to officers (245) (70)
Repayment of notes receivable by officers 408 --
------- -------
Net cash used in investing activities (706) (1,252)
------- -------
Cash flows from financing activities:
Proceeds from issuance of common stock 16 117
Proceeds from notes payable 2,041 85
Repayment of notes payable (1,073) (482)
Repayment of loan principal to officers -- (1,020)
------- -------
Net cash provided(used in)by
financing activities 984 (1,300)
------- -------
Net increase (decrease) in cash and
cash equivalents 2,094 (2,134)
Cash and cash equivalents at
beginning of period 981 3,075
------- -------
Cash and cash equivalents at
end of period $ 3,075 $ 941
======= =======
Supplemental disclosures of cash flow information:
Cash paid during the period:
Income taxes $ 341 $ 4,782
======= =======
Interest $344 $ 102
======= =======
Noncash investing and financing activity-
common stock issued in
exchange for note receivable $338 --
======= =======
</TABLE>
See accompanying notes to financial statements
7
<PAGE>
TMT, INC.
Notes to Financial Statements
October 31, 1999 and April 30, 2000
(Information for the six month period ended April 30, 2000 is unaudited)
(1) BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) BUSINESS
TMT, Inc. (the Company) was incorporated in California in January 1995.
The Company is involved in the design and manufacture of linear and
mixed signal and RF test systems for high volume, production testing of
analog integrated circuits. These test systems are marketed through
direct sales and a network of distributors throughout the United States.
(B) CASH EQUIVALENTS
The Company considers all highly liquid investments with purchased
maturities of 90 days or less to be cash equivalents. Cash equivalents
consist of money market funds in the amount of $2,016,000 as of October
31, 1999.
(C) CONCENTRATIONS OF CREDIT RISK
Financial instruments that potentially subject the Company to a
concentration of credit risk consist primarily of cash and cash
equivalents and trade accounts receivable. The Company maintains all of
its cash and cash equivalents with a nationally recognized financial
institution. Cash equivalents are comprised of money market funds. The
Company's products are primarily sold to customers in the semiconductor
manufacturing industry who are located in North America, Europe, and the
Pacific Rim. The Company performs credit evaluation of its customers and
generally does not require collateral on accounts receivable, as the
Company's customers are large, well-established companies. The Company
maintains reserves for potential credit losses, but historically has not
experienced any significant losses. Management believes the financial
risks associated with these financial instruments are minimal.
(D) INVENTORIES
Inventories are stated at the lower of first-in, first-out cost or
market.
(E) PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and are depreciated using the
straight-line method over the estimated useful lives of the asset.
Leasehold improvements are amortized over the lesser of their useful
lives or the remaining term of the related lease. The estimated useful
lives are presented below:
Machinery and equipment 3 - 5 years
Furniture and Fixtures 7 years
Leasehold improvements Lease term
(F) REVENUE RECOGNITION
Revenue is generally recognized when products are shipped and when there
is no significant uncertainty regarding customer acceptance or payment.
Maintenance and support contract revenue is recognized ratably over the
maintenance and support period. Service revenue is recognized as the
services are performed.
(G) FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash and cash equivalents, accounts receivable
and accounts payable approximate fair value because of the short term
nature of these instruments. The carrying amount of the notes payable
approximate fair value as the notes bear interest based on the market
rates currently available for debt with similar terms.
8
<PAGE>
(H) SOFTWARE DEVELOPMENT COSTS
In accordance with Statement of Financial Accounting Standards (SFAS)
No. 86, ACCOUNTING FOR THE COSTS OF COMPUTER SOFTWARE TO BE SOLD,
LEASED, OR OTHERWISE MARKETED, development costs related to software
products are expensed as incurred until the technological feasibility of
the product has been established. Technological feasibility in the
Company's circumstances occurs when a working model is completed. The
Company believes its process for developing software is essentially
completed concurrent with the establishment of technological
feasibility, and, accordingly, no research and development costs have
been capitalized to date.
(I) WARRANTY
The Company provides for estimated warranty costs at the time of sale.
(J) INCOME TAXES
Income taxes are accounted for using the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective
taxes bases and operating loss and tax credit carryforwards. Deferred
tax assets and liabilities are measured using enacted tax rates expected
to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.
(K) IMPAIRMENT OF LONG-LIVED ASSETS
The Company reviews, as circumstances dictate, the carrying amount of
its long-lived assets. The purpose of these reviews is to determine
whether the carrying amounts are recoverable. Recoverability is
determined by comparing the projected undiscounted net cash flows for
the long-lived assets against their respective carrying amounts. The
amount of impairment, if any, is measured based upon the excess of the
carrying value over the fair value. The Company has not recorded any
impairment related to its long-lived assets.
