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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, 1998
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)
DELAWARE 04-2564110
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
160 RIO ROBLES SAN JOSE, CALIFORNIA 95134
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (408) 875-4200
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 18, 1998, was $1,313,690,577. 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 87,321,556 shares of Common Stock outstanding as of
September 18, 1998.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Annual Report to Stockholders for the fiscal year ended June
30, 1998 ("1998 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 17,
1998, and to be filed pursuant to Regulation 14A within 120 days after
registrant's fiscal year ended June 30, 1998, are incorporated by reference into
Part III of this Report.
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
THE COMPANY
General. Effective April 30, 1997, Tencor Instruments ("Tencor") merged
into a wholly-owned subsidiary of KLA Instruments Corporation ("KLA"). Following
the Merger, KLA changed its name to KLA-Tencor Corporation (the "Company"). The
Merger brought together two companies with largely complementary product lines
which provide customers with yield management solutions and process monitoring
products throughout the semiconductor manufacturing process. The Company was
incorporated in Delaware in July 1975. Its headquarters are located at 160 Rio
Robles, San Jose, California, 95134, telephone (408) 875-4200.
As the complexity of the sub-micron semiconductor manufacturing process
increases, the need for more, and more effective, process monitors also
increases. Quickly attaining and then maintaining high yields is one of the most
important determinants of profitability in the semiconductor industry. The
importance of high yields from the manufacturing process has grown dramatically
as wafer sizes increase and process geometries decrease. Total yield management
solutions have taken on a significance which has not been experienced in the
past. The Company is in a unique position to be the single source for
comprehensive yield management solutions with a portfolio of
applications-focused technologies and dedicated yield consulting expertise.
The Company is the leader in the design, manufacture, marketing and
service of yield management and process monitoring systems for the semiconductor
industry. The Company uses its technical expertise and understanding of customer
needs to supply 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. The Company's systems are used
to analyze product and process quality at critical steps in the manufacturing
process for integrated circuits and to provide feedback to its customers so that
fabrication problems can be identified, addressed and contained. This
understanding of defect sources and how to contain them enables semiconductor
manufacturers to increase yields. Semiconductor fabrication facilities are
increasingly expensive to build and equip. Yield management and process
monitoring systems, which typically represent a small percentage of the total
investment required to build and equip a fabrication facility, enable integrated
circuit manufacturers to leverage these expensive facilities and improve their
returns on investment.
The Company's principal market is the semiconductor industry, marketing
and selling products worldwide to all of the major semiconductor manufacturers.
The Company's revenues are derived primarily from product sales, principally
through its direct sales force, and to a lesser extent, through distributors.
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Yield Management Solutions Group
Maximizing yields, or the number of good die per wafer, is a key goal of
modern semiconductor manufacturing. Higher yields increase the revenue a
manufacturer can obtain for each semiconductor wafer processed. As geometry
linewidths 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, by analyzing them to determine
process problems, and, after corrective action has been taken, by monitoring
subsequent results to ensure that the problem has been contained. Monitoring and
analysis often take 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 yield, all of which
require the capture and analysis of data gathered through many measurements:
- Engineering analysis is performed off 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 is used to review the status of circuits
during production steps. Information generated is used to
determine whether the fabrication process steps are within
required tolerances and to make any necessary process
adjustments in real-time 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 are used at several steps 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; 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 new products are first
built. Equipment that helps a manufacturer quickly increase new product yields
enables the manufacturer to offer these new products in volume at a time when
they are likely to generate the greatest profits.
Wafer Inspection Group
The Company created the market for automated defect inspection of
semiconductor wafers over 13 years ago. The wafer inspection group product
offerings include unpatterned wafer inspection and patterned wafer inspection
tools which are used to find, count and characterize particles and pattern
defects on wafers both in engineering applications and in-line at various
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stages during the semiconductor and wafer manufacturing processes. Semiconductor
manufacturers use wafer inspection systems to monitor their manufacturing
processes and to refine those processes to increase the yield of acceptable
integrated circuits. Accordingly, semiconductor manufacturers base their
purchase of wafer inspection systems on a variety of criteria, including
sensitivity, throughput, total cost of ownership, ease of use, degree of
automation, system repeatability and correlation and its ability to be
integrated into overall yield management systems.
