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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE FISCAL YEAR ENDED JUNE 30, 1999
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 NO. 0-9992
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KLA-TENCOR CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 04-2564110
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
160 RIO ROBLES, SAN JOSE, CALIFORNIA 95134
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (408) 875-3000
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
NONE NONE
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SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, $0.001 PAR VALUE
COMMON STOCK PURCHASE RIGHTS
(TITLE OF CLASS)
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 Exchange 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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of
the registrant based upon the closing price of the registrant's stock, as of
September 20, 1999, was $4,792,940,686. Shares of common stock held by each
officer and director and by each person or group who owns 5% or more of the
outstanding common stock have been excluded in that such persons or groups may
be deemed to be affiliates. This determination of affiliate status is not
necessarily a conclusive determination for other purposes.
The registrant had 89,556,350 shares of Common Stock outstanding as of
September 20, 1999.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Annual Report to Stockholders for the fiscal year ended
June 30, 1999 ("1999 Annual Report to Stockholders") are incorporated by
reference into Parts I, II and IV of this Report. Portions of the Proxy
Statement for the Annual Meeting of Stockholders ("Proxy Statement") to be held
on November 16, 1999, and to be filed pursuant to Regulation 14A within 120 days
after registrant's fiscal year ended June 30, 1999, are incorporated by
reference into Part III of this Report.
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
This report contains forward-looking statements within the meaning of Section
27A of the Securities Act of 1933 and Section 21E of the of Securities Exchange
Act of 1934. Actual results could differ materially from those projected in the
forward-looking statements because of a number of factors, risks and
uncertainties, including the risk factors described in this discussion and
elsewhere in this report. Generally, the words "anticipate", "expect", "intend",
"believe" and similar expressions identify forward-looking statements. The
information included in this report is as of the filing date with the Securities
and Exchange Commission and future events or circumstances could differ
significantly from the forward-looking statements included here.
THE COMPANY
KLA Instruments Corporation ("KLA") was incorporated in Delaware in July 1975.
Effective April 30, 1997, Tencor Instruments ("Tencor") merged into a
wholly-owned subsidiary of KLA. Immediately following this merger, KLA changed
its name to KLA-Tencor Corporation and the headquarters of the combined company
remained at 160 Rio Robles, San Jose, California. The merger of KLA and Tencor
brought together two companies that, through largely complementary product
lines, provide customers with yield management solutions and products
facilitating the monitoring of the entire semiconductor manufacturing process.
PRODUCTS
Our principal market is the semiconductor industry, in which profitability is
largely determined by a manufacturer's ability to quickly attain and efficiently
maintain high yields from the manufacturing process. The importance of high
yields is magnified as wafer sizes increase and process geometries decrease.
Building an integrated circuit (known colloquially as "chip") is accomplished by
the deposition on a substrate of silicon, called a "wafer", of a series of film
layers that act as conductors, semiconductors or insulators. Most chips are
built on a wafer and consist of two main structures: the lower structure,
typically consisting of transistors or capacitors, performs the "smart"
functions of the chip, and the upper structure, typically consisting of the
circuitry that connects the components in the lower structure, called the
"interconnect material." Many advanced chip designs require well over 300
individual steps and many of these processes are performed multiple times.
Today, manufacturers of advanced integrated circuits require systems capable of
measurements smaller than 0.25 micron (approximately 1/300 the thickness of a
human hair). At the same time, advanced manufacturing facilities are producing
integrated circuits on silicon wafers measuring 300 millimeters (12 inches) in
diameter. This increase in the complexity of the sub-micron semiconductor
manufacturing process coupled with the recently begun transition from aluminum
to copper as the primary interconnect material in integrated circuits has caused
dramatic growth in the demand for
increasingly precise process monitors. The continuing evolution of semiconductor
devices to smaller line width geometries and more complex multi-level circuitry
has significantly increased the cost and performance requirements of the capital
equipment used to manufacture these devices. Construction of an advanced wafer
fabrication facility can cost over $1 billion, a substantial increase over the
cost of prior-generation facilities. As a result, there has been an increasing
focus by the semiconductor industry on obtaining increased productivity and
higher returns from manufacturing equipment, thereby reducing the effective cost
of ownership of such equipment. Total yield management solutions play a more
significant role in the semiconductor manufacturing process than in the past.
Because our yield management and process monitoring equipment typically
represent only a small percentage of the total investment required to build and
equip a fabrication facility, our customers are able to better leverage these
increasingly expensive facilities and thereby improve their returns on
investment.
We are the leader in the design, manufacture, marketing and service of yield
management and process monitoring systems for the semiconductor industry. With
our portfolio of applications-focused technologies and our dedicated yield
consulting expertise, we are in a unique position to be the single source for
comprehensive yield management solutions. Our technical expertise and
understanding of customer needs enable us to provide unique yield management
solutions and one of the broadest lines of wafer inspection, thin film
measurement, metrology and reticle inspection systems available in the
semiconductor industry. Our systems are used to analyze product and process
quality at critical points in the integrated circuits manufacturing process and
provide feedback to our customers so that fabrication problems can be
identified, addressed and contained. This ability to locate defect sources and
contain them enables semiconductor manufacturers to increase yields, thus
lowering manufacturing costs.
We market and sell products worldwide to all major integrated circuit
manufacturers and semiconductor wafer manufacturers. Our revenues are derived
primarily through product sales, principally through our direct sales force and,
to a lesser extent, through distributors. Our product line consists of equipment
capable of performing the yield management and process monitoring functions in
the chip manufacturing process, including wafer inspection, electron-beam
inspection and metrology, reticle inspection, film measurement and surface
metrology.
