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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, 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 September 30, 1994: 23,054,000
This report, including all exhibits and attachments, contains 13 pages.
Page 1 of 13
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KLA INSTRUMENTS CORPORATION
INDEX
<TABLE>
<CAPTION>
Page
PART I FINANCIAL INFORMATION Number
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<S> <C>
Item 1 Financial Statements:
Condensed Consolidated Statement of Operations
Three Months Ended September, 1993 and 1994 . . . . . . . . . . . . . 3
Condensed Consolidated Balance Sheet . . . . . . . . . . . . . . . . 4
Condensed Consolidated Statement of Cash Flows . . . . . . . . . . . 5
Notes to 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9-10
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Index to Exhibits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12-13
</TABLE>
Page 2 of 13
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KLA INSTRUMENTS CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30,
(In thousands except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
1993 1994
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Net sales $51,904 $83,179
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Costs and expenses:
Cost of sales 31,161 40,602
Engineering, research and development 4,929 8,182
Selling, general and administrative 9,933 16,450
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46,023 65,234
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Income from operations 5,881 17,945
Interest income and other, net 173 1,497
Interest expense (496) (474)
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Income before income taxes 5,558 18,968
Provision for income taxes 1,392 6,070
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Net income $ 4,166 $12,898
======= =======
Net income per share $ 0.20 $ 0.54
======= =======
Weighted average number of common and
dilutive common equivalent shares outstanding 20,798 23,880
</TABLE>
See accompanying notes to condensed consolidated financial information.
Page 3 of 13
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KLA INSTRUMENTS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
(In thousands except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
June 30, September 30,
1994 1994
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ASSETS
Current assets:
Cash and cash equivalents $139,126 $144,073
Accounts receivable, net of allowances of
$1,754 and $1,787 74,226 84,006
Inventories 53,265 59,955
Deferred income taxes 7,495 7,495
Other current assets 4,343 4,723
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Total current assets 278,455 300,252
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Land, property and equipment, net 37,149 38,266
Other assets 5,966 6,101
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Total assets $321,570 $344,619
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ 4,673 $ 2,193
Current portion of long term debt - 20,000
Accounts payable 11,890 13,787
Income taxes payable 12,466 15,333
Other current liabilities 36,553 42,741
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Total current liabilities 65,582 94,054
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Deferred income taxes 8,606 8,606
Long-term debt 20,000 -
Commitments and contingencies
Stockholders' equity:
Preferred stock, $0.001 par value, 1,000 shares authorized,
none outstanding - -
Common stock, $0.001 par value, 75,000 shares authorized,
22,864 and 23,054 shares issued and outstanding 23 23
Capital in excess of par value 147,358 148,901
Retained earnings 80,275 93,173
Treasury stock (581) (581)
Cumulative translation adjustment 307 443
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Total stockholders' equity 227,382 241,959
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Total liabilities and stockholders' equity $321,570 $344,619
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</TABLE>
See accompanying notes to condensed consolidated financial information.
Page 4 of 13
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KLA INSTRUMENTS CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
THREE MONTHS ENDED SEPTEMBER 30,
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
1993 1994
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Cash flows from operating activities:
Net income $ 4,166 $ 12,898
Adjustments required to reconcile net income to cash
provided by operations:
Depreciation and amortization 2,408 2,105
Changes in assets and liabilities:
Accounts receivable, net (16,841) (9,780)
Inventories, net (171) (6,690)
Other current assets (37) (380)
Accounts payable 428 1,897
Income taxes payable and deferred income taxes 295 2,867
Other current liabilities (1,868) 6,188
Other assets (42) (767)
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Cash provided by (used for) operating activities (11,662) 8,338
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Cash flows from investing activities:
Capital expenditures (756) (2,590)
Capitalization of software development costs (248) -
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Cash (used for) investing activities (1,004) (2,590)
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Cash flows from financing activities:
Short-term borrowings and current portion of
long-term debt, net (3,931) (2,480)
Sales of common stock 1,679 1,543
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Cash (used for) financing activities (2,252) (937)
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Effect of exchange rate changes on cash 125 136
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Increase/(decrease) in cash and cash equivalents (14,793) 4,947
Cash and cash equivalents at beginning of period 52,362 139,126
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Cash and cash equivalents at end of period $ 37,569 $144,073
======== ========
Supplemental disclosure to cash flow information
CASH PAID DURING THE PERIOD FOR:
INTEREST $ 440 $ 470
INCOME TAXES 781 2,955
</TABLE>
See accompanying notes to condensed consolidated financial information.