(L) STOCK OPTION PLANS
The Company applies Accounting Principles Board (APB) Opinion No. 25,
ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES, and related interpretations in
accounting for its stock option plans. As such, the Company accounts for
options granted to employees using the intrinsic value method and
compensation expense is recorded if on the date of grant the current
market price of the underlying stock exceeds the exercise price.
(M) COMPREHENSIVE INCOME
The Company had no items of other comprehensive income for the year
ended October 31, 1999.
(N) NEW ACCOUNTING STANDARDS
In June 1999, the Financial Accounting Standards Board (FASB) issued
SFAS No. 137, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING
ACTIVITIES - DEFERRAL OF THE EFFECTIVE DATE OF FASB STATEMENT NO. 133,
which amends the effective date of SFAS No. 133,
9
<PAGE>
ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES. SFAS No.
133 establishes accounting and reporting standards for derivative
financial instruments and hedging activities, and requires the Company
to recognize all derivatives as either assets or liabilities on the
balance sheet at fair value. Gains and losses resulting from changes in
fair value would be accounted for based on the use of the derivative and
whether it is designated and qualifies for hedge accounting. The Company
must adopt SFAS No. 133 by the quarter ended January 31, 2001.
Management does not believe the adoption of SFAS No. 133 will have a
material effect on the financial position, results of operations, or
cash flows of the Company.
In March 2000, the FASB issued Interpretation No. 44, Accounting for
Certain Transactions involving Stock Compensation, an interpretation of
APB Opinion No. 25. This Interpretation clarifies the application of
Opinion 25 for certain issues including: (a) the definition of employee
for purposes of applying Opinion 25, (b) the criteria for determining
whether a plan qualifies as a noncompensatory plan, (c) the accounting
consequence of various modifications to the terms of previously fixed
stock options or awards, and (d) the accounting for an exchange of stock
compensation awards in a business combination. In general, this
Interpretation is effective July 1, 2000. The Company has not determined
whether the adoption of Interpretation No. 44 will have a material
effect on its financial position or results of operations.
(O) USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that 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 revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
(P) INTERIM FINANCIAL INFORMATION
The accompanying unaudited financial statements as of April 30, 2000 and
for the six month period then ended have been prepared on substantially
the same basis as the audited financial statements, and include all
adjustments, consisting only of normal recurring adjustments, which
management believes are necessary for a fair presentation of the
financial information set forth herein.
(2) INVENTORIES
A summary of inventories as of October 31, 1999 and April 30, 2000,
follows (in thousands):
October 31, April 30,
1999 2000
----------- -----------
Raw materials $ 1,416 1,514
Work in process 1,718 2,734
Finished goods 448 165
Demonstration equipment 576 1,168
----------- -----------
$ 4,158 5,581
=========== ===========
Demonstration equipment consists of inventory on loan to prospective
customers for evaluation. The Company depreciates demonstration equipment on
a straight-line basis over a period of three years. As of October 31, 1999
and April 30, 2000, accumulated depreciation was $270,000 and $537,000,
respectively.
10
<PAGE>
(3)PROPERTY AND EQUIPMENT
A summary of property and equipment as of October 31, 1999, follows (in
thousands):
1999
-----------
Furniture and fixtures $ 365
Machinery and equipment 2,217
Leasehold improvements 29
-----------
2,611
Less accumulated depreciation
and amortization 846
-----------
$ 1,765
===========
(4) INVESTMENT
In October 1999, the Company acquired 100,000 shares (approximately 2.1%) of
the common stock of Silicon Express, Inc. for $100,000. The Company accounts
for this investment using the cost method of accounting.
(5) NOTES PAYABLE
The Company has a line of credit and revolving loan in the form of notes
payable with a lending institution aggregating up to $6,000,000. Maximum
borrowings under the line of credit are equal to the lesser of 80% of
accounts receivable (excluding certain accounts receivable balances) plus
50% of inventory and fixed assets or $3,500,000. The line of credit is
secured by accounts receivable, inventory, and fixed assets and bears
interest at 2.65% plus the 30-day commercial paper rate (5.3% as of October
31, 1999). The remaining $2,500,000 of the borrowings represent a revolving
loan, which bears interest at 2.70% plus the 30-day commercial paper rate.
As of October 31, 1999, the outstanding balance on the line of credit and
related interest was $757,000. Accrued interest on the line of credit is
payable monthly and the aggregate outstanding principal is due on July 31,
2000. As of October 31, 1999, the outstanding balance on the revolving loan
was $2,055,000. Accrued interest on the revolving loan is payable monthly
beginning in August 1999 and the balance of principal and interest is due on
October 31, 2003.
