EXHIBIT 13 SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
FISCAL 1994 FISCAL 1995 QUARTER ENDED SEPT. 30 DEC. 31 MARCH 31 JUNE 30 SEPT. 30 DEC. 31 MARCH 31 JUNE 30 - --------------------------------------------------------------------------------------------------------------- (IN MILLIONS, EXCEPT PER SHARE AMOUNTS) Net sales $ 51.9 $ 57.1 $ 62.6 $ 72.1 $ 83.2 $104.7 $118.1 $136.4 Gross profit 20.7 24.7 29.4 35.9 42.6 56.3 63.9 75.0 (% of net sales) 39.9% 43.3% 47.0% 49.8% 51.2% 53.8% 54.1% 55.0% Engineering, research and development expense 4.9 4.8 5.5 7.2 8.2 8.8 12.3 16.0 (% of net sales) 9.4% 8.4% 8.8% 10.0% 9.9% 8.4% 10.4% 11.7% Selling, general and administrative expense 9.9 11.3 12.0 15.0 16.5 21.7 21.6 25.5 (% of net sales) 19.1% 19.8% 19.2% 20.8% 19.8% 20.7% 18.3% 18.7% Net income 4.2 6.3 9.0 10.7 12.8 1.0(a) 20.8 24.0 (% of net sales) 8.1% 11.0% 14.4% 14.8% 15.4% 1.0% 17.6% 17.6% Net income per share $ 0.20 $ 0.30 $ 0.40 $ 0.45 $ 0.54 $ 0.04(a) $ 0.86 $ 0.94 Shares used in computing net income per share 20.8 20.9 22.7 23.7 23.9 24.1 24.3 25.5 - ---------------------------------------------------------------------------------------------------------------
(A) Includes a net charge of $16.2 million or $0.66 per share, for writeoff of acquired in-process technology. Management's Financial Commentary Last year we described fiscal 1994 as a breakthrough year that resulted in a sharp improvement in earnings. This year we can describe fiscal 1995 as a year of rapid advance on all fronts. For the first time in many years, all of KLA's major businesses were growing at the same time. Earnings per share of $3.06 (prior to the write-off resulting from the acquisition of Metrologix) were more than double the prior year's record of $1.37 in fiscal 1994. This improvement was the result of a number of factors. First and foremost, semiconductor manufacturers continued to find new uses for the KLA 2100 series, and adoption of KLA's methodologies became more pervasive. The top ten manufacturing plants using KLA's approach now average seven KLA 2100 systems per fab, and more than 88 fabs have multiple systems installed or on order. The second factor was the continued strength of capital spending by the industry on new submicron manufacturing capabilities. The electronic components in greatest demand, such as microprocessors, memories and custom ASICs, require facilities capable of manufacturing circuits with 0.5-micron features or below. The shortage of these advanced facilities has resulted in a strong cycle of spending by semiconductor manufacturers. This spending strength has driven demand for all of KLA's products, including the metrology and test division systems. A third consideration was the recovery of the reticle and photomask business, reflecting the industry's enthusiasm for the new capabilities of the KLA 331. The system employs a new KLA technology, Simultaneous Transmitted and Reflected Light ("STARlight"), which finds many new classes of defects not previously thought to exist on masks and reticles. As a result, both mask makers and mask users are interested in this new verification technology. As a result of these factors, KLA's bookings grew 80% in fiscal 1995, and backlog doubled from about $125 million at June 30, 1994, to about $250 million at June 30, 1995. To accommodate this continuing growth, KLA increased cleanroom manufacturing space during the fiscal year by over 100%, entered into an agreement to lease a 105,000 square-foot facility being constructed at its main campus site, and leased an additional 73,000 square feet of office and manufacturing space adjacent to the campus. In August of 1995, KLA also entered into leases for 134,000 square feet in three buildings adjacent to the KLA campus. During fiscal 1995, KLA expanded the product offering of the metrology business by acquiring Metrologix, a manufacturer of scanning electron microscope(SEM) products used to measure the linewidths of very advanced devices. As these linewidths became smaller, the optical technology of the KLA 5100 was less able to resolve the images for linewidth measurement. As a result, the KLA 5100 is now employed primarily for overlay alignment applications, and it continues to have a majority share of that market. The acquisition resulted in an after-tax charge of $16.2 million attributable to the write-off of in-process technology; this charge reduced earnings in the second quarter by $0.66 per share. ANNUAL RESULTS OF OPERATIONS Sales increased 82% in fiscal 1995 compared with increases of 46% and 7% in fiscal 1994 and 1993, respectively. The dollar sales increase in fiscal 1995 was primarily attributable to the continued success of the 2100 series product line manufactured by the Wafer Inspection Business Unit (WISARD). However, comparable percentage increases were also recorded by the Reticle and Photomask Inspection Business Unit (RAPID) for the reasons described earlier and by the Optical Metrology Business Unit, which continued to achieve the majority share of its overlay metrology market. Smaller percentage gains were seen in the ATS Division, which benefited from the introduction of a new prober model, and the Customer Service Division (CSD), which benefited from the growing installed base of KLA equipment worldwide. The 46% sales increase in fiscal 1994 was again primarily attributable to rising demand for WISARD's 2100 series product. The Metrology Business Unit recorded a similar percentage increase to that of WISARD. Revenue increases were also recorded in the RAPID and ATS divisions. The 7% sales increase in fiscal 1993 reflected strength in the ATS and Metrology divisions, which slightly offset a decline in RAPID caused by a delay in completing all the features of its new 300 Series. International sales as a percent of total sales were 69%, 65% and 62% in fiscal years 1995, 1994 and 1993, respectively. The increase in international sales in fiscal 1995 was due to continued strong demand from Korea, to an upsurge in orders from Taiwan in the second half of the year, and to a continuation of the recovery of the Japanese semiconductor industry to more traditional levels of profitability and investment. Gross margins were 54%, 45% and 36% in fiscal years 1995, 1994 and 1993, respectively. The improvement in fiscal 1995 was due to manufacturing efficiencies in WISARD, the rise in WISARD's share of KLA's total revenues, the absorption of fixed overhead costs by higher sales volumes and the favorable impact of a stronger yen. The gross margin improvement in fiscal 1994 was driven by the same considerations as in fiscal 1995. Gross margins in fiscal 1993 were adversely impacted by new product transitions in all divisions, which generated large scrap, rework and overhead variance costs. In RAPID, these transitions, unlike others in KLA's history, involved redesigns of every significant subsystem. Engineering, research and development expenses were 10%, 9% and 10% of revenue in fiscal 1995, 1994 and 1993, respectively. In absolute dollars, these expenses doubled to $45.3 million in fiscal 1995. As the Company increasingly concentrates on the broad opportunities in yield management, including the networking of all measurement tools in the fab, it is increasingly identifying opportunities to develop and market new systems and measurement tools, as well as applications and the related software for using these tools. Many such opportunities occurred in the WISARD Division during