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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, 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
95134
(Address of principal executive offices)
(Zip Code)
468-4200
(Registrant's telephone number, including area code)
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_____
As of September 30, 1996 there were 51,064,895 shares of the
registrant's Common Stock, $0.001 par value, outstanding.
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KLA INSTRUMENTS CORPORATION
FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
Page
Number
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PART I FINANCIAL INFORMATION
Item 1 Financial Statements:
Condensed Consolidated Statements of Operations for the
Three Months Ended September 30, 1995 and 1996 ..............................3
Condensed Consolidated Balance Sheets at June 30 and
September 30, 1996...........................................................4
Condensed Consolidated Statements of Cash Flows for the
Three Months Ended September 30, 1995 and 1996 ..............................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
</TABLE>
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PART I FINANCIAL INFORMATION
Item 1 Financial Statements
KLA INSTRUMENTS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30,
(In thousands except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
1995 1996
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<S> <C> <C>
Net sales $ 149,076 $ 164,154
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Costs and expenses:
Cost of sales 66,672 74,152
Engineering, research and development 15,621 21,495
Selling, general and administrative 27,855 35,556
--------- ---------
110,148 131,203
--------- ---------
Income from operations 38,928 32,951
Interest income and other, net 4,187 3,532
Interest expense (418) (154)
--------- ---------
Income before income taxes 42,697 36,329
Provision for income taxes 15,371 12,352
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Net income $ 27,326 $ 23,977
========= =========
Net income per share $ 0.52 $ 0.46
========= =========
Shares used in computing net income per share 52,408 52,127
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
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KLA INSTRUMENTS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
June 30, September 30,
1996 1996
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<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 109,404 $ 107,106
Short-term investments 14,279 22,462
Accounts receivable, net of allowances of
$3,121 and $3,182 203,470 192,972
Inventories 132,377 138,619
Deferred income taxes 27,246 27,055
Other current assets 6,783 11,870
--------- ---------
Total current assets 493,559 500,084
Land, property and equipment, net 71,825 74,923
Marketable securities 137,728 154,882
Other assets 9,660 10,936
--------- ---------
Total assets $ 712,772 $ 740,825
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ 3,111 $ 5,807
Accounts payable 27,330 21,498
Income taxes payable 34,595 37,287
Other current liabilities 104,167 107,482
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Total current liabilities 169,203 172,074
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Deferred income taxes 6,320 7,792
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Commitments and contingencies
Stockholders' equity:
Preferred stock, $0.001 par value, 1,000 shares authorized,
none issued and outstanding -- --
Common stock, $0.001 par value, 75,000 shares authorized,
51,030 and 51,065 shares issued and outstanding 51 51
Capital in excess of par value 277,892 278,000
Retained earnings 259,777 283,754
Treasury stock (581) (1,213)
Net unrealized gain/(loss) on investments (131) 171
Cumulative translation adjustment 241 196
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Total stockholders' equity 537,249 560,959
--------- ---------
Total liabilities and stockholders' equity $ 712,772 $ 740,825
========= =========
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
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KLA INSTRUMENTS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED SEPTEMBER 30,
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
1995 1996
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<S> <C> <C>
Cash flows from operating activities:
Net income $ 27,326 $ 23,977
Adjustments required to reconcile net income to cash
provided by operations:
Depreciation and amortization 3,385 5,517
Deferred income taxes -- 1,663
Changes in assets and liabilities:
Accounts receivable (19,081) 10,498
Inventories (12,825) (6,242)
Other assets 9,261 (6,363)
Accounts payable 1,366 (5,832)
Income taxes payable 6,945 2,692
Other current liabilities 10,639 3,315
--------- ---------
Cash provided by operating activities 27,016 29,225
--------- ---------
Cash flows from investing activities:
Capital expenditures (8,097) (8,615)
Purchases of short and long-term available
for sale securities (137,685) (73,669)
Sales and maturities of short and long-term
available for sale securities 114,456 48,634
--------- ---------
Cash used for investing activities (31,326) (33,650)
--------- ---------
Cash flows from financing activities:
Short-term borrowings, net (2,018) 2,696
Payment of current portion of long-term debt (20,000) --
Sales of common stock/tax benefit of options
exercised 788 (524)
--------- ---------
Cash provided by/(used for) financing activities (21,230) 2,172
--------- ---------
Effect of exchange rate changes (699) (45)
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Decrease in cash and cash equivalents (26,239) (2,298)
Cash and cash equivalents at beginning of period 92,059 109,404
--------- ---------
Cash and cash equivalents at end of period $ 65,820 $ 107,106
========= =========
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
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KLA INSTRUMENTS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
1) In the opinion of Company's management, the unaudited consolidated
condensed financial statements include all adjustments (consisting only
of adjustments that are of a normal recurring nature) necessary for a
fair statement of results. The results for the quarter ended September
30, 1996, are not necessarily indicative of results to be expected for
the entire year. This financial information should be read in
conjunction with the Company's Annual Report on Form 10-K (including
items incorporated by reference therein) for the year ended June 30,
1996.
2) Details of certain balance sheet components (in thousands):
<TABLE>
<CAPTION>
June 30, September 30,
1996 1996
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<S> <C> <C>
Inventories:
Systems raw materials $ 33,521 $ 34,608
Customer service spares 13,614 20,843
Work-in-process 47,012 57,908
Demonstration equipment 38,230 25,260
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$ 132,377 $ 138,619
=========== ===========
</TABLE>
3) In April 1996, the Company adopted a plan to repurchase, at its
discretion, up to $20 million of KLA common stock on the open market,
through October 1997. Shares repurchased during the three month period
ended September 30, 1996 totaled 35,000 shares at a total cost of
$631,250.