11
<PAGE>
(6) INCOME TAXES
Income tax expense (benefit) for the year ended October 31, 1999, consisted
of the following (in thousands):
Current Deferred Total
---------- ----------- -----------
1999:
Federal $ 1,459 (316) 1,143
State 259 (94) 165
--------- ----------- -----------
$ 1,718 (410) 1,308
=========== =========== ===========
Income tax expense (benefit) differs from the amount computed by applying
the federal statutory rate of 34% as a result of the following (in
thousands):
1999
-----------
Computed "expected" tax expense $ 1,301
State taxes, net of federal benefit 110
Permanent differences (31)
Research credit (128)
Other 56
-----------
$ 1,308
===========
The tax effects of temporary differences that give rise to significant
portions of deferred tax assets and deferred tax liabilities as of October
31, 1999 follows:
12
<PAGE>
Deferred tax asset:
Inventory reserves 362
Bad debt allowance 283
Deferred revenue 260
Inventory cost capitalization 252
Warranty accrual 211
Vacation accrual 85
State income taxes 28
-----------
Deferred tax assets 1,481
Deferred tax liabilities:
Depreciation and amortization (215)
-----------
Net deferred tax assets 1,266
===========
Based on the Company's historical operating income, management believes it
is more likely than not that the Company will realize the benefit of its
deferred tax assets. Accordingly, the Company has not established a
valuation allowance.
(7) SHAREHOLDERS' EQUITY
The Company was incorporated in January 1995. The Company's Articles of
Incorporation authorized 1,000,000 shares of common stock. No stock was
issued at that time.
In December 1995, the Articles of Incorporation of the Company were amended
to increase the authorized number of shares of common stock to 10,000,000.
In addition, the Company was authorized to issue 5,000,000 shares of
preferred stock, of which 1,781,958 shares were designated as Series A.
(A) COMMON STOCK
In January 1996, the Company issued 4,651,163 shares of common stock to
key employees of the Company. The stock was issued in exchange for the
employees' ownership in a predecessor entity with no significant net
asset value; thus, no dollar value was assigned to the transaction.
During 1996, the Company repurchased 1,000,000 shares of common stock.
The Company maintains a right of first refusal with respect to common
stock purchased by employees under the 1996 Stock Option Plan. A
shareholder must notify the Company prior to selling these shares to a
third party. Upon notification, the Company may purchase the shares from
the holder at the price offered by the third party.
(B) SERIES A PREFERRED STOCK
On January 1996, the Company issued 1,781,958 shares of preferred stock
to key employees of the Company. The stock was issued in exchange for
the employees'
13
<PAGE>
ownership in a predecessor entity with no significant net asset value;
thus, no dollar value was assigned to the transaction. During 1996, the
Company repurchased 383,121 shares of preferred stock.
The rights, preferences, and privileges of the Series A preferred stock
shareholders are as follows:
o Holders of Series A preferred stock are entitled to
noncumulative annual dividends of $0.03 per share, if and when
declared by the Company's Board of Directors.
o Shares of Series A preferred stock have a liquidation
preference of $0.50 per share, plus any declared but unpaid
dividends. After these payments are made to preferred stock
shareholders, the remaining assets of the Company will be
distributed among the holders of common stock.
o Each share of preferred stock is convertible at the option of the
holder into one share of common stock at a price of $0.50
per share, subject to certain antidilution adjustments.
Conversion will occur upon written consent of the
preferred stock shareholders and automatically upon an
initial public offering in which the aggregate public
offering price equals or exceeds $7,500,000 and $2.50 per
share.
o Series A preferred stock votes equally with the shares of
common stock on an "as if converted" basis.
(C) WARRANT
In March 1995, the Company entered into an arrangement with its major
customer (see Note 8) to build a specified number of units of its
testing equipment over a defined period of time (approximately five
years). As part of this arrangement, the Company issued a warrant to the
customer to purchase up to 606,000 shares of the Company's common stock
at an exercise price of $0.10 per share. The warrant is generally
exercisable within the five-year contract period (although it may be
extended an additional three years in accordance with the terms of the
contract) at the rate of 10,100 shares per system purchased. As of
November 1, 1997, the customer had purchased the minimum required number
of systems in order for the warrant to vest 100% but had not exercised
any portion of this warrant.
The fair value of the warrant was estimated on the date of grant using
the Black-Scholes method with the following weighted-average
assumptions: no dividend yield; an expected life of 3.5 years; a
risk-free interest rate of 5.96; and a 60% volatility. Expense related
to the warrant was not material.