fiscal 1995, and R&D spending increased accordingly. Increases in R&D were also recorded in RAPID, Metrology and the new PRISM division. The decline in the percent of revenue for R&D in fiscal 1994 to 9% was due to the efficiency of developing new models with less extensive redesign of many subsystems than normal. Engineering, research and development expenses are shown net of funds KLA receives 14 from customers, industry groups and government sources and also net of any capitalization of software costs. KLA's gross R&D expenses were reduced by 1%, 2% and 4% by these sources in fiscal years 1995, 1994 and 1993, respectively. KLA did not capitalize any software costs in fiscal years 1995 and 1994. Selling, general and administrative costs were 19%, 20% and 20% in fiscal years 1995, 1994 and 1993, respectively. In fiscal 1995, decreases in sales and administration expenses as a percentage of sales were partially offset by increases in profit-sharing expenses resulting directly from the continued improvement in KLA's financial performance. In fiscal 1994, representative commissions and profit-sharing expenses increased slightly, and were offset by a decline in sales and administrative expenses, all as a percent of revenues. "Interest income and other, net," increased in fiscal 1995 because the Company had higher balances of cash, cash equivalents and marketable securities. These balances increased primarily because of the secondary public offerings of stock of $68.6 million in February 1994 and $91 million in May 1995. Interest expense was $2.4, $2.0 and $3.4 million in fiscal years 1995, 1994 and 1993, respectively. The decline in fiscal 1994 was due primarily to an interest rate adjustment in August 1993 on KLA's mortgage loan from 10.3% to 5.63%. The provision for income taxes on pretax income was 34%, 25% and 25% in fiscal 1995, 1994 and 1993, respectively. In fiscal 1995, the income tax rate was lower than the statutory U.S. tax rate primarily due to the benefits generated by KLA's foreign sales corporation and the realization of deferred tax assets which were previously reserved. KLA's tax rate increased from 1994 to 1995 as a result of a greater percentage of worldwide earnings being taxable in the U.S. in 1995 than in prior years. In fiscal 1993 and 1994, the income tax rate was lower than the statutory U.S. tax rate primarily due to tax advantages in Switzerland that resulted in a lower net foreign tax rate and as a result of the realization of deferred tax assets previously reserved. Additionally, the fiscal 1994 rate was reduced by the utilization of $1.9 million in foreign tax credits. The IRS is currently auditing the Company's federal income tax returns for fiscal years 1985-1992. Management believes sufficient taxes have been provided in prior years and that the ultimate outcome of the IRS audit will not have a material adverse impact on the Company's financial position or results of operations. LIQUIDITY AND CAPITAL RESOURCES Cash, cash equivalents and marketable securities increased by $105.6 million in fiscal 1995 with $22.3 million from operations, $91 million from a secondary public offering in May 1995, and $24.7 million from the after-tax impact of stock option and stock purchase plans. This was partially offset by a $14.2 million cash payment to purchase Metrologix, and $19 million in capital expenditures. Cash provided by operations was substantially less than reported earnings due to the working capital investment required to support the rise in revenues. Capital expenditures of $19 million in fiscal 1995 compared with depreciation charges of approximately $11 million and were about triple the fiscal 1994 amount. The major uses of capital were the facility expansion at KLA's main campus and the facility expansions at KLA Israel and Japan. Capital expenditures for fiscal 1996 are expected to be greater than depreciation but less than the fiscal 1995 amount; however, this assessment could change if demand continues to exceed estimates and additional manufacturing capacity is required. No estimate can be made of the size or cost of any such additional capacity. The Company has entered into lease agreements to occupy three buildings beginning in fiscal 1996. In total, the lessor has committed to fund up to $27.9 million to construct or acquire and improve the three buildings located at KLA's main campus site. KLA may, at its option, purchase the properties during the term of the leases at approximately the amount expended by the lessor to acquire, construct and improve the properties. If the Company does not purchase the buildings at the end of the leases, the Company will guarantee the lessor 85% of the residual values of the properties as determined at the inception of the leases. KLA believes that its current level of liquid assets, borrowing facilities, working capital and cash expected to be generated from operations will be sufficient to fund its growth through at least fiscal 1996. The current policy of KLA is not to pay dividends. Management believes that it is in the best interests of the stockholders to continue to reinvest KLA's earnings in the business. [PHOTO OF ROBERT J. BOEHLKE, VICE PRESIDENT, FINANCE AND ADMINISTRATION AND CHIEF FINANCIAL OFFICER] BUSINESS RISKS AND UNCERTAINTIES The Company's future results will depend on its ability to continuously introduce new products and enhancements to its customers as demands for higher productivity and specifications of semiconductor test equipment 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 that have technological and/or pricing advantages. 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. 15 SELECTED FINANCIAL DATA (UNAUDITED)
1991 1992 1993 1994 1995 - ------------------------------------------------------------------------------------------------------------------------- (In thousands, except per share amounts) YEARS ENDED JUNE 30, Net sales $ 148,432 $ 155,963 $ 167,236 $ 243,737 $ 442,416 Restructuring charges (recovery) - 8,158 (718) - - Income (loss) from continuing operations 2,415 (16,610) 6,961 30,188 58,618 Net income (loss) (10,585) (13,810) 6,961 30,188 58,618 Income (loss) per share from continuing operations 0.13 (0.90) 0.35 1.37 2.40 Net income (loss) per share (0.57) (0.75) 0.35 1.37 2.40 Shares used in computing net income per share 18,552 18,451 19,707 22,044 24,435 AT JUNE 30, Cash, cash equivalents and marketable securities 31,254 23,711 52,362 139,126 244,753 Working capital 91,116 83,961 93,611 212,873 228,026 Total assets 198,023 188,457 199,089 321,570 546,296 Long-term debt 24,000 24,000 20,000 20,000 - Stockholders' equity 113,161 103,032 114,050 227,382 403,969
CONSOLIDATED STATEMENT OF OPERATIONS