In 1992, the Company introduced the 21XX inspection systems providing
the sensitivity required for microprocessors and other logic devices as well as
both the logic and repeating array portions of memory devices. Subsequent
upgrades with each new model provided greater sensitivity and greater maximum
speed compared to its predecessor. The 2135 was introduced in 1996 with twice
the throughput and higher sensitivity compared to its predecessor. In 1997, the
Company introduced the 2138, a new patterned wafer inspection system with
advanced capability for demanding inspection applications. It is based on the
21XX inspection platform and combines an ultra- broadband illumination source
and significantly improved bright field optics with Segmented Auto Thresholding.
This combination significantly increases defect sensitivity and capture, while
reducing or eliminating false defect counts in semiconductor processes. In 1998,
the 2230 was introduced offering combined darkfield illumination with high-speed
image processing for production line monitoring of yield limiting defects.
The Company's Surfscan(R) family of laser-scanning products are widely
used for wafer qualification, process monitoring and equipment monitoring. They
provide the high sensitivity, fast throughput and low cost of ownership required
in a production environment and are used in virtually all semiconductor
manufacturing processes. Surfscans are key components of the defect reduction
strategies of many leading semiconductor manufacturers. The systems use a
standardized file format that allow defect location data to be easily
transferred to off-line review stations for defect classification. The Surfscan
AIT is the cost/performance leader for in-line monitoring of deposited films.
The Surfscan AIT, the 2138 and the 2230 are part of the Company's Intelligent
Line Monitoring solution, which includes the full line of patterned wafer
inspection systems, as well as the IMPACT/Online ADC, CRS/Offline ADC and Quest
defect data analysis systems. This integrated yield management approach provides
semiconductor device manufacturers with a comprehensive tool set which enables
the acceleration of time-to-yield enhancements and yield goals. The SP1,
introduced in 1997, was the Company's first system to address the unique
unpatterned inspection requirements of 300mm wafers, combining a stationary
illumination beam, uniform axi-symmetric collection optics and an optional
bright field channel with a rotating wafer scheme to allow detection of surface
defects and contaminants at speeds of 100 wafers per hour on 300mm wafers, and
150 wafers per hour on 200mm wafers. It performs rapid, highly sensitive
inspection of unpatterned 300mm wafers, providing capabilities critical to wafer
and equipment manufacturers who are developing products for emerging 0.25 micron
process technologies and below.
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The Company offers analysis systems comprised of database management
hardware and software to translate raw inspection data into patterns which
reveal process problems. The Company's productivity and analysis software
systems collect, store and analyze data collected by test equipment manufactured
by both the Company and others to provide semiconductor manufacturers with an
integrated yield management solution. The software systems identify defect
sources, show defect trends and help semiconductor manufacturers develop
long-term yield improvement strategies.
E-Beam Technology, CD and Overlay Group
As feature sizes of semiconductor circuits continue to decrease for
leading edge semiconductor products, the Company believes that conventional
optical technologies ultimately will begin to reach physical limits imposed by
the wavelength of light and fail to provide the necessary inspection resolution.
Working closely with those customers with the most advanced inspection
requirements, the Company has developed the SEMSpec, the industry's only fully
automatic defect electron beam inspection system. The development of these
systems was funded in part by customer-sponsored research and development
programs. The Company expects the market for these inspection systems to emerge
slowly.
The Company's E-Beam metrology business has an established position in
the Critical Dimension Scanning Electron Microscope (CD-SEM) inspection market,
a market which the Company believes is larger than the optical overlay market,
and one which it believes will grow as semiconductor manufacturers continue to
produce more complex semiconductor devices. The Company's first generation
E-Beam metrology system features high throughput and automated setup. The new
8100XP series 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 and critical dimension 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, the Company offers the 5000 series metrology systems: the 5100 for
overlay, and the 5105 for both overlay and critical dimension measurement. In
1996, the Company introduced the 5200 overlay system, which has performance and
usability enhancements compared to the 5100.
The Company, utilizing its expertise in digital image processing, has
developed sophisticated measurement algorithms for the 5000 series that are more
tolerant of process variations. Using coherence probe microscopy, the system
scans the image-forming coherence region through the wafer plane, only gathering
information from in-focus surfaces. As a result, measurements are more tolerant
of process and substrate reflectivity variations than those from ordinary
optical systems. The precision measurements from the 5000 series identify the
magnitude and direction of overlay mis-registration errors arising from the
stepping process and
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from optical distortion inherent in the stepper lens. Based upon these
measurements, users can fine-tune the stepper program to compensate for these
errors, and improve process yield.