Page 5 of 13
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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
September 30, 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, 1994.
2) Details of certain balance sheet components:
<TABLE>
<CAPTION>
June 30, September 30,
1994 1994
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Inventories:
Systems raw materials $12,597 $12,548
Customer service spares 12,220 12,380
Work-In-Process 13,348 21,387
Demonstration Equipment 15,100 13,640
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$53,265 $59,955
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Other Current Liabilities:
Accrued compensation and benefits $16,328 $19,176
Accrued warranty and installation 14,367 14,514
Unearned service contract revenue 3,054 3,355
Other 2,804 5,696
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$36,553 $42,741
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</TABLE>
Page 6 of 13
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KLA INSTRUMENTS CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
Results of Operations
First Quarter of Fiscal 1995 Compared with First Quarter of Fiscal 1994
Net Sales
Net sales increased $31.3 million or 60.3% for the three month period ended
September 30, 1994 as compared to the prior fiscal year. The WISARD business
unit was predominantly responsible for the dollar increase in net sales. The
Company attributes the continuing increases of WISARD's sales primarily to the
continuing adoption by customers of KLA's methodology of in-line monitoring,
and secondarily to the fact that KLA's most sophisticated users are continuing
to add to the number of systems they employ in a single fab line. During the
quarter, the Metrology division, the ATS division and the RAPID division also
recorded increases in net sales. In particular, the Metrology division's net
sales rose by more than 50% versus the year-earlier comparable period and the
Company believes that it now has over 50% of the worldwide market.
Gross Margin
Gross margins were 51.2% for the three month period ended September 30, 1994
compared to 40.0% for the prior fiscal year. Most of the improvement in the
gross margin percentage was due to a favorable mix effect as the WISARD
business unit's share of total revenues rose substantially. The WISARD
business unit's gross margin was also favorably impacted by learning curve
effects, volume efficiencies and the use of lower cost components. The
Customer Service division's return to profitability also improved gross
margins.
Engineering, Research and Development
Engineering, research and development expenses were 9.8% of net sales for the
three month period ended September 30, 1994, compared to 9.5% in the first
quarter of the prior fiscal year. Net engineering expenditures rose $3.3
million during the three month period of fiscal 1995 compared to the prior
fiscal year. Engineering headcount additions in the WISARD business unit were
the primary contributor to the dollar increase in net engineering expenses.
However, the rate at which the WISARD business unit added engineering headcount
was lower than the rate at which the business unit sales increased. The newly
formed PRISM division also contributed to the increase in net engineering
expense.
Page 7 of 13
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KLA INSTRUMENTS CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
Selling, General and Administrative
Selling, general and administrative expenses increased 0.7% to 19.8% of sales
for the three month period ended September 30, 1994 as compared to the prior
fiscal year. Sales and administration expenses increased at a rate slower than
sales while profit sharing and representative commissions increased at a rate
higher than sales. The profit sharing increase reflected the improvement in
the Company's financial performance. Representative commissions grew slightly
as a percentage of sales primarily due to the increase in the share of revenues
from the Asia-Pacific region.
Interest Income and Other, net
Interest income and other, net increased $1.3 million for the three month
period ended September 30, 1994 as compared to the prior fiscal year. This
increase is primarily attributable to higher average cash balances of
approximately $97 million.
Provision for Income Taxes
The 32% estimated effective tax rate for the three month period ended September
30, 1994 is lower than the U.S. statutory rate as a result of 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.
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 generated by operations was $8.3 million. Due to the ongoing sales ramp,
the Company invested $9.8 million in accounts receivable, $6.7 million in
inventories, and $2.6 million in new capital equipment. KLA's capital spending
rate is expected to increase modestly over the next two years as the Company
adds manufacturing capacity and office space at its San Jose Campus site. The
Company is confident that its current level of liquid assets, credit facilities
and cash generated from operations are sufficient to fund growth through the
foreseeable future.