YEARS ENDED JUNE 30, 1993 1994 1995 - ----------------------------------------------------------------------------------------- (In thousands, except per share amounts) Net sales $ 167,236 $ 243,737 $ 442,416 - --------------------------------------------------------------------------------------- Costs and expenses: Cost of sales 107,466 133,028 204,618 Engineering, research and development 16,314 22,435 45,252 Selling, general and administrative 32,684 48,192 85,255 Write-off of acquired in-process technology - - 25,240 Restructuring recovery (718) - - - --------------------------------------------------------------------------------------- 155,746 203,655 360,365 - --------------------------------------------------------------------------------------- Income from operations 11,490 40,082 82,051 Interest income and other, net 1,217 2,174 9,127 Interest expense (3,426) (2,005) (2,364) - --------------------------------------------------------------------------------------- Income before income taxes 9,281 40,251 88,814 Provision for income taxes 2,320 10,063 30,196 - --------------------------------------------------------------------------------------- Net income $ 6,961 $ 30,188 $ 58,618 - --------------------------------------------------------------------------------------- Net income per share $ 0.35 $ 1.37 $ 2.40 - --------------------------------------------------------------------------------------- Shares used in computing net income per share 19,707 22,044 24,435 - --------------------------------------------------------------------------------------- Pro forma net income per share, Note 5 $ 0.18 $ 0.69 $ 1.20 - ---------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements. 16 KLA INSTRUMENTS CORPORATION CONSOLIDATED BALANCE SHEET
AT JUNE 30, 1994 1995 - --------------------------------------------------------------------------------------------------------------------------- (IN THOUSANDS) ASSETS Current assets: Cash and cash equivalents $139,126 $ 92,059 Short-term investments - 26,681 Accounts receivable, net of allowances of $1,754 and $2,196 74,226 129,274 Inventories 53,265 79,759 Deferred income taxes 7,495 18,155 Other current assets 4,343 14,949 - --------------------------------------------------------------------------------------------------------------------------- Total current assets 278,455 360,877 - --------------------------------------------------------------------------------------------------------------------------- Land, property and equipment, net 37,149 49,004 Marketable securities - 126,013 Other assets 5,966 10,402 - --------------------------------------------------------------------------------------------------------------------------- Total assets $321,570 $ 546,296 - --------------------------------------------------------------------------------------------------------------------------- LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Notes payable $ 4,673 $ 4,458 Current portion of long-term debt - 20,000 Accounts payable 11,890 19,376 Income taxes payable 12,466 22,797 Other current liabilities 36,553 66,220 - --------------------------------------------------------------------------------------------------------------------------- Total current liabilities 65,582 132,851 - --------------------------------------------------------------------------------------------------------------------------- Deferred income taxes 8,606 9,476 Long-term debt 20,000 - Commitments and contingencies, Note 4 Stockholders' equity: Preferred Stock $.001 par value, 1,000 shares authorized, none issued and outstanding - - Common shares, $.001 par value, 75,000 shares authorized, 22,864 and 25,080 shares issued and outstanding 23 25 Capital in excess of par value 147,358 263,016 Retained earnings 80,275 138,893 Treasury stock (581) (581) Net unrealized gain on investments - 1,241 Cumulative translation adjustment 307 1,375 - --------------------------------------------------------------------------------------------------------------------------- Total stockholders' equity 227,382 403,969 - --------------------------------------------------------------------------------------------------------------------------- Total liabilities and stockholders' equity $321,570 $ 546,296 - ---------------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements. KLA INSTRUMENTS CORPORATION 17 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
COMMON STOCK AND CAPITAL IN EXCESS OF PAR VALUE TREASURY STOCK NET UNREALIZED ------------------------ RETAINED ----------------- GAIN ON TRANSLATION SHARES AMOUNT EARNINGS SHARES AMOUNT INVESTMENTS ADJUSTMENTS - ------------------------------------------------------------------------------------------------------------------------------------ (In thousands) Balance at June 30, 1992 18,696 $ 58,957 $ 43,126 (55) $(581) $ - $ 1,530 - ---------------------------------------------------------------------------------------------------------------------------------- Exercise of stock options 604 4,277 Shares sold in stock purchase plan 203 1,424 Net income 6,961 Translation adjustments (1,644) - ---------------------------------------------------------------------------------------------------------------------------------- Balance at June 30, 1993 19,503 64,658 50,087 (55) (581) - (114) - ---------------------------------------------------------------------------------------------------------------------------------- Exercise of stock options 854 6,960 Tax benefit on exercise of stock options 5,232 Shares sold in stock purchase plan 207 1,965 Shares sold in stock offering 2,300 68,566 Net income 30,188 Translation adjustments 421 - ---------------------------------------------------------------------------------------------------------------------------------- Balance at June 30, 1994 22,864 147,381 80,275 (55) (581) - 307 - ---------------------------------------------------------------------------------------------------------------------------------- Exercise of stock options 628 5,271 Tax benefit on exercise of stock options 15,427 Shares sold in stock purchase plan 88 3,995 Shares sold in stock offering 1,500 90,967 Net income 58,618 Net unrealized gain on investments 1,241 Translation adjustments 1,068 - ---------------------------------------------------------------------------------------------------------------------------------- Balance at June 30, 1995 25,080 $263,041 $138,893 (55) $(581) $1,241 $1,375 - ----------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements. 18 KLA INSTRUMENTS CORPORATION CONSOLIDATED STATEMENT OF CASH FLOWS
YEARS ENDED JUNE 30, 1993 1994 1995 - --------------------------------------------------------------------------------------------------------------------------- (In thousands) Cash flows from operating activities: Net income $ 6,961 $30,188 $ 58,618 Adjustments required to reconcile net income to cash provided by operations: Depreciation and amortization 9,646 10,734 10,642 Write-off of acquired in-process technology - - 16,154 Deferred income taxes (466) (2,053) (9,591) Changes in assets and liabilities: Accounts receivable 947 (26,149) (54,462) Inventories 6,048 (10,776) (23,112) Other assets 1,570 (139) (18,313) Accounts payable 3,375 2,937 6,509 Income taxes payable (429) 3,063 11,199 Other current liabilities 2,655 3,483 24,692 - --------------------------------------------------------------------------------------------------------------------------- Cash provided by operations 30,307 11,288 22,336 - --------------------------------------------------------------------------------------------------------------------------- Cash flows from investing activities: Capital expenditures (3,226) (5,809) (19,009) Purchases of short and long-term available for sale securities - - (329,729) Sales and maturities of short and long-term available for sale securities - - 178,276 Investment in Metrologix - - (14,182) Other (357) - - - --------------------------------------------------------------------------------------------------------------------------- Cash used for investing activities (3,583) (5,809) (184,644) - --------------------------------------------------------------------------------------------------------------------------- Cash flows from