Yield Management
Maximizing yields is a key goal of modern semiconductor manufacturing because
higher yields increase the revenue a manufacturer can obtain from each
semiconductor wafer. As geometry line-widths decrease, yields become more
sensitive to the size and density of defects. Semiconductor manufacturers use
yield management and process monitoring systems to improve yields by identifying
defects and analyzing them to determine process problems. After corrective
action has been taken, subsequent results can be monitored to ensure that the
defect has been contained. This monitoring and analysis takes place at various
points in the fabrication process as wafers move through a production cycle
consisting of hundreds of separate process steps.
The following are some of the methods used to manage yields, all of which
require the capture and analysis of data gathered through many measurements:
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- - Engineering analysis: This method is performed off of the manufacturing line
to identify and analyze defect sources. Engineering analysis equipment
operates with very high sensitivity to enable comprehensive analysis of
wafers. Because they operate off-line, engineering analysis systems do not
require high operational speeds.
- - In-line monitoring: This method is used to review the status of integrated
circuits during production. Information generated is used to determine whether
the fabrication process steps are within required tolerances and to make any
necessary real-time process adjustments before wafer lots move to subsequent
process stations. Because the information is needed quickly to be of greatest
value, in-line monitoring requires both high throughput and high sensitivity.
- - Pass/fail tests: This method may be used at several different points in the
manufacturing process to evaluate products. For example, a pass/fail test is
used to determine whether reticles used in photolithography are defect-free.
Similarly, electrical pass/fail testing is performed at the end of the
manufacturing process to determine whether products meet performance
specifications.
The most significant opportunities for yield improvement generally occur when
production is started at new factories and when chips and wafers are first
built. Equipment that helps a manufacturer quickly increase new product yields
enables the manufacturer to offer these new products in high volumes early in
the product life cycle--the time when they are likely to generate the greatest
profits. High yielding fabrication lines are continually subject to process
variations and errors which may cause significant yield losses unless these
variations or errors are detected quickly. Equipment that helps a manufacturer
prevent these yield excursions will allow the manufacturer to maintain higher
revenue and profit from the facility.
Wafer Inspection
We pioneered the market for automated defect inspection of semiconductor wafers
over a decade ago. Our wafer inspection tools are used to find, count and
characterize particles and pattern defects on wafers in off-line engineering
applications and in-line at various stages during the semiconductor and wafer
manufacturing processes. Semiconductor manufacturers base their purchase of
wafer inspection systems on a variety of criteria, including sensitivity,
capture rate, throughput, total cost of ownership, ease of use, degree of
automation, system repeatability and correlation and the ability of the system
to be integrated into overall yield management systems. Wafer defect detection
systems inspect wafers as they move between processing steps and detect
sub-micron defects and contaminants on bare silicon and on rough films.
In 1992 we introduced the 21xx Inspection Systems, which provided the
sensitivity required not only for microprocessors and other logic devices but
also for the logic and repeating array portions of memory devices. Each new
model of the 21xx series has provided greater sensitivity and throughput than
its predecessor. In 1997, we introduced the model 2138, a new patterned wafer
inspection system combining an ultra-broadband illumination source and
significantly improved brightfield optics. In 1999, we introduced the model 2139
which extended the capability of the 21xx product line to 0.18 micron processes
and implemented additional sensitivity and ease-of-use enhancements.
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In 1995 we introduced the AIT Inspection System, a platform designed with high
throughput and low cost-of-ownership for fast and accurate feedback on process
tool performance as well as advanced line monitoring for films, CMP,
non-critical etch and photo modules. The AIT uses darkfield technology which is
a low-angle illumination technique particularly effective for detecting defects
on planar surfaces such as post-CMP wafers. In 1998, the AIT II expanded on the
capability of the AIT by increasing sensitivity and throughput.
Scanning Electron Microscopes (SEMs) use an electron beam to image and measure
surface features on a semiconductor wafer at a much higher resolution than
images captured by optical microscopes. Working closely with customers who
require the most advanced inspection systems, we developed the SEMSpec(TM), a
fully automatic electron beam defect inspection system. In 1999, we developed
the eS20, which has performance enhancements compared to the previous generation
of e-beam defect inspection systems.
The SP1(TM), introduced in 1997, is used for bare wafer qualification, process
monitoring and equipment monitoring. It provides the high sensitivity, fast
throughput and low cost of ownership required in a production environment and
is used in virtually all semiconductor manufacturing processes. The SP1 TBI was
introduced in 1998 and was designed with additional optical configurations
needed to detect submicron defects on metal films and rough surfaces while still
providing sensitivity below 0.1 micron on polished silicon. It is also used for
detecting defects on non-uniform films, a critical requirement for CMP
applications.
We offer defect review capability using optical confocal technology as well as
e-beam for higher sensitivity. The CRS optical review tool offers high
throughput and low cost-of-ownership. Our 4300+ Defect Review Tool is an
advanced, automated SEM designed to gather defect excursion information and
analyze and report the results with the improved sensitivity required at smaller
geometries.