(D) STOCK OPTION PLAN
In March 1996, the Company adopted the 1996 Stock Option Plan (the
Plan), which provides for "incentive" stock options, defined by the
Internal Revenue Code of 1986 as amended (the Code), to be granted to
employees, at an exercise price not less than 100% of the fair value, at
the grant date, as determined by the Board of Directors. The exercise
price for incentive stock options is at least 110% of the fair market
value on the date of grant for persons with greater than 10% of the
voting power of all classes of stock. The Plan also provides for
"nonstatutory" stock options to be granted to employees and consultants,
which shall have an exercise price of not less than 85% of the fair
value at the grant date. Options generally have a term of 10 years and
vest over a period of 48 months. Some options have a 36-month vesting
period. Options issued to persons with
14
<PAGE>
greater than 10% of the voting power of all classes of stock have a term
of 5 years. In the event of a merger of the Company with or into another
corporation, the option may be assumed or an equivalent option may be
substituted by such successor corporation or a parent or subsidiary of
such successor corporation. If, in such event, the option is not assumed
or substituted, the optionee shall have the right to exercise the option
as to all of the optioned stock, including shares as to which it would
not otherwise be exercisable. Approximately 2,525,000 shares of common
stock have been reserved for issuance under the Plan.
A summary of the status of the Plan as of October 31, 1999, and changes
during the years then ended is presented below:
Weighted-
average
exercise
Options Shares price
---------------- --------- ---------
Outstanding at
beginning of year 877,675 $ 1.17
Granted 1,108,100 0.75
Exercised (544,796) 0.65
Canceled (421,038) 2.05
---------
Options at end of year 1,019,941 0.63
=========
Weighted-average fair
value of options
granted during the
year 0.14
The following table summarizes information about stock options
outstanding as of October 31, 1999:
Options outstanding
-------------------------------------
Options exercisable
Weighted- ------------------------
average Weighted- Weighted-
Range of Number remaining average Number average
exercise of contractual exercise of exercise
prices shares life (years) price shares price
----------- ----------- ------------ ---------- ----------- -----------
$ 0.16 324,463 7.57 $ 0.16 184,625 $ 0.16
0.75 657,878 9.79 0.75 32,716 0.75
2.50 37,600 8.54 2.50 14,541 2.50
----------- -----------
1,019,941 9.04 0.63 231,882 0.39
=========== ===========
As of October 31, 1999, options outstanding had exercises prices of
$0.16, $0.75, and $2.50. The fair value of options granted during the
years ended October 31, 1999, was estimated on the date of grant using
the minimum value method with the following weighted-average
assumptions: no dividend yield; an expected life of 3.5 years; 60%
volatility; and risk-free interest rates of 5.88%.
15
<PAGE>
The Company applies APB Opinion No. 25 in accounting for options issued
to employees under the Plan. Under the provisions of APB Opinion No. 25,
the Company applies the intrinsic value method in accounting for its
stock-based compensation plans and no compensation cost has been
recognized for stock options issued to employees in the fiscal 1999
financial statements. Had compensation cost for the Company's
stock-based compensation plans been determined consistent with the fair
value approach set forth in SFAS No. 123, ACCOUNTING FOR STOCK-BASED
COMPENSATION, the Company's net income for the year ended October 31,
1999, would have been $2,451,000.
During fiscal 1999, the Company offered option holders the opportunity
to have outstanding options repriced to current fair value, with no
change in the related vesting period. The Company canceled and reissued
(repriced) 244,400 options pursuant to the repricing.
(8) MAJOR CUSTOMERS
The Company has one operating segment, Semiconductor Equipment Manufacturing
and primarily all of the Company's assets are located in the United States.
The Company sells to end users and distributors. Sales by geographical
region for the year ended October 31, 1999 are as follows:
United States 61%
Asia 38%
Europe 1%
The Company had three customers that comprised 38%, 17%, and 10%,
respectively, of the Company's total net sales and four customers that
comprised 38%, 18%, 11%, and 10%, respectively, of gross accounts receivable
as of October 31, 1999.
The Company has an agreement with its major customer which provides that as
long as the customer's orders account for at least 51% of the Company's
available engineering and production resources, the customer will have the
right of first refusal on at least 51% of available resources. No
commitments will be made to any other customer that would interfere with the
major customer's priority. In addition, as part of the arrangement, the
Company issued a warrant to the customer (see Note 7).