Page 8 of 13
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KLA INSTRUMENTS CORPORATION
FORM 10-Q
PART II: OTHER INFORMATION
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Item 1 - Legal Proceedings Page 11
Item 2 - Changes in Securities Not Applicable
Item 3 - Defaults Upon Senior Securities Not Applicable
Item 4 - Submission of Matters to a Vote of Security Holders Not Applicable
Item 5 - Other Events Not Applicable
Item 6 - Exhibits and Reports on Form 8-K Page 12 - 13
</TABLE>
Page 9 of 13
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ITEM 1
LEGAL PROCEEDINGS
The Company had no significant changes in legal proceedings during the quarter
ended September 30, 1994. For further information, refer to the Company's Form
10-K for the fiscal year ended June 30, 1994.
Page 10 of 13
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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
November 13, 1994 KENNETH LEVY
- - ----------------- ----------------------------
[Date] Kenneth Levy
Chairman of the Board
November 13, 1994 KENNETH L. SCHROEDER
- - ----------------- ----------------------------
[Date] Kenneth L. Schroeder
President
November 13, 1994 ROBERT J. BOEHLKE
- - ----------------- ----------------------------
[Date] Robert J. Boehlke
V.P. Finance and Administration
Chief Financial Officer
Page 11 of 13
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INDEX TO EXHIBITS
<TABLE>
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(i) EXHIBITS INCORPORATED BY REFERENCE:
4.1 1982 Stock Option Plan(1)
4.2 1981 Employee Stock Purchase Plan(1)
4.3 Rights Agreement dated as of March 15, 1989, between the Company and First National Bank
of Boston, as Rights Agent. The Rights Agreement includes as Exhibit A, the form of Right
Certificate, and as Exhibit B, the form of Summary of Rights to Purchase Common Stock(2)
4.4 1982 Stock Option Plan, as amended by the Board of Directors on July 20, 1990(7)
4.5 1981 Employee Stock Purchase Plan, as amended by the Board of Directors on July 20, 1990(7)
4.6 1990 Outside Directors Stock Option Plan(8)
4.7 1993 Employee Stock Purchase Plan, as amended by the Board of Directors on September 14, 1992(10)
10.15 Statement of Partnership to Triangle Partners dated April 12, 1983(3)
10.16 Lease Agreement and Addendum thereto dated January 10, 1983, between BBK Partnership
and the Company(3)
10.18 Purchase and Sale Agreement dated January 10, 1983, between BBK Partnership, Triangle
Partners and the Company(3)
10.23 Research and Development Agreement, Cross License and Technology Transfer Agreement
and Agreement for Option to License and Purchase Resulting Technology, all dated
February 21, 1985, by and between KLA Development No. 3, Ltd., and the Company(4)
10.24 Research and Development Agreement dated February 21, 1985, by and between KLA
Development No. 3, Ltd., and the Company(4)
10.25 Agreement for Option to License and Purchase Resulting Technology dated February 21, 1985,
by and between KLA Development No. 3, Ltd., and the Company(4)
10.33 (Research and Development) Agreement dated as of February 1, 1987, by and between IBM
Corporation and the Company(5)
10.35 Research and Development Agreement, Cross License and Technology Transfer Agreement
and Agreement for Option to License and Purchase Resulting Technology, all dated
October 1, 1986, by and between KLA Development No. 4, Ltd., and the Company(5)
10.36 Agreement for Option to License and Purchase Resulting Technology dated October 1, 1986, by
and between KLA Development No. 4, Ltd., and the Company(5)
10.43 Amendment to the Exclusive Marketing Agreement dated February 23, 1989, by and between
Micrion Limited Partnership and the Company(6)
10.44 Bank Loan Guarantee dated June 29, 1989, by the Company in favor of The First National
Bank of Boston for the Micrion Limited Partnership(6)
10.45 Distribution Agreement, Manufacturing License Agreement, and Technical Marketing
Assistance Agreement, all dated July 1990, by and between Tokyo Electron Limited,
a Japanese Corporation, and the Company(7)
10.46 Principle facility Purchase Agreement dated July 1990, including all exhibits and
amendments; Lease Agreement, Termination of Lease, Lot line adjustment, rights of first
refusal, Deeds of Trust(7)
10.47 Joint Venture Agreement between the Company and Nippon Mining Company, Limited, dated September 18, 1990(8)
10.48 Exercise of Option to Purchase Technology made effective as of September 30, 1989, by and