Precision Measurement Group
Reticle Inspection. RAPID, the Company's original business unit, created
the market for automated inspection of reticles and photomasks for the
semiconductor manufacturing industry over 20 years ago and continues to have a
predominant share of this market. During photolithography, a stepper projects a
circuit pattern from a reticle onto a wafer. Error-free reticles are the first
step in ensuring high yields in the manufacturing process because defects in
reticles can translate into millions of ruined die.
The Company's 3XX product family incorporates a reference database
generator and data preparation system which give full die-to-database
functionality to the inspection, permitting inspection against the ideal reticle
pattern as specified by the user's CAD program. The Company has continued to
develop enhancements to the 3XX inspection system to improve performance,
serviceability and reliability. In 1997, the Company introduced two new reticle
and photomask inspection enhancements, the Advanced Performance Algorithm (APA)
and the STARlight High Resolution option. These enhancements enable highly
accurate and reliable inspection of next- generation 0.25 micron reticles,
including reticles with complex optical proximity correction geometries. In
1998, the 353UV automated reticle inspection system was introduced which allows
for ultraviolet-based inspection providing the sensitivity levels necessary on
complex reticles designed for deep UV lithography applications.
Film Measurement. The Company's film measurement division produces both
film thickness and resistivity measurement tools. The film thickness products
are used to measure a variety of optical properties of thin films, while the
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-to-wafer uniformity of the
process is of paramount importance to semiconductor manufacturers to achieve
high yields at the lowest possible cost.
The Company has been a leader in the thin film market since entering it
over 12 years ago. In 1995, the Company introduced the UV-1250SE, which brought
a powerful new technology, spectroscopic ellipsometry, to production. Continuing
innovations resulted in the UV-1280SE with one of the most robust measurement
capabilities in the industry. The use of thin film systems throughout the
manufacturing facility creates significant challenges in measurement flexibility
(especially on new film materials and multi-layer films), recipe management and
factory floor computer automation. The Company's UV product line, which has an
installed base of over 500 systems has addressed these requirements by
delivering powerful measurement engines in reliable, easy to use system designs.
The systems also incorporate software which enables extensive use of host
computer operation to control the equipment, analyze the data and
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feedback to the process equipment, all steps which are critical for effective
process control and maintaining high yields.
Surface Metrology. 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 production and quality control areas. In addition, the
Company produces stress measurement systems which detect reliability related
problems such as film cracking, voiding and lifting. The Company recently
introduced a new high-resolution profiler (HRP) product which significantly
increased the potential applications for surface profilers because it is the
first metrology system to offer the combined monitoring capability traditionally
achieved by two different instruments, an in-line profiler for measuring wide
spatial problems such as dishing and erosion and the off-line atomic force
microscope for the nanoscale problem of plug recess.
CUSTOMERS
The Company sells its systems to all of the world's major semiconductor
manufacturers. In fiscal 1998, 1997 and 1996, no single customer accounted for
more than 10% of the Company's revenues.
INTERNATIONAL REVENUES
The Company has wholly-owned foreign subsidiaries or foreign branches of
domestic subsidiaries in Japan, Korea, Taiwan, Europe, Israel, Singapore and
Malaysia for marketing, sales and service of products. In addition, the Company
has manufacturing operations in Israel for its metrology products. International
sales accounted for approximately 56%, 65% and 66% of the Company's revenues in
fiscal 1998, 1997 and 1996, respectively. For information regarding the
Company's revenues from foreign operations for the Company's last three fiscal
years, see Note 8 of Notes to Consolidated Financial Statements incorporated
herein by reference to Exhibit 13.1 hereto.
The Company believes that foreign sales will continue to be a
significant percentage of revenues. The future performance of the Company will
be dependent upon, in part, its ability to continue to compete successfully in
Asia, one of the largest markets for the sale of yield management services in
process monitoring equipment. The Company's ability to compete in this area in
the future is dependent upon the continuation of favorable trading relationships
between the region (especially Japan and Korea) and the United States and the
continuing ability of the Company 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 the 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 the
Company's international business may be affected by fluctuations in currency
exchange rates. Although the Company attempts to manage near term
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currency risks through "hedging," there can be no assurance that such efforts
will be adequate. These factors could have a material adverse effect on the
Company's future business and financial results.
SALES, SERVICE AND MARKETING
The Company believes that the size and location of its field sales,
service and applications engineering organization represents a competitive
advantage in its served markets. In the United States, Europe, Asia Pacific and
Japan the Company has a direct sales force although in the past it has used a
mix of direct sales and distributor/sales representative arrangements. The
Company maintains an export compliance program that fully meets the requirements
of the U.S. Department of Commerce and the Department of State. The Company does
not consider its business to be seasonal in nature, but it is cyclical with
respect to the capital equipment procurement practices of major semiconductor
manufacturers and is impacted by the investment patterns of such manufacturers
in different global markets.
