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: March 31, 1994 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. Yes X No ----- ----- SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: Common Stock, $0.001 par value Common Stock Purchase Rights Common shares outstanding at March 31, 1994: 22,624,000 This report, including all exhibits and attachments, contains 12 pages. Page 1 of 12 KLA INSTRUMENTS CORPORATION INDEX
Page PART I FINANCIAL INFORMATION Number - - ------ --------------------- ------ Item 1 Financial Statements: Condensed Consolidated Statement of Operations Three Months Ended March 31, 1993 and 1994 . . . . . . . . . . . . . . 3 Nine Months Ended March 31, 1993 and 1994 . . . . . . . . . . . . . . . 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 . . . . . . . . . . . . . . . . . . . . 8-10 PART II OTHER INFORMATION - - ------- ----------------- Items 1-6 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Page 2 of 12 KLA INSTRUMENTS CORPORATION CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS THREE MONTHS ENDED MARCH 31, (In thousands except per share amounts) (Unaudited)
1993 1994 ---- ---- Net sales $42,240 $62,665 ------- ------- Costs and expenses: Cost of sales 26,633 33,308 Engineering, research and development 4,390 5,486 Selling, general and administrative 8,383 12,014 ------- ------- 39,406 50,808 ------- ------- Income from operations 2,834 11,857 Interest income and other, net 537 642 Interest expense (767) (458) ------- ------- Income before income taxes 2,604 12,041 Provision for income taxes 653 3,010 ------- ------- Net income $ 1,951 $ 9,031 ======= ======= Net income per share $ 0.10 $ 0.40 ======= ======= Weighted average number of common and dilutive common equivalent shares outstanding 20,007 22,729
See accompanying notes to condensed consolidated financial information. Page 3 of 12 KLA INSTRUMENTS CORPORATION CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS NINE MONTHS ENDED MARCH 31, (In thousands except per share amounts) (Unaudited)
1993 1994 ---- ---- Net sales $119,353 $171,656 -------- -------- Costs and expenses: Cost of sales 77,168 96,886 Engineering, research and development 12,583 15,262 Selling, general and administrative 23,585 33,257 Restructuring recovery (718) - -------- -------- 112,618 145,405 -------- -------- Income from operations 6,735 26,251 Interest income and other, net 1,022 1,191 Interest expense (2,568) (1,453) -------- -------- Income before income taxes 5,189 25,989 Provision for income taxes 1,298 6,500 -------- -------- Net income $ 3,891 $ 19,489 ======== ======== Net income per share $ 0.20 $ 0.91 ======== ======== Weighted average number of common and dilutive common equivalent shares outstanding 19,454 21,479
See accompanying notes to condensed consolidated financial information. Page 4 of 12 KLA INSTRUMENTS CORPORATION CONDENSED CONSOLIDATED BALANCE SHEET (In thousands) (Unaudited)
June 30, March 31, 1993 1994 -------- --------- ASSETS Current assets: Cash and cash equivalents $ 52,362 $113,924 Accounts receivable, net of allowances of $1,469 and $1,783 48,077 82,099 Inventories 42,489 49,577 Deferred income taxes 3,917 3,917 Other current assets 4,724 4,920 -------- -------- Total current assets 151,569 254,437 -------- -------- Land, property and equipment, net 39,384 36,362 Other assets 8,136 6,099 -------- -------- Total assets $199,089 $296,898 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Notes payable and current portion of long-term debt $ 6,532 $ 3,032 Accounts payable 8,953 10,533 Income taxes payable 9,403 12,759 Other current liabilities 33,070 34,509 -------- -------- Total current liabilities 57,958 60,833 -------- -------- 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 22,624 shares issued and outstanding 20 23 Capital in excess of par value 64,638 140,023 Retained earnings 50,087 69,576 Treasury stock (581) (581) Cumulative translation adjustment (114) (57) -------- -------- Total stockholders' equity 114,050 208,984 -------- -------- Total liabilities and stockholders' equity $199,089 $296,898 ======== ========
See accompanying notes to condensed consolidated financial information. Page 5 of 12 KLA INSTRUMENTS CORPORATION CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS NINE MONTHS ENDED MARCH 31, (In thousands) (Unaudited)
1993 1994 ------ ------ Cash flows from operating activities: Net income $ 3,891 $ 19,489 -------- -------- Adjustments required to reconcile net income to cash provided by (used for) operations: Depreciation and amortization 6,173 8,530 Investment write-downs 94 - Changes in assets and liabilities: Accounts receivable, net (4,314) (34,022) Inventories, net 4,974 (7,088) Other current assets 932 (196) Accounts payable 3,347 1,580 Income taxes payable and deferred income taxes (2,953) 3,356 Other current liabilities (642) 1,439 Other assets (348) (174) -------- -------- 7,263 (26,575) -------- -------- Cash provided by (used for) operating activities 11,154 (7,086) -------- -------- Cash flows from investing activities: Capital expenditures (1,932) (3,297) Capitalization of software development costs (899) - -------- -------- Cash (used for) investing activities (2,831) (3,297) -------- -------- Cash flows from financing activities: Short-term borrowings and current portion of long-term debt, net (2,812) (3,500) Sales of common stock 3,050 75,388 -------- -------- Cash provided by financing activities 238 71,888 -------- -------- Effect of exchange rate changes on cash (725) 57 -------- -------- Increase in cash and cash equivalents 7,836 61,562 Cash and cash equivalents at beginning of period 23,711 52,362 -------- -------- Cash and cash equivalents at end of period $ 31,547 $113,924 -------- -------- Supplemental disclosure to cash flow information CASH PAID DURING THE PERIOD FOR: INTEREST $ 2,453 $ 1,096 INCOME TAXES 2,333 2,802
