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: September 30, 1995
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) 468-4200
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 September 30, 1995: 50,421,000
This report, including all exhibits and attachments, contains 13 pages.
Page 1 of 13
KLA INSTRUMENTS CORPORATION
INDEX
Page
PART I FINANCIAL INFORMATION Number
- ------ --------------------- ------
Item 1 Financial Statements:
Condensed Consolidated Statements of Operations for the
Three Months Ended September 30, 1994 and 1995 . . . . . . . . . . . . 3
Condensed Consolidated Balance Sheets at June 30 and
September 30, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Condensed Consolidated Statements of Cash Flows for the
Three Months Ended September 30, 1994 and 1995 . . . . . . . . . . . . 5
Notes to Unaudited Condensed Consolidated
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . 6
Item 2 Management's Discussion and Analysis of Results of
Operations and Financial Condition . . . . . . . . . . . . . . . . . . . . .7-8
PART II OTHER INFORMATION
Items 1-6 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Index to Exhibits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11-12
Page 2 of 13
KLA INSTRUMENTS CORPORATION
PART I FINANCIAL INFORMATION
Item 1 Financial Statements
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30,
(In thousands except per share amounts)
(Unaudited)
1994 1995
---- ----
Net sales $ 83,179 $ 149,076
--------- ---------
Costs and expenses:
Cost of sales 40,602 66,672
Engineering, research and development 8,182 15,621
Selling, general and administrative 16,450 27,855
--------- ---------
65,234 110,148
--------- ---------
Income from operations 17,945 38,928
Interest income and other, net 1,497 4,187
Interest expense (474) (418)
--------- ---------
Income before income taxes 18,968 42,697
Provision for income taxes 6,070 15,371
--------- ---------
Net income $ 12,898 $ 27,326
========= =========
Net income per share $ 0.27 $ 0.52
========= =========
Shares used in computing net income per share 47,760 52,408
See accompanying notes to unaudited condensed consolidated financial statements.
Page 3 of 13
KLA INSTRUMENTS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
June 30, September 30,
1995 1995
--------- ---------
ASSETS
Current assets:
Cash and cash equivalents $ 92,059 $ 65,820
Short-term investments 26,681 38,529
Accounts receivable, net of allowances of
$2,196 and $2,645 129,274 148,355
Inventories 79,759 92,584
Deferred income taxes 18,155 18,155
Other current assets 14,949 8,262
--------- ---------
Total current assets 360,877 371,705
Land, property and equipment, net 49,004 53,716
Marketable securities 126,013 137,227
Other assets 10,402 7,828
--------- ---------
Total assets $ 546,296 $ 570,476
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ 4,458 $ 2,440
Current portion of long-term debt 20,000 --
Accounts payable 19,376 20,742
Income taxes payable 22,797 29,742
Other current liabilities 66,220 76,859
--------- ---------
Total current liabilities 132,851 129,783
--------- ---------
Deferred income taxes 9,476 9,476
--------- ---------
Commitments and contingencies
Stockholders' equity:
Preferred stock, $0.001 par value, 1,000 shares authorized,
none issued and outstanding -- --
Common stock, $0.0005 par value, 150,000 shares authorized,
50,160 and 50,421 shares issued and outstanding 25 25
Capital in excess of par value 263,016 263,804
Retained earnings 138,893 166,219
Treasury stock (581) (581)
Net unrealized gain on investments 1,241 1,074
Cumulative translation adjustment 1,375 676
--------- ---------
Total stockholders' equity 403,969 431,217
--------- ---------
Total liabilities and stockholders' equity $ 546,296 $ 570,476
========= =========
See accompanying notes to condensed consolidated financial statements.
