<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: March 31, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________ COMMISSION FILE
NUMBER 0-9992
KLA INSTRUMENTS CORPORATION
(Exact name of registrant as specified in its charter)
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<S> <C>
DELAWARE 04-2564110
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(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
</TABLE>
160 Rio Robles
San Jose, California
(Address of principal executive offices)
95134
(Zip Code)
Registrant's telephone number, including area code: (408) 434-4200
______________________________________________________________
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
----- -----
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
Common Stock, $0.001 par value
Common Stock Purchase Rights
Common shares outstanding at March 31, 1994: 22,624,000
This report, including all exhibits and attachments, contains 12 pages.
Page 1 of 12
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KLA INSTRUMENTS CORPORATION
INDEX
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<CAPTION>
Page
PART I FINANCIAL INFORMATION Number
- - ------ --------------------- ------
<S> <C> <C>
Item 1 Financial Statements:
Condensed Consolidated Statement of Operations
Three Months Ended March 31, 1993 and 1994 . . . . . . . . . . . . . . 3
Nine Months Ended March 31, 1993 and 1994 . . . . . . . . . . . . . . . 4
Condensed Consolidated Balance Sheet . . . . . . . . . . . . . . . . . 5
Condensed Consolidated Statement of Cash Flows . . . . . . . . . . . . 6
Notes to Condensed Consolidated Financial Statements . . . . . . . . . 7
Item 2 Management's Discussion and Analysis of Results of
Operations and Financial Condition . . . . . . . . . . . . . . . . . . . . 8-10
PART II OTHER INFORMATION
- - ------- -----------------
Items 1-6 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
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Page 2 of 12
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KLA INSTRUMENTS CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31,
(In thousands except per share amounts)
(Unaudited)
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<CAPTION>
1993 1994
---- ----
<S> <C> <C>
Net sales $42,240 $62,665
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Costs and expenses:
Cost of sales 26,633 33,308
Engineering, research and development 4,390 5,486
Selling, general and administrative 8,383 12,014
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39,406 50,808
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Income from operations 2,834 11,857
Interest income and other, net 537 642
Interest expense (767) (458)
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Income before income taxes 2,604 12,041
Provision for income taxes 653 3,010
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Net income $ 1,951 $ 9,031
======= =======
Net income per share $ 0.10 $ 0.40
======= =======
Weighted average number of common and
dilutive common equivalent shares outstanding 20,007 22,729
</TABLE>
See accompanying notes to condensed consolidated financial information.
Page 3 of 12
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KLA INSTRUMENTS CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
NINE MONTHS ENDED MARCH 31,
(In thousands except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
1993 1994
---- ----
<S> <C> <C>
Net sales $119,353 $171,656
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Costs and expenses:
Cost of sales 77,168 96,886
Engineering, research and development 12,583 15,262
Selling, general and administrative 23,585 33,257
Restructuring recovery (718) -
-------- --------
112,618 145,405
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Income from operations 6,735 26,251
Interest income and other, net 1,022 1,191
Interest expense (2,568) (1,453)
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Income before income taxes 5,189 25,989
Provision for income taxes 1,298 6,500
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Net income $ 3,891 $ 19,489
======== ========
Net income per share $ 0.20 $ 0.91
======== ========
Weighted average number of common and
dilutive common equivalent shares outstanding 19,454 21,479
</TABLE>
See accompanying notes to condensed consolidated financial information.
Page 4 of 12
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KLA INSTRUMENTS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
(In thousands)
(Unaudited)
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<CAPTION>
June 30, March 31,
1993 1994
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<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 52,362 $113,924
Accounts receivable, net of allowances of
$1,469 and $1,783 48,077 82,099
Inventories 42,489 49,577
Deferred income taxes 3,917 3,917
Other current assets 4,724 4,920
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Total current assets 151,569 254,437
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Land, property and equipment, net 39,384 36,362
Other assets 8,136 6,099
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Total assets $199,089 $296,898
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable and current portion of long-term debt $ 6,532 $ 3,032
Accounts payable 8,953 10,533
Income taxes payable 9,403 12,759
Other current liabilities 33,070 34,509
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Total current liabilities 57,958 60,833
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Deferred income taxes 7,081 7,081
Long-term debt 20,000 20,000
Commitments and contingencies
Stockholders' equity:
Preferred Stock, $0.001 par value, 1,000 shares authorized,
none outstanding __ __
Common shares, $0.001 par value, 75,000 shares authorized,
19,503 and 22,624 shares issued and outstanding 20 23
Capital in excess of par value 64,638 140,023
Retained earnings 50,087 69,576
Treasury stock (581) (581)
Cumulative translation adjustment (114) (57)
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Total stockholders' equity 114,050 208,984
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Total liabilities and stockholders' equity $199,089 $296,898
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial information.
