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: December 31, 1993
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 0-9992
KLA INSTRUMENTS CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 04-2564110
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
160 Rio Robles
San Jose, California
(Address of principal executive offices)
95134
(Zip Code)
Registrant's telephone number, including area code: (408) 434-4200
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 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.
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
Common Stock, $0.001 par value
Common Stock Purchase Rights
Common shares outstanding at December 31, 1993: 19,830,000
This report, including all exhibits and attachments, contains 15 pages.
Page 1 of 15
KLA INSTRUMENTS CORPORATION
INDEX
Page
PART I FINANCIAL INFORMATION Number
Item 1 Financial Statements:
Condensed Consolidated Statement of Operations
Three Months Ended December 31, 1992 and 1993 . . . . . . . . . . . . . . 3
Six Months Ended December 31, 1992 and 1993 . . . . . . . . . . . . . . . 4
Condensed Consolidated Balance Sheet. . . . . . . . . . . . . . . . . . . 5
Condensed Consolidated Statement of Cash Flows. . . . . . . . . . . . . . 6
Notes to Condensed Consolidated Financial Statements. . . . . . . . . . . 7
Item 2 Management's Discussion and Analysis of Results of
Operations and Financial Condition . . . . . . . . . . . . . . . . . . . . . 8-9
PART II OTHER INFORMATION
Items 1-6. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Index to Exhibits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14-15
Page 2 of 15
KLA INSTRUMENTS CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
THREE MONTHS ENDED DECEMBER 31
(In thousands except per share amounts)
(Unaudited)
1992 1993
Net sales $ 38,654 $ 57,087
---------- ----------
Costs and expenses:
Cost of sales 25,054 32,417
Engineering, research and development 4,178 4,847
Selling, general and administrative 7,698 11,310
Restructuring recovery (718) -
----------- ----------
36,212 48,574
----------- ----------
Income from operations 2,442 8,513
Interest income and other, net 219 376
Interest expense (838) (499)
----------- ----------
Income before income taxes 1,823 8,390
Provision for income taxes 454 2,098
----------- ----------
Net income $ 1,369 $ 6,292
=========== ==========
Net income per share $ 0.07 $ 0.30
Weighted average number of common and =========== ==========
dilutive common equivalent shares outstanding 19,471 20,909
See accompanying notes to condensed consolidated financial information.
Page 3 of 15
KLA INSTRUMENTS CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
SIX MONTHS ENDED DECEMBER 31
(In thousands except per share amounts)
(Unaudited)
1992 1993
Net sales $ 77,113 $108,991
-------- --------
Costs and expenses:
Cost of sales 50,535 63,578
Engineering, research and development 8,193 9,776
Selling, general and administrative 15,202 21,243
Restructuring recovery (718) -
-------- --------
73,212 94,597
-------- --------
Income from operations 3,901 14,394
Interest income and other, net 485 549
Interest expense (1,801) (995)
-------- --------
Income before income taxes 2,585 13,948
Provision for income taxes 645 3,490
-------- --------
Net income $ 1,940 $ 10,458
======== ========
Net income per share $ 0.10 $ 0.50
======== ========
Weighted average number of common and
dilutive common equivalent shares outstanding 19,178 20,854
See accompanying notes to condensed consolidated financial information.
Page 4 of 15
KLA INSTRUMENTS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
(In thousands)
(Unaudited)
June 30, December 31,
1993 1993
ASSETS
Current assets:
Cash and cash equivalents $ 52,362 $ 47,106
Accounts receivable, net of allowances of
$1,469 and $1,770 48,077 61,147
Inventories 42,489 44,511
Deferred income taxes 3,917 3,917
Other current assets 4,724 6,146
--------- ---------
Total current assets 151,569 162,827
--------- ---------
Land, property and equipment, net 39,384 37,226
Other assets 8,136 6,901
--------- ---------
Total assets $ 199,089 $ 206,954
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable and current portion of long-term debt $ 6,532 $ 1,685
Accounts payable 8,953 9,351
Income taxes payable 9,403 10,441
Other current liabilities 33,070 30,861
--------- ---------
Total current liabilities 57,958 52,338
--------- ---------
Deferred income taxes 7,081 7,081
Long-term debt 20,000 20,000
Commitments and contingencies
Stockholders' equity:
Preferred Stock, $0.001 par value, 1,000 shares authorized,
none outstanding _ _
Common shares, $0.001 par value, 75,000 shares authorized,
19,503 and 19,830 shares issued and outstanding 20 20
Capital in excess of par value 64,638 67,829
Retained earnings 50,087 60,545
Treasury stock (581) (581)
Cumulative translation adjustment (114) (278)
--------- ----------
Total stockholders' equity 114,050 127,535
--------- ----------
Total liabilities and stockholders' equity $ 199,089 $ 206,954
========= ==========
See accompanying notes to condensed consolidated financial information.
