KLA-Tencor Reports Fiscal 2018 Second Quarter Results

GAAP Results

Q2 FY 2018

Q1 FY 2018

Q2 FY 2017

Revenues

$976 million

$970 million

$877 million

$(134) million

$281 million

$238 million

Earnings (Loss) per Diluted Share

$(0.86)

$1.78

$1.52

Q2 FY 2018

Q1 FY 2018

Q2 FY 2017

$309 million

$284 million

$238 million

Earnings per Diluted Share

$1.80

$1.52

KLA-Tencor Corporation

Condensed Consolidated Unaudited Balance Sheets

(In thousands)

Dec. 31, 2017

June 30, 2017

ASSETS

Cash, cash equivalents and marketable securities

$

2,758,190

$

3,016,740

Accounts receivable, net

740,903

571,117

Inventories

787,971

732,988

Other current assets

66,929

71,221

Land, property and equipment, net

281,634

283,975

Goodwill

350,023

349,526

Deferred income taxes, non-current

193,740

291,967

Purchased intangibles, net

16,563

18,963

Other non-current assets

211,315

195,676

Total assets

$

5,407,268

$

5,532,173

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

Accounts payable

$

149,844

$

147,380

Deferred system profit

248,829

180,861

Unearned revenue

64,256

65,507

Current portion of long-term debt

—

249,983

Other current liabilities

703,619

649,431

Total current liabilities

1,166,548

1,293,162

Non-current liabilities:

Long-term debt

2,486,426

2,680,474

Unearned revenue

67,927

59,713

Other non-current liabilities

460,742

172,407

Total liabilities

4,181,643

4,205,756

Stockholders' equity:

Common stock and capital in excess of par value

548,691

529,283

Retained earnings

729,456

848,457

Accumulated other comprehensive income (loss)

(52,522)

(51,323)

Total stockholders' equity

1,225,625

1,326,417

Total liabilities and stockholders' equity

$

5,407,268

$

5,532,173

KLA-Tencor Corporation

Condensed Consolidated Unaudited Statements of Operations

Three months ended Dec. 31,

Six months ended Dec. 31,

(In thousands, except per share amounts)

2017

2016

2017

2016

Revenues:

Product

$

761,587

$

683,733

$

1,522,374

$

1,245,486

Service

214,235

193,152

423,029

382,072

Total revenues

975,822

876,885

1,945,403

1,627,558

Costs and expenses:

Costs of revenues

347,334

318,507

700,783

596,343

Research and development

156,745

130,912

303,477

260,145

Selling, general and administrative

105,546

93,532

213,259

187,920

Interest expense and other, net

18,890

27,089

44,425

54,085

Income before income taxes

347,307

306,845

683,459

529,065

Provision for income taxes

481,626

68,594

536,842

112,713

Net income (loss)

$

(134,319)

$

238,251

$

146,617

$

416,352

Net income (loss) per share:

Basic

$

(0.86)

$

1.52

$

0.94

$

2.66

Diluted

$

(0.86)

$

1.52

$

0.93

$

2.65

Cash dividends declared per share

$

0.59

$

0.54

$

1.18

$

1.06

Weighted-average number of shares:

Basic

156,587

156,335

156,707

156,232

Diluted

156,587

157,123

157,688

157,071

KLA-Tencor Corporation

Condensed Consolidated Unaudited Statements of Cash Flows

Three months ended

Dec. 31,

(In thousands)

2017

2016

Cash flows from operating activities:

Net income (loss)

$

(134,319)

$

238,251

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

Depreciation and amortization

16,130

14,892

Non-cash stock-based compensation expense

13,739

12,444

Net (gain) loss on sales of marketable securities and other investments

69

(681)

Accounts receivable, net

(73,877)

(24,386)

Inventories

(24,240)

13,132

Other assets

84,502

(28,315)

Accounts payable

11,069

11,786

Deferred system profit

39,562

8,302

Other liabilities

196,736

(23,012)

Net cash provided by operating activities

129,371

222,413

Cash flows from investing activities:

Acquisition of non-marketable securities

(3,377)

(900)

Business acquisition

(4,780)

—

Capital expenditures, net

(13,369)

(8,629)

Proceeds from sale of assets

—

2,582

Purchases of available-for-sale securities

(134,268)

(372,950)

Proceeds from sale of available-for-sale securities

56,506

78,136

Proceeds from maturity of available-for-sale securities

123,095

159,077

Purchases of trading securities

(18,914)

(20,813)