Page 4 of 13
KLA INSTRUMENTS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED SEPTEMBER 30,
(In thousands)
(Unaudited)
1994 1995
--------- ---------
Cash flows from operating activities:
Net income $ 12,898 $ 27,326
Adjustments required to reconcile net income to cash
provided by operations:
Depreciation and amortization 2,105 3,385
Changes in assets and liabilities:
Accounts receivable (9,780) (19,081)
Inventories (6,690) (12,825)
Other assets (1,147) 9,261
Accounts payable 1,897 1,366
Income taxes payable 2,867 6,945
Other current liabilities 6,188 10,639
--------- ---------
Cash provided by operating activities 8,338 27,016
--------- ---------
Cash flows from investing activities:
Capital expenditures (2,590) (8,097)
Purchases of short and long-term available
for sale securities -- (137,685)
Sales and maturities of short and long-term
available for sale securities -- 114,456
--------- ---------
Cash used for investing activities (2,590) (31,326)
--------- ---------
Cash flows from financing activities:
Short-term borrowings, net (2,480) (2,018)
Payment of current portion of long-term debt -- (20,000)
Sales of common stock/tax benefit of options
exercised 1,543 788
--------- ---------
Cash used for financing activities (937) (21,230)
--------- ---------
Effect of exchange rate changes 136 (699)
--------- ---------
Increase (decrease) in cash and cash equivalents 4,947 (26,239)
Cash and cash equivalents at beginning of period 139,126 92,059
--------- ---------
Cash and cash equivalents at end of period $ 144,073 $ 65,820
========= =========
Supplemental disclosure of cash flow information
CASH PAID DURING THE PERIOD FOR:
INTEREST $ 470 $ 405
INCOME TAXES 2,955 8,552
See accompanying notes to condensed consolidated financial statements.
Page 5 of 13
KLA INSTRUMENTS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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 September 30,
1995, 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, 1995.
2) Details of certain balance sheet components:
June 30, September 30,
1995 1995
--------- ---------
(In thousands)
Inventories:
Systems raw materials $ 18,944 $ 25,875
Customer service spares 13,050 12,524
Work-In-Process 26,863 33,491
Demonstration Equipment 20,902 20,694
--------- ---------
$ 79,759 $ 92,584
========= =========
3) In August of 1995, the Company repaid the $20.0 million mortgage on its
principal facility.
4) 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.
A two-for-one stock split was declared by the Board of Directors on
July 24, 1995. The stock split was in the form of a 100% stock
dividend. The dividend was paid on September 29, 1995, to stockholders
of record on August 31, 1995. Earnings per share was calculated on a
post-split basis.
Page 6 of 13
KLA INSTRUMENTS CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
Results of Operations
First Quarter of Fiscal 1996 Compared with First Quarter of Fiscal 1995
Net Sales
Net sales increased $65.9 million or 79.2% for the three month period ended
September 30, 1995 as compared to the prior fiscal year. The WISARD business
unit was predominately responsible for the increase in sales. The Company
attributes the continuing increase in WISARD's sales primarily to the
accelerating acceptance of the Company's in-line wafer monitoring equipment that
allows semiconductor manufacturers to optimize device yields and also to the
continued strength of capital spending by the industry. Significant increases in
sales were also achieved by the Metrology and Automated Test business units. Net
sales of the Optical Metrology business increased almost 100% compared to the
prior fiscal year's first quarter.
Gross Margin
Gross margins were 55.3% for the three month period ended September 30, 1995
compared to 51.2% for the prior fiscal year. Most of the improvement in the
gross margin percentage was due to a favorable product mix as the WISARD
business unit's share of total revenues rose substantially. The WISARD business
unit's gross margin also benefited from continued learning curve effects, volume
efficiencies as well as from the yen's strengthening in late fiscal 1995.
Engineering, Research and Development
Engineering, research and development expenses were 10.5% of net sales for the
three month period ended September 30, 1995 compared to 9.8% in the first
quarter of the prior fiscal year. Net engineering expenditures rose $7.4 million
during the first quarter of fiscal 1996 compared to the first quarter of fiscal
1995. The Company is concentrating on the broad opportunities in yield
management, including the networking of all measurement tools in a fab, the
development of new measurement tools and the related software for using those
tools. The WISARD business unit accounted for approximately one-third of the
increase in dollar spending. The next largest dollar increases were recorded in
the Optical Metrology business unit and the E-Beam Metrology business unit.
Smaller increases in dollar spending were also recorded in the RAPID, PRISM and
SEMSpec divisions.
Selling, General and Administrative
Selling, general and administrative expenses were 18.7% of net sales for the
three month period ended September 30, 1995 compared to 19.8% in the first
quarter of the prior fiscal year. Sales and administration expenses increased at
a rate somewhat slower than sales while representative commissions increased
slightly faster than sales due to an increase in shipments to Japan.
Page 7 of 13
Interest Income and Other, net
Interest income and other, net increased $2.7 million for the three month period
ended September 30, 1995 compared to the prior fiscal year. This increase is due
both to higher average cash balances, as a result primarily of the Company's $91
million secondary stock offering in May 1995, and also to higher yields on the
Company's investment portfolio, the management of which the Company outsourced
starting in December 1994.
