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: December 31, 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
--- ---
Common shares outstanding at December 31, 1995: 50,613,000
This report, including all exhibits and attachments, contains 16 pages.
Page 1
KLA INSTRUMENTS CORPORATION
INDEX
Page
PART I FINANCIAL INFORMATION Number
- ------ --------------------- ------
Item 1 Financial Statements:
Condensed Consolidated Statements of Operations
Three Months Ended December 31, 1994 and 1995........... 3
Six Months Ended December 31, 1994 and 1995............. 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.............................................................. 11-12
Signatures............................................................. 13
Index to Exhibits...................................................... 14-15
Page 2
KLA INSTRUMENTS CORPORATION
PART 1 FINANCIAL INFORMATION
Item 1 Financial Statements
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
THREE MONTHS ENDED DECEMBER 31,
(In thousands except per share amounts)
(Unaudited)
1994 1995
---- ----
Net Sales $104,711 $165,750
-------- --------
Cost and expenses:
Cost of sales 48,374 75,352
Engineering, research and development 8,808 18,036
Selling, general and administrative 21,739 29,447
Write-off of acquired in-process technology 25,240 -
-------- --------
104,161 122,835
-------- --------
Income from operations 550 42,915
Interest income and other, net 1,535 3,908
Interest expense (608) (206)
-------- --------
Income before income taxes 1,477 46,617
Provision for income taxes 531 16,782
-------- --------
Net income $ 946 $ 29,835
======== ========
Net income per share $ 0.02 $ 0.57
======== ========
Shares used in computing net income per share 48,188 52,386
See accompanying notes to unaudited condensed consolidated financial
information.
Page 3
KLA INSTRUMENTS CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
SIX MONTHS ENDED DECEMBER 31,
(In thousands except per share amounts)
(Unaudited)
1994 1995
---- ----
Net sales $187,890 $314,826
-------- --------
Costs and expenses:
Cost of sales 88,976 142,024
Engineering, research
and development 16,990 33,657
Selling, general and
administrative 38,189 57,302
Write-off of acquired
in-process technology 25,240 --
-------- --------
169,395 232,983
-------- --------
Income from operations 18,495 81,843
Interest income and other, net 3,032 8,095
Interest expense (1,082) (624)
-------- --------
Income before income taxes 20,445 89,314
Provision for income taxes 6,601 32,153
-------- --------
Net income $ 13,844 $ 57,161
======== ========
Net income per share $ 0.29 $ 1.09
======== ========
Shares used in computing
net income per share 47,974 52,397
See accompanying notes to unaudited condensed consolidated
financial information.
Page 4
KLA INSTRUMENTS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
(In thousands)
(Unaudited)
June 30, December 31,
1995 1995
-------- ------------
ASSETS
Current assets:
Cash and cash equivalents $ 92,059 $ 58,243
Short-term investments 26,681 27,030
Accounts receivable, net of allowances of
$2,196 and $2,668 129,274 189,031
Inventories 79,759 113,639
Deferred income taxes 18,155 18,155
Other current assets 14,949 14,839
-------- -------
Total current assets 360,877 420,937
Land, property and equipment, net 49,004 55,768
Marketable securities 126,013 136,500
Other assets 10,402 10,013
-------- --------
Total assets $546,296 $623,218
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ 4,458 $ 896
Current portion of long-term debt 20,000 --
Accounts payable 19,376 31,176
Income taxes payable 22,797 25,785
Other current liabilities 66,220 90,701
-------- --------
Total current liabilities 132,851 148,558
-------- --------
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 50,613 shares
issued and outstanding 25 25
Capital in excess of par value 263,016 267,509
Retained earnings 138,893 196,054
Treasury stock (581) (581)
Net unrealized gain on investments 1,241 1,517
Cumulative translation adjustment 1,375 656
-------- --------
Total stockholders' equity 403,969 465,180
-------- --------
Total liabilities and stockholders' equity $546,296 $623,218
======== ========
See accompanying notes to unaudited condensed consolidated financial
information.
Page 5
KLA INSTRUMENTS CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
SIX MONTHS ENDED DECEMBER 31
(In thousands)
(Unaudited)
1994 1995
---- ----
Cash flows from operating activities:
Net income $13,844 $57,161
Adjustments required to reconcile net income to cash
provided by operations:
Depreciation and amortization 5,669 6,460
Write-off of acquired in-process technology 16,154 --
Changes in assets and liabilities:
Accounts receivable (23,204) (59,757)
Inventories (10,408) (33,880)
Other assets (2,024) 499
Accounts payable 1,834 11,800
Income taxes payable 6,239 2,988
Other current liabilities 14,732 24,481
------- -------
Cash provided by operations 22,836 9,752
------- -------
Cash flows from investing activities:
Capital expenditures (6,155) (13,221)
Purchases of short and long-term available
for sale securities (23,654) (248,555)
Sales and maturities of short and long-term
available for sale securities 992 237,996
Investment in Metrologix (14,182) --
-------- --------
Cash used for investing activities (42,999) (23,780)
-------- --------
Cash flows from financing activities:
Short-term borrowings, net (3,315) (3,562)
Payment of current portion of long-term debt -- (20,000)
Sales of common stock/tax benefit of options
exercised 4,083 4,493
------ -------
Cash provided by (used for) financing activities 768 (19,069)
------ -------
Effect of exchange rate changes 116 (719)
------ -------
Decrease in cash and cash equivalents (19,279) (33,816)
Cash and cash equivalents at beginning of period 139,126 92,059
-------- --------
Cash and cash equivalents at end of period $119,847 $58,243
======== ========
CASH PAID DURING THE PERIOD FOR:
INTEREST $ 1,166 $ 595
INCOME TAXES 8,766 29,603
See accompanying notes to unaudited condensed consolidated financial information.