The Company's sales, service and applications facilities throughout the
world employ over 1,700 sales, service and applications engineers. The Company
maintains sales and service offices throughout the United States and in Japan,
Korea, Taiwan, Singapore, Europe and Israel.
RESEARCH AND DEVELOPMENT
The market for yield management and process monitoring systems is
characterized by rapid technological development and product innovation. The
Company believes that continued and timely development of new products and
enhancements to existing products are necessary to maintain its competitive
position. Accordingly, the Company devotes a significant portion of its
personnel and financial resources to research and development programs and seeks
to maintain close relationships with customers to remain responsive to their
needs. In order to meet continuing developments in the semiconductor industry
the Company is committed to significant engineering efforts for product
improvement and new product development. New product introductions may
contribute to fluctuations in operating results, since customers may defer
ordering products from existing product lines. If new products have reliability
or quality problems, reduced orders, higher manufacturing costs, delays in
acceptance of and payment for new products and additional service and warranty
expense may result. On occasion, the Company has experienced reliability and
quality problems in connection with certain product introductions, resulting in
some of these consequences. There can be no assurance that the Company will
successfully develop and manufacture new hardware and software products or that
new hardware and software products introduced by the Company will be accepted in
the marketplace. If the Company does not successfully introduce new products,
its results of operations will be adversely affected. For information regarding
the Company's research and development expense during the last three fiscal
years, see Management's Discussion and Analysis of Results of Operations and
Financial Condition incorporated herein by reference to Exhibit 13.1 hereto.
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MANUFACTURING
The Company's principal manufacturing activities take place in San Jose
and Milpitas, California 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 the Company's
finished products. The Company employs over 1,900 manufacturing and engineering
personnel and also cross-trains 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 Company specifications. Certain of the components and
subassemblies included in the Company's 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 the Company endeavors to
ensure that adequate supplies are available to maintain manufacturing schedules,
should supply for any part be interrupted. Although the Company seeks to reduce
its 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 the Company's results of
operations and damage customer relationships.
COMPETITION
The worldwide market for yield management and process control systems is
highly competitive. In each of the markets it serves, the Company faces
competition from established and potential competitors, some of which may have
greater financial, engineering, manufacturing and marketing resources than the
Company. The Company believes that to remain competitive it will require
significant financial resources in order 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. The semiconductor equipment
industry is becoming increasingly dominated by large manufacturers such as
Applied Materials, Inc., Hitachi Electronics Engineering Co., Ltd. and Tokyo
Electron Limited, who have the resources to support customers on a worldwide
basis. Some of these competitors have substantially greater financial resources
and more extensive engineering, manufacturing, marketing and customer service
and support capabilities than the Company. The Company expects its 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. No assurance can be given that the Company will be
able to continue to compete successfully against its competitors.
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. The Company believes that,
while price and delivery are important competitive factors, the customers'
overriding requirement is for systems which easily and effectively incorporate
automated, highly accurate inspection capabilities into their existing
manufacturing processes, thereby enhancing productivity. The Company's yield
management and process
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control systems for the semiconductor industry are generally higher priced than
those of its present competitors and are intended to compete based upon
performance and technical capabilities. These systems also compete with less
expensive, more labor-intensive manual inspection devices.
In addition, in configuring their fabrication plants, semiconductor
manufacturers increasingly tend to select specific items of manufacturing
equipment for all of the fabrication facilities used to produce each generation
of integrated circuits. As a result of this process, the Company's failure to
have one or more of its products selected by a semiconductor manufacturer for
use in its facilities for a particular generation of integrated circuits may
effectively eliminate sales of that product for all of that manufacturer's
fabrication plants used for that generation of integrated circuits which could
have a significant and long-term adverse effect on the Company's results of
operations. Although the Company has been relatively successful to date in these
selection decisions, not all of the Company's products have been selected by
each of its customers for fabrication facilities for each generation of
integrated circuits. Further, there can be no assurance that the Company's
products will be selected in the future, or that the Company will continue to be
as successful in connection with selection processes as it has been to date.