Page 5 of 15
KLA INSTRUMENTS CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
SIX MONTHS ENDED DECEMBER 31
(In thousands)
(Unaudited)
1992 1993
Cash flows from operating activities:
Net income $ 1,940 $ 10,458
Adjustments required to reconcile net income to cash --------- -----------
provided by (used for) operations:
Depreciation and amortization 4,964 4,904
Investment write-downs 94 _
Changes in assets and liabilities:
Accounts receivable (12,811) (13,122)
Inventories 4,235 (2,261)
Other current assets 257 (1,465)
Accounts payable 2,914 421
Income taxes payable and deferred income taxes (2,064) 1,042
Other current liabilities (2,907) (1,815)
Other assets (152) (191)
------- -------
(5,470) (12,487)
------- -------
Cash (used for) operating activities (3,530) (2,029)
------- -------
Cash flows from investing activities:
Capital expenditures (1,135) (1,411)
Capitalization of software development costs (595) (248)
------- -------
Cash (used for) investing activities (1,730) (1,659)
------- -------
Cash flows from financing activities:
Short-term borrowings and current portion of
long-term debt, net (625) (4,822)
Sales of common stock 1,484 3,191
------- -------
Cash provided by (used for) financing activities 859 (1,631)
------- -------
Effect of exchange rate changes on cash (203) 63
------- -------
Decrease in cash and cash equivalents (4,604) (5,256)
Cash and cash equivalents at beginning of period 23,711 52,362
-------- ---------
Cash and cash equivalents at end of period $ 19,107 $ 47,106
-------- ---------
Supplemental disclosure to cash flow information
CASH PAID DURING THE PERIOD FOR:
INTEREST $ 1,713 $ 790
INCOME TAXES 2,016 2,012
See accompanying notes to condensed consolidated financial information.
Page 6 of 15
KLA INSTRUMENTS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL INFORMATION
(IN '000'S)
UNAUDITED
1) This information is unaudited but, in the opinion of Registrant's
management, all adjustments (consisting only of adjustments that are of
a normal recurring nature) necessary for a fair statement of results
have been included. The results for the quarter ended December 31,
1993, are not necessarily indicative of results to be expected for the
entire year. This financial information should be read in conjunction
with the Registrant's Annual Report on Form 10-K (including items
incorporated by reference therein) for the year ended June 30, 1993.
2) Details of certain balance components:
June 30, December 31,
1993 1993
Inventories:
Systems raw materials $ 8.389 $ 9,125
Customer service spares 13,530 11,779
Work-In-Process 10,004 9,884
Demonstration Equipment 10,566 13,723
--------- ---------
$ 42,489 $ 44,511
========= =========
Other Current Liabilities:
Accrued compensation and benefits $ 11,682 $ 12,089
Accrued warranty and installation 12,188 12,935
Unearned service contract revenue 2,854 2,671
Other 6,346 3,166
--------- ---------
$ 33,070 $ 30,861
========= =========
3) In February 1994, the Company raised approximately $68 million in a
public offering of 2,300,000 new shares of common stock.
Page 7 of 15
KLA INSTRUMENTS CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
SECOND QUARTER AND SIX MONTHS OF FISCAL 1994 COMPARED WITH THE SECOND QUARTER
AND SIX MONTHS OF FISCAL 1993
Net sales
Net sales increased 48% in the three-month and 41% in the six-month periods
ended December 31, 1993, as compared to the prior fiscal year. The increases
in both periods were primarily due to a substantial rise in unit shipments of
KLA's 2100 series products in the wafer inspection business unit. The 2100
series continued to be favorably received by the marketplace in its new
application as an in-line yield monitoring tool. Substantial sales increases
were also recorded in both periods by the metrology and prober divisions.