(9) RETIREMENT PLAN
The Company has a profit sharing plan and a money purchase plan that
generally cover all employees of the Company who are over 21 years of age
and have worked for the Company for at least one year. The annual
contribution to the money purchase plan is a fixed obligation of 3% to 3.5%
of eligible salaries. Annual contributions to the profit sharing plan are
discretionary up to 15% of eligible salaries as determined by the Board of
Directors. For the year ended October 31, 1999, contributions to the money
purchase plan amounted to approximately $175,000, and contributions to the
profit sharing plan amounted to approximately $262,000.
(10) COMMITMENTS
The Company is obligated under certain operating leases for certain
equipment and its facility in Sunnyvale, California. The operating leases
require the Company to pay certain maintenance costs, property taxes, and
insurance.
16
<PAGE>
Future minimum lease payments under operating leases as of October 31, 1999
are as follows (in thousands):
Years ending Operating
October 31, leases
------------ -----------
2000 $ 370
2001 153
2002 39
2003 4
-----------
$ 566
===========
Total lease expense was approximately $417,000 for the year ended October
31, 1999.
(11) RELATED PARTY TRANSACTIONS
As of October 31, 1999, the Company had three notes payable upon demand to
officers amounting to $1,020,000. The notes bear interest at 9.25%, and the
interest is due and payable on a quarterly basis on January 31, April 30,
July 31, and October 31. The notes are unsecured and subordinated to the
line of credit discussed at Note 5.
As of October 31, 1999, the Company had notes receivable from officers
amounting to $320,000. The notes bear interest at 9.25%, and the interest is
due and payable on a quarterly basis on January 31, April 30, July 31, and
October 31.
17
<PAGE>
(12) SUBSEQUENT EVENTS
On November 1, 1999, the Company established a qualified retirement plan
under the provisions of Section 401(k) of the Internal Revenue Code, in
which eligible employees may participate. All participants in the plan are
able to defer compensation up to the annual maximum amount allowable under
the Internal Revenue Service regulations. Assets of the plan are invested as
directed by the participants, and the Company may elect to make
discretionary matching contributions and/or annual discretionary profit
sharing contributions. It is anticipated that this plan will replace the
existing money purchase plan.
On November 22, 1999, the Company entered into a lease agreement for a new
facility in Sunnyvale, California. The lease term begins on the earlier of
March 1, 2000, or when the tenant improvements are substantially complete
and is for a period of five years. Rent is due in monthly installments of
approximately $69,000 and will be adjusted every year based on CPI. The
lease will be accounted for as an operating lease.
On May 12, 2000, the Company was acquired by Credence Systems Corporation
for a total purchase price of approximately $80 million (unaudited).
18
<PAGE>
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA INFORMATION AND EXHIBITS
(CONTINUED)
(B) PRO FORMA FINANCIAL INFORMATION (IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)
On March 27, 2000, TMT agreed to merge with Credence in a transaction accounted
for as a purchase. After the merger, TMT will be operated as a wholly owned
subsidiary of Credence.
The merger agreement provides for the payment of $69,981 in cash and the
assumption of the outstanding employee stock options. Credence will issue
options in exchange for the outstanding TMT options. The number of shares are
adjusted using an exchange ratio of 0.1507 shares of Credence common stock for
each outstanding share of TMT with the exercise price appropriately adjusted.
The following unaudited pro forma financial statements reflect the payment of
$69,981 for all of the outstanding TMT common shares as of the beginning of the
earliest period presented for the purposes of the pro forma statement of income
and as of April 30, 2000 for the pro forma balance sheet, as well as the
issuance of 174.7 options to purchase Credence common shares at a weighted
average exercise price of $11.18. The estimated fair value of the options has
been included as a part of the total estimated purchase cost.
The total purchase cost of the TMT merger is as follows (in thousands):
Cash paid $69,981
Deferred tax liability 13,217
Assumption of TMT options 9,995
------------------
Total purchase cost $93,193
==================
The purchase price allocation is as follows (in thousands):
Purchase Price
Allocation: Annual Useful
Amount Amortization Lives
---------- ------------- ----------
Tangible net assets $10,167 -- --
Deferred compensation 8,362 $3,041 2.75
Intangible assets
acquired:
Developed technology 23,498 2,350 10
Assembled workforce 1,439 480 3
Customer relationships 6,052 1,513 4
Trade names and Trademarks 2,053 411 5
In-process research and 8,282 -- --
development
Goodwill 33,340 3,334 10
---------- ----------
Total purchase price $93,193 $11,129
allocation ========== ==========
The Company worked with an independent consultant to perform an allocation of
the total purchase price of TMT to its individual assets. Of the total purchase
price, $8.3 million has been allocated to in-process research and development
and will be charged to expense in the third fiscal quarter of 2000. Due to its
non-recurring nature, the in-process research and development attributed to the
TMT transaction has been
19
<PAGE>
excluded in the pro forma statements of operations. The remaining purchase price
has been allocated to specifically identifiable assets acquired.