PATENTS AND OTHER PROPRIETARY RIGHTS
The Company protects its proprietary technology through a variety of
intellectual property laws including patent, copyright and trade secrets law;
however, the Company believes that, due to the rapid pace of innovation within
the yield management and process control systems industry, its protection of
patent and other intellectual property rights is less important than factors
such as its technological expertise, continuing development of new systems,
market penetration and installed base and the ability to provide comprehensive
support and service to customers. There can be no assurance that the Company
will be able to protect its technology or that competitors will not be able to
develop similar technology independently.
The Company currently holds 117 U.S. patents and has applied for 78
additional patents in the United States. In addition, the Company has 28 foreign
patents and applied for 85 additional foreign patents. From time to time the
Company acquires 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 the Company's applications, that license assignments will be
made as anticipated or that the Company's patents, licenses or other proprietary
rights will be sufficiently broad to protect its technology. In addition, no
assurance can be given that any patents issued to or licensed by the Company
will not be challenged, invalidated or circumvented or that the rights granted
thereunder will provide a competitive advantage to the Company.
BACKLOG
At June 30, 1998, the Company's backlog for systems totaled $424
million, compared to $573 million at June 30, 1997. In general, systems ship
within six months to a year after receipt
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of a customer's purchase order. The Company expects to fill the present backlog
of orders during fiscal 1999. All orders are subject to cancellation or delay by
the customer with limited or no penalty. The Company's backlog is not
necessarily indicative of actual sales for any succeeding period.
EMPLOYEES
As of June 30, 1998, the Company employed a total of approximately 4,500
persons. None of the Company's employees are represented by a labor union. The
Company has experienced no work stoppages and believes that its employee
relations are good.
Competition in the recruiting of personnel in the semiconductor and
semiconductor equipment industry is intense. The Company believes that its
future success will depend in part on its continued ability to hire and retain
qualified management, marketing and technical employees.
ITEM 2. PROPERTIES
Certain information concerning the Company's properties at June 30, 1998
is set forth below:
LOCATION Type Principal use Footage Ownership
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San Jose, CA Office, Corporate Headquarters, Research and 519,382 Leased
plant and Engineering, Marketing, Manufacturing, Sales
warehouse and Service and Sales Administration 233,699 Owned
Milpitas, CA Office, Research and Engineering, Marketing, 572,670 Lease
plant and Manufacturing, Sales and Service and Sales
warehouse Administration
Scotts Valley, CA Office, plant Research and Development 9,945 Leased
Austin, TX Office Sales and Service, Training 37,074 Leased
Richardson, TX Office Sales and Service, Training 28,474 Leased
Basingstoke and Office, plant Sales and Service, Warehouse 16,475 Leased
Wokingham, England
Grenoble, Bretonneux Office Sales and Service 14,798 Leased
and Evry, France
Dresden and Pucheim Office Sales and Service 14,975 Leased
Germany
Naruse, Japan office Sales and Service 29,107 Leased
Yokohama, Japan office Sales and Service 56,967 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, Marketing, 56,057 Leased
Herzliya, Israek Manufacturing and Sales and Service and
Sales Administration
The Company leases 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. See Note 7 to Notes to
Consolidated Financial Statements in Exhibit 13.1 hereto.
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ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
The information required by this Item is incorporated herein by
reference to Exhibit 13.1 hereto.
ITEM 6. SELECTED FINANCIAL DATA
The information required by this Item is incorporated herein by
reference to Exhibit 13.1 hereto.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
Management's Discussion and Analysis of Results of Operations and
Financial Condition is incorporated herein by reference to Exhibit 13.1 hereto.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information required by this item is incorporated herein by
reference to Exhibit 13.1 hereto.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements are incorporated herein by
reference to Exhibit 13.1 hereto.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not Applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Set forth below are the names of the present directors and executive
officers of the
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Company, their ages and positions held with the Company. Additional information
required by Item 405 of Regulation S-K of the Securities Act of 1933, as
amended, is incorporated herein by reference to the Company's Proxy Statement.
