KLA-Tencor Reports Fiscal 2011 Fourth Quarter and Full Year Results

GAAP Results

Q4 FY 2011

Q3 FY 2011

Q4 FY 2010

Revenues

$ 892 million

$ 834 million

$ 559 million

Net Income

$ 245 million

$ 210 million

$ 113 million

Earnings per Diluted Share

$ 1.43

$ 1.22

$ 0.66

Non-GAAP Results

Q4 FY 2011

Q3 FY 2011

Q4 FY 2010

Net Income

$ 256 million

$ 225 million

$ 120 million    

Earnings per Diluted Share

$ 1.50

$ 1.31

$ 0.70

KLA-Tencor Corporation

Condensed Consolidated Unaudited Balance Sheets

(In thousands)

June 30, 2011

June 30, 2010

ASSETS

Cash, cash equivalents and marketable securities

$

2,038,535

$

1,534,044

Accounts receivable, net

583,270

440,125

Inventories, net

575,730

401,730

Other current assets

478,475

459,566

Land, property and equipment, net

257,358

236,752

Goodwill

328,156

328,006

Purchased intangibles, net

85,902

117,336

Other non-current assets

328,095

389,497

Total assets

$

4,675,521

$

3,907,056

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

Accounts payable

$

142,945

$

107,938

Deferred system profit

192,338

204,764

Unearned revenue

44,264

37,026

Other current liabilities

502,471

422,059

Total current liabilities

882,018

771,787

Non-current liabilities:

Long-term debt

746,290

745,747

Income tax payable

78,337

53,492

Unearned revenue

34,905

20,354

Other non-current liabilities

73,078

69,065

Total liabilities

1,814,628

1,660,445

Stockholders' equity:

Common stock and capital in excess of par value

1,010,659

921,460

Retained earnings

1,852,633

1,356,454

Accumulated other comprehensive income (loss)

(2,399)

(31,303)

Total stockholders' equity

2,860,893

2,246,611

Total liabilities and stockholders' equity

$

4,675,521

$

3,907,056

KLA-Tencor Corporation

Condensed Consolidated Unaudited Statements of Operations

Three months ended

Twelve months ended

(In thousands, except per share data)

June 30, 2011

June 30, 2010

June 30, 2011

June 30, 2010

Revenues:

Product

$

743,702

$

430,286

$

2,613,438

$

1,324,270

Service

148,737

129,133

561,729

496,490

Total revenues

892,439

559,419

3,175,167

1,820,760

Costs and operating expenses:

Costs of revenues

356,180

227,919

1,259,243

815,662

Engineering, research and development

100,929

83,309

386,163

329,560

Selling, general and administrative

91,261

87,349

369,431

361,372

Total costs and operating expenses

548,370

398,577

2,014,837

1,506,594

Income from operations

344,069

160,842

1,160,330

314,166

Interest income and other, net

(10,026)

(10,740)

(50,264)

(22,985)

Income before income taxes

334,043

150,102

1,110,066

291,181

Provision for income taxes

89,026

37,017

315,578

78,881

Net income

$

245,017

$

113,085

$

794,488

$

212,300

Net income per share:

Basic

$

1.46

$

0.67

$

4.75

$

1.24

Diluted

$

1.43

$

0.66

$

4.66

$

1.23

Cash dividend declared per share

$

0.25

$

0.15

$

1.00

$

0.60

Weighted average number of shares:

Basic

167,350

168,986

167,261

170,652

Diluted

170,884

171,275

170,352

173,034

KLA-Tencor Corporation

Condensed Consolidated Unaudited Statements of Cash Flows

Three months ended

June 30,

(In thousands)

2011

2010

Cash flows from operating activities:

Net income

$

245,017

$

113,085

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization

22,533

19,554

Asset impairment charges

3,183

4,557

Provision for doubtful accounts

-

(2,888)

Non-cash stock-based compensation expense

18,939

23,459

Net gain on sale of marketable securities and other investments

(580)

(1,388)

Changes in assets and liabilities, net of assets acquired and liabilities assumed in business combinations:

Increase in accounts receivable, net

(13,918)

(113,496)

Increase in inventories

(20,125)

(26,461)

Decrease in other assets

14,366

26,734

Increase in accounts payable

585

15,922

Increase (decrease) in deferred system profit

(37,731)

37,807

Increase (decrease) in other liabilities

57,533

(13,607)

Net cash provided by operating activities

289,802

83,278

Cash flows from investing activities:

Capital expenditures, net

(14,607)

(5,791)

Purchase of available-for-sale securities

(385,226)

(217,123)

Proceeds from sale and maturity of available-for-sale securities

259,044

211,008

Purchase of trading securities

(14,183)

(22,740)

Proceeds from sale of trading securities

16,106

35,622

Net cash provided by (used in) investing activities

(138,866)

976

Cash flows from financing activities:

Issuance of common stock

17,925

12,054

Tax withholding payments related to vested and released restricted stock units

(411)

(601)

Common stock repurchases

(57,974)

(81,645)

Payment of dividends to stockholders

(41,862)

(25,386)

Net cash used in financing activities

(82,322)

(95,578)

Effect of exchange rate changes on cash and cash equivalents

3,957

(2,263)

Net increase (decrease) in cash and cash equivalents

72,571

(13,587)

Cash and cash equivalents at beginning of period

638,758

543,505

Cash and cash equivalents at end of period

$

711,329

$

529,918

Supplemental cash flow disclosures:

Income taxes paid, net

$

64,595

$

28,982

Interest paid

$

26,231

$

26,006

KLA-Tencor Corporation

Condensed Consolidated Unaudited Supplemental Information

(In thousands, except per share data)

Reconciliation of GAAP Net Income to Non-GAAP Net Income

Three months ended

Twelve months ended

June 30,
2011

March 31,
2011

June 30,
2010

June 30,
2011

June 30,
2010

GAAP net income

$   245,017

$   209,783

$  113,085

$  794,488

$  212,300

Adjustments to reconcile GAAP net income to non-GAAP net income

Acquisition related charges

a

7,628

7,720

8,280

31,704

32,849

Restructuring, severance and other related charges

b

1,915

-

3,311

941

17,778

Restatement related charges

c

4,133

2,501

(866)

7,781

16,149

Income tax effect of non-GAAP adjustments

d

(4,295)

(3,632)

(3,824)

(13,705)

(24,124)

Discrete tax items

e

1,715

8,385

-

15,548

11,858

Non-GAAP net income

$  256,113

$  224,757

$  119,986

$  836,757

$  266,810

GAAP net income per diluted share

$        1.43

$        1.22

$        0.66

$        4.66

$        1.23

Non-GAAP net income per diluted share

$        1.50

$        1.31

$        0.70

$        4.91

$        1.54

Shares used in diluted shares calculation

170,884

171,313

171,275

170,352

173,034

Pre-tax impact of items included in Consolidated Statements of Operations

Acquisition
related
charges

Restructuring,
severance and
other related
charges

Restatement
related charges

Total pre-tax
GAAP to non-
GAAP
adjustment

Three months ended June 30, 2011

Costs of revenues

$   5,240

$             435

$            -

$       5,675

Engineering, research and development

898

969

-

1,867

Selling, general and administrative

1,490

511

4,133

6,134

Total in three months ended June 30, 2011

$   7,628

$          1,915

$    4,133

$     13,676

Three months ended March 31, 2011

Costs of revenues

$   5,332

$                  -

$            -

$       5,332

Engineering, research and development

898

-

-

898

Selling, general and administrative

1,490

-

2,501

3,991

Total in three months ended March 31, 2011

$   7,720

$                  -

$    2,501

$     10,221

Three months ended June 30, 2010

Costs of revenues

$   5,790

$              (57)

$            -

$       5,733

Engineering, research and development

898

-

-

898

Selling, general and administrative

1,592

3,368

(866)

4,094

Total in three months ended June 30, 2010

$   8,280

$          3,311

$      (866)