After allocating value to TMT's tangible assets and to the in-process research
and development projects, specific intangible assets were then identified and
valued. The related amortization of the identifiable intangible assets is
reflected as a pro forma adjustment to the Unaudited Pro Forma Condensed
Combined Statement of Operations. The identifiable intangible assets include
existing technology, assembled workforce, customer relationships, and trade name
& marks.
The deferred compensation amount represents the intrinsic value of the unvested
stock options assumed in the transaction. The useful life is the weighted
average remaining future vesting period of the unvested options.
The acquired existing technology, which is comprised of products that are
already technologically feasible, includes products that are manufactured and
marketed by TMT. The Company expects to amortize the acquired existing
technology of approximately $23.5 million on a straight-line basis over an
average estimated remaining useful life of 10 years.
The trade names and trade marks include the TMT trademark and trade name as well
as all branded TMT products such as the RFx Series ATE testers and the ASL
Series ATE testers. The Company expects to amortize the trademarks and trade
names of approximately $2.1 million on a straight-line basis over an estimated
remaining useful life of 5 years.
The acquired assembled workforce is comprised of over 85 skilled employees
across TMT's Manufacturing, Research and Development, Sales and Marketing, and
General and Administration groups. The Company expects to amortize the assembled
workforce of approximately $1.4 million on a straight-line basis over an
estimated remaining useful life of 3 years.
Goodwill, which represents the excess of the purchase price of an investment in
an acquired business over the fair value of the underlying net identifiable
assets, is amortized on a straight-line basis over an estimated useful life of
10 years.
Effective May 12, 2000, Credence combined its operations with TMT in a
transaction accounted for as a purchase. Accordingly, the financial statements
for Credence as of and for the period ended April 30, 2000 does not include the
financial position or results of operations of TMT for that period. The
Unaudited Pro Forma Condensed Combined Consolidated Statement of Operations for
the fiscal period ended April 30, 2000 is based on the Unaudited Combined
Condensed Consolidated Statement of Operations of Credence included on Form 10-Q
filed for the six month period ended April 30, 2000, after giving effect to the
merger with TMT under the purchase method of accounting and the assumptions and
adjustments described in the accompanying Notes to the Unaudited Pro Forma
Condensed Combined Consolidated Financial Statements.
The Unaudited Pro Forma Condensed Combined Consolidated Statement of Operations
for the year ended October 31, 1999 is based on the historical financial
statements of Credence filed on Form 10-K for the year ended October 31, 1999,
after giving effect to the merger with TMT under the purchase method of
accounting and the assumptions and adjustments described in the accompanying
Notes to the Unaudited Pro Forma Condensed Combined Consolidated Financial
Statements.
The Unaudited Pro Forma Condensed Combined Consolidated Financial Statements
should be read in conjunction with the historical financial statements of
Credence and TMT and the Unaudited Condensed Consolidated Financial Statements
included on Form 10-Q filed for the six month period ended April 30, 2000. The
pro forma information does not purport to be indicative of the results which
would have been reported if the above transaction had been in effect for the
period presented or which may result in the future.
20
<PAGE>
The Unaudited Pro Forma Condensed Combined Consolidated Statements of Operations
are presented as if the combination had taken place on November 1, 1998. The
Unaudited Pro Forma Condensed Combined Consolidated Statement of Operations for
the year ended October 31, 1999 combines the historical twelve months ended
October 31, 1999 for Credence and for TMT. The Unaudited Pro Forma Condensed
Combined Consolidated Statement of Operations for the six months ended April 30,
2000 combines the six months ended April 30, 2000 for Credence and the six
months ended April 30, 2000 for TMT.
The Unaudited Pro Forma Condensed Combined Consolidated Balance Sheet is
presented to give effect to the proposed merger as if it occurred on April 30,
2000 and combines the balance sheet for Credence as of that date with the
balance sheet of TMT as of April 30, 2000.
21
<PAGE>
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEETS
CREDENCE SYSTEMS CORPORATION AND TMT, INC.