International sales were 66% for the three-month and 64% for the six-month
periods ended December 31, 1993, compared to 58% and 59% in the comparable
periods in the prior fiscal year. The rise in the international share was due
to a recovery of the Japanese semiconductor equipment industry.
Gross margins
Gross margins were 43% for the three-month and 42% for the six-month periods
ended December 31, 1993, compared to gross margins of 35% and 34% in the
comparable periods in the prior fiscal year. The increase in both periods is
due to manufacturing efficiencies in the wafer inspection business unit as
volumes rose substantially and to a favorable mix effect as the 2100 series
portion of total KLA revenues increased significantly.
Engineering, research and development
Engineering, research and development expenses were 8.5% of net sales in the
three-month and 9.0% in the six-month periods ended December 31, 1993, compared
to 10.8% and 10.6% in the comparable periods in the prior fiscal year.
Although the total gross engineering dollars expended were somewhat higher in
both the three and six-month periods compared to the prior fiscal year, net
engineering expense fell as a percentage of revenue since revenue rose in both
periods.
Selling, general and administrative
Selling, general and administrative expenses were approximately 20% in the
three-month and six-month periods ended December 31, 1993, essentially the same
as the comparable periods in the prior fiscal year. S, G, & A spending kept
pace with the revenue increase with some modest headcount additions and an
increase in sales representative commission expenses reflecting a shift in the
geographical mix of sales. There was also an increase in accruals for
profit-sharing distributions as the Company's profitability increased.
Page 8 of 15
KLA INSTRUMENTS CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
Provision for income tax
The 25% effective tax rate for both the three and six-month periods ended
December 31, 1992 and December 31, 1993 results from income in foreign
jurisdictions having a lower than U.S. tax rate, and from the realization of
net deferred tax assets previously reserved including tax credit carryforwards.
Management believes that sufficient uncertainty continues to exist regarding
the realization of the deferred tax assets such that a valuation allowance is
still required.
Future operating results
The Company's future results will depend on its ability to continuously
introduce new products and enhancements to its customers as demands for higher
performance yield management and process control systems change or increase.
Due to the risks inherent in transitioning to new products, the Company must
accurately forecast demand in both volume and configuration and also manage the
transition from older products. The Company's results could be affected by the
ability of competitors to introduce new products which have technological
and/or pricing advantages. The Company's results also will be affected by
strategic decisions made by management regarding whether to continue particular
product lines, and by volume, mix and timing of orders received during a
period, fluctuations in foreign exchange rates, and changing conditions in both
the semiconductor industry and key semiconductor markets around the world. As
a result, the Company's operating results may fluctuate, especially when
measured on a quarterly basis.
Liquidity and capital resources
Total cash and cash equivalents decreased by $5 million to $47 million during
the six-month period ended December 31, 1993. Cash used for operations was $2
million, as a $13 million increase in accounts receivable more than offset net
income of $10 million. The rise in accounts receivable was due to a $9 million
rise in quarterly revenues from the fourth fiscal quarter of 1993 to the second
fiscal quarter of 1994. In addition, in August 1993 the Company repaid a $4
million mortgage on land adjacent to its main campus.
In February 1994, the Company raised approximately $68 million in a public
offering of 2,300,000 new shares of common stock. This cash will be used for
general corporate purposes. The Company believes that its current level of
liquid assets, credit facilities and cash generated from operations are
sufficient to fund growth for the foreseeable future.
Page 9 of 15
KLA INSTRUMENTS CORPORATION
FORM 10-Q
PART II: OTHER INFORMATION
Item 1 - Legal Proceedings Page 11
Item 2 - Changes in Securities Not Applicable
Item 3 - Defaults Upon Senior Securities Not Applicable
Item 4 - Submission of Matters to a Vote of Security Holders Page 12
Item 5 - Other Events Not Applicable
Item 6 - Exhibits and Reports on Form 8-K Page 14 - 15
Page 10 of 15
ITEM 1
LEGAL PROCEEDINGS
In the Company's claim against Orbot, the case is now scheduled to go to trial
in September 1994.