Provision for Income Taxes
The Company's effective tax rate increased to 36% for the three months ended
September 30, 1995. The Company's tax rate was 34% for the year ended June 30,
1995. The increase from 34% to 36% is due primarily to the lower impact of the
realization of previously reserved deferred tax assets and the expiration of the
federal research and development tax credit on June 30, 1995.
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.
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
Cash, cash equivalents and marketable securities balances remained relatively
flat at $241.6 million for the three months ended September 30, 1995. Cash
generated by operations was $27.0 million. This was offset by the repayment in
full of the $20.0 million mortgage on the Company's principal facility, and by
$8.0 million of capital expenditures. The Company's capital expenditures were
primarily in facility improvements, new computers to accommodate the planned
introduction of new enterprise business systems, and engineering computers and
equipment to support the Company's rapidly expanding research and development
efforts. The Company believes that its current level of liquid assets, credit
facilities and expected cash generated from operations are sufficient to fund
growth through the next fiscal year.
Page 8 of 13
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 Page 11 - 12
Page 9 of 13
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
October 25, 1995 ROBERT J. BOEHLKE
[Date] -------------------------------
Robert J. Boehlke
V.P. Finance and Administration
Chief Financial Officer
Page 10 of 13
INDEX TO EXHIBITS
(i) EXHIBITS INCORPORATED BY REFERENCE:
3.1 Certificate of Incorporation as amended(7)
3.2 Bylaws, as amended(7)
4.1 Amended and Restated Rights Agreement dated as of August 30, 1995,
between the Company and First National Bank of Boston, as Rights Agent.
The Rights Agreement includes as Exhibit A, the form of Right
Certificate.(1)
10.15 Statement of Partnership to Triangle Partners dated April 12, 1983(2)
10.16 Lease Agreement and Addendum thereto dated January 10, 1983, between
BB&K Partnership and the Company(2)
10.18 Purchase and Sale Agreement dated January 10, 1983, between BB&K
Partnership, Triangle Partners and the Company(2)
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(3)
10.45 Distribution Agreement dated July 1990, by and between Tokyo Electron
Limited, a Japanese Corporation, and the Company(4)
10.46 Principal 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(4)
10.47 Joint Venture Agreement between the Company and Nippon Mining Company,
Limited, dated September 18, 1990(5)
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(5)
10.54 Micrion Corporation Series E Preferred Stock Purchase Agreement, dated
September 13, 1991(6)
10.67 Amendment of Credit Agreement between Bank of America NT & SA and the
Company, dated March 31, 1994(9)
10.68 Credit Agreement between Bank of America NT & SA and the Company, dated
April 30, 1994(9)
10.71 1990 Outside Directors Stock Option Plan(8)
10.73 Amendment of Credit Agreement between Bank of America NT & SA and the
Company dated December 31, 1994(10)
10.74 1981 Employee Stock Purchase Plan, as amended by the Board of Directors
on October 7, 1994(10)
10.75 1982 Stock Option Plan, as amended by the Board of Directors on October
7, 1994(10)
10.76 Amendment of Credit Agreement between Bank of America NT & SA and the
Company dated February 15, 1995(10)
10.77 Lease Agreement, Ground Lease Agreement and Purchase Agreement dated
June 5, 1995, between BNP Leasing Corporation and the Company(10)
10.78 Lease Agreement and Purchase Agreement dated August 10, 1995, between
BNP Leasing Corporation and the Company(10)
(ii) EXHIBITS INCLUDED HEREWITH:
27 Financial Data Schedule
- ---------------
(1) Filed as exhibit number 1 to Form 8-A/A, filed effective September 25, 1995
(2) Filed as the same exhibit number as set forth herein to Registrant's Form
10-K for the year ended June 30, 1983
(3) Filed as the same exhibit number as set forth herein to Registrant's Form
10-K for the year ended June 30, 1987
(4) Filed as the same exhibit number as set forth herein to Registrant's Form
10-K for the year ended June 30, 1990
(5) Filed as the same exhibit number as set forth herein to Registrant's Form
10-K for the year ended June 30, 1991
(6) Filed as the same exhibit number as set forth herein to Registrant's Form
10-K for the year ended June 30, 1992
Page 11 of 13
(7) Filed as the same exhibit number to Registrant's registration statement
no.33-51819 on Form S-3, dated February 2, 1994
(8) Filed as exhibit number 4.6 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, 1994
(10) Filed as the same exhibit number as set forth herein to Registrant's Form
10-K for the year ended June 30, 1995
Page 12 of 13