APRIL 30, 2000
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Pro Pro
Forma Forma
Credence TMT Adjustments Combined
---------- --------- ----------- -----------
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents $201,334 $941 ($61,981) (A) $140,294
Short-term investments 66,414 -- 66,414
Accounts receivable, net 131,141 11,569 -- 142,710
Inventories 55,701 5,581 -- 61,282
Other current assets 23,954 2,756 -- 26,710
--------- --------- --------- ---------
478,544 20,847 (61,981) 437,410
Long-term investments 181,028 100 -- 181,128
Property and equipment, net 48,850 2,636 -- 51,486
Other assets 20,291 390 74,744 (A) 95,425
--------- --------- --------- ---------
Total assets $728,713 $23,973 $12,763 $765,449
========= ========= ========= =========
LIABILITIES AND STOCKHOLDERS'
EQUITY
Other liabilities:
Accounts payable $40,461 $5,868 $ -- $46,329
Accrued liabilities 38,260 5,977 8,000 (A) 52,237
Income tax payable 17,401 150 -- 17,551
--------- --------- --------- ---------
96,122 11,995 8,000 116,117
Long-term notes payable 96,249 1,625 97,874
Other noncurrent
liabilities 867 186 13,217 (B) 14,270
Minority interest 330 -- -- 330
Stockholders' equity 535,145 10,167 9,995 (A) 536,858
-- -- (10,167) (A)
-- -- (8,282) (A)
--------- --------- --------- ---------
Total liabilities and $728,713 $23,973 $12,763 $765,449
stockholders' equity ========= ========= ========= =========
</TABLE>
See accompanying notes to pro forma financial information
22
<PAGE>
PRO FORMA CONDENSED CONSOLIDATED INCOME STATEMENTS
CREDENCE SYSTEMS CORPORATION AND TMT, INC.
SIX MONTHS ENDED APRIL 30, 2000
(in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Pro-Forma Pro-Forma
Credence TMT Adjustments Combined
-------- --------- ----------- ---------
<S> <C> <C> <C> <C>
Net sales 255,522 26,586 -- 282,108
Cost of goods sold 105,819 11,658 -- 117,477
-------- --------- ----------- ---------
Gross margin 149,703 14,928 -- 164,631
Operating expenses:
Research and
development 29,868 2,578 -- 32,446
Selling, general and
administrative 44,235 5,862 -- 50,097
Amortization of
purchased intangibles 949 -- 5,565 (A) 6,514
-------- --------- --------- ---------
Total operating
expenses 75,052 8,440 5,565 89,057
-------- --------- --------- ---------
Operating income (loss) 74,651 6,488 (5,565) 75,574
Interest income and (other
expenses), net 3,492 (69) -- 3,423
-------- --------- --------- ---------
Income (loss) before
income taxes 78,143 6,419 (5,565) 78,997
Income tax expense
(benefit) 27,740 2,423 (951)(B) 29,212
Minority Interest 47 -- -- 47
-------- --------- --------- ---------
Net income (loss) 50,356 3,996 (4,614) 49,738
======== ========= ========= =========
Net income (loss) per
share
Basic $ 1.10 -- -- $ 1.08
======== ========= ========= ===========
Diluted $ 1.00 -- -- $ 0.98
======== ========= ========= ===========
Number of shares used in
computing per share amount
Basic 45,900 -- -- 45,900
======== ========= ========= ===========
Diluted 50,388 -- 147 (C) 50,535
======== ========= ========= ===========
</TABLE>
See accompanying notes to pro forma financial information
23
<PAGE>
PRO FORMA CONDENSED CONSOLIDATED INCOME STATEMENTS
CREDENCE SYSTEMS CORPORATION AND TMT, INC.
YEAR ENDED OCTOBER 31, 1999
(in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Pro-forma Pro-Forma
Credence TMT Adjustments Combined
--------- -------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales 197,183 21,019 -- 218,202
Cost of goods sold 95,205 9,212 -- 104,417
-------- -------- -------- --------
Gross margin 101,978 11,807 -- 113,785
Operating expenses:
Research and
development 38,750 2,647 -- 41,397
Selling, general and
administrative 58,660 5,106 -- 63,766
Amortization of
purchased intangibles 158 -- 11,129 (A) 11,287
In-process research
and development 858 -- -- 858
Restructure and other 7,565 -- -- 7,565
-------- -------- -------- --------
Total operating
expenses 105,991 7,753 11,129 124,873
-------- -------- -------- --------
Operating income (loss) (4,013) 4,054 (11,129) (11,088)
Interest income and (other
expenses), net 261 (225) -- 36
-------- -------- -------- --------
Income (loss) before
income taxes (3,752) 3,829 (11,129) (11,052)
Income tax expense
(benefit) (1,372) 1,308 (1,901)(B) (1,965)
Minority Interest 75 -- -- 75
-------- -------- -------- --------
Net income (loss) before
extraordinary items (2,455) 2,521 (9,228) (9,162)
======== ======== ======== ========
Gain on extinguishment of
debt 1,646 -- -- 1,646
-------- -------- -------- --------
Net income (loss) (809) 2,521 (9,228) (7,516)
======== ======== ======== ========
Net income (loss) per
share
Basic $ (0.02) -- -- $ (0.18)
======== ======== ======== ========
Diluted $ (0.02) -- -- $ (0.18)
======== ======== ======== ========
Number of shares used in
computing per share amount
Basic 42,176 -- -- (C) 42,176
======== ======== ======== ========
Diluted 42,176 -- 147 (C) 42,323
======== ======== ======== ========
</TABLE>
See accompanying notes
24
<PAGE>
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED CONSOLIDATED FINANCIAL STATEMENTS
(A) On May 12, 2000, TMT merged with Credence, in a transaction accounted for as
a purchase. The total purchase price of $93.2 million included consideration of
approximately $70.0 million in cash of which $8 million is held back for one
year, the assumption of 1.2 million TMT stock options valued at $10.0 million,
and the creation of a $13.2 million deferred tax liability. The net
tangible assets purchased on May 12, 2000 were approximately $10.2 million.