between KLA Development No. 3, and the Company(8)
10.49 Exercise of Option to Purchase Technology made effective as of January 1, 1990, by and
between KLA Development No. 4, and the Company(8)
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<TABLE>
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10.51 Guarantee Agreement between First National Bank of Boston and the Company, dated
June 29,1989(8)
10.52 Amendment to the Guarantee Agreement between First National Bank of Boston and the
Company, dated April 19, 1991(8)
10.53 Secured Installment Note between Micrion and First National Bank of Boston, dated
April 19, 1991(8)
10.54 Micrion Corporation Series E Preferred Stock Purchase Agreement, dated September 13, 1991(8)
10.55 Micrion Corporation Guaranty and Warrant Agreement, dated December 8, 1989(8)
10.57 Stock repurchase and option grant agreement between Bob Boehlke and the Company, dated
April 22, 1991(8)
10.58 Purchase Agreement between the Company and Ono Sokki Co., Ltd., dated October 18, 1991 with
certain portions for which confidential treatment has been requested,
excised(9)
10.59 Credit Agreement between Bank of America NT & SA and the Company, dated November 15, 1991, as
amended July 29, 1992(9)
10.60 Employment agreement between the Company and Kenneth L. Schroeder dated October 4, 1991(9)
10.61 Amendment of Credit Agreement between Bank of America NT & SA and the Company, dated October 28, 1992(10)
10.62 Amendment of Credit Agreement between Bank of America NT & SA and the Company, dated December 31, 1992(10)
10.63 Amendment of Credit Agreement between Bank of America NT & SA and the Company, dated February 28, 1993(10)
10.64 Amendment of Credit Agreement between Bank of America NT & SA and the Company, dated March 31, 1993(10)
10.65 Amendment of Credit Agreement between Bank of America NT & SA and the Company, dated June 1, 1993(10)
10.66 Amendment of Credit Agreement between Bank of America NT & SA and the Company, dated December 31, 1993(16)
10.67 Amendment of Credit Agreement between Bank of America NT & SA and the Company, dated March 31, 1994(16)
10.68 Credit Agreement between Bank of America NT & SA and the Company, dated April 30, 1994(16)
10.69 1982 Stock Option Plan, as amended by the Board of Directors on July 20, 1990(12)
10.70 1981 Employee Stock Purchase Plan, as amended by the Board of Directors on July 20, 1990(13)
10.71 1990 Outside Directors Stock Option Plan(14)
10.72 1993 Employee Stock Purchase Plan, as amended by the Board of Directors on September 14, 1992(15)
- - -----------------
(1) Filed as the same exhibit number as set forth herein to Form S-8, File No. 33-15784, effective August 2, 1987
(2) Filed as exhibit number 1 to Form 8-A, filed effective March 23, 1989
(3) Filed as the same exhibit number as set forth herein to Registrant's Form 10-K for the year ended June 30, 1983
(4) Filed as the same exhibit number as set forth herein to Registrant's Form 10-K for the year ended June 30, 1985
(5) Filed as the same exhibit number as set forth herein to Registrant's Form 10-K for the year ended June 30, 1987
(6) Filed as the same exhibit number as set forth herein to Registrant's Form 10-K for the year ended June 30, 1989
(7) Filed as the same exhibit number as set forth herein to Registrant's Form 10-K for the year ended June 30, 1990
(8) Filed as the same exhibit number as set forth herein to Registrant's Form 10-K for the year ended June 30, 1991
(9) Filed as the same exhibit number as set forth herein to Registrant's Form 10-K for the year ended June 30, 1992
(10) Filed as the same exhibit number as set forth herein to Registrant's Form 10-K for the year ended June 30, 1993
(11)Filed as the same exhibit number to Registrant's registration statement no. 33-51819 on Form S-3, dated
February 2, 1994
(12)Filed as exhibit number 4.4 as set forth herein to Registrant's Form 10-K for the year ended June 30, 1990
(13)Filed as exhibit number 4.5 as set forth herein to Registrant's Form 10-K for the year ended June 30, 1990
(14)Filed as exhibit number 4.6 as set forth herein to Registrant's Form 10-K for the year ended June 30, 1991
(15)Filed as exhibit number 4.7 as set forth herein to Registrant's Form 10-K for the year ended June 30, 1993
(16)Filed as the same exhibit number as set forth herein to Registrant's Form 10-K for the year ended June 30, 1994
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