UNITED STATES
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 July 31, 2004
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 0-22366
CREDENCE SYSTEMS CORPORATION
(Exact name of registrant as specified in its charter)
| Delaware | 94-2878499 | |
| (State or other jurisdiction of incorporation or organization) |
(IRS Employer Identification No.) |
1421 California Circle, Milpitas, California
95035
(Address of principal executive offices)
(Zip Code)
(408) 635-4300
(Registrant’s telephone number, including area code)
Former name, former address and former fiscal year, if changed since last report.
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such 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 by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes x No ¨
At September 1, 2004, there were 85,312,421 shares of the Registrant’s common stock, $0.001 par value per share, outstanding.
INDEX
| PAGE NO. | ||||
| PART I. | FINANCIAL INFORMATION | |||
| Item 1. | Financial Statements | 3 | ||
| Condensed Consolidated Balance Sheets | 3 | |||
| Condensed Consolidated Statements of Operations | 4 | |||
| Condensed Consolidated Statements of Cash Flows | 5 | |||
| Notes to Condensed Consolidated Financial Statements | 6 | |||
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 21 | ||
| Item 3. | Quantitative and Qualitative Disclosures about Market Risk | 44 | ||
| Item 4. | Controls and Procedures | 45 | ||
| PART II. | OTHER INFORMATION | |||
| Item 1. | Legal Proceedings | 45 | ||
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 45 | ||
| Item 3. | Defaults Upon Senior Securities | 45 | ||
| Item 4. | Submission of Matters to a Vote of Security holders | 45 | ||
| Item 5. | Other Information | 45 | ||
| Item 6. | Exhibits and Reports on Form 8-K | 45 | ||
| SIGNATURES | 46 | |||
2
ITEM 1. — FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
| July 31, 2004 |
October 31, 2003a | |||||
| ASSETS | ||||||
| Current assets: |
||||||
| Cash and cash equivalents |
$ | 129,152 | $ | 27,318 | ||
| Short-term investments |
31,273 | 258,578 | ||||
| Accounts receivable, net |
171,790 | 65,627 | ||||
| Inventories |
134,664 | 79,573 | ||||
| Prepaid expenses and other current assets |
52,276 | 15,981 | ||||
| Total current assets |
519,155 | 447,077 | ||||
| Long-term investments |
16,898 | 50,682 | ||||
| Property, plant and equipment, net |
109,461 | 93,960 | ||||
| Goodwill |
419,394 | 37,531 | ||||
| Other intangible assets, net |
122,740 | 31,285 | ||||
| Other assets |
51,692 | 37,958 | ||||
| Total assets |
$ | 1,239,340 | $ | 698,493 | ||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||
| Current liabilities: |
||||||
| Bank loans and notes payable – leased products |
$ | 6,426 | $ | 9,350 | ||
| Accounts payable |
65,551 | 23,303 | ||||
| Accrued expenses and other current liabilities |
130,573 | 45,770 | ||||
| Deferred profit |
15,094 | 4,556 | ||||
| Total current liabilities |
217,644 | 82,979 | ||||
| Convertible subordinated notes |
180,000 | 180,000 | ||||
| Notes payable – leased products |
— | 1,058 | ||||
| Other liabilities |
34,117 | 3,829 | ||||
| Stockholders’ equity |
807,579 | 430,627 | ||||
| Total liabilities and stockholders’ equity |
$ | 1,239,340 | $ | 698,493 | ||
| a) | Derived from the audited consolidated balance sheet included in our Form 10-K for the year ended October 31, 2003. |
See accompanying notes.