NAME AGE POSITION
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Jon D. Tompkins 58 Chairman of the Board
Kenneth Levy 55 Chief Executive Officer and Director
Kenneth L. Schroeder 52 President and Chief
Operating Officer and Director
Robert J. Boehlke 57 Executive Vice President and Chief Financial
Officer
Frederick A. Ball 36 Vice President Finance and Accounting
Lisa C. Berry 40 Vice President and General Counsel
Gary E. Dickerson 41 Executive Vice President, Yield Management
Solutions
Edward C. Grady 51 Executive Vice President, Precision
Measurement Group
Samuel A. Harrell 58 Senior Vice President, Strategic Business
Development
Neil Richardson 43 Executive Vice President, E-Beam Technology,
CD and Overlay Group
Magnus O. W. Ryde 42 Vice President, Worldwide Sales Operations
Arthur P. Schnitzer 55 Executive Vice President, Human Resources
Graham J. Siddall 51 Executive Vice President Wafer Inspection
Group
James W. Bagley 59 Director
Edward W. Barnholt 55 Director
Leo J. Chamberlain 68 Director
Richard J. Elkus, Jr. 63 Director
Dean O. Morton 66 Director
Yoshio Nishi 58 Director
Samuel Rubinovitz 68 Director
Dag Tellefsen 56 Director
Lida Urbanek 55 Director
Kenneth Levy is a founder of the Company and since July 1, 1998 has been
Chief Executive Officer and a Director. From 1975 until April 30, 1997 he was
Chairman of the Board and Chief Executive Officer. From April 30, 1997 until
June 30, 1998 he was Chairman of the Board. He currently serves on the boards of
directors of Ultratech Stepper, Inc. and Integrated Process Equipment
Corporation.
Jon D. Tompkins has been Chairman of the Board since July 1, 1998. From
April 30, 1997 until July 1, 1998 he was Chief Executive Officer and a Director
of the Company. From 1991 until
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April 30, 1997 he was President and Chief Executive Officer of Tencor
Instruments, a manufacturer of wafer inspection, film measurement and metrology
systems for the semiconductor industry ("Tencor") prior to its merger with the
Company in April 1997 (the "Merger"). 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 Varian
Corporation and ESI Incorporated as well as chairman of the board of
SEMI/SEMATECH, a private research and development consortium of U.S.
semiconductor equipment and materials companies.
Kenneth L. Schroeder has been President, Chief Operating Officer and
Director of the Company since November 1991. He currently serves on the board of
directors of GaSonics International.
Robert J. Boehlke has been Vice President and Chief Financial Officer of
the Company since July 1990. In April 1997 he was promoted to Executive Vice
President. He currently serves on the board of directors of LTX Corporation and
Fluorware.
Frederick A. Ball became Vice President Finance and Accounting of the
Company on April 30,1997 as a result of the Merger. He joined Tencor as
corporate controller in March 1995 and was promoted to corporate vice president
and appointed corporate secretary in January of 1996. Prior to Tencor, Mr. Ball
was with Price Waterhouse LLP for ten years.
Lisa C. Berry joined the Company in September 1996 as Vice President and
General Counsel. Ms. Berry joined the Company from LSI Logic Corporation, a
manufacturer of application specific integrated circuits, where she held the
positions of associate general counsel from October 1994 until September 1996
and assistant general counsel from August 1991 until October 1994.
Gary E. Dickerson joined the Company in January 1986 and has held a
series of positions. In July 1990 he was promoted to Director of Marketing and
Vice President of Marketing in July 1992. In July 1993, he was promoted to Vice
President and Director of the Wafer Inspection Group. In January 1996, he was
promoted to Group Vice President. In 1997, Mr. Dickerson became Executive Vice
President of the newly formed Yield Management Solutions Group.
Edward C. Grady joined the Company in December 1994 as Vice President of
Advanced Programs. He took the position of Vice President of Marketing in July
1995 until March 1996. In March 1996 until August 1998 he was Vice President and
General Management of the RAPID Division. In August 1998 he was promoted to
Executive Vice President of the Precision Measurement Group.
Dr. Samuel A. Harrell joined the Company in September 1995 as Senior
Vice President of Strategic Business Development. Dr. Harrell is responsible for
strategic corporate development. Dr. Harrell served from October 1992 to
December 1995 as the senior vice president and chief
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strategy officer of SEMATECH. From August 1987 to September 1992 he served as
president of SEMI/SEMATECH.
Dr. Neil Richardson joined the Company in June 1993 as Vice President
and General Manager of the Metrology Division. He became Executive Vice
President of the Metrology Group (of the combined operations of the Company and
Tencor as a result of the Merger) in 1997. He served as vice president and
general manager of the Diagnostic Systems Group of Schlumberger Technologies
from September 1985 to November 1991, and was the corporate technology adviser
for Schlumberger Ltd., a manufacturer of electronic test equipment, from
November 1991 to May 1993.
Magnus O.W. Ryde joined the Company in June 1980 and has held a series
of positions. In 1991, Mr. Ryde became Vice President of Operations for the
Company's ATS division. He was promoted to Vice President and General Manager of
the Customer Support division in July 1992. In July 1995, he became Vice
President for the United States and European Sales Organizations. In July 1997
he was promoted to Vice President of Worldwide Field Operations.