Page 5 of 12
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KLA INSTRUMENTS CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
NINE MONTHS ENDED MARCH 31,
(In thousands)
(Unaudited)
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<CAPTION>
1993 1994
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<S> <C> <C>
Cash flows from operating activities:
Net income $ 3,891 $ 19,489
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Adjustments required to reconcile net income to cash
provided by (used for) operations:
Depreciation and amortization 6,173 8,530
Investment write-downs 94 -
Changes in assets and liabilities:
Accounts receivable, net (4,314) (34,022)
Inventories, net 4,974 (7,088)
Other current assets 932 (196)
Accounts payable 3,347 1,580
Income taxes payable and deferred income taxes (2,953) 3,356
Other current liabilities (642) 1,439
Other assets (348) (174)
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7,263 (26,575)
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Cash provided by (used for) operating activities 11,154 (7,086)
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Cash flows from investing activities:
Capital expenditures (1,932) (3,297)
Capitalization of software development costs (899) -
-------- --------
Cash (used for) investing activities (2,831) (3,297)
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Cash flows from financing activities:
Short-term borrowings and current portion of
long-term debt, net (2,812) (3,500)
Sales of common stock 3,050 75,388
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Cash provided by financing activities 238 71,888
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Effect of exchange rate changes on cash (725) 57
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Increase in cash and cash equivalents 7,836 61,562
Cash and cash equivalents at beginning of period 23,711 52,362
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Cash and cash equivalents at end of period $ 31,547 $113,924
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Supplemental disclosure to cash flow information
CASH PAID DURING THE PERIOD FOR:
INTEREST $ 2,453 $ 1,096
INCOME TAXES 2,333 2,802
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See accompanying notes to condensed consolidated financial information.
Page 6 of 12
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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
March 31, 1994, are not necessarily indicative of results to be
expected for the entire year. This financial information should be
read in conjunction with the Registrant's Annual Report on Form 10-K
(including items incorporated by reference therein) for the year ended
June 30, 1993.
2) Details of certain balance sheet components:
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<CAPTION>
June 30, March 31,
1993 1994
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<S> <C> <C>
Inventories:
-----------
Systems raw materials $ 8,389 $13,113
Customer service spares 13,530 11,862
Work-In-Process 10,004 11,252
Demonstration Equipment 10,566 13,350
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$42,489 $49,577
======= =======
Other Current Liabilities:
-------------------------
Accrued compensation and benefits $11,682 $15,195
Accrued warranty and installation 12,188 13,556
Unearned service contract revenue 2,854 2,404
Other 6,346 3,354
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$33,070 $34,509
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3) In February 1994, KLA Instruments Corporation ("the Company") raised
approximately $68.8 million, net of offering costs, in a public
offering of 2,300,000 new shares of common stock.
Page 7 of 12
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KLA INSTRUMENTS CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
Results of Operations
Third Quarter and Nine Months of Fiscal 1994 Compared with Third Quarter and
Nine Months of Fiscal 1993
Net Sales
Net sales increased $20.4 million or 48.4% and $52.3 million or 43.8%,
respectively, for the three and nine month periods ended March 31, 1994 as
compared to the prior fiscal year. The largest increase in sales was in the
WISARD business unit. The RAPID business unit, the Metrology division and the
ATS division also contributed to the rise in sales. The WISARD business unit
achieved record shipments of the KLA 2100 series of yield monitoring systems.
This success was primarily attributable to the on-going market adoption of the
KLA 2100 series as an in-line monitoring system and secondarily to industry
additions to manufacturing capacity in the U.S. and Asia Pacific. A shift in
product mix from the KLA 200 series to the new generation KLA 300 series was
the primary contributor to the increases experienced by the RAPID business
unit. The Metrology division and the ATS division increases were due to higher
unit volume.
Gross Margin
Gross margins were 46.8 % for the three-month and 43.6% for the nine-month
periods ended March 31, 1994, compared to gross margins of 36.9% and 35.3% in
the comparable periods for the prior fiscal year. The increase in both periods
is due primarily to manufacturing efficiencies in the WISARD business unit as
volumes rose substantially and also to a favorable mix effect as the KLA 2100
series portion of total KLA revenues increased. Gross margins were also
favorably impacted by cost controls and efficiencies in the Field Service
division.