We offer analysis and classification systems comprised of hardware and software
to translate raw inspection data into patterns that reveal process problems. Our
software productivity and analysis systems capture, store and analyze data
collected by test equipment to show defect trends and help semiconductor
manufacturers develop long-term yield improvement strategies. In 1997, we
introduced IMPACT(TM) automated defect classification (ADC), enabling
semiconductor manufacturers to utilize software systems both within and between
fabrication facilities to accelerate the ramp to higher process yields. With
IMPACT ADC, semiconductor manufacturers can develop a defect classification
recipe on one system and then export it to any other system or fabrication
facility running identical processes. An important new "run-time classification"
(RTC) capability has been introduced recently on both the AIT II and 2139
products. RTC provides classification and binning of defect types in real time
during inspection, thus providing better organized information in less time and
at a lower cost.
Our Intelligent Line Monitoring solution includes the full line of wafer
inspection systems, as well as the IMPACT/Online ADC, e-beam review (4300+) and
optical review (CRS(TM)/Offline ADC) and
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Klarity(TM) defect data analysis systems. This integrated yield management
approach provides semiconductor device manufacturers with a comprehensive tool
set providing time-to-yield enhancements and accelerated attainment of yield
goals.
Metrology
Critical Dimension (CD) SEMs are used by semiconductor makers to measure the
linewidth feature on a chip, thus assuring the accuracy of the manufacturing
process. Our current E-Beam metrology system, the 8100XP, is used for precision
measurement of high aspect ratio structures in highly automated process control
applications.
Lithography for sub-micron semiconductor fabrication requires increasingly
stringent overlay tolerances. In particular, decreasing linewidths, larger die
sizes and additional layers have made overlay mis-registration errors a crucial
cause of yield loss. To address these challenges, we offer the 5000 series
metrology systems for overlay measurement. The measurement algorithms for the
5000 series are more tolerant of process and substrate reflectivity variations
than other optical systems. Based upon these measurements, users can fine-tune
the stepper program to compensate for these errors and improve process yield. In
1999, we introduced the 5300 overlay system, which has performance enhancements
compared to the previous generation of tools and is designed to handle both 200
millimeter and 300 millimeter wafers.
Reticle Inspection
Reticles are high precision quartz plates that contain images of electronic
circuits. These reticles are used to transfer circuit patterns onto wafers to
fabricate integrated circuits. Error-free reticles are the first step in
ensuring high yields in the manufacturing process because defects in reticles
are replicated on wafers. Reticle inspection systems look for possible defects
that could be transmitted to the design pattern on the wafer. We pioneered the
market for automated inspection of reticles and photomasks for the semiconductor
manufacturing industry over two decades ago and continue to be a market leader.
Our 3XX product family incorporates both a reference database generator and a
data preparation system which give full die-to-database functionality,
permitting inspection against the ideal reticle pattern as specified by the
user's CAD program. We have continued to develop enhancements to the 3XX
inspection system to improve performance, serviceability and reliability. In
1997, we introduced two new reticle and photomask inspection enhancements, the
Advanced Performance Algorithm and the STARlight(TM) High Resolution option.
These enhancements enable highly accurate and reliable inspection of
next-generation sub-0.25 micron reticles, including reticles with complex
optical proximity correction geometries. To satisfy the need for higher
sensitivity, we developed the 353UV Automated Reticle Inspection System which
uses a shorter wavelength to inspect complex reticles for deep UV lithography
applications.
Film Measurement
Our film thickness products measure a variety of optical properties of thin
films, while our resistivity products measure the resistivity of the various
layers used to make integrated circuits. These products are used to control a
wide range of wafer fabrication steps, where within-wafer and wafer-
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to-wafer uniformity of the process is of paramount importance to semiconductor
manufacturers and enables them to achieve high yields at the lowest possible
cost. In 1995,we introduced the UV-1250SE, which brought a powerful new
technology, spectroscopic ellipsometry, to production. We recently introduced
the ASET-F5, our third generation spectroscopic ellipsometer, which addresses
the difficult film measurement needs that come from the continuing evolution of
film development driven by shorter line widths. These new films demand an
increasing capability to characterize and control them in production, a
capability provided by the ASET-F5.
Our Quantox(R) product is a non-contact, electrical performance metrology system
for gate dielectric films. Gate dielectric quality is critical to the speed and
reliability of an integrated circuit. Quantox measures key parameters such as
contamination and oxide thickness used for gate dielectric process control to
help maximize device yield.
Surface Metrology
Our Stylus profilers are used to measure the surface topography of films and
etched surfaces and are used in basic research and development as well as
semiconductor production and quality control. In addition, we produce stress
measurement systems which detect reliability related problems such as film
cracking, voiding and lifting. We recently introduced the high resolution
profiler that combines the capabilities of in-line profilers which measure
erosion and dishing with atomic force microscopes which identify nanoscale etch
process control problems such as plug recess challenges.
"KLA", "Tencor", "Surfscan" and "Quantox" are registered trademarks of
KLA-Tencor Corporation. "KLA-Tencor", "CRS", "IMPACT", "Klarity", "SP1",
"SEMSpec" and "STARlight" are trademarks of KLA-Tencor Corporation.
CUSTOMERS
We sell our systems to all major semiconductor manufacturers. In fiscal 1999,
1998 and 1997, no single customer accounted for more than 10% of our revenues.
INTERNATIONAL REVENUES
We have wholly-owned subsidiaries or branches of U.S. subsidiaries in Japan,
Korea, Taiwan, the United Kingdom, France, Germany, Italy, Israel, Singapore,
China and Malaysia for marketing, sales and service of products. In addition, we
have manufacturing operations in Israel for our optical metrology products.