See accompanying notes to condensed consolidated financial information. Page 6 of 12 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 March 31, 1994, 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 sheet components:
June 30, March 31, 1993 1994 -------- --------- Inventories: ----------- Systems raw materials $ 8,389 $13,113 Customer service spares 13,530 11,862 Work-In-Process 10,004 11,252 Demonstration Equipment 10,566 13,350 ------- ------- $42,489 $49,577 ======= ======= Other Current Liabilities: ------------------------- Accrued compensation and benefits $11,682 $15,195 Accrued warranty and installation 12,188 13,556 Unearned service contract revenue 2,854 2,404 Other 6,346 3,354 ------- ------- $33,070 $34,509 ======= =======
3) In February 1994, KLA Instruments Corporation ("the Company") raised approximately $68.8 million, net of offering costs, in a public offering of 2,300,000 new shares of common stock. Page 7 of 12 KLA INSTRUMENTS CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Results of Operations Third Quarter and Nine Months of Fiscal 1994 Compared with Third Quarter and Nine Months of Fiscal 1993 Net Sales Net sales increased $20.4 million or 48.4% and $52.3 million or 43.8%, respectively, for the three and nine month periods ended March 31, 1994 as compared to the prior fiscal year. The largest increase in sales was in the WISARD business unit. The RAPID business unit, the Metrology division and the ATS division also contributed to the rise in sales. The WISARD business unit achieved record shipments of the KLA 2100 series of yield monitoring systems. This success was primarily attributable to the on-going market adoption of the KLA 2100 series as an in-line monitoring system and secondarily to industry additions to manufacturing capacity in the U.S. and Asia Pacific. A shift in product mix from the KLA 200 series to the new generation KLA 300 series was the primary contributor to the increases experienced by the RAPID business unit. The Metrology division and the ATS division increases were due to higher unit volume. Gross Margin Gross margins were 46.8 % for the three-month and 43.6% for the nine-month periods ended March 31, 1994, compared to gross margins of 36.9% and 35.3% in the comparable periods for the prior fiscal year. The increase in both periods is due primarily to manufacturing efficiencies in the WISARD business unit as volumes rose substantially and also to a favorable mix effect as the KLA 2100 series portion of total KLA revenues increased. Gross margins were also favorably impacted by cost controls and efficiencies in the Field Service division. Page 8 of 12 KLA INSTRUMENTS CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Engineering Research and Development Engineering research and development expenses were 8.8% of net sales in the three month period and 8.9% in the nine month period ended March 31, 1994, compared to 10.4% and 10.5% in the comparable periods in the prior fiscal year. Net engineering expenditures rose $1.1 million and $2.7 million during the three and nine month periods of fiscal 1994 compared to the prior fiscal year. The absolute dollar increase was primarily due to funding of incremental engineering programs in the Company's expanding WISARD business unit. Selling General and Administrative Selling general and administrative expenses decreased 0.6% to 19.2% and 0.4% to 19.4%, respectively, for the three and nine month periods ended March 31, 1994 as compared to the prior fiscal year. Headcount-related overhead expenses increased in total, but at a lower rate of increase than revenues. However, commission expenses for outside sales representatives increased faster than revenues, reflecting the increased share of Japanese and Asia Pacific business. In addition, profit sharing expense grew substantially faster than revenues due to the sharp upturn in the Company's profitability. Provision for Income Tax The 25% effective tax rate for both the three and nine-month periods ended March 31, 1993 and March 31, 1994 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 remaining deferred tax assets such that a full 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. Page 9 of 12 KLA INSTRUMENTS CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Liquidity and Capital Resources Total cash and cash equivalents increased by $61.6 million during the nine month fiscal period ended March 31, 1994. Cash used for operations was $7.1 million. The major factors contributing to the use of cash for operations was an increase in accounts receivable and inventories, respectively, of $34.0 million and $7.1 million offset by net income of $19.5 million and non-cash adjustments, for depreciation and amortization, of $8.5 million. The accounts receivable increase is attributable to (a) the increase in revenue, (b) non-linear delays in the manufacturing ramp-up of the KLA 2131 product entry during the third fiscal quarter of 1994 and (c) the comparison to a strong collection effort at the end of fiscal 1993. Higher production levels contributed to the increase in inventories. In February 1994, the Company raised approximately $68.8 million in a public offering of 2,300,000 new shares of common stock. Stock option exercises contributed $5.6 million to cash. 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 10 of 12 KLA INSTRUMENTS CORPORATION FORM 10-Q PART II: OTHER INFORMATION Item 1 - Legal Proceedings Not Applicable 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 Not Applicable Item 5 - Other Events Not Applicable Item 6 - Exhibits and Reports on Form 8-K Not Applicable
Page 11 of 12 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 May 13, 1994 Kenneth Levy - - ------------------- ----------------------- [Date] Kenneth Levy Chairman of the Board May 13, 1994 Kenneth L. Schroeder - - ------------------- ----------------------- [Date] Kenneth L. Schroeder President May 13, 1994 Robert J. Boehlke - - ------------------- ----------------------- [Date] Robert J. Boehlke V.P. Finance and Administration Chief Financial Officer Page 12 of 12