KLA-Tencor Reports Fiscal 2014 Fourth Quarter And Full Year Results

GAAP Results

Q4 FY 2014

Q3 FY 2014

Q4 FY 2013

Revenues

$734 million

Net Income

$129 million

$204 million

$135 million

Earnings per Diluted Share

$0.77

$1.21

$0.80

Non-GAAP Results

Q4 FY 2014

Q3 FY 2014

Q4 FY 2013

Net Income

$133 million

$206 million

$139 million

Earnings per Diluted Share

$0.80

$1.23

$0.82

KLA-Tencor Corporation

Condensed Consolidated Unaudited Balance Sheets

(In thousands)

June 30, 2014

June 30, 2013

ASSETS

Cash, cash equivalents and marketable securities

$

3,152,637

$

2,918,881

Accounts receivable, net

492,863

524,610

Inventories

656,457

634,448

Other current assets

284,873

273,564

Land, property and equipment, net

330,263

305,281

Goodwill

335,355

326,635

Purchased intangibles, net

27,697

34,515

Other non-current assets

258,519

269,423

Total assets

$

5,538,664

$

5,287,357

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

Accounts payable

$

103,422

$

115,680

Deferred system profit

147,923

157,965

Unearned revenue

59,176

60,838

Other current liabilities

585,090

527,049

Total current liabilities

895,611

861,532

Non-current liabilities:

Long-term debt

747,919

747,376

Pension liabilities

59,908

57,959

Income taxes payable

59,575

59,494

Unearned revenue

57,500

42,228

Other non-current liabilities

48,805

36,616

Total liabilities

1,869,318

1,805,205

Stockholders' equity:

Common stock and capital in excess of par value

1,220,504

1,159,565

Retained earnings

2,479,113

2,359,233

Accumulated other comprehensive income (loss)

(30,271)

(36,646)

Total stockholders' equity

3,669,346

3,482,152

Total liabilities and stockholders' equity

$

5,538,664

$

5,287,357

KLA-Tencor Corporation

Condensed Consolidated Unaudited Statements of Operations

Three months ended

Twelve months ended

(In thousands, except per share data)

June 30, 2014

June 30, 2013

June 30, 2014

June 30, 2013

Revenues:

Product

$

570,431

$

570,300

$

2,286,437

$

2,247,147

Service

163,912

149,732

642,971

595,634

Total revenues

734,343

720,032

2,929,408

2,842,781

Costs and operating expenses:

Costs of revenues

326,665

306,804

1,232,962

1,237,452

Engineering, research and development

138,448

127,694

539,469

487,832

Selling, general and administrative

96,216

97,899

384,907

387,812

Total costs and operating expenses

561,329

532,397

2,157,338

2,113,096

Income from operations

173,014

187,635

772,070

729,685

Interest income and other, net

(6,408)

(10,545)

(37,609)

(39,064)

Income before income taxes

166,606

177,090

734,461

690,621

Provision for income taxes

37,875

42,320

151,706

147,472

Net income

$

128,731

$

134,770

$

582,755

$

543,149

Net income per share:

Basic

$

0.78

$

0.81

$

3.51

$

3.27

Diluted

$

0.77

$

0.80

$

3.47

$

3.21

Cash dividends declared per share

$

0.45

$

0.40

$

1.80

$

1.60

Weighted-average number of shares:

Basic

165,510

165,463

166,016

166,089

Diluted

167,345

168,685

168,118

169,260

KLA-Tencor Corporation

Condensed Consolidated Unaudited Statements of Cash Flows

Three months ended

June 30,

(In thousands)

2014

2013

Cash flows from operating activities:

Net income

$

128,731

$

134,770

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

Depreciation and amortization

22,010

20,425

Non-cash stock-based compensation expense

14,128

17,606

Net gain on sale of marketable securities and other investments

(4,192)

(218)

Excess tax benefit from equity awards

(367)

(233)

Changes in assets and liabilities:

Decrease (increase) in accounts receivable, net

66,784

(73,102)