Page 6
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 December 31, 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, December 31,
1995 1995
-------- ------------
Inventories:
------------
Systems raw materials $ 18,944 $ 35,665
Customer service spares 13,050 13,217
Work-in-process 26,863 42,275
Demonstration equipment 20,902 22,482
-------- ---------
$ 79,759 $ 113,639
======== =========
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 7
KLA INSTRUMENTS CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
Results of Operations
Second Quarter and Six Months of Fiscal 1996 Compared with Second Quarter and
Six Months of Fiscal 1995
Net Sales
Net sales increased 58% and 68%, respectively, for the three and six month
periods ended December 31, 1995 compared to the same periods of the prior
fiscal year. The WISARD business unit was predominantly 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 RAPID business unit, Metrology Group and Automated Test
business unit also recorded significant increases in net sales.
Gross Margin
Gross margins were 54.5% and 54.9%, respectively, for the three and six month
periods ended December 31, 1995 compared to 53.8% and 52.6% for the same
periods of the prior fiscal year. The RAPID Business Unit recorded significant
improvements in gross margin for the quarter ended December 31, 1995 as
compared to the same period of the prior fiscal year. The Company attributes
this increase primarily to volume efficiencies. The improvement in the gross
margin percentage for the three and six months ended December 31, 1995 was also
due to a favorable product mix as the WISARD business unit's share of total
revenue rose.
Engineering, Research and Development
Engineering, research and development expenses were 10.9% and 10.7% of net
sales, respectively, for the three and six month periods ended December 31,
1995 compared to 8.4% and 9.0% for the same periods of the prior fiscal year.
Net engineering expenditures rose $9.2 million and $16.7 million, respectively,
during the three and six month periods ended December 31, 1995 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
approximately 40% of the increase in dollar spending. The next largest dollar
increase was recorded in the Metrology Group. 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 17.8% and 18.2% of net sales,
respectively, for the three and six month periods ended December 31, 1995
compared to 20.8% and 20.3% for the same periods of the prior fiscal year.
Sales and administration expenses increased at a rate somewhat slower than
sales. Representative commissions increased slightly faster than sales due to
an increase in shipments to Japan.
Page 8
KLA INSTRUMENTS CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
Interest Income and Other net
- -----------------------------
Interest income and other, net increased $2.4 million and $5.1 million,
respectively, for the three and six month periods ended December 31, 1995
compared to the same periods of the prior fiscal year. The increase is 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 six month
periods ended December 31, 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. 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 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
Liquidity and Capital Resources
- -------------------------------
Cash, cash equivalents and marketable securities decreased $23 million at
December 31, 1995 compared to June 30, 1995. Cash provided by operations was
$9.8 million. This was offset by the repayment in full of the Company's $20
million mortgage on its principal facility, and by $13.2 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 $59.8 million due primarily to an overall
increase in net sales along with nonlinear shipments for the three and six
month periods ended December 31, 1995. Inventories increased $33.9 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 facility improvements.
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 10
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 Page 12
Item 5 - Other Events Not Applicable
Item 6 - Exhibits and Reports on Form 8-K Page 14-15
Page 11
ITEM 4
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
An annual meeting of the stockholders was held on November 15, 1995 at the
Company's San Jose headquarters.
At the meeting Mr. Edward W. Barnholt, Dr. Yoshio Nishi and Mr. Kenneth L.
Schroeder were elected directors of the Company. Mr. Leo J. Chamberlain,
Mr. Kenneth Levy, Mr. Robert E. Lorenzini, Mr. Samuel Rubinovitz and
Mr. Dag Tellefsen continued in the office as directors after the meeting.
At the meeting three items were put to a vote of stockholders:
1. Election of two directors
2. Approval of an amendment to the 1982 Employee Stock Option Plan to
increase the number of shares reserved for issuance under the Option
Plan by 2,200,000 shares.
3. Ratification of the appointment of Price Waterhouse LLP as the
independent accountants of the Company for the fiscal year ending
June 30, 1996.
The voting results were:
Item For Against Withheld Abstain No Vote
- ---- --- ------- -------- ------- -------
1. Directors
Mr. Barnholt 40,784,600 0 161,957
Dr. Nishi 40,788,287 0 158,270
Mr. Schroeder 40,787,105 0 159,452
2. 26,551,550 13,909,377 144,490 341,140
3. 40,872,954 50,873 22,730
Page 12
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
February 12, 1996 ROBERT J. BOEHLKE
- ------------------------- --------------------------------
[Date] Robert J. Boehlke
V.P. Finance and Administration
Chief Financial Officer
Page 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(3)
10.35 Research and Development Agreement, Cross License and Technology
Transfer Agreement and Agreement for Option to License and
Purchase Resulting Technology, all dated
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)
10.71 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)
10.76 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,
betweeen BNP Leasing Corporation and the Company(10)
(ii) EXHIBITS INCLUDED HEREWITH:
10.68 Credit Agreement between Bank of America NT & SA and the Company as
amended, on February 7, 1996(9)
10.75 1982 Stock Option Plan, as amended on November 15, 1995(10)
10.79 Amendment of Credit Agreement between Bank of America NT & SA and the
Company dated December 29, 1995
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
Page 14
(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 15