Arthur P. Schnitzer joined the Company in July 1978 and has held a
series of positions. In 1989 he was promoted to Vice President and General
Manager of the Wisard division. In July 1993, he became Group Vice President
responsible for RAPID, SEMSPEC, PRISM and manufacturing for WISARD and RAPID.
Since June 1997 he has been Executive Vice President, Human Resources.
Dr. Graham J. Siddall was appointed Executive Vice President of the
Wafer Group (of the combined operations of the Company and Tencor as a result of
the Merger) in April 1997. In December 1995, he was appointed executive vice
president and chief operating officer of Tencor. Previously Dr. Siddall served
as senior vice president for the Tencor Instruments Wafer Inspection Division
from November 1994 to December 1995. He joined Tencor as a vice president in
1988.
James W. Bagley has been a Director of the Company since April 30, 1997.
He was a director of Tencor from June 1993 until April 30, 1997. He has been
chief executive officer and a director of Lam Research Corporation, a
manufacturer of semiconductor processing equipment, 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 December 1987 until December 1993, Mr. Bagley was president and chief
operating officer for Applied Materials, Inc., a manufacturer of wafer
fabrication systems to the semiconductor industry. 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. 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 Hewlett-Packard Company, a manufacturer of electronic and
computer equipment in December
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1966. From 1988 to 1990 he was general manager of the Electronics Instruments
Group of Hewlett-Packard Company. In July 1988, he was elected vice president
and in November 1993 he was elected senior vice president of Hewlett-Packard
Company. Mr. Barnholt is currently executive vice president and general manager
of the Test and Measurement Organization of Hewlett Packard Company.
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 30,
1997. He was executive vice president and vice chairman of the board of
directors of Tencor from February 1994 until April 30, 1997. Previously, he was
with Prometrix Corporation from September 1983 until February 1994 where he held
the positions of chairman and chief executive officer until its merger with
Tencor in February 1994. He currently serves on the boards of directors of Voyan
Technology and Lam Research Corporation.
Dean O. Morton has been a Director of the Company since April 30, 1997.
From June 1993 until April 30, 1997 he was a director of Tencor. In October 1992
Mr. Morton retired as executive vice president, chief operating officer and a
director of 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 director of ALZA Corporation, The
Clorox Company, BEA Systems Inc. and Raychem Corporation. Mr. Morton is also a
trustee of the Metropolitan Series Fund and State Street Research Funds Group
and Portfolios Inc.
Yoshio Nishi has been a Director of the Company since 1989. Since May
1995 he has been director of research and development and senior vice president
of the Semiconductor Group of Texas Instruments Incorporated, a manufacturer of
integrated circuits and electronic equipment. From January 1986 to April 1995 he
was director of the Silicon Process Laboratory for Hewlett-Packard Laboratories,
a semiconductor technology research facility affiliated with Hewlett-Packard
Company.
Samuel Rubinovitz has been a Director of the Company since 1990. He
previously served as a Director of the Company from October 1979 to January
1989. From April 1989 to January 1994 he was executive vice president of EG&G,
Inc., a diversified manufacturer of scientific instruments and electronic,
optical and mechanical equipment. He currently serves on the boards of directors
of Richardson Electronics, Inc., LTX Corporation and Kronos, Inc.
Dag Tellefsen has been a Director of the Company since 1978. He is the
general partner of the Investment Manager of Glenwood Ventures I and II, venture
capital funds. He currently serves on the boards of directors of Iwerks
Entertainment Corporation, Aptix, Metorex International and Aeneid.
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Lida Urbanek has been a Director of the Company since April 30, 1997.
She is a private investor. She was a director of Tencor from August 1991 until
April 30, 1997.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated by reference to
"EXECUTIVE COMPENSATION" in the Company's Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information required by this Item is incorporated by reference to
"SECURITY OWNERSHIP -- Principal Stockholders and Security Ownership of
Management" in the Company's Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information regarding "Certain Relationships and Related
Transactions" as it appears in the Proxy Statement is incorporated herein by
reference.
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, 1998 and 1997
Consolidated Statements of Operations - For the Three Years
Ended June 30, 1998 Consolidated Statement of Stockholders'
Equity - For the Three Years Ended June 30, 1998 Consolidated
Statements of Cash Flows - For the Three Years Ended June 30,
1998 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.
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3. Exhibits.
