KLA-Tencor Reports Fiscal 2012 First Quarter Results

GAAP Results

Q1 FY 2012

Q4 FY 2011

Q1 FY 2011

Revenues

$ 796 million

$ 892 million

$ 682 million

Net Income

$ 192 million

$ 245 million

$ 154 million

Earnings per Diluted Share

$ 1.13

$ 1.43

$ 0.91

Non-GAAP Results

Q1 FY 2012

Q4 FY 2011

Q1 FY 2011

Net Income

$ 198 million

$ 256 million

$ 169 million    

Earnings per Diluted Share

$ 1.17

$ 1.50

$ 0.99

KLA-Tencor Corporation

Condensed Consolidated Unaudited Balance Sheets

(In thousands)

September 30, 2011

June 30, 2011

ASSETS

Cash, cash equivalents and marketable securities

$

2,100,151

$

2,038,535

Accounts receivable, net

461,640

583,270

Inventories, net

612,603

575,730

Other current assets

422,525

478,475

Land, property and equipment, net

264,279

257,358

Goodwill

327,971

328,156

Purchased intangibles, net

77,949

85,902

Other non-current assets

298,199

328,095

Total assets

$

4,565,317

$

4,675,521

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

Accounts payable

$

114,575

$

142,945

Deferred system profit

136,122

192,338

Unearned revenue

47,311

44,264

Other current liabilities

436,211

499,314

Total current liabilities

734,219

878,861

Non-current liabilities:

Long-term debt

746,425

746,290

Income tax payable

37,978

78,337

Unearned revenue

38,857

34,905

Other non-current liabilities

73,243

76,235

Total liabilities

1,630,722

1,814,628

Stockholders' equity:

Common stock and capital in excess of par value

1,031,157

1,010,659

Retained earnings

1,910,403

1,852,633

Accumulated other comprehensive income (loss)

(6,965)

(2,399)

Total stockholders' equity

2,934,595

2,860,893

Total liabilities and stockholders' equity

$

4,565,317

$

4,675,521

KLA-Tencor Corporation

Condensed Consolidated Unaudited Statements of Operations

Three months ended

(In thousands, except per share data)

September  30, 2011

September 30, 2010

Revenues:

  Product

$

650,256

$

550,609

  Service

146,220

131,733

Total revenues

796,476

682,342

Costs and operating expenses:

  Costs of revenues

340,349

263,969

  Engineering, research and development

107,762

94,720

  Selling, general and administrative

94,076

88,037

Total costs and operating expenses

542,187

446,726

Income from operations

254,289

235,616

Interest expense and other, net

(7,027)

(12,304)

Income before income taxes

247,262

223,312

Provision for income taxes

55,267

69,116

Net income

$

191,995

$

154,196

Net income per share:

  Basic

$

1.15

$

0.92

  Diluted

$

1.13

$

0.91

Cash dividends declared per share

$

0.35

$

0.25

Weighted average number of shares:

  Basic

166,684

167,187

  Diluted

169,835

169,839

KLA-Tencor Corporation

Condensed Consolidated Unaudited Statements of Cash Flows

Three months ended

September 30,

(In thousands)

2011

2010

Cash flows from operating activities:

Net income

$

191,995

$

154,196

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

Depreciation and amortization

23,184

20,783

Non-cash stock-based compensation expense

20,496

24,213

Net gain on sale of marketable securities and other investments

(662)

(1,047)

Changes in assets and liabilities:

Decrease (increase) in accounts receivable, net

129,227

(50,342)

Increase in inventories, net

(43,699)

(63,450)

Decrease in other assets

91,789

10,870

Increase (decrease) in accounts payable

(28,558)

30,096

Decrease in deferred system profit

(56,216)

(3,101)

Decrease in other liabilities

(108,571)

(26,690)

Net cash provided by operating activities

218,985

95,528

Cash flows from investing activities:

Capital expenditures, net

(12,128)

(11,163)

Purchase of available-for-sale securities

(303,101)

(228,951)

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

268,931

239,650

Purchase of trading securities

(18,586)

(16,004)

Proceeds from sale of trading securities

16,176

30,623

Net cash provided by (used in) investing activities

(48,708)

14,155

Cash flows from financing activities:

Issuance of common stock

9,702

2,953

Tax withholding payments related to vested and released restricted stock units

(17,930)

(9,517)

Common stock repurchases

(66,392)

(62,156)

Payment of dividends to stockholders

(58,460)

(41,785)

Net cash used in financing activities

(133,080)

(110,505)

Effect of exchange rate changes on cash and cash equivalents

(2,579)

9,288

Net increase in cash and cash equivalents

34,618

8,466

Cash and cash equivalents at beginning of period

711,329

529,918

Cash and cash equivalents at end of period

$

745,947

$

538,384

Supplemental cash flow disclosures:

Income taxes paid, net

$

37,391

$

46,060

Interest paid

$

611

$

352

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

September 30, 2011

June 30, 2011

September 30, 2010

GAAP net income

$ 191,995

$ 245,017

$  154,196

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

Acquisition related charges

a

7,628

7,628

8,178

Restructuring, severance and other related charges

b

2,556

1,915

-

Restatement related charges

c

135

4,133

-

Income tax effect of non-GAAP adjustments

d

(4,063)

(4,295)

(2,857)

Discrete tax items

e

-

1,715

9,154

Non-GAAP net income

$ 198,251

$ 256,113

$  168,671

GAAP net income per diluted share

$  1.13

$  1.43

$  0.91

Non-GAAP net income per diluted share

$  1.17

$  1.50

$  0.99

Shares used in diluted shares calculation

169,835

170,884

169,839

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 September 30, 2011

Costs of revenues

$   5,240

$       947

$            -

$     6,187

Engineering, research and development

898

1,475

-

2,373

Selling, general and administrative

1,490

134

135

1,759

Total in three months ended September 30, 2011

$   7,628

$    2,556

$       135

$   10,319

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 September 30, 2010

Costs of revenues

$   5,790

$            -

$           -

$     5,790

Engineering, research and development

898

-

-

898

Selling, general and administrative

1,490

-

-

1,490

Total in three months ended September 30, 2010

$   8,178

$            -

$           -

$     8,178

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 and reductions in force.  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.