International sales accounted for approximately 60%, 56% and 65% of our revenues
in fiscal 1999, 1998 and 1997, respectively. For information regarding our
revenues from foreign operations for our last three fiscal years, see Note 8 of
Notes to Consolidated Financial Statements in the 1999 Annual Report to
Stockholders.
We believe that sales outside the U.S. will continue to be a significant
percentage of our revenues. Our future performance will depend, in part, on our
ability to continue to compete successfully in international markets. Our
ability to compete internationally is dependent upon the continuation of
favorable trading relationships between countries (especially Japan and Korea)
and the United States,
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and our continuing ability to maintain satisfactory relationships with leading
semiconductor companies in the region. International sales and operations may be
adversely affected by imposition of governmental controls, restrictions on
export technology, political instability, trade restrictions, changes in tariffs
and difficulties associated with staffing and managing international
operations. In addition, international sales may be adversely affected by the
economic conditions in each country. The revenues from our international
business may be affected by fluctuations in currency exchange rates. Although we
attempt to manage near term currency risks through "hedging," there can be no
assurance that such efforts will be adequate. These factors could have a
material adverse effect on our future business and financial results.
SALES, SERVICE AND MARKETING
We believe that the size and location of our field sales, service and
applications engineering organization represents a competitive advantage in our
served markets. We have direct sales forces throughout the world for
substantially all of our products. We maintain an export compliance program that
is designed to meet the requirements of the U.S. Departments of Commerce and
State.
Our facilities throughout the world employ over 1,800 sales personnel, service
engineers and applications engineers. We maintain sales and service offices
throughout the U.S. and in Japan, Korea, Taiwan, Singapore, China, Malaysia, the
United Kingdom, France, Germany, Italy and Israel.
We do not consider our business to be seasonal in nature, but it is cyclical
with respect to the capital equipment procurement practices of semiconductor
manufacturers and is impacted by the investment patterns of such manufacturers
in different global markets.
RESEARCH AND DEVELOPMENT
The market for yield management and process monitoring systems is characterized
by rapid technological development and product innovation. We believe that
continued and timely development of new products and enhancements to existing
products are necessary to maintain our competitive position. Accordingly, we
devote a significant portion of our human and financial resources to research
and development programs and seek to maintain close relationships with customers
to remain responsive to their needs.
To meet continuing developments in the semiconductor industry, we are committed
to significant engineering efforts toward product improvement and new product
development. New product introductions may contribute to fluctuations in
operating results, since customers may defer ordering existing products. If new
products have reliability or quality problems, those problems may result in
reduced orders, higher manufacturing costs, delays in acceptance of and payment
for new products and additional service and warranty expenses. On occasion, we
have experienced reliability and quality problems in connection with certain
product introductions, resulting in some of these consequences. There can be no
assurance that we will successfully develop and manufacture new hardware and
software products, or that new
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hardware and software products introduced by us will be accepted in the
marketplace. If we do not successfully introduce new products, our business and
results of operations will be harmed. For information regarding our research and
development expense during the last three fiscal years, see Management's
Discussion and Analysis of Results of Operations and Financial Condition in the
1999 Annual Report to Stockholders, filed as Exhibit 13.1 and incorporated by
reference.
MANUFACTURING
Our principal manufacturing activities take place in San Jose and Milpitas,
California, Bedford, Massachusetts and Migdal Ha'Emek, Israel and consist
primarily of manufacturing, assembling and testing components and subassemblies
which are acquired from third party vendors and then integrated into our
finished products. We employ approximately 2,000 manufacturing and engineering
personnel and also cross-train personnel in order to respond to changes in
product mix.
Many of the components and subassemblies are standard products, although certain
items are made to our specifications. Certain of the components and
subassemblies included in our systems are obtained from a single source or a
limited group of suppliers. Those parts subject to single or limited source
supply are routinely monitored by management and we endeavor to ensure that
adequate supplies are available to maintain manufacturing schedules, should the
supply of any part be interrupted. Although we seek to reduce our dependence on
sole and limited source suppliers, in some cases the partial or complete loss of
certain of these sources could disrupt scheduled deliveries to customers and
have a material adverse effect on our business and results of operations and
damage customer relationships.
COMPETITION
The worldwide market for yield management and process control systems is highly
competitive. In each of our product markets, we face competition from
established and potential competitors, some of which may have greater financial,
engineering, manufacturing and marketing resources than us, such as Applied
Materials, Inc. and Hitachi Electronics Engineering Co., Ltd. We expect our
competitors to continue to improve the design and performance of their current
products and processes and to introduce new products and processes with improved
price and performance characteristics. We believe that, to remain competitive,
we will require significant financial resources to offer a broad range of
products, to maintain customer service and support centers worldwide and to
invest in product and process research and development.
Significant competitive factors in the market for yield management and process
control systems include system performance, ease of use, reliability, installed
base and technical service and support. We believe that, while price and
delivery are important competitive factors, the customers' overriding
requirement is for systems which easily and effectively incorporate automated
and highly accurate inspection capabilities into their existing manufacturing
processes, thereby enhancing productivity. Our yield management and process
control systems for the semiconductor industry are generally higher priced than
those of our present competitors and are intended to compete based
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upon performance and technical capabilities. These systems also compete with
less expensive and more labor-intensive manual inspection devices.
PATENTS AND OTHER PROPRIETARY RIGHTS
We protect our proprietary technology through reliance on a variety of
intellectual property laws, including patent, copyright and trade secrets. Due
to the rapid pace of innovation within the yield management and process control
systems industry, we believe that our protection of patent and other
intellectual property rights is less important than factors such as our
technological expertise, continuing development of new systems, market
penetration and the ability to provide comprehensive support and service to
customers. There can be no assurance that we will be able to protect our
technology or that competitors will not be able to independently develop similar
or functionally competitive technology.