For further information on this litigation and on the Lemelson patent issue,
please refer to the Company's 10-Q filing for the quarter ended September 30,
1993.
Page 11 of 15
ITEM 4
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
An annual meeting of the stockholders was held on November 17, 1993 at the
Company's San Jose headquarters.
At that meeting, Mr. Kenneth Levy, Mr. Robert Lorenzini and Mr. Samuel
Rubinovitz were re-elected directors of the Company. Mr. Leo Chamberlain, Mr.
Dag Tellefsen, Mr. Yoshio Nishi, Mr. Robert Anderson, and Mr. Kenneth Schroeder
continued in office as directors after the meeting.
At that meeting, four items were put to a vote of stockholders:
1. Election of three directors.
2. Approval of an amendment to the 1981 Employee Stock Purchase Plan to
allow directors of the Company who are also employees to participate in
the Purchase Plan.
3. Approval of an amendment to the Purchase Plan to allow part-time
employees of the Company to participate in the Purchase Plan.
4. Ratification of the appointment of Price Waterhouse as the independent
accountants of the Company for the fiscal year ending June 30, 1994.
The voting results were:
Item For Against Withheld Abstain No Vote
- ---- ---------- -------- -------- ------- -------
1. Directors
Mr. Levy 17,254,963 0 57,313
Mr. Lorenzini 17,251,055 0 61,221
Mr. Rubinovitz 17,252,963 0 59,313
2. 17,015,180 162,207 68,562 66,327
3. 16,987,567 193,047 65,333 66,327
4. 17,249,957 18,992 43,327
Page 12 of 15
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.
KLA INSTRUMENTS CORPORATION
February 14, 1994 Kenneth Levy
- ----------------- ----------------------
[Date] Kenneth Levy
Chairman of the Board
February 14, 1994 Kenneth L. Schroeder
- ----------------- ----------------------
[Date] Kenneth L. Schroeder
President
February 14, 1994 Robert J. Boehlke
- ----------------- ----------------------
[Date] Robert J. Boehlke
V.P. Finance and Administration
Chief Financial Officer
Page 13 of 15
INDEX TO EXHIBITS
4.1 Rights Agreement dated as of March 15, 1989, between the Company and
First National Bank of Boston, as Rights Agent. The Rights
Agreement includes as Exhibit A, the form of Right Certificate, and
as Exhibit B, the form of Summary of Rights to Purchase Common
Stock(2)
10.15 Statement of Partnership to Triangle Partners dated April 12, 1983(14)
10.16 Lease Agreement and Addendum thereto dated January 10, 1983, between
BBK Partnership and the Company(3)
10.18 Purchase and Sale Agreement dated January 10, 1983, between BBK
Partnership, Triangle Partners and the Company(3)
10.23 Research and Development Agreement, Cross License and Technology
Transfer Agreement and Agreement for Option to License and Purchase
Resulting Technology, all dated February 21, 1985, by and between
KLA Development No. 3, Ltd., and the Company(4)
10.24 Research and Development Agreement dated February 21, 1985, by and
between KLA Development No. 3, Ltd., and the Company(4)
10.25 Agreement for Option to License and Purchase Resulting Technology dated
February 21, 1985, by and between KLA Development No. 3, Ltd., and
the Company(4)
10.33 (Research and Development) Agreement dated as of February 1, 1987, by
and between IBM Corporation and the Company(5)
10.35 Research and Development Agreement, Cross License and Technology
Transfer Agreement and Agreement for Option to License and Purchase
Resulting Technology, all dated October 1, 1986, by and between KLA
Development No. 4, Ltd., and the Company(5)
10.36 Agreement for Option to License and Purchase Resulting Technology dated
October 1, 1986, by and between KLA Development No. 4, Ltd., and
the Company(5)
10.43 Amendment to the Exclusive Marketing Agreement dated February 23, 1989,
by and between Micrion Limited Partnership and the Company(6)
10.44 Bank Loan Guarantee dated June 29, 1989, by the Company in favor of The
First National Bank of Boston for the Micrion Limited Partnership(6)
10.45 Distribution Agreement, Manufacturing License Agreement, and Technical