$     10,725

To supplement our condensed consolidated financial statements presented in accordance with GAAP, we provide certain non-GAAP financial information, which is adjusted from results based on GAAP to exclude certain costs and expenses, as well as other supplemental information. The non-GAAP and supplemental information is provided to enhance the user's overall understanding of our operating performance and our prospects in the future. Specifically, we believe that the non-GAAP information provides useful measures to both management and investors regarding financial and business trends relating to our financial performance by excluding certain costs and expenses that we believe are not indicative of our core operating results. The non-GAAP information is among the budgeting and planning tools that management uses for future forecasting. However, because there are no standardized or generally accepted definitions for most non-GAAP financial metrics, definitions of non-GAAP financial metrics (for example, determining which costs and expenses to exclude when calculating such a metric) are inherently subject to significant discretion.  As a result, non-GAAP financial metrics may be defined very differently from company to company, or even from period to period within the same company, which can potentially limit the usefulness of such information to an investor. The presentation of non-GAAP and supplemental information is not meant to be considered in isolation or as a substitute for results prepared and presented in accordance with United States GAAP.

a

Acquisition related charges include amortization of intangible assets, and inventory fair value adjustments associated with acquisitions.  Management believes that the expense associated with the amortization of acquisition related intangible assets is appropriate to be excluded because a significant portion of the purchase price for acquisitions may be allocated to intangible assets that have short lives, and exclusion of the amortization expense allows comparisons of operating results that are consistent over time for both KLA-Tencor's newly acquired and long-held businesses.  Management believes that it is appropriate to exclude acquisition related inventory fair value adjustments as they are not indicative of ongoing operating results and therefore limit comparability.  Management believes excluding these items helps investors compare our operating performance with our results in prior periods as well as with the performance of other companies.

b

Restructuring, severance and other related charges include gains and costs associated with the company's facilities divestment and consolidation program, reductions in force, and gains and losses from sales of facilities.  Management believes that it is appropriate to exclude these items as they are not indicative of ongoing operating results and therefore limit comparability.  Management believes excluding these items helps investors compare our operating performance with our results in prior periods as well as with the performance of other companies.

c

Restatement related charges include legal and other expenses related to the investigation regarding the company's historical stock option granting process and related stockholder litigation and other matters.  KLA-Tencor has paid or reimbursed legal expenses incurred by a number of its current and former directors, officers and employees in connection with the investigation of the company's historical stock option practices and the related litigation and government inquiries. KLA-Tencor is currently paying defense costs for one former officer and employee facing an SEC civil action to which the company is not a party, and the company is also obligated to pay the attorneys' fees and expenses incurred by former employees in connection with discovery undertaken in that case. The company is further incurring costs associated with retaining counsel to respond to discovery requests and otherwise representing the company in that litigation. Management believes that it is appropriate to exclude these items as they are not indicative of ongoing operating results and therefore limit comparability.  Management believes excluding these items helps investors compare our operating performance with our results in prior periods as well as with the performance of other companies.

d

Income tax effect of non-GAAP adjustments includes the income tax effects of the excluded items noted above.  Management believes that it is appropriate to exclude the tax effects of the items noted above in order to present a more meaningful measure of non-GAAP net income.

e

Discrete tax items include the tax impact of shortfalls in excess of cumulative windfall tax benefits recorded as provision for income taxes during the period. Windfall tax benefits arise when a company's tax deduction for employee stock activity exceeds book compensation for the same activity and are generally recorded as increases to capital in excess of par value.  Shortfalls arise when the tax deduction is less than book compensation and are recorded as decreases to capital in excess of par value to the extent that cumulative windfalls exceed cumulative shortfalls.  Shortfalls in excess of cumulative windfalls are recorded as provision for income taxes.  When there are shortfalls recorded as provision for income taxes during an earlier quarter, windfalls arising in subsequent quarters within the same fiscal year are recorded as a reduction to income taxes to the extent of the shortfalls recorded.  Management believes that it is appropriate to exclude these items as they are not indicative of ongoing operating results and therefore limit comparability.  Management believes excluding these items helps investors compare our operating performance with our results in prior periods as well as with the performance of other companies.