We have filed and obtained a number of patents in the U.S. and abroad. From time
to time we acquire license rights under U.S. and foreign patents and other
proprietary rights of third parties. No assurance can be given that patents will
be issued on any of our applications, that license assignments will be made as
anticipated or that our patents, licenses or other proprietary rights will be
sufficiently broad to protect our technology. In addition, no assurance can be
given that any patents issued to or licensed by us will not be challenged,
invalidated or circumvented or that the rights granted thereunder will provide
us with a competitive advantage.
BACKLOG
Our backlog for systems totaled $449 million at June 30, 1999, compared to $424
million at June 30, 1998. In general, systems ship within six months to a year
after receipt of a customer's purchase order. We expect to fill our June 30,
1999 backlog of orders during fiscal 2000.
EMPLOYEES
As of June 30, 1999, we employed approximately 4,200 persons. None of our
employees are represented by a labor union. We have experienced no work
stoppages and believe that our employee relations are good.
Competition is intense in the recruiting of personnel in the semiconductor and
semiconductor equipment industry. We believe that our future success will depend
in part on our continued ability to hire and retain qualified management,
marketing and technical employees.
ITEM 2. PROPERTIES
Certain information concerning our properties at June 30, 1999 is set forth
below:
LOCATION TYPE PRINCIPAL USE FOOTAGE OWNERSHIP
- --------------------- ------------- -------------------------------- ------- ---------
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San Jose, CA Office, plant Corporate Headquarters, Research 271,827 Leased
and warehouse and Engineering, Marketing, 510,036 Owned
Manufacturing, Sales, Service
and Administration
Milpitas, CA Office, plant Research and Engineering, 18,463 Leased
and warehouse Marketing, Manufacturing, Sales, 554,207 Owned
Service and Administration
Scotts Valley, CA Office, plant Research and Development 9,945 Leased
Bedford, MA Office, plant Administration, Manufacturing, 50,000 Owned
Sales and Service
Austin, TX Office Sales and Service, Training 37,074 Leased
Richardson, TX Office Sales and Service, Training 22,507 Leased
Basingstoke and Office, plant Sales and Service, Warehouse 16,475 Leased
Wokingham, England
Grenoble and Evry, Office Sales and Service 8,834 Leased
France
Dresden and Pucheim, Office Sales and Service 14,975 Leased
Germany
Yokohama, Japan Office Sales and Service 56,977 Leased
Seoul, Korea Office Sales and Service 17,558 Leased
Hsinchu, Taiwan Office Sales and Service 14,892 Leased
Migdal Ha'Emek and Office Research and Engineering, 53,800 Leased
Herzliya, Israel Marketing, Manufacturing, Sales,
Service and Administration
We lease several other facilities under operating leases that expire at various
times through June 30, 2012 with renewal options at the fair market value for
additional periods up to five years. For more information required by this Item,
see Note 7 of Notes to Consolidated Financial Statements in the 1999 Annual
Report to Stockholders, filed as Exhibit 13.1 and incorporated by reference.
ITEM 3. LEGAL PROCEEDINGS
On August 30, 1999, we were named as a defendant in a lawsuit in which the
plaintiff alleges trade secret misappropriation, unfair competition and trade
slander. This lawsuit is in early stages of discovery and no trial date has been
set. Although the outcome of these claims cannot be predicted with certainty, we
do not believe that this legal matter will have a material adverse effect on our
financial condition. Were an unfavorable ruling to occur, there exists the
possibility of a material impact on the net income of the period in which the
ruling occurs.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
For the information required by this Item, see Note 10 of Notes to Consolidated
Financial Statements in the 1999 Annual Report to Stockholders, which is filed
herewith as Exhibit 13.1 and incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
For the information required by this Item, see "Financial Highlights" in the
1999 Annual Report to Stockholders, which is filed herewith as Exhibit 13.1 and
incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
For the information required by this Item, see "Management's Discussion and
Analysis of Results of Operations and Financial Condition" in the 1999 Annual
Report to Stockholders, which is filed herewith as Exhibit 13.1 and incorporated
herein by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
For the information required by this Item, see "Management's Discussion and
Analysis of Results of Operations and Financial Condition" in the 1999 Annual
Report to Stockholders, which is filed herewith as Exhibit 13.1 and incorporated
herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
For the information required by this Item, see the Consolidated Financial
Statements and Notes thereto in the 1999 Annual Report to Stockholders, which is
filed herewith as Exhibit 13.1 and incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Set forth below are the names of the directors and executive officers of
KLA-Tencor as of August 31, 1999, their ages and positions held. For additional
information required by Item 405 of Regulation S-K of the Securities Act of
1933, as amended, see "Directors and Executive Officers" in the Proxy Statement,
which is incorporated by reference.