Page 8 of 12
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KLA INSTRUMENTS CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
Engineering Research and Development
Engineering research and development expenses were 8.8% of net sales in the
three month period and 8.9% in the nine month period ended March 31, 1994,
compared to 10.4% and 10.5% in the comparable periods in the prior fiscal year.
Net engineering expenditures rose $1.1 million and $2.7 million during the
three and nine month periods of fiscal 1994 compared to the prior fiscal year.
The absolute dollar increase was primarily due to funding of incremental
engineering programs in the Company's expanding WISARD business unit.
Selling General and Administrative
Selling general and administrative expenses decreased 0.6% to 19.2% and 0.4% to
19.4%, respectively, for the three and nine month periods ended March 31, 1994
as compared to the prior fiscal year. Headcount-related overhead expenses
increased in total, but at a lower rate of increase than revenues. However,
commission expenses for outside sales representatives increased faster than
revenues, reflecting the increased share of Japanese and Asia Pacific business.
In addition, profit sharing expense grew substantially faster than revenues due
to the sharp upturn in the Company's profitability.
Provision for Income Tax
The 25% effective tax rate for both the three and nine-month periods ended
March 31, 1993 and March 31, 1994 results from income in foreign jurisdictions
having a lower than U.S. tax rate, and from the realization of net deferred tax
assets previously reserved including tax credit carryforwards. Management
believes that sufficient uncertainty continues to exist regarding the
realization of the remaining deferred tax assets such that a full valuation
allowance is still required.
Future Operating Results
The Company's future results will depend on its ability to continuously
introduce new products and enhancements to its customers as demands for higher
performance yield management and process control systems change or increase.
Due to the risks inherent in transitioning to new products, the Company must
accurately forecast demand in both volume and configuration and also manage the
transition from older products. The Company's results could be affected by the
ability of competitors to introduce new products which have technological
and/or pricing advantages. The Company's results also will be affected by
strategic decisions made by management regarding whether to continue particular
product lines, and by volume, mix and timing of orders received during a
period, fluctuations in foreign exchange rates, and changing conditions in both
the semiconductor industry and key semiconductor markets around the world. As
a result, the Company's operating results may fluctuate, especially when
measured on a quarterly basis.
Page 9 of 12
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KLA INSTRUMENTS CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
Liquidity and Capital Resources
Total cash and cash equivalents increased by $61.6 million during the nine
month fiscal period ended March 31, 1994. Cash used for operations was $7.1
million. The major factors contributing to the use of cash for operations was
an increase in accounts receivable and inventories, respectively, of $34.0
million and $7.1 million offset by net income of $19.5 million and non-cash
adjustments, for depreciation and amortization, of $8.5 million. The accounts
receivable increase is attributable to (a) the increase in revenue, (b)
non-linear delays in the manufacturing ramp-up of the KLA 2131 product entry
during the third fiscal quarter of 1994 and (c) the comparison to a strong
collection effort at the end of fiscal 1993. Higher production levels
contributed to the increase in inventories. In February 1994, the Company
raised approximately $68.8 million in a public offering of 2,300,000 new shares
of common stock. Stock option exercises contributed $5.6 million to cash. The
Company believes that its current level of liquid assets, credit facilities and
cash generated from operations are sufficient to fund growth for the
foreseeable future.
Page 10 of 12
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KLA INSTRUMENTS CORPORATION
FORM 10-Q
PART II: OTHER INFORMATION
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<S> <C> <C> <C>
Item 1 - Legal Proceedings Not Applicable
Item 2 - Changes in Securities Not Applicable
Item 3 - Defaults Upon Senior Securities Not Applicable
Item 4 - Submission of Matters to a Vote of Security Holders Not Applicable
Item 5 - Other Events Not Applicable
Item 6 - Exhibits and Reports on Form 8-K Not Applicable
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Page 11 of 12
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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
May 13, 1994 Kenneth Levy
- - ------------------- -----------------------
[Date] Kenneth Levy
Chairman of the Board
May 13, 1994 Kenneth L. Schroeder
- - ------------------- -----------------------
[Date] Kenneth L. Schroeder
President
May 13, 1994 Robert J. Boehlke
- - ------------------- -----------------------
[Date] Robert J. Boehlke
V.P. Finance and Administration
Chief Financial Officer
Page 12 of 12
