KLA-Tencor Reports Fiscal 2019 First Quarter Results

GAAP Results

Q1 FY 2019

Q4 FY 2018

Q1 FY 2018

Revenues

$1,093 million

$1,070 million

$970 million

$396 million

$349 million

$281 million

Earnings per Diluted Share

$2.54

$2.22

$1.78

Q1 FY 2019

Q4 FY 2018

Q1 FY 2018

$384 million

$348 million

$284 million

Earnings per Diluted Share

$2.46

$2.22

$1.80

KLA-Tencor Corporation

Condensed Consolidated Unaudited Balance Sheets

(In thousands)

Sept. 30, 2018

June 30, 2018

ASSETS

Cash, cash equivalents and marketable securities

$

2,780,308

$

2,880,318

Accounts receivable, net

602,210

651,678

Inventories

993,527

931,845

Other current assets

144,999

85,159

Land, property and equipment, net

291,232

286,306

Goodwill

360,428

354,698

Deferred income taxes, non-current

222,107

193,200

Purchased intangibles, net

25,129

19,333

Other non-current assets

225,169

216,819

Total assets

$

5,645,109

$

5,619,356

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

Accounts payable

$

154,930

$

169,354

Deferred system revenue

216,427

—

Deferred service revenue

166,254

69,255

Deferred system profit

—

279,581

Other current liabilities

773,319

699,893

Total current liabilities

1,310,930

1,218,083

Non-current liabilities:

Long-term debt

2,237,890

2,237,402

Deferred service revenue

80,936

71,997

Other non-current liabilities

447,984

471,363

Total liabilities

4,077,740

3,998,845

Stockholders' equity:

Common stock and capital in excess of par value

596,166

617,999

Retained earnings

1,027,370

1,056,445

Accumulated other comprehensive income (loss)

(56,167)

(53,933)

Total stockholders' equity

1,567,369

1,620,511

Total liabilities and stockholders' equity

$

5,645,109

$

5,619,356

KLA-Tencor Corporation

Condensed Consolidated Unaudited Statements of Operations

Three months ended Sept. 30,

(In thousands, except per share amounts)

2018

2017

Revenues:

Product

$

829,227

$

760,787

Service

264,033

208,794

Total revenues

1,093,260

969,581

Costs and expenses:

Costs of revenues

381,387

353,117

Research and development

153,530

146,687

Selling, general and administrative

114,438

107,432

Interest expense and other, net

16,337

26,193

Income before income taxes

427,568

336,152

Provision for income taxes

31,624

55,216

Net income

$

395,944

$

280,936

Net income per share:

Basic

$

2.55

$

1.79

Diluted

$

2.54

$

1.78

Cash dividends declared per share

$

0.75

$

0.59

Weighted-average number of shares:

Basic

155,221

156,826

Diluted

156,083

157,846

KLA-Tencor Corporation

Condensed Consolidated Unaudited Statements of Cash Flows

Three months ended

Sept. 30,

(In thousands)

2018

2017

Cash flows from operating activities:

Net income

$

395,944

$

280,936

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

Depreciation and amortization

16,087

15,282

(Gain) loss on unrealized foreign exchange and other

3,005

2,291

Other

890

980

Stock-based compensation expense

16,138

14,031

Changes in assets and liabilities, net of business acquisition:

Accounts receivable

36,079

(95,621)

Inventories

(55,738)

(20,194)

Other assets

(16,853)

(4,222)

Accounts payable

(14,765)

(8,877)

Deferred system revenue

(79,810)

—

Deferred service revenue

(13,325)

—

Deferred system profit

—

28,406

Other liabilities

93,753

160,617

Net cash provided by operating activities

381,405

373,629

Cash flows from investing activities:

Business acquisition, net of cash acquired

(11,787)

(710)

Capital expenditures

(22,330)

(15,756)

Purchases of available-for-sale securities

—

(191,744)

Proceeds from sale of available-for-sale securities

91,238

50,095

Proceeds from maturity of available-for-sale securities

254,757

268,665

Purchases of trading securities

(4,619)

(11,876)

Proceeds from sale of trading securities

7,612

14,320

Net cash provided by investing activities

314,871

112,994

Cash flows from financing activities:

Repayment of debt

—

(156,250)

Tax withholding payments related to equity awards

(26,961)

(23,628)

Common stock repurchases

(299,974)

(39,927)

Payment of dividends to stockholders

(122,757)

(100,327)

Net cash used in financing activities

(449,692)

(320,132)

Effect of exchange rate changes on cash and cash equivalents

(1,452)

1,155

Net increase in cash and cash equivalents

245,132

167,646

Cash and cash equivalents at beginning of period

1,404,382

1,153,051

Cash and cash equivalents at end of period

$

1,649,514

$

1,320,697

Supplemental cash flow disclosures:

Income taxes paid

$

24,962

$

23,858

Interest paid

$

537

$

3,005

Non-cash activities:

Accrued purchase of land, property and equipment - investing activities

$

9,242

$

4,734

Contingent consideration payable - financing activities

$

3,102

$

—

Business acquisition holdback amounts - investing activities

$

440

$

4,780

Unsettled common stock repurchase - financing activities

$

7,812

$

848

Dividends payable - financing activities

$

4,783

$

7,011

KLA-Tencor Corporation

Condensed