NAME AGE POSITION
---- --- --------
Kenneth Levy 56 Chairman of the Board and Director
Kenneth L. Schroeder 53 President, Chief Executive Officer and Director
Gary E. Dickerson 42 Chief Operating Officer
Robert J. Boehlke 58 Executive Vice President and Chief Financial Officer
Dennis J. Fortino 53 Group Vice President, Reticle and Surfscan Group
Edward C. Grady 52 Executive Vice President, Wafer Inspection Group
Samuel A. Harrell 59 Senior Vice President, Strategic Business Development
John H. Kispert 35 Vice President, Finance and Accounting
Neil Richardson 44 Executive Vice President, E-Beam Inspection and Metrology Group
Arthur P. Schnitzer 56 Executive Vice President, Customer Group
Richard P. Wallace 39 Group Vice President, Lithography and Films Group
James W. Bagley 60 Director
Edward W. Barnholt 56 Director
Leo J. Chamberlain 69 Director
Richard J. Elkus, Jr. 64 Director
Dean O. Morton 67 Director
Samuel Rubinovitz 69 Director
Dag Tellefsen 57 Director
Jon D. Tompkins 59 Director
Lida Urbanek 56 Director
Kenneth Levy is a co-founder of KLA-Tencor and since July 1, 1999 has
been Chairman of the Board and a Director. From July 1, 1998 until June 30,
1999, he was the Chief Executive Officer and a Director. From April 30, 1997
until June 30, 1998 he was Chairman of the Board and a Director. From 1975 until
April 30, 1997 he was Chairman of the Board, Chief Executive Officer and a
Director. He currently serves on the boards of directors of Ultratech Stepper,
Inc., SpeedFam-IPEC, Inc. and is a Director Emeritus of SEMI, an industry trade
association.
Kenneth L. Schroeder has been President, Chief Executive Officer and a
Director of KLA-Tencor since July 1, 1999. From November 1991 until June 30,
1999, he was President, Chief Operating Officer and a Director. Mr. Schroeder
has been with the Company for 16 years and
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has held a variety of senior management positions. He currently serves on the
board of directors of GaSonics International and SEMI.
Gary E. Dickerson has been Chief Operating Officer since July 1, 1999.
From July 1997 until June 30, 1999, he was Executive Vice President of the
Customer Group. In January 1996, he was promoted to Group Vice President for the
Wafer Inspection Group. In July 1994 he became the General Manager of the WISARD
Division. Mr. Dickerson joined KLA-Tencor in 1986 and held a series of
management positions.
Robert J. Boehlke has been Executive Vice President and Chief Financial
Officer since April 1997. Mr. Boehlke joined KLA-Tencor in April 1983 as Vice
President and General Manager of the RAPID Division. During the next 7 years he
became Senior Vice President and then Executive Vice President in charge of
several operating divisions including RAPID, WISARD and ATS. He was Chief
Operating Officer from August 1989 until July 1990, when he became Chief
Financial Officer. He currently serves on the board of directors of LTX
Corporation and Entegris Corporation.
Dennis J. Fortino has been Group Vice president of the Reticle and
Surfscan Group since July 1999. From November 1995 to June 1999 he served as
Vice President and General Manager of the Surface Metrology and Surfscan
Divisions. Mr. Fortino served as Vice President and General Manager for
Spectra-Physics Lasers from July 1991 to November 1995.
Edward C. Grady has been Executive Vice President of the Wafer
Inspection Group since July 1999. From August 1998 to July 1999, he was
Executive Vice President of the Precision Measurement Group. From March 1996
until August 1998 he was Vice President and General Management of the RAPID
Division. He held the position of Vice President of Marketing from July 1995
until March 1996. Prior to July 1995, Mr. Grady served as President and CEO of
Hoya MicroMask. He currently serves on the board of directors of Informed
Diagnostics, Inc.
Dr. Samuel A. Harrell joined KLA-Tencor in September 1995 as Senior Vice
President of Strategic Business Development. Dr. Harrell served from October
1992 to December 1995 as the Senior Vice President and Chief Strategy Officer of
SEMATECH. From August 1987 to September 1992, he served as President of
SEMI/SEMATECH.
John H. Kispert has been Vice President of Finance and Accounting since
July 1999. From February 1998 to July 1999 he was Vice President of Operations
for the Wafer Inspection Group. From August 1997 to February 1998 he was
Director of Operations. Mr. Kispert joined KLA-Tencor in February 1995 and has
held a series of other management positions. Prior to KLA-Tencor, Mr. Kispert
was with IBM for 6 years.
Dr. Neil Richardson has been Executive Vice President of the E-Beam
Inspection and Metrology Group since May 1998. He was Executive Vice President
of the Metrology Group from February 1997 to April 1998. He joined KLA-Tencor in
June 1993 as Vice President and General Manager of the Metrology Division.
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Arthur P. Schnitzer has been Executive Vice President of the Customer
Group since November 1998. From June 1997 to October 1998 he was Executive Vice
President, Human Resources. From July 1993 to June 1997 he was Group Vice
President responsible for RAPID , SEMSpec, Prism and manufacturing for WISARD
and RAPID. From 1989 to July 1993 he was Vice President and General Manager of
the WISARD Division. Mr. Schnitzer joined KLA-Tencor in July 1978 and has held a
series of other management positions.
Richard P. Wallace has been the Group Vice President of the Lithography
and Films Group since July 1999. From April 1998 to June 1999 he was Vice
President and General Manager of the Mirage Division. From 1995 to March 1998 he
was Vice President and General Manager of the WISARD Division. Mr. Wallace
joined KLA-Tencor in 1988 and has held a series of other management positions.
James W. Bagley has been a Director of the Company since April 1997. He
was a Director of Tencor from June 1993 until April 1997. He has been Chief
Executive Officer and a Director of Lam Research Corporation since August 1997.