financing activities: Short-term borrowings, net (2,881) 2,141 (1,487) Payment of current portion of long-term debt - (4,000) - Sales of common stock/tax benefit of options exercised 5,701 82,723 115,660 - --------------------------------------------------------------------------------------------------------------------------- Cash provided by financing activities 2,820 80,864 114,173 - --------------------------------------------------------------------------------------------------------------------------- Effect of exchange rate changes (893) 421 1,068 - --------------------------------------------------------------------------------------------------------------------------- Increase (decrease) in cash and cash equivalents 28,651 86,764 (47,067) Cash and cash equivalents at beginning of year 23,711 52,362 139,126 - --------------------------------------------------------------------------------------------------------------------------- Cash and cash equivalents at end of year $ 52,362 $139,126 $ 92,059 - --------------------------------------------------------------------------------------------------------------------------- Cash paid during the year for: Interest $ 3,515 $ 2,007 $ 2,361 Income taxes 1,914 3,369 22,715 - ---------------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements. KLA INSTRUMENTS CORPORATION 19 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION - The consolidated financial statements include the accounts of the Company and all of its subsidiaries. All significant intercompany accounts and transactions have been eliminated. Subsidiaries with accounts denominated in foreign currencies have been translated principally using the local currencies as the functional currencies. Accordingly, the assets and liabilities of these subsidiaries are translated at the rates of exchange on the balance sheet date, income and expense items are translated at average rates of exchange for the year, and the resulting translation gains or losses are included in stockholders' equity. Foreign currency transaction gains and losses have not been material and are included in interest income and other, net. CASH EQUIVALENTS - Cash equivalents consist of highly liquid investments with a maturity date at acquisition of three months or less. Cash and cash equivalents are stated at cost, plus accrued interest, which approximates market value. Effective July 1, 1994, the Company adopted Statement of Financial Accounting Standards No. 115 (FAS 115) "Accounting for Certain Investments in Debt and Equity Securities," which requires the Company to classify debt and equity securities into one of three categories: held to maturity, trading or available for sale. The Company's investments are classified as available for sale. Investments classified as available for sale are measured at market value, and net unrealized gains and losses are recorded as a separate component of stockholders' equity until realized. Any gains or losses on sales of investments are computed by specific identification. As of June 30, 1995, net unrealized gains on investments available for sale were $1.2 million. CONCENTRATION OF CREDIT RISK - Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of investments, trade accounts receivable and financial instruments used in hedging activities. The Company invests in a variety of financial instruments such as certificates of deposit, commercial paper, municipal debt and U.S. Government debt. The Company, by policy, limits the amount of credit exposure to any one financial institution or commercial issuer. The Company sells its systems to semiconductor manufacturers throughout the world. The Company performs ongoing credit evaluations of its customers' financial condition and, generally, requires no collateral from its customers. The Company maintains an allowance for uncollectible accounts receivable based upon expected collectibility of all accounts receivable. The write-off of uncollectible amounts has been insignificant. The Company is exposed to credit loss in the event of nonperformance by counterparties on the foreign exchange contracts used in hedging activities. The Company does not anticipate nonperformance by these counterparties. FOREIGN EXCHANGE HEDGING - The Company enters into forward contracts to hedge against currency fluctuations that affect certain foreign currency denominated sales and purchase transactions. Because the impact of movements in currency exchange rates on forward contracts offsets the related impact on the underlying items being hedged, these financial instruments do not subject the Company to speculative risk that would otherwise result from changes in currency exchange rates. Unrealized gains and losses on these contracts are deferred and accounted for as part of the hedged transactions. Cash flows from these contracts are classified in the Statement of Cash Flows in the same category as the hedged transactions. At June 30, 1994, the Company had forward contracts maturing throughout fiscal 1995 to sell approximately $48.1 million in foreign currency, primarily Japanese yen, and to purchase approximately $5.8 million of Japanese yen. At June 30, 1995, the Company had forward contracts maturing throughout fiscal 1996 to sell approximately $147.9 million in foreign currency, primarily Japanese yen, and to purchase approximately $19.1 million in foreign currency, primarily Japanese yen. Of these contracts, approximately $70.5 million of contracts hedge foreign currency receivables and payables carried on the balance sheet as of June 30, 1995, and consequently the financial statements reflect the fair market value of the contracts and their underlying transactions. Approximately $90.6 million and $5.9 million of the contracts hedge firm commitments for future sales and purchases, respectively, denominated in foreign currency. The fair market value of these contracts on June 30, 1995, based upon prevailing market rates on that date, was approximately $88.3 million and $5.8 million, respectively. INVENTORIES - Inventories are stated at the lower of cost or market. Cost is determined using standard costs, which approximate actual costs on a first-in, first-out basis. PROPERTY AND EQUIPMENT - Property and equipment are recorded at cost. Depreciation and amortization are computed using the straight-line method over the estimated useful lives of the assets, which are 30 years for buildings and building improvements, five years for furniture and fixtures, and range from three to five years for machinery and equipment. The life of the lease or the useful life, whichever is shorter, is used for the amortization of leasehold improvements. REVENUE RECOGNITION - The Company recognizes sales of wafer inspection, metrology, reticle and photomask inspection systems upon acceptance at the Company's plant, which is when title transfers. Customers may observe and approve satisfactory completion of the tests. Sales of other systems are recognized upon shipment. A provision for the estimated future cost of system installation and warranty is recorded at the time revenue is recognized. Revenues from software licenses are recognized upon delivery of the software, provided that the Company does not have any significant obligations. Revenues from service contracts are recognized during the terms of the contracts on a straight-line basis. 20 KLA INSTRUMENTS CORPORATION NOTE 1 (CONTINUED) RESEARCH AND DEVELOPMENT - The Company is actively engaged in significant product improvement and new product development efforts. Research and development expenses relating to possible future products aggregated approximately $13.4, $16.8 and $28.4 million for fiscal 1993, 1994 and 1995, respectively. INCOME TAXES - The Company accounts for income taxes under the liability method, which requires an adjustment to the provision for income taxes for the effect of changes in corporate tax rates. Undistributed earnings of certain of the Company's foreign subsidiaries, for which no U.S. income taxes have been provided, aggregated approximately $6.3 million at June 30, 1995. The amount of the unrecognized deferred tax liability related to this investment is estimated at approximately $2.3 million at June 30, 1995. NET INCOME PER SHARE - Net income per share is computed using the weighted average number of common and common equivalent shares outstanding during the respective periods, including the assumed net shares issuable upon exercise of stock options, when dilutive. NOTE 2 DETAILS OF FINANCIAL STATEMENT COMPONENTS
