<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, 1996
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
--- ---
Common shares outstanding at March 31, 1996: 50,825,000
This report, including all exhibits and attachments, contains 15 pages.
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KLA INSTRUMENTS CORPORATION
INDEX
<TABLE>
<CAPTION>
Page
PART I FINANCIAL INFORMATION Number
- ------ --------------------- ------
<S> <C> <C>
Item 1 Financial Statements:
Condensed Consolidated Statements of Operations
Three Months Ended March 31, 1995 and 1996............................... 3
Nine Months Ended March 31, 1995 and 1996................................ 4
Condensed Consolidated Balance Sheets.................................... 5
Condensed Consolidated Statements of Cash Flows.......................... 6
Notes to Unaudited Condensed Consolidated
Financial Information.................................................... 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
Index to Exhibits.............................................................................. 13-14
</TABLE>
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KLA INSTRUMENTS CORPORATION
PART I FINANCIAL INFORMATION
Item 1 Financial Statements
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31,
(In thousands except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
1995 1996
---- ----
<S> <C> <C>
Net sales $ 118,142 $ 187,494
--------- ---------
Costs and expenses:
Cost of sales 54,202 85,215
Engineering, research and development 12,294 20,942
Selling, general and administrative 21,565 33,655
--------- ---------
88,061 139,812
--------- ---------
Income from operations 30,081 47,682
Interest income and other, net 2,327 2,306
Interest expense (643) (273)
--------- ---------
Income before income taxes 31,765 49,715
Provision for income taxes 10,927 17,898
--------- ---------
Net income $ 20,838 $ 31,817
========= =========
Net income per share $ 0.43 $ 0.61
========= =========
Shares used in computing net income per share 48,532 52,170
</TABLE>
See accompanying notes to unaudited condensed consolidated
financial information.
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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>
1995 1996
---- ----
<S> <C> <C>
Net sales $ 306,032 $ 502,320
--------- ---------
Costs and expenses:
Cost of sales 143,178 227,239
Engineering, research and development 29,284 54,599
Selling, general and administrative 59,754 90,957
Write-off of acquired in-process technology 25.240 --
--------- ---------
257,456 372,795
--------- ---------
Income from operations 48,576 129,525
Interest income and other, net 5,359 10,401
Interest expense (1,725) (897)
--------- ---------
Income before income taxes 52,210 139,029
Provision for income taxes 17,528 50,051
--------- ---------
Net income $ 34,682 $ 88,978
========= =========
Net income per share $ .72 $ 1.70
========= =========
Shares used in computing net income per share 48,160 52,321
</TABLE>
See accompanying notes to unaudited condensed consolidated
financial information.
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KLA INSTRUMENTS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
June 30, March 31,
1995 1996
--------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 92,059 $ 46,626
Short-term investments 26,681 19,636
Accounts receivable, net of allowances of
$2,196 and $2,693 129,274 227,232
Inventories 79,759 130,964
Deferred income taxes 18,155 18,155
Other current assets 14,949 8,715
--------- ---------
Total current assets 360,877 451,328
Land, property and equipment, net 49,004 65,625
Marketable securities 126,013 145,405
Other assets 10,402 11,918
--------- ---------
Total assets $ 546,296 $ 674,276
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ 4,458 $ 1,971
Current portion of long-term debt 20,000 --
Accounts payable 19,376 36,330
Income taxes payable 22,797 29,666
Other current liabilities 66,220 100,977
--------- ---------
Total current liabilities 132,851 168,944
--------- ---------
Deferred income taxes 9,476 9,480
--------- ---------
Commitments and contingencies
Stockholders' equity:
Preferred stock, $0.001 par value, 1,000 shares authorized,
none issued and outstanding -- --
Common shares, $0.001 par value, 75,000 shares authorized,
50,160 and 50,825 shares issued and outstanding 25 25
Capital in excess of par value 263,016 267,802
Retained earnings 138,893 227,871
Treasury stock (581) (581)
Net unrealized gain on investments 1,241 384
Cumulative translation adjustment 1,375 351
--------- ---------
Total stockholders' equity 403,969 495,852
--------- ---------
Total liabilities and stockholders' equity $ 546,296 $ 674,276
========= =========
</TABLE>
See accompanying notes to unaudited condensed consolidated
financial information.