From May 1996 until August 1997 he was Chairman of the Board and Chief Executive
Officer of OnTrak Systems, Inc. until its merger with Lam Research Corporation
in August 1997. From January 1994 until October 1995 he was Vice Chairman and
Chief Operating Officer of Applied Materials, Inc., and Vice Chairman from
November 1995 until May 1996. From December 1987 until December 1993, Mr. Bagley
was President and Chief Operating Officer for Applied Materials, Inc. Mr. Bagley
currently serves on the boards of directors of Teradyne, Inc., Kulicke & Soffa
Industries, Inc., Micron Technology, Inc. and SEMI/SEMATECH.
Edward W. Barnholt has been a Director of the Company since 1995. Mr.
Barnholt joined the Hewlett Packard Company in December 1966. From 1990 to 1997
he was the General Manager of the Test and Measurement Organization and from
February 1998 to March 1999 he was General Manager of the Measurement
Organization. Mr. Barnholt was elected a Vice President of the Hewlett Packard
Company in July 1988, a Senior Vice President in November 1993 and an Executive
Vice President in November 1996. Since March 1999, Mr. Barnholt has been the
President and Chief Executive Officer of Agilent Technologies, Inc.
Leo J. Chamberlain has been a Director of the Company since 1982. He is
a private investor.
Richard J. Elkus, Jr. has been a Director of the Company since April
1997. He was Executive Vice President and Vice Chairman of the board of
directors of Tencor from February 1994 until April 1997. He currently serves on
the boards of directors of Voyan Technology, SOPRA, Barcelona Design and Lam
Research Corporation.
Dean O. Morton has been a Director of the Company since April 1997. From
June 1993 until April 1997 he was a Director of Tencor. In October 1992 Mr.
Morton retired as Executive Vice President, Chief Operating Officer and a
Director of the Hewlett-Packard Company, where he held various positions from
1960 until his retirement. Mr. Morton currently serves as Chairman of the Board
of Centigram Communications Corporation and as a member of the boards of
directors of ALZA Corporation, The
-14-
Clorox Company and BEA Systems Inc. Mr. Morton is also a trustee of the
Metropolitan Series Fund and State Street Research Funds Group and Portfolios
Inc.
Samuel Rubinovitz has been a Director of the Company since 1990. He
previously served as a Director from October 1979 to January 1989. He currently
serves as Chairman of the Board of LTX Corporation and also serves on the boards
of directors of Richardson Electronics, Ltd. and Kronos, Inc.
Dag Tellefsen has been a Director of the Company since 1978. He is the
general partner and President and Managing Director of Glenwood Ventures I and
II, venture capital funds and the general partner and Managing Director of
Vision Capital. He currently serves on the boards of directors of Iwerks
Entertainment Corporation and Metorex International.
Jon D. Tompkins has been a Director since April 1997. He was Chairman of
the Board from July 1998 to June 30, 1999, when he retired his position as
Chairman of the Board. From April 1997 until July 1998 he was Chief Executive
Officer and a Director of KLA-Tencor. From April 1991 until April 1997 he was
President and Chief Executive Officer of Tencor prior to its merger with KLA. He
was a Director of Tencor from 1991 until April 1997 and was appointed Chairman
of the board of directors of Tencor in November 1993. He currently serves on the
boards of directors of Cymer, Electro Scientific Industries, Credence Systems,
Levelite, Logic Vision and the Community Foundation of Silicon Valley.
Lida Urbanek has been a Director since April 30, 1997. She was a
director of Tencor from August 1991 until April 30, 1997. She is a private
investor.
For additional information required by this Item, see "Compliance with Section
16(a) of the Securities Exchange Act of 1934" in the Proxy Statement, which is
incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
For the information required by this Item, see "Executive Compensation" in the
Proxy Statement, which is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
For the information required by this Item, see "Security Ownership -- Principal
Stockholders and Security Ownership of Management" in the Proxy Statement, which
is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
For the information required by this Item, see "Certain Relationships and
Related Transactions" in the Proxy Statement, which is incorporated herein by
reference.
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES, AND REPORT ON FORM 8-K
(a) Financial Statements and Financial Statement Schedules.
1. FINANCIAL STATEMENTS.
Consolidated Balance Sheets - As of June 30, 1999 and 1998
Consolidated Statements of Operations - For the Three Years
Ended June 30, 1999
Consolidated Statement of Stockholders Equity - For the Three
Years Ended June 30, 1999
Consolidated Statements of Cash Flows - For the Three Years Ended
June 30,1999
Notes to Consolidated Financial Statements
Report of Independent Accountants
2. FINANCIAL STATEMENT SCHEDULES.
All schedules are omitted because they are either not applicable
or the required information is shown in the consolidated
financial statements or notes thereto.