1994 1995 - ----------------------------------------------------------------------------------- (In thousands) Inventories: Customer service spares $ 12,220 $ 13,050 Systems raw materials 12,597 18,944 Work-in-process 13,348 26,863 Demonstration equipment 15,100 20,902 - ---------------------------------------------------------------------------------- $ 53,265 $ 79,759 - ---------------------------------------------------------------------------------- Land, property and equipment: Land $ 10,502 $ 10,502 Buildings and improvements 21,928 27,483 Machinery and equipment 33,143 41,203 Furniture and fixtures 4,549 5,542 Leasehold improvements 4,029 3,913 - ---------------------------------------------------------------------------------- 74,151 88,643 Less accumulated depreciation and amortization (37,002) (39,639) - ---------------------------------------------------------------------------------- $ 37,149 $ 49,004 - ---------------------------------------------------------------------------------- Other current liabilities: Accrued compensation and benefits $ 16,328 $ 27,574 Accrued warranty and installation 14,367 22,229 Unearned revenue 3,054 4,867 Other 2,804 11,550 - ---------------------------------------------------------------------------------- $ 36,553 $ 66,220 - ----------------------------------------------------------------------------------
NOTE 3 INVESTMENTS The amortized cost and estimated fair value of securities available for sale as of June 30, 1995, are as follows:
Gross Gross Gross Estimated Amortized Unrealized Unrealized Fair Cost Gains Losses Value - -------------------------------------------------------------------------------------------------- (In thousands) U.S. Treasuries $ 47,720 $ 455 $ 36 $ 48,139 Municipal bonds 83,983 693 100 84,576 Corporate debt securities 43,638 705 - 44,343 Other 45,324 368 59 45,633 - -------------------------------------------------------------------------------------------------- 220,665 2,221 195 222,691 Less cash equivalents (70,021) (12) (36) (69,997) Less short-term investments (26,614) (77) (10) (26,681) - -------------------------------------------------------------------------------------------------- Long-term investments $ 124,030 $ 2,132 $ 149 $ 126,013
KLA INSTRUMENTS CORPORATION 21 NOTE 3 (continued) Gross unrealized gains and losses are presented in stockholders' equity, net of the tax effect. The contractual maturities of securities classified as available for sale as of June 30, 1995, regardless of the consolidated balance sheet classification, are as follows:
Estimated Fair Value - --------------------------------------------------------------------------------------------------------------------------- (In thousands) Due within one year $ 69,997 Due after one year through five years 72,518 Due after five years 80,176 - --------------------------------------------------------------------------------------------------------------------------- $222,691 - ---------------------------------------------------------------------------------------------------------------------------
Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. The realized gains and losses for the year ended June 30, 1995 were not material to the Company's financial position or results of operations. NOTE 4 COMMITMENTS AND CONTINGENCIES The Company leases several facilities under operating leases expiring at various dates through fiscal 2025 with renewal options at fair market value for additional periods ranging up to ten years. In June 1995, the Company entered into an agreement to lease a building being constructed on land owned by the Company in San Jose, California. The lessor of the building has committed to fund up to $12.5 million (subject to reductions based on certain conditions in the lease) for the construction of the building, with the portion of the committed amount actually utilized to be determined by the Company. In August 1995, the Company entered into a lease agreement to occupy two buildings in San Jose, California. The lessor has committed to fund up to $15.4 million for the acquisition of the land and buildings and for the completion of improvements to the buildings. Rent obligations for the buildings will commence upon the Company's occupation of the buildings in fiscal 1996. The Company may, at its option, purchase the properties during the term of the leases at approximately the amount expended by the lessor to acquire, construct and improve the properties. If the Company does not purchase the buildings at the end of the leases, the Company will guarantee the lessor 85% of the residual value of the properties as determined at the inception of the leases. In addition, the lease agreements require the Company to maintain, among other items, minimum quick ratio, tangible net worth and profitability. The aggregate minimum rental commitments under these lease agreements as of June 30, 1995, and including the facilities leased in August 1995, excluding property taxes, insurance and certain other costs to be paid by the Company, are approximately $4.7, $4.8, $3.6, $3.0, $2.5 and $26.4 million in fiscal 1996 through 2000 and thereafter, respectively. Total rental expense under all operating leases was $2.9, $2.5 and $3.5 million in fiscal 1993, 1994 and 1995, respectively. The Company is party to several claims and lawsuits arising in the ordinary course of business. While the outcome of these matters is not presently determinable, in the opinion of management, they are not expected to have a material effect on the financial position or the results of operations of the Company. NOTE 5 STOCKHOLDERS' EQUITY A two-for-one stock split was declared by the Board of Directors on July 24, 1995. The stock split will be in the form of a 100% stock dividend. The dividend will be paid on September 29, 1995, to stockholders of record on August 31, 1995. Financial information in this report has not been adjusted to reflect the impact of the proposed common stock split. In May 1995, the Company raised approximately $91 million, net of offering costs, in a public offering of 1,500,000 shares of common stock at $63.50 per share. In February 1994, the Company sold 2,300,000 shares of common stock at $31.50 per share in a public offering resulting in $68.6 million of proceeds to the Company, net of offering expenses. In March 1989, the Company implemented a plan to protect stockholders' rights in the event of a proposed takeover of the Company. Under the plan, each share of the Company's outstanding common stock carries one Common Stock Purchase Right (Right). The Right entitles the holder, under certain circumstances, to purchase common stock of the Company or its acquirer at a discounted price. The Rights are redeemable by the Company and expire in 1999. 