3
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
| Three Months Ended July 31, |
Nine Months Ended July 31, |
|||||||||||||||
| 2004 |
2003 |
2004 |
2003 |
|||||||||||||
| (unaudited) | (unaudited) | |||||||||||||||
| Net sales |
||||||||||||||||
| Systems, upgrades, software |
$ | 137,980 | $ | 35,743 | $ | 277,489 | $ | 93,542 | ||||||||
| Services, spare parts |
25,738 | 9,717 | 49,491 | 31,092 | ||||||||||||
| Total net sales |
163,718 | 45,460 | 326,980 | 124,634 | ||||||||||||
| Cost of goods sold |
||||||||||||||||
| Systems, upgrades, software |
68,372 | 22,645 | 135,732 | 60,360 | ||||||||||||
| Services, spare parts |
17,158 | 5,946 | 31,675 | 19,530 | ||||||||||||
| Special charges |
46,206 | 1,937 | 46,206 | 1,937 | ||||||||||||
| Total cost of goods sold |
131,736 | 30,528 | 213,613 | 81,827 | ||||||||||||
| Gross margin |
31,982 | 14,932 | 113,367 | 42,807 | ||||||||||||
| Operating expenses: |
||||||||||||||||
| Research and development |
23,856 | 17,504 | 54,945 | 56,753 | ||||||||||||
| Selling, general and administrative |
36,977 | 24,341 | 87,646 | 67,723 | ||||||||||||
| In-process research and development |
7,900 | — | 7,900 | 1,510 | ||||||||||||
| Restructuring charges |
2,969 | 2,197 | 3,622 | 3,589 | ||||||||||||
| Amortization of purchased intangible assets & deferred compensation (1) |
5,345 | 2,622 | 10,589 | 6,834 | ||||||||||||
| Total operating expenses |
77,047 | 46,664 | 164,702 | 136,409 | ||||||||||||
| Operating loss |
(45,065 | ) | (31,732 | ) | (51,335 | ) | (93,602 | ) | ||||||||
| Interest income |
245 | 2,527 | 2,770 | 5,632 | ||||||||||||
| Interest expense |
(1,695 | ) | (1,452 | ) | (3,349 | ) | (1,884 | ) | ||||||||
| Other income and (expense), net |
14,828 | (707 | ) | 15,539 | (679 | ) | ||||||||||
| Loss before income tax provision |
(31,687 | ) | (31,364 | ) | (36,375 | ) | (90,533 | ) | ||||||||
| Income tax |
1,479 | 238 | 3,904 | 435 | ||||||||||||
| Loss before minority interest (benefit) |
(33,166 | ) | (31,602 | ) | (40,279 | ) | (90,968 | ) | ||||||||
| Minority interest (benefit) |
(1 | ) | 109 | 103 | 36 | |||||||||||
| Net loss |
$ | (33,165 | ) | $ | (31,711 | ) | $ | (40,382 | ) | $ | (91,004 | ) | ||||
| Net loss per share |
||||||||||||||||
| Basic |
$ | (0.42 | ) | $ | (0.50 | ) | $ | (0.58 | ) | $ | (1.46 | ) | ||||
| Diluted |
$ | (0.42 | ) | $ | (0.50 | ) | $ | (0.58 | ) | $ | (1.46 | ) | ||||
| Number of shares used in computing per share amount |
||||||||||||||||
| Basic |
78,647 | 63,191 | 69,407 | 62,474 | ||||||||||||
| Diluted |
78,647 | 63,191 | 69,407 | 62,474 | ||||||||||||
(1) Amortization of deferred compensation related to the following expense categories by period: |
| |||||||||||||||
| Cost of goods sold |
$ | 84 | $ | — | $ | 106 | $ | — | ||||||||
| Research and development |
129 | — | 129 | — | ||||||||||||
| Selling, general and administrative |
498 | 151 | 893 | 303 | ||||||||||||
| Total amortization of deferred compensation |
$ | 711 | $ | 151 | $ | 1,128 | $ | 303 | ||||||||
See accompanying notes.
4
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
| Nine Months Ended July 31, |
||||||||
| 2004 |
2003 |
|||||||
| (unaudited) | ||||||||
| Cash flows from operating activities: |
||||||||
| Net loss |
$ | (40,382 | ) | $ | (91,004 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: |
||||||||
| Depreciation and amortization |
39,626 | 28,992 | ||||||
| Non-cash cost of goods sold - special charges and restructuring charges |
43,872 | 3,564 | ||||||
| Provision for inventory write downs |
6,130 | 4,476 | ||||||
| In-process research and development |
7,900 | 1,510 | ||||||
| Provision for allowance for doubtful accounts |
(939 | ) | 1,221 | |||||
| Loss (gain) on disposal of property and equipment |
(1,166 | ) | 2,839 | |||||
| Realized loss on available-for-sale securities |
369 | 1,817 | ||||||
| Minority interest |
55 | 36 | ||||||
| Changes in operating assets and liabilities: |
||||||||
| Accounts receivable, net |
(67,424 | ) | (12,069 | ) | ||||
| Inventories |
(44,102 | ) | 2,836 | |||||
| Income tax receivable and payable |
(10,788 | ) | 26,113 | |||||
| Prepaid expenses and other current assets |
971 | (5,941 | ) | |||||
| Accounts payable |
22,187 | (2,309 | ) | |||||
| Accrued expenses and other current liabilities |
24,597 | (3,234 | ) | |||||
| Deferred profit |
10,541 | (6,517 | ) | |||||