4) In September 1996, the Company granted new replacement stock options in
exchange for the cancellation of the entire unexercised portion of the
options being replaced. These options were issued at the fair market
value on the date of grant. The number of options granted under the
first new option was equal to 50% of the number of canceled options.
The remaining 50% of new options will be granted as a second new option
at some date on or before March 16, 1997, at the fair market value on
the date of grant.
5) The Company's effective tax rate decreased to 34% for the three months
ended September 30, 1996. The Company's tax rate was 36% for the year
ended June 30, 1996. This rate decrease is due primarily to the
reinstatement of the federal research and development tax credit. The
difference between the statutory tax rate and the Company's effective
tax rate is primarily due to R&D tax credits, FSC benefits, tax exempt
interest and state taxes.
6) 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.
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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" on page 8.
Results of Operations
First Quarter of Fiscal 1997 Compared with First Quarter of Fiscal 1996
Net Sales
Net sales increased $15.1 million or 10.1% for the three month period ended
September 30, 1996 as compared to the first quarter of the prior fiscal year.
The RAPID business unit, driven primarily by changes in technology, was
predominately responsible for the increase in sales. The Company attributes the
increase in RAPID's sales primarily to the ongoing industry-wide retooling for
advanced reticle manufacturing, as well as continuing industry movement towards
smaller line widths. Unit sales in the WISARD business unit declined, reflecting
the industry's capital spending weakness. Many of the leading manufacturers have
placed new fab construction on hold while they evaluate the marketplace and
assess the future supply/demand relationship for various semiconductor devices.
Gross Margin
Gross margins were 54.9% for the three month period ended September 30, 1996
compared to 55.3% in the first quarter of the prior fiscal year. The slight
decrease in the gross margin reflects a mix shift towards the RAPID business
unit. Gross margins for the RAPID business unit have increased as a result of
lower cost components and lower installation and warranty costs, but these
margins are still below the Company average. Gross margins were favorably
affected by the sales of two SEMSpec units during the quarter, however the
slight increase was offset by changes in product mix within the WISARD business
due to the ramp up of the KLA 2135.
Engineering, Research and Development
Engineering, research and development expenses were 13.1% of net sales for the
three month period ended September 30, 1996 compared to 10.5% in the first
quarter of the prior fiscal year. Net engineering expenditures rose $5.9 million
during the first quarter of fiscal 1997 compared to the first quarter of fiscal
1996. 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.
Selling, General and Administrative
Selling, general and administrative expenses were 21.7% of net sales for the
three month period ended September 30, 1996 compared to 18.7% in the first
quarter of the prior fiscal year. Operating costs included approximately $5.0
million of representative commissions which relate to orders previously taken by
the Company's former representative in Japan but which shipped during the first
quarter. These commissions will phase out substantially during the next several
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quarters. Some reductions in other operating costs were initiated during the
quarter, the full effects of which will not be realized until the next quarter.
Interest Income and Other
Interest income and other, net, decreased $0.7 million for the three month
period ended September 30, 1996 compared to the first quarter of the prior
fiscal year. This decrease is due to lower yields on the Company's investment
portfolio offsetting higher average cash balances.
Provision for Income Taxes
The Company's effective tax rate decreased to 34% for the three months ended
September 30, 1996. The Company's tax rate was 36% for the year ended June 30,
1996. This rate decrease is due primarily to the reinstatement of the federal
research and development tax credit. The difference between the statutory tax
rate and the Company's effective tax rate is primarily due to R&D tax credits,
FSC benefits, tax exempt interest and state taxes.
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 for such years. The Company filed a tax protest letter with the IRS
on June 10, 1996, in response to the IRS notice. 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 increased to $284.5
million for the three months ended September 30, 1996. Cash generated by
operations was $30.7 million, derived primarily from net income and reductions
in receivables. This was offset by long term investments of $17.2 million for
the quarter. The Company's capital expenditures were primarily in facility
improvements, new computers to accommodate general business needs, and
engineering computers and equipment to support the Company's 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.
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KLA INSTRUMENTS CORPORATION
FORM 10-Q
PART II: OTHER INFORMATION
Item 1 Legal Proceedings
None
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
(a) Exhibits
27.1 Financial Data Schedule
(b) Reports on Form 8-K
Current report on Form 8-K filed September 24, 1996:
The Company filed a Form 8-K on September 24, 1996, reporting
that as of April 26, 1996, the Company amended its Shareholder
Rights Plan. The amendment increased the exercise price from
$50.00 to $160.00, changed the acquisition threshold from 20%
to 15%, extended the term from 1999 to 2006, added an exchange
provision and made certain other technical changes.
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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 12, 1996 ROBERT J. BOEHLKE
- ----------------- -----------------
[Date] Robert J. Boehlke
V.P. Finance and Administration
Chief Financial Officer
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<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> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 107,106
<SECURITIES> 22,462
<RECEIVABLES> 196,154
<ALLOWANCES> 3,182
<INVENTORY> 138,619
<CURRENT-ASSETS> 500,084
<PP&E> 128,347
<DEPRECIATION> 53,424
<TOTAL-ASSETS> 740,825
<CURRENT-LIABILITIES> 172,074
<BONDS> 0
0
0
<COMMON> 51
<OTHER-SE> 560,908
<TOTAL-LIABILITY-AND-EQUITY> 740,825
<SALES> 164,154
<TOTAL-REVENUES> 0
<CGS> 74,152
<TOTAL-COSTS> 74,152
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 154
<INCOME-PRETAX> 36,329
<INCOME-TAX> 12,352
<INCOME-CONTINUING> 23,977
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 23,977
<EPS-PRIMARY> 0.46
<EPS-DILUTED> 0.46
</TABLE>