EXHIBIT NO. DESCRIPTION
----------- -----------
3.1 Certificate of Incorporation as amended(1)
3.2 Bylaws, as amended(1)
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
Rights Agreement includes as Exhibit A, the form
of Right Certificate and as Exhibit B, the summary
of terms of Rights.(2)
10.1 Form of Retention and Non-Competition Agreement(3)
10.2 Form of KLA-Tencor Corporation Corporate Officers
Retention Plan(3)
10.3 Form of Indemnification Agreement(4)
10.4 1990 Outside Directors Stock Option Plan(5)
10.5 Second Amended and Restated 1981 Employee Stock
Purchase Plan(6)
10.6 Restated 1982 Stock Option Plan(7)
10.7 Tencor Instruments Second Amended and Restated
1984 Stock Option Plan(8)
10.8 Tencor Instruments Amended and Restated 1993
Equity Incentive Plan(8)
10.9 Tencor Instruments 1993 Nonemployee Directors
Stock Option Plan(8)
10.10 1983 Employee Incentive Stock Option Plan of
Prometrix Corporation(8)
10.11 1993 Employee Incentive Stock Option Plan of
Prometrix Corporation(8)
10.12 1997 Employee Stock Purchase Plan(9)
10.13 Excess Profit Stock Plan(10)
13.1 1998 Annual Report to Stockholders (deemed to be
filed except 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
- ---------------------
Notes
(1) Filed as an exhibit to the Registrant's Form 10-Q for the quarter ended
March 31, 1997.
(2) Filed as exhibit 1 to the Registrant'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.
(3) Filed as an exhibit to the Registrant's Registration Statement on Form
S-4 filed March 11,1997, SEC File No.333-23075.
(4) Filed as an exhibit to the Registrant's Annual Report on Form 10-K for
the year ended June 30, 1997.
(5) Filed as exhibit 4.6 to the Registrant's Annual Report on Form 10-K for
the year ended June 30, 1991.
(6) Filed as exhibit 10.1 to the Registrant's Registration Statement on Form
S-8 filed January 30, 1998, SEC File No. 333-45271.
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(7) Filed as exhibit 10.74 to the Registrant's Registration Statement on
Form S-8 filed March 7, 1997, SEC File No. 333-22941.
(8) Filed as exhibits 10.1, 10.2, 10.3, 10.6 and 10.7, respectively, to the
Registrant's Registration Statement on Form S-8 filed May 8, 1997, SEC
File No. 333-26681.
(9) Filed as exhibit 10.2 to the Registrant's Registration Statement on Form
S-8 filed January 30, 1998, SEC File No. 333-45271.
(10) Filed as exhibit 10.15 to the Registrant's Registration Statement on
Form S-8 filed August 7, 1998, SEC File No. 333-60887.
(b)REPORT 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, 1998.
KLA-Tencor Corporation
By: /s / Kenneth Levy
-------------------------------
Kenneth Levy, Chief Executive Officer
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 Chief Executive Officer and Director
-------------------------- (Principal Executive Officer) September 28, 1998
Kenneth Levy
/s/ Jon D. Tompkins Chairman of the Board and Director September 28, 1998
--------------------------
Jon D. Tompkins
/s/ Kenneth L. Schroeder President, Chief Operating
-------------------------- Officer and Director September 28, 1998
Kenneth L. Schroeder
/s/ Robert J. Boehlke Executive Vice President and
-------------------------- Chief Financial Officer
Robert J. Boehlke (Principal Accounting Officer) September 28, 1998
/s/ James W. Bagley Director September 28, 1998
-------------------------
James W. Bagley
/s/ Edward W. Barnholt Director September 28, 1998
----------------------
Edward W. Barnholt
/s/ Leo J. Chamberlain Director September 28, 1998
----------------------
Leo J. Chamberlain
/s/ Richard J. Elkus, Jr. Director September 28, 1998
-------------------------
Richard J. Elkus, Jr.
/s/ Dean O. Morton Director September 28, 1998
--------------------------
Dean O. Morton
/s/ Yoshio Nishi Director September 28, 1998
--------------------------
Yoshio Nishi
/s/ Samuel Rubinovitz Director September 28, 1998
--------------------------
Samuel Rubinovitz
/s/ Dag Tellefsen Director September 28, 1998
--------------------------
Dag Tellefsen
/s/ Lida Urbanek Director September 28, 1998
--------------------------
Lida Urbanek
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EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION
-------------- -----------
13.1 1998 Annual Report to Stockholders (deemed to be
filed except 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