Proceeds from sale of trading securities

21,062

23,164

Net cash provided by (used in) investing activities

25,955

(140,333)

Cash flows from financing activities:

Proceeds from revolving credit facility, net of debt issuance costs

248,693

—

Repayment of debt

(540,000)

(40,000)

Issuance of common stock

20,579

23,694

Tax withholding payments related to vested and released restricted stock units

(2,567)

(79)

Common stock repurchases

(40,427)

—

Payment of dividends to stockholders

(92,575)

(84,529)

Net cash used in financing activities

(406,297)

(100,914)

Effect of exchange rate changes on cash and cash equivalents

3,668

(10,458)

Net decrease in cash and cash equivalents

(247,303)

(29,292)

Cash and cash equivalents at beginning of period

1,320,697

966,325

Cash and cash equivalents at end of period

$

1,073,394

$

937,033

Supplemental cash flow disclosures:

Income taxes paid, net

$

123,625

$

71,164

Interest paid

$

55,693

$

56,773

Non-cash activities:

Purchase of land, property and equipment - investing activities

$

5,548

$

1,985

Unsettled common stock repurchase - financing activities

$

1,289

$

—

Dividends payable - financing activities

$

7,590

$

12,763

KLA-Tencor Corporation

Condensed Consolidated Unaudited Supplemental Information

(In thousands, except per share amounts)

Reconciliation of GAAP Net Income (Loss) to Non-GAAP Net Income

Three months ended

Six months ended

Dec. 31,
2017

Sept. 30,
2017

Dec. 31,
2016

Dec. 31,
2017

Dec. 31,
2016

GAAP net income (loss)

$

(134,319)

$

280,936

$

238,251

$

146,617

$

416,352

Adjustments to reconcile GAAP net income (loss) to non-GAAP net income:

Acquisition-related charges

a

1,608

1,587

513

3,195

1,780

Merger-related charges

b

—

3,015

4,069

3,015

7,674

Income tax effect of non-GAAP adjustments

c

(465)

(1,599)

(1,580)

(2,064)

(2,839)

Discrete tax items

d

441,894

—

(3,064)

441,894

(3,064)

Non-GAAP net income

$

308,718

$

283,939

$

238,189

$

592,657

$

419,903

GAAP net income (loss) per diluted share

$

(0.86)

$

1.78

$

1.52

$

0.93

$

2.65

Non-GAAP net income per diluted share

$

1.97

$

1.80

$

1.52

$

3.76

$

2.67

Shares used in diluted shares calculation

156,587

157,846

157,123

157,688

157,071

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

Acquisition-
related charges

Merger-related charges

Total pre-tax
GAAP to non-
GAAP adjustments

Three months ended Dec. 31, 2017

Costs of revenues

$

1,530

$

—

$

1,530

Selling, general and administrative

78

—

78

Total in three months ended Dec. 31, 2017

$

1,608

$

—

$

1,608

Three months ended Sept. 30, 2017

Costs of revenues

$

1,530

$

405

$

1,935

Research and development

—

1,147

1,147

Selling, general and administrative

57

1,463

1,520

Total in three months ended Sept. 30, 2017

$

1,587

$

3,015

$

4,602

Three months ended Dec. 31, 2016

Costs of revenues

$

500

$

348

$

848

Research and development

—

1,054

1,054

Selling, general and administrative

13

2,667

2,680

Total in three months ended Dec. 31, 2016

$

513

$

4,069

$

4,582

a.      

Acquisition-related charges include amortization of intangible assets and inventory fair value adjustments, 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 performances with our results in prior periods as well as with the performance of other companies.

b.      

Merger-related charges associated with the terminated merger agreement between KLA-Tencor and Lam Research Corporation ("Lam") primarily includes employee retention-related expenses, legal expenses and other costs. Management believes that it is appropriate to exclude these items as they are not indicative of ongoing operating results and therefore limit comparability and 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 item during the three months ended Dec. 31, 2017 includes the income tax effects of an income tax expense from the enacted tax reform legislation through the Tax Cuts and Jobs-Act ("the Act"), which was signed into law on Dec. 22, 2017, of which the impact is primarily related to the provisional tax amounts recorded for the transition tax on accumulated foreign earnings and the re-measurement of certain deferred tax assets and liabilities as a result of the enactment of the Act. Discrete tax item during the three months ended Dec. 31, 2016 include the tax impact of certain merger-related charges that only became deductible during the three months ended Dec. 31, 2016 as a result of the termination of the proposed merger between KLA-Tencor and Lam. 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.