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KLA INSTRUMENTS CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
NINE MONTHS ENDED MARCH 31
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
1995 1996
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 34,682 $ 88,978
Adjustments required to reconcile net income to cash
provided by operations:
Depreciation and amortization 7,994 10,700
Write-off of acquired in-process technology 16,154 --
Changes in assets and liabilities:
Accounts receivable (47,701) (97,958)
Inventories (18,354) (51,205)
Other assets (2,649) 4,718
Accounts payable 1,439 16,954
Income taxes payable 10,516 6,869
Other current liabilities 22,562 34,757
--------- ---------
Cash provided by operations 24,643 13,813
--------- ---------
Cash flows from investing activities:
Capital expenditures (12,756) (27,321)
Purchases of short and long-term available
for sale securities (150,617) (374,289)
Sales and maturities of short and long-term
available for sale securities 69,884 361,085
Investment in Metrologix (14,182) --
--------- ---------
Cash used for investing activities (107,671) (40,525)
--------- ---------
Cash flows from financing activities:
Short-term borrowings, net (3,225) (2,487)
Payment of current portion of long-term debt -- (20,000)
Sales of common stock/tax benefit of options
exercised 5,847 4,786
--------- ---------
Cash provided by (used for) financing activities 2,622 (17,701)
--------- ---------
Effect of exchange rate changes 1,003 (1,020)
--------- ---------
Decrease in cash and cash equivalents (79,403) (45,433)
Cash and cash equivalents at beginning of period 139,126 92,059
--------- ---------
Cash and cash equivalents at end of period $ 59,723 $ 46,626
========= =========
CASH PAID DURING THE PERIOD FOR:
INTEREST $ 1,712 $ 841
INCOME TAXES 15,530 43,924
</TABLE>
See accompanying notes to unaudited condensed consolidated
financial information.
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KLA INSTRUMENTS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
INFORMATION
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, 1996,
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:
<TABLE>
<CAPTION>
June 30, March 31,
1995 1996
-------- ---------
<S> <C> <C>
Inventories:
Systems raw materials $ 18,944 $ 34,700
Customer service spares 13,050 15,534
Work-in-process 26,863 54,397
Demonstration equipment 20,902 26,333
-------- ---------
$ 79,759 $ 130,964
======== =========
</TABLE>
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.
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KLA INSTRUMENTS CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
The following discussion and analysis may contain forward-looking statements
that reflect the Company's current judgment regarding the matters addressed by
such statements. Because such statements apply to future events, they are
subject to risks and uncertainties that could cause actual results to differ
substantially. Important factors that could cause actual results to differ are
described in the following discussion and are particularly noted under "Future
Operating Results" at page 9.
Results of Operations
Third Quarter and Nine Months of Fiscal 1996 Compared with Third Quarter and
Nine Months of Fiscal 1995
Net Sales
Net sales increased 59% and 64%, respectively, for the three and nine month
periods ended March 31, 1996 compared to the same periods of the prior fiscal
year. The WISARD and RAPID business units were primarily responsible for the
increase in net sales. The Company attributes the continuing increase in
WISARD's sales primarily to the growing acceptance of the Company's in-line
wafer monitoring equipment that allows semiconductor manufacturers to optimize
device yields. The increase in RAPID sales reflects the ongoing industry-wide
retooling for advanced reticle manufacturing. The Metrology Group and Automated
Test Systems business unit also recorded significant increases in net sales.
Gross Margin
Gross margins were 54.6% and 54.8%, respectively, for the three and nine month
periods ended March 31, 1996 compared to 54.1% and 53.2% for the same periods of
the prior fiscal year. Increased gross margins in the RAPID business unit
accounted for most of the overall improvement. The Company attributes this
increase primarily to volume efficiencies and learning curve improvements.
Engineering, Research and Development
Engineering, research and development expenses were 11.2% and 10.9% of net
sales, respectively, for the three and nine month periods ended March 31, 1996
compared to 10.4% and 9.6% for the same periods of the prior fiscal year. Net
engineering expenditures rose $8.6 million and $25.3 million, respectively,
during the three and nine month periods ended March 31, 1996 compared to the
same periods of the prior fiscal year. 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 57% and
44% of the dollar spending increase, respectively, for the three and nine month
periods ended March 31, 1996. The next largest dollar increase was recorded in
the Metrology Group, which accounted for 14% and 23% of the dollar spending
increase, respectively, for the three and nine month periods ended March 31,
1996. Smaller increases in dollar spending were also recorded in the RAPID,
PRISM and SEMSpec business units.