Decrease in inventories

21,308

14,116

Decrease (increase) in other assets

(17,559)

7,200

Increase (decrease) in accounts payable

(17,454)

8,054

Increase (decrease) in deferred system profit

(25,672)

21,150

Increase in other liabilities

60,923

25,801

Net cash provided by operating activities

248,640

175,569

Cash flows from investing activities:

Capital expenditures, net

(13,066)

(18,910)

Proceeds from sale of assets

3,836

—

Purchase of available-for-sale securities

(678,116)

(304,916)

Proceeds from sale of available-for-sale securities

264,287

206,976

Proceeds from maturity of available-for-sale securities

140,952

99,356

Purchase of trading securities

(11,007)

(6,933)

Proceeds from sale of trading securities

12,390

8,019

Net cash used in investing activities

(280,724)

(16,408)

Cash flows from financing activities:

Issuance of common stock

20,121

30,579

Tax withholding payments related to vested and released restricted stock units

(392)

(522)

Excess tax benefit from equity awards

367

233

Common stock repurchases

(60,157)

(68,311)

Payment of dividends to stockholders

(74,466)

(66,181)

Net cash used in financing activities

(114,527)

(104,202)

Effect of exchange rate changes on cash and cash equivalents

1,249

(3,770)

Net increase (decrease) in cash and cash equivalents

51,189

Cash and cash equivalents at beginning of period

776,223

934,201

Cash and cash equivalents at end of period

$

630,861

$

985,390

Supplemental cash flow disclosures:

Income taxes paid, net

$

40,471

$

33,097

Interest paid

$

26,038

$

26,574

Non-cash investing activities:

Purchase of land, property and equipment

$

3,457

$

6,839

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, 2014

March 31, 2014

June 30, 2013

June 30, 2014

GAAP net income

$

128,731

$

203,581

$

134,770

$

582,755

$

543,149

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

Acquisition related charges

a

4,216

3,828

4,169

15,812

19,477

Restructuring, severance and other related charges

b

2,459

—

1,418

5,698

7,397

Income tax effect of non-GAAP adjustments

c

(2,168)

(1,193)

(1,776)

(6,810)

(8,359)

Discrete tax items

d

—

—

—

—

(3,514)

Non-GAAP net income

$

133,238

$

206,216

$

138,581

$

597,455

$

558,150

GAAP net income per diluted share

$

0.77

$

1.21

$

0.80

$

3.47

$

3.21

Non-GAAP net income per diluted share

$

0.80

$

1.23

$

0.82

$

3.55

$

3.30

Shares used in diluted shares calculation

167,345

167,989

168,685

168,118

169,260

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

Acquisition related charges

Restructuring, severance and other related charges

Total pre-tax GAAP to non-GAAP adjustment

Three months ended June 30, 2014

Costs of revenues

$

2,623

$

245

$

2,868

Engineering, research and development

872

1,811

2,683

Selling, general and administrative

721

403

1,124

Total in three months ended June 30, 2014

$

4,216

$

2,459

$

6,675

Three months ended March 31, 2014

Costs of revenues

$

1,921

$

—

$

1,921

Engineering, research and development

836

—

836

Selling, general and administrative

1,071

—

1,071

Total in three months ended March 31, 2014

$

3,828

$

—

$

3,828

Three months ended June 30, 2013

Costs of revenues

$

1,921

$

950

$

2,871

Engineering, research and development

836

514

1,350

Selling, general and administrative

1,412

(46)

1,366

Total in three months ended June 30, 2013

$

4,169

$

1,418

$

5,587

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 transaction costs associated with acquisitions. Management believes that the expense associated with the amortization of acquisition related intangible assets and acquisition related costs are 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 these expenses allows comparisons of operating results that are consistent over time for both KLA-Tencor's newly acquired and long-held businesses. 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 costs associated with our decision in the first quarter of fiscal year 2013 to exit from the solar inspection business, as well as those associated with 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.  

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.

d.  

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 or other adjustments to the cumulative windfall tax benefit that are not indicative of ongoing operating results and 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.