The amortization of purchased intangibles consists of the amortization expense
for deferred compensation, developed technology, an assembled workforce,
customer relationships, trade name and trademarks, and goodwill. The estimated
useful lives of these assets range from approximately three years to ten years.
Of the total purchase price, $8.3 million has been allocated to in-process
research and development and will be charged to expense in the third fiscal
quarter of 2000. Due to its non-recurring nature, the in-process research and
development attributed to the TMT transaction has been excluded in the pro forma
statements of operations. TMT is currently developing new products and processes
that qualify as in-process research and development, including:
The ASL 2000 is a derivative product developed from the existing ASL 1000
product, however it will be capable of handling mixed signal instruments.
The initial version of this product is expected to launch in the first
fiscal quarter of 2001. Projects in-process to support this new product
include:
DDDV2 CARD - A multi-channel digital card to be added to this product
platform for mixed signal devices.
DSP - Provide analog source and capture for DSP testing of mixed
signal products.
BACKPLANE - A backplane and the system level design to support the
instrumentation described above.
The RFx2 is a derivative product developed from the existing RFx product.
The initital version of this product is expected to launch in the first
fiscal quarter of 2001. Projects in-process to support this new product
include:
DDDV2 CARD - A multi-channel digital card to be added to this product
platform for mixed signal devices.
DSP - Provide analog source and capture for DSP testing of mixed
signal products.
BACKPLANE - An adaption of the ASL2000 backplane to fit the RFx
system.
RFX2 PACKAGING - New packaging to support the above items.
The CPx is a product based on a new technology platform that will allow
for additional slots, power and bandwidth. This requires substantial
changes in the software architecture, as well as adaptors to use cards
from older platforms. The anticipated initial launch date of this product
is the fourth fiscal quarter of 2001. Projects in-process to support this
new product include:
CPX CARDS - Adaptor cards to enable the ASL series of instruments to
be used in this new platform.
CPX BACKPLANE - The backplane and system level design for this new
platform with greatly improved performance over the current ASL
products.
25
<PAGE>
CPX SOFTWARE - Software to support the CPx platform.
CPX DIGITAL - Takes the concepts being developed for the DDDv2 noted
above and increases the speed at which it runs.
CPX PACKAGING - This project's goal is to achieve mechanical
stability across a much wider test head while handling approximately
twice the physical weight of previous products.
These projects vary in terms of completion from 50 percent to 85 percent
complete based on research and development complexity, costs, and time expended
to date relative to the expected remaining costs and time to reach technological
feasibility. The expected completion dates of these projects range from the
third fiscal quarter of 2000 to the first quarter of fiscal 2002.
(B) The pro forma combined provision for income taxes do not represent the
amounts that would have resulted had Credence and TMT filed consolidated income
tax returns during the periods presented. The provision for income tax includes
the amortization of the deferred tax liabilities originating from the
transaction.
(C) The pro forma basic and dilutive net income per share are based on the pro
forma weighted average number of shares of Credence common stock outstanding
during each period. Dilutive securities include the replacement TMT options and
are included in the computation of pro forma dilutive net income per share.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, as
amended, the registrant duly caused this Report to be signed on its behalf by
the undersigned thereunto duly authorized.
CREDENCE SYSTEMS CORPORATION
------------------------------
(Registrant)
June 20, 2000 /s/ DENNIS P. WOLF
--------------------- -----------------------------
Date Dennis P. Wolf
Executive Vice President,
Chief Financial Officer & Secretary
26