Marketing Assistance Agreement, all dated July 1990, by and between
Tokyo Electron Limited, a Japanese Corporation, and the Company(7)
10.46 Principle facility Purchase Agreement dated July 1990, including all
exhibits and amendments; Lease Agreement, Termination of Lease, Lot
line adjustment, rights of first refusal, Deeds of Trust(7)
10.47 Joint Venture Agreement between the Company and Nippon Mining Company,
Limited, dated September 18, 1990(8)
10.48 Exercise of Option to Purchase Technology made effective as of
September 30, 1989, by and between KLA Development No. 3, and the
Company(8)
10.49 Exercise of Option to Purchase Technology made effective as of January
1, 1990, by and between KLA Development No. 4, and the Company(8)
10.51 Guarantee Agreement between First National Bank of Boston and the
Company, dated June 29, 1989(8)
10.52 Amendment to the Guarantee Agreement between First National Bank of
Boston and the Company, dated April 19, 1991(8)
10.53 Secured Installment Note between Micrion and First National Bank of
Boston, dated April 19, 1991(8)
10.54 Micrion Corporation Series E Preferred Stock Purchase Agreement, dated
September 13, 1991(8)
10.55 Micrion Corporation Guaranty and Warrant Agreement,
dated December 8, 1989(8)
10.57 Stock repurchase and option grant agreement between Bob Boehlke and the
Company, dated April 22, 1991(8)
10.58 Purchase Agreement between the Company and Ono Sokki Co., Ltd., dated
October 18, 1991 with certain portions for which confidential
treatment has been requested, excised(9)
10.59 Credit Agreement between Bank of America NT & SA and the Company, dated
November 15, 1991, as amended July 29, 1992(9)
10.60 Employment agreement between the Company and Kenneth L. Schroeder dated
October 4, 1991(9)
10.61 Amendment of Credit Agreement between Bank of America NT & SA and the
Company, dated October 28, 1992(10)
Page 14 of 15
10.62 Amendment of Credit Agreement between Bank of America NT & SA and the
Company, dated December 31, 1992(10)
10.63 Amendment of Credit Agreement between Bank of America NT & SA and the
Company, dated February 28, 1993(10)
10.64 Amendment of Credit Agreement between Bank of America NT & SA and the
Company, dated March 31, 1993(10)
10.65 Amendment of Credit Agreement between Bank of America NT & SA and the
Company, dated June 1, 1993(10)
10.66 1982 Stock Option Plan, as amended by the Board of Directors on July
20, 1990(11)
10.67 1990 Outside Directors Stock Option Plan(12)
10.68 1983 Employee Stock Purchase Plan, as amended by the Board of Directors
on September 14, 1992(13)
- --------------------------------------------
1 Filed as the same exhibit number as set forth herein to Form S-8, File No.
33-15784, effective August 2, 1987
2 Filed as exhibit number 1 to Form 8-A, filed effective March 23, 1989
3 Filed as the same exhibit number as set forth herein to Registrant's Form 10-K
for the year ended June 30, 1983
4 Filed as the same exhibit number as set forth herein to Registrant's Form 10-K
for the year ended June 30, 1985
5 Filed as the same exhibit number as set forth herein to Registrant's Form 10-K
for the year ended June 30, 1987
6 Filed as the same exhibit number as set forth herein to Registrant's Form 10-K
for the year ended June 30, 1989
7 Filed as the same exhibit number as set forth herein to Registrant's Form 10-K
for the year ended June 30, 1990
8 Filed as the same exhibit number as set forth herein to Registrant's Form 10-K
for the year ended June 30, 1991
9 Filed as the same exhibit number as set forth herein to Registrant's Form 10-K
for the year ended June 30, 1992
10 Filed as the same exhibit number as set forth herein to Registrant's Form
10-K for the year ended June 30, 1993
11 Filed as exhibit 4.4 to Registrant's Form 10-K for the year ended June 30,
1990
12 Filed as exhibit 4.6 to Registrant's Form 10-K for the year ended June 30,
1991
13 Filed as exhibit 4.7 to Registrant's Form 10-K for the year ended June 30,
1993
14 Filed as exhibit 4.3 to Registrant's Form 10-K for the year ended June 30,
1983
Page 15 of 15