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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 were 17.9% and 18.1% of net sales,
respectively, for the three and nine month periods ended March 31, 1996 compared
to 18.3% and 19.5% for the same periods of the prior fiscal year. Sales, general
and administrative spending was up significantly in dollar terms as the Company
began establishing a direct sales force in Japan and also strengthened its sales
force in other regions. However, the Company did realize some economies of scale
due to the strong increase in revenues.
Interest Income and Other, net
Interest income and other, net for the three months ended March 31, 1996 was
flat with the comparable period of the prior fiscal year due primarily to lower
yields on the Company's investment portfolio offset by higher average cash
balances. Interest income and other, net increased by $5.0 million for the nine
month period ended March 31, 1996 compared to the same period of the prior
fiscal year. The increase was due to higher average cash balances and higher
yields on the Company's investment portfolio.
Provision for Income Taxes
The Company's effective tax rate increased to 36% for the three and nine month
periods ended March 31, 1996. The Company's tax rate was 34% for the year ended
June 30, 1995. This rate increase 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 received a notice of proposed tax
deficiency. 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. New product introductions involve the
integration of complex systems and components in order to obtain customer
acceptance. Failure to complete the integration process on a timely basis could
result in delays in customer acceptance and deferrals of net sales to future
periods. The Company's results could also 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.
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Liquidity and Capital Resources
Cash, cash equivalents, short-term investments and marketable securities
decreased $33.1 million at March 31, 1996 compared to June 30, 1995. Cash
provided by operations was $13.8 million. This was offset by the repayment in
full of the Company's $20 million mortgage on its principal facility, and by
$27.3 million in capital expenditures. Cash provided by operations was
substantially less than reported earnings, primarily due to investments in
accounts receivable and inventories. Accounts receivable increased $98.0 million
due primarily to an overall increase in net sales. Additional factors were
higher than normal shipments to Japan, where payment terms are longer, and
non-linear shipments in the quarter ended March 31, 1996. Inventories increased
$51.2 million to support the increase in net sales and the ramp-up of new
products. Capital expenditures were primarily for computer equipment to
accommodate the planned introduction of the Company's new enterprise business
systems, engineering computers and equipment to support KLA's rapidly expanding
research and development efforts, plus continued expenditures for facilities
expansion. Other current liabilities increased $34.8 million primarily due to
increases in accrued warranty costs associated with higher shipment volumes and
increases in accrued compensation and benefits. 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.
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[KLA LOGO] INSTRUMENTS CORPORATION
FORM 10-Q
PART II: OTHER INFORMATION
<TABLE>
<S> <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 Page 13-14
</TABLE>
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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 LOGO] INSTRUMENTS CORPORATION
May 13, 1996 ROBERT J. BOEHLKE
- ------------------ -------------------------------
[Date] Robert J. Boehlke
V.P. Finance and Administration
Chief Financial Officer
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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 as
amended, on February 7, 1996(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 on November 15, 1995(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)
10.79 Amendment of Credit Agreement between Bank of America NT & SA and the
Company dated December 29, 1995(11)
(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
(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
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(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
(11)Filed as the same exhibit number as set forth herein to Registrant's Form
10-Q for the quarter ended December 31, 1995
Page 14
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED STATEMENT OF OPERATIONS, THE CONSOLIDATED BALANCE SHEET AND THE
ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> MAR-31-1996
<CASH> 46,626
<SECURITIES> 19,636
<RECEIVABLES> 229,925
<ALLOWANCES> 2,693
<INVENTORY> 130,964
<CURRENT-ASSETS> 451,328
<PP&E> 111,571
<DEPRECIATION> 45,946
<TOTAL-ASSETS> 674,276
<CURRENT-LIABILITIES> 168,944
<BONDS> 0
0
0
<COMMON> 25
<OTHER-SE> 495,827
<TOTAL-LIABILITY-AND-EQUITY> 674,276
<SALES> 502,320
<TOTAL-REVENUES> 502,320
<CGS> 227,239
<TOTAL-COSTS> 227,239
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 897
<INCOME-PRETAX> 139,029
<INCOME-TAX> 50,051
<INCOME-CONTINUING> 88,978
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 88,978
<EPS-PRIMARY> 1.70
<EPS-DILUTED> 1.70
</TABLE>