22 KLA INSTRUMENTS CORPORATION NOTE 6 EMPLOYEE BENEFIT PLANS The Company has a profit sharing program, wherein a percentage of pretax profits, as determined by the Board of Directors, is accumulated and distributed quarterly to all employees who have completed a stipulated employment period. In addition, the Board may approve matching contributions to the Company's savings and investment plan, a qualified salary reduction plan under section 401(k) of the Internal Revenue Code. The total charge to operations under the profit sharing and 401(k) programs aggregated approximately $0.7, $3.3 and $16.6 million in fiscal 1993, 1994 and 1995, respectively. Under the 1982 Stock Option Plan, as amended, 6,350,000 shares have been reserved for issuance to eligible employees and directors as either Incentive Stock Options (ISO's) or nonqualified options. Options under this plan are granted at prices determined by the Board of Directors, but not less than the fair market value on the date of grant, and expire ten years after the date of grant. Generally, options become exercisable within five years of the date of grant, vesting monthly after a waiting period of six to thirty months. In October 1990, the Company adopted the 1990 Outside Directors Stock Option Plan to grant options to non-employee directors. This plan calls for an annual grant of 2,500 options, at fair market value, to each outside director. The options become exercisable at one fifty-fourth per month beginning six months from date of grant and expire ten years from grant date. A total of 100,000 shares has been reserved for issuance under this plan. These options carry exercise prices ranging from $7.00 to $49.50 per share, with 48,737 shares outstanding at June 30, 1995. In August 1992, the Company allowed all holders of outstanding options, with the exception of holders who were officers or directors of the Company during all of fiscal 1992, to exchange higher priced options for new non-qualified options at $7.50 per share, the fair market value on the date of the Board's action; 412,000 options were exchanged. Following is a summary of stock option and outside director plan transactions:
Stock Reserved Options Shares Option Price Outstanding Available - ----------------------------------------------------------------------------------------------------------------------------- Balance at June 30, 1992 $ 6.13-21.25 2,938,592 874,901 Options granted 7.50-12.38 1,048,246 (1,048,246) Options cancelled 6.13-20.50 (594,311) 594,311 Options exercised 6.13-14.00 (603,912) - ----------------------------------------------------------------------------------------------------------------------------- Balance at June 30, 1993 $ 7.00-21.25 2,788,615 420,966 Options granted 19.13-41.63 235,050 (235,050) Options cancelled 7.00-31.75 (113,749) 113,749 Options exercised 7.00-31.75 (853,509) - ----------------------------------------------------------------------------------------------------------------------------- Balance at June 30, 1994 $ 7.00-41.63 2,056,407 299,665 Options granted 4.69-61.25 1,329,768 (1,326,539) Options cancelled 4.69-52.38 (196,246) 196,246 Options exercised 4.69-41.63 (628,288) Increase in reserved shares 1,600,000 - ----------------------------------------------------------------------------------------------------------------------------- Balance at June 30, 1995 $ 4.69-61.25 2,561,641 769,372 - -----------------------------------------------------------------------------------------------------------------------------
At June 30, 1995, options to purchase 598,497 shares of stock were exercisable under all option plans. The Company has reserved 2,000,000 shares of common stock to be issued under the 1981 Employee Stock Purchase Plan, as amended. The Plan permits eligible employees to purchase common stock, through payroll deductions, at 85% of the lower of the fair market value of the common stock on the date at the beginning of the two-year offering period or the last day of the purchase period. Substantially all employees are eligible to participate in the Plan. At June 30, 1995, shares totaling 356,910 were available for future issuance under the Plan. NOTE 7 FINANCING ARRANGEMENTS At June 30, 1995, the Company had a $20 million interest-only mortgage on its principal facility due August 1995, bearing interest of 7.62% per annum through August 1995. The mortgage is secured by the underlying asset. The Company intends to repay the mortgage in full in August 1995. As of June 30, 1995, the Company had a $10 million multicurrency line of credit with a bank, expiring December 31, 1995. The line of credit has a facility fee of 0.20% per annum. Interest on domestic and foreign borrowings is charged at the bank's reference rate and at the bank's offshore reference rate plus 0.75%, respectively. The agreement requires the Company to maintain, among other items, minimum quick ratio, tangible net worth and profitability. The agreement also restricts the amount of dividends that may be declared. At June 30, 1995, the Company was in compliance with all of these covenants. As of June 30, 1995, approximately $0.5 million had been borrowed at the related offshore interest rate of 8.34% per annum. In addition, certain of the Company's foreign subsidiaries had short-term local currency borrowings of approximately $4.0 million at an average interest rate of 3.04% at June 30, 1995. Based upon interest rates available to the Company for issuance of debt with similar terms and remaining maturities, the fair values of the long-term mortgage debt and notes payable were approximately equal to the recorded values. KLA INSTRUMENTS CORPORATION 23 NOTE 8 RESEARCH AND DEVELOPMENT ARRANGEMENTS The Company has entered into research and development arrangements with certain key customers and other entities to partially fund the development of new technology on a best efforts basis. In fiscal 1993, 1994 and 1995, revenues of $6.8, $5.7 and $2.3 million, respectively, have been recognized on these research and development contracts on the percentage of completion basis. These revenues are offset against gross engineering, research and development expenses. NOTE 9 METROLOGIX INC. ACQUISITION In December 1994, the Company acquired Metrologix Inc. (Metrologix), a manufacturer of advanced electron beam measurement equipment, for $14.2 million in cash. This acquisition was accounted for as a purchase and the total acquisition cost of $16.1 million has been allocated to assets acquired and liabilities assumed. A significant portion of the acquisition cost was allocated to acquired in-process technology which was written off at the time of the acquisition, because further substantial research and development investments were necessary to complete the new product development then underway. This resulted in an after-tax charge of $16.2 million ($25.2 million pre-tax). The results of operations for Metrologix from the date of the acquisition to June 30, 1995, were immaterial. NOTE 10 GEOGRAPHIC REPORTING The Company is a leading manufacturer of yield monitoring and process control systems for the semiconductor manufacturing industry. For geographic reporting, sales are attributed to the geographic location of the sales and service organizations, and costs directly and indirectly incurred in generating sales are similarly assigned. During fiscal 1993, one customer accounted for 11% of net sales. During fiscal 1994 and 1995, no customer accounted for more than 10% of sales. The following is a summary of operations by geographical territories:
1993 1994 1995 - --------------------------------------------------------------------------------------------------------------------------- (In thousands) Net sales to unaffiliated customers: United States $ 62,802 $ 84,493 $138,926 Western Europe 34,141 37,854 47,862 Japan 46,914 79,820 159,253 Asia Pacific 23,379 41,570 96,375 - --------------------------------------------------------------------------------------------------------------------------- 167,236 243,737 442,416 - --------------------------------------------------------------------------------------------------------------------------- Intercompany sales between geographic areas: United States 28,942 39,998 60,861 Western Europe 4,751 7,595 12,178 Asia Pacific 3,212 6,832 9,846 - --------------------------------------------------------------------------------------------------------------------------- 36,905 54,425 82,885 - --------------------------------------------------------------------------------------------------------------------------- Consolidation eliminations (36,905) (54,425) (82,885) - --------------------------------------------------------------------------------------------------------------------------- Net sales $167,236 $243,737 $442,416 - --------------------------------------------------------------------------------------------------------------------------- Operating results: United States $ 7,558 $ 15,407 $ 31,777 Western Europe 6,262 9,234 8,567 Japan (1,783) 11,166 46,583 Asia Pacific 3,896 14,544 39,463 - --------------------------------------------------------------------------------------------------------------------------- 15,933 50,351 126,390 General corporate expenses (4,443) (10,269) (44,339) - --------------------------------------------------------------------------------------------------------------------------- Operating profit $ 11,490 $ 40,082 $ 82,051 - --------------------------------------------------------------------------------------------------------------------------- Identifiable assets: United States $ 96,383 $ 95,041 $147,557 Western Europe 22,631 19,853 24,361 Japan 18,627 38,444 71,854 Asia Pacific 13,487 24,264 45,380 - --------------------------------------------------------------------------------------------------------------------------- 151,128 177,602 289,152 General corporate assets 47,961 143,968 257,144 - --------------------------------------------------------------------------------------------------------------------------- Total assets $199,089 $321,570 $546,296 - ---------------------------------------------------------------------------------------------------------------------------
Intercompany transfers of products are based on the cost of products transferred. Corporate assets consist primarily of cash and cash equivalents and other investments. Corporate expenses consist primarily of general, administrative and other expenses not attributable to geographical regions. Capital expenditures and depreciation expense have been primarily in the United States. NOTE 11 INCOME TAXES The components of income before income taxes are comprised of the following:
1993 1994 1995 - --------------------------------------------------------------------------------------------------------------------------- (In thousands) Domestic $ 1,828 $ 31,515 $ 77,157 Foreign 7,453 8,736 11,657 - --------------------------------------------------------------------------------------------------------------------------- $ 9,281 $ 40,251 $ 88,814 - ---------------------------------------------------------------------------------------------------------------------------
24 KLA INSTRUMENTS CORPORATION NOTE 11 (continued) The provisions for income taxes are comprised of the following:
1993 1994 1995 - --------------------------------------------------------------------------------------------------------------------------- (In thousands) Federal: Currently payable $ 495 $ 7,587 $ 35,390 Deferred - (2,195) (13,414) - --------------------------------------------------------------------------------------------------------------------------- 495 5,392 21,976 - --------------------------------------------------------------------------------------------------------------------------- State: Currently payable 321 2,222 6,094 Deferred - - (1,337) - --------------------------------------------------------------------------------------------------------------------------- 321 2,222 4,757 - --------------------------------------------------------------------------------------------------------------------------- Foreign: Currently payable 2,679 2,307 2,245 Deferred (1,175) 142 1,218 - --------------------------------------------------------------------------------------------------------------------------- 1,504 2,449 3,463 - --------------------------------------------------------------------------------------------------------------------------- Provision for income taxes $ 2,320 $10,063 $ 30,196 - ---------------------------------------------------------------------------------------------------------------------------
Actual current tax liabilities are lower than reflected above for fiscal years 1993, 1994 and 1995 by none, $5.2 and $15.4 million, respectively, due to the stock option deduction benefits recorded as credits to capital in excess of par value. The following is a reconciliation of the effective income tax rates and the United States statutory federal income tax rate:
1993 1994 1995 - --------------------------------------------------------------------------------------------------------------------------- Statutory federal income tax rate 34.0% 35.0% 35.0% State income taxes, net of federal tax benefits 2.3 3.6 3.5 Effect of foreign operations at lower tax rates (11.1) (1.7) (0.7) Non-taxable FSC income - (1.5) (2.6) Foreign tax credit - (4.8) (0.1) Realized deferred tax assets previously reserved (3.8) (5.8) (2.7) Other 3.6 0.2 1.6 - --------------------------------------------------------------------------------------------------------------------------- Effective tax rate 25.0% 25.0% 34.0% - ---------------------------------------------------------------------------------------------------------------------------
Deferred tax assets (liabilities) at June 30, 1993, 1994 and 1995 are comprised of the following:
1993 1994 1995 - --------------------------------------------------------------------------------------------------------------------------- (In thousands) Deferred tax assets: Federal and state loss and credit carryforwards $ 4,816 $ 4,696 $ 2,804 State tax - - 1,096 Nondeductible reserves and other 15,733 18,651 24,611 - --------------------------------------------------------------------------------------------------------------------------- 20,549 23,347 28,511 - --------------------------------------------------------------------------------------------------------------------------- Deferred tax liabilities: Depreciation (4,317) (5,157) (3,559) Unremitted earnings of foreign subsidiaries not permanently reinvested (2,726) (6,327) (8,319) Other (3,275) (1,896) (2,101) - --------------------------------------------------------------------------------------------------------------------------- (10,318) (13,380) (13,979) - --------------------------------------------------------------------------------------------------------------------------- Deferred tax assets valuation allowance (13,395) (11,078) (5,853) - --------------------------------------------------------------------------------------------------------------------------- Total net deferred tax assets (liabilities) $ (3,164) $(1,111) $ 8,679 - ---------------------------------------------------------------------------------------------------------------------------