(b) Exhibits
Exhibit No. Description
- ----------- -----------
3.1 Amended and Restated Certificate of Incorporation(1)
3.2 Bylaws, as amended November 17, 1998(2)
4.1 Amended and Restated Rights Agreement dated as of August 25, 1996
between the Company and First National Bank of Boston, as Rights
Agent. The Agreement includes the Form of Right Certificate as
Exhibit A and the Summary of Terms of Rights as Exhibit B(3)
10.1 1998 Outside Director Option Plan(4)
10.2 1990 Outside Directors Stock Option Plan(5)
10.3 Tencor Instruments 1993 Nonemployee Directors Stock Option Plan(6)
10.4 1997 Employee Stock Purchase Plan(7)
10.5 Second Amended and Restated 1981 Employee Stock Purchase Plan(8)
10.6 Tencor Instruments Amended and Restated 1993 Equity Incentive
Plan(9)
10.7 1993 Employee Incentive Stock Option Plan of Prometrix
Corporation(10)
10.8 Tencor Instruments Second Amended and Restated 1984 Stock Option
Plan(11)
10.9 1983 Employee Incentive Stock Option Plan of Prometrix
Corporation(12)
10.10 Restated 1982 Stock Option Plan, as amended November 18, 1996(13)
10.11 Excess Profit Stock Plan(14)
10.12 Form of KLA-Tencor Corporation Corporate Officers Retention
Plan(15)
10.13 Form of Retention and Non-Competition Agreement(16)
10.14 Form of Indemnification Agreement(17)
-16-
10.15 Separation Agreement between Graham Siddall and the Company
13.1 1999 Annual Report to Stockholders (deemed to be filed to
the extent that information is specifically incorporated by
reference)
21.1 List of Subsidiaries
23.1 Consent of Independent Accountants
27.1 Financial Data Schedule
Notes
- -----
(1) Filed as Exhibit 3.1 to the Company's form 10-Q for the
quarter ended March 31, 1997.
(2) Filed as Exhibit 3.2 to the Company's Registration
Statement on Form S-8 filed December 4, 1998, SEC File
No. 333-68415.
(3) Filed as Exhibit 1 to the Company's report on form
8-A/A, Amendment No. 2 to the Registration Statement on
Form 8-A filed September 24, 1996, SEC File No. 0-9992.
(4) Filed as Exhibit 10.1 to the Company's Registration
Statement on Form S-8 filed December 4, 1998, SEC File
No. 333-68423.
(5) Filed as Exhibit 4.6 to the Company's Annual Report on
Form 10-K for the year ended June 30, 1991.
(6) Filed as Exhibit 10.3 to the Company's Registration
Statement on Form S-8 filed May 8, 1997, SEC File No.
333-26681.
(7) Filed as Exhibit 10.2 to the Company's Registration
Statement on Form S-8 filed January 30, 1998, SEC File
No. 333-45271.
(8) Filed as Exhibit 10.1 to the Company's Registration
Statement on Form S-8 filed January 30, 1998, SEC File
No. 333-45271.
(9) Filed as Exhibit 10.2 to the Company's Registration
Statement on Form S-8 filed May 8, 1997, SEC File No.
333-26681.
(10) Filed as Exhibit 10.7 to the Company's Registration
Statement on Form S-8 filed May 8, 1997, SEC File No.
333-26681.
(11) Filed as Exhibit 10.1 to the Company's Registration
Statement on Form S-8 filed May 8, 1997, SEC File No.
333-26681.
(12) Filed as Exhibit 10.6 to the Company's Registration
Statement on Form S-8 filed May 8, 1997, SEC File No.
333-26681.
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(13) Filed as Exhibit 10.74 to the Company's Registration
Statement on Form S-8 filed March 7, 1997, SEC File No.
333-22941.
(14) Filed as Exhibit 10.15 to the Company's Registration
Statement on Form S-8 filed August 7, 1998, SEC File
No. 333-60887.
(15) Filed as Exhibit 10.2 to the Company's Registration
Statement on Form S-4 filed March 11, 1997, SEC File
No. 333-23075.
(16) Filed as Exhibit 10.1 to the Company's Registration
Statement on Form S-4 filed March 11, 1997, SEC File
No. 333-23075.
(17) Filed as Exhibit 10.3 to the Company's Annual Report on
Form 10-K for the year ended June 30, 1997.
(c) Reports on Form 8-K
None.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 on September 28, 1999.
KLA-Tencor Corporation
By: /s/ Kenneth Levy
--------------------------------------
Kenneth Levy, Chairman of the Board
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
- --------- ----- ----
/s/ Kenneth Levy
- --------------------------- Chairman of the Board and September 28, 1999
Kenneth Levy Director
/s/ Kenneth L. Schroeder
- --------------------------- President, Chief Executive September 28, 1999
Kenneth L. Schroeder Officer and Director
(Principal Executive Officer)
/s/ Robert J. Boehlke
- --------------------------- Executive Vice President and September 28, 1999
Robert J. Boehlke Chief Financial Officer
(Principal Accounting Officer)
/s/ James W. Bagley
- --------------------------- Director September 28, 1999
James W. Bagley
/s/ Edward W. Barnholt
- --------------------------- Director September 28, 1999
Edward W. Barnholt
- --------------------------- Director
Leo J. Chamberlain
/s/ Richard J. Elkus, Jr.
- --------------------------- Director September 28, 1999
Richard J. Elkus, Jr.
/s/ Dean O. Morton
- --------------------------- Director September 28, 1999
Dean O. Morton
- --------------------------- Director
Samuel Rubinovitz
/s/ Dag Tellefsen
- --------------------------- Director September 28, 1999
Dag Tellefsen
/s/ Jon D. Tompkins
- --------------------------- Director September 28, 1999
Jon D. Tompkins
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SIGNATURE TITLE DATE
- --------- ----- ----
/s/ Lida Urbanek Director September 28, 1999
- --------------------------
Lida Urbanek
-20-
Exhibit Index
Exhibit Number Description
- -------------- -----------
10.15 Separation Agreement between Graham J. Siddall and the
Company
13.1 1999 Annual Report to Stockholders (deemed to be
filed to the extent that the information is
specifically incorporated by reference)
21.1 List of Subsidiaries of KLA-Tencor Corporation
23.1 Consent of Independent Accountants
27.1 Financial Data Schedule