The Company's newly acquired subsidiary, Metrologix, has a federal net operating loss carryforward of approximately $6 million as of June 30, 1995. It also has research and development tax credit carryovers of approximately $0.7 million that will expire primarily in fiscal 2005 through 2008. These tax assets are subject to limitation as to their utilization under Internal Revenue Code Section 382 and other provisions. The deferred tax assets valuation allowance at June 30, 1993, 1994 and 1995 is attributed to U.S. federal and state deferred tax assets. Management believes sufficient uncertainty exists with regard to the realizability of the Metrologix and certain other tax assets such that a valuation allowance of $5.9 million has been provided at June 30, 1995. During fiscal 1993, 1994 and 1995, the Company realized $0.4, $2.3 and $7.5 million, respectively, of deferred tax assets previously reserved, reducing the valuation allowance by corresponding amounts. In fiscal 1995, $5.1 of the $7.5 million that was realized was related to stock option deductions and accordingly was credited to capital in excess of par value. The valuation allowance is allocated pro-rata to federal and state current and non-current deferred tax assets. Net deferred tax assets at June 30, 1995, of $8.7 million, reflect net U.S. assets of $13.2 million offset by $4.5 million of net foreign liabilities. Net deferred tax liabilities at June 30, 1994, of $1.1 million reflect foreign liabilities of $3.3 million offset by $2.2 million of net U.S. assets. The net deferred tax liability at June 30, 1993, relates to foreign operations. The Company's manufacturing operations in Switzerland are exempt from taxes through 2001. The effect of this tax exemption was to increase net income in fiscal 1993, 1994 and 1995 by approximately $0.6, $0.6 and $0.1 million, respectively. The IRS is currently auditing the Company's federal income tax returns for fiscal years 1985 to 1992. The Company has not yet received a notice of proposed tax deficiency. However, it anticipates a notice will be received in fiscal 1996. Management believes sufficient taxes have been provided in prior years and that the ultimate outcome of the IRS audit will not have a material adverse impact on the Company's financial position or results of operations. KLA INSTRUMENTS CORPORATION 25 REPORT OF INDEPENDENT ACCOUNTANTS To the Stockholders and Board of Directors of KLA Instruments Corporation In our opinion, the accompanying consolidated balance sheet and the related consolidated statements of operations, stockholders' equity and cash flows present fairly, in all material respects, the financial position of KLA Instruments Corporation and its subsidiaries at June 30, 1994 and 1995, and the results of their operations and their cash flows for each of the three years in the period ended June 30, 1995, in conformity with generally accepted accounting principles. 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 audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. PRICE WATERHOUSE LLP San Jose, California July 26, 1995 Common Stock
1994 1995 High Low High Low - --------------------------------------------------------------------------------------------------------------------------- First Quarter 26 1/2 17 51 3/4 37 1/4 Second Quarter 28 19 53 44 3/4 Third Quarter 43 25 7/8 65 46 1/2 Fourth Quarter 43 1/4 32 1/4 79 1/4 60 - ---------------------------------------------------------------------------------------------------------------------------
The Company's common stock is traded on the Nasdaq National Market System under the symbol "KLAC." The Company has not paid cash dividends on its common stock and does not plan to pay cash dividends to its stockholders in the near future. The Company presently intends to retain its earnings to finance further growth of its business. As of June 30, 1995, the Company had approximately 983 stockholders of record. 26 KLA INSTRUMENTS CORPORATION CORPORATE DIRECTORY
OFFICERS DIRECTORS Kenneth Levy Kenneth Levy KLA Instruments Malaysia Chairman of the Board Chairman of the Board 60 Jalan Timah 7 Chief Executive Officer Chief Executive Officer Tarman Sri Putri 81300 Skudal Kenneth L. Schroeder Kenneth L. Schroeder Johor Bahru, Malaysia President President 607-557-1946 Chief Operating Officer Chief Operating Officer KLA Japan, Ltd. Robert J. Boehlke Edward W. Barnholt YBP Hi-Tech Center Vice President, Finance Senior Vice President 134 Godo-Cho and Administration Hewlett-Packard Hodogaya-ku Chief Financial Officer Yokohama City Leo J. Chamberlain Kanagawa 240, Japan Frank Brienzo Private Investor 81-453-35-8200 Vice President Robert E. Lorenzini KLA Acrotec Company, Ltd. Virginia DeMars Private Investor 20-16 Hikawadai Vice President, Nerima-Ku 3-Cborne Human Resources Yoshio Nishi, Ph.D. Tokyo 179, Japan Vice President 81-359-20-3611 Gary E. Dickerson Texas Instruments Vice President KLA Instruments, S.A. Samuel Rubinovitz Chernin de Buchaux 38 Samuel Harrell, Ph.D. Retired CH-2022 Bevaix, Switzerland Senior Vice President Executive Vice President 41-38-462090 EG&G, Inc. Neil Richardson, Ph.D. KLA Instruments Korea Vice President Dag Tellefsen Third Floor Lucky Security Building General Partner 184-1, Bangi-dong, Songpa-ku Magnus O.W. Ryde Glenwood Venture Management Seoul, South Korea 138-150 Vice President 822-415-0552 CORPORATE OFFICE Arthur P. Schnitzer KLA Instruments Coporation KLA Instruments Taiwan Vice President 160 Rio Robles Fifth Floor P.O. Box 49055 115 Ming Sheng Road Christopher Stoddart San Jose, California 95161-9055 Hsinchu City, Taiwan Treasurer (408) 468-4200 Republic of China 886-35-335163 Bin-Ming Ben Tsai, Ph.D. INTERNATIONAL OFFICES Vice President KLA Instruments Ltd. INDEPENDENT ACCOUNTANTS Chief Technical Officer 4 The Business Center Price Waterhouse LLP Molly Millars Lane San Jose, California William Turner Wokingham, Berkshire Vice President, RG11 2QZ, United Kingdom GENERAL LEGAL COUNSEL Controller 44-1734-890666 Gray Cary Ware & Freldenrich Palo Alto, California Paul E. Kreutz, Esq. KLA Instruments GmbH Secretary Leonrodstrasse 58 REGISTRAR AND TRANSFER AGENT 80636 Muenchen, Germany First National Bank of Boston 49-89-121561-0 Boston, Massachusetts KLA Instruments France, S.A. ADDITIONAL COPIES OF THIS REPORT, AS WELL 25 Rue Michael Faraday AS COPIES OF SEC FORM 10K, FOR THE YEAR 78180 Montlgny-le-Bretonneux ENDED JUNE 30, 1995, MAY BE OBTAINED France FROM THE COMPANY WITHOUT CHARGE BY 33.1.30.45.30.03 WRITING TO: KLA Instruments, SLR KLA Instruments Corporation Via Gabrio Serbelloni 1 Attn: Investor Relations 20122 Milan, Italy P.O. Box 49055 San Jose, CA 95161-9055 KLA Instruments Israel 4 Science Avenue North Industrial Center P.O. Box 143 Migdal Ha'Emek 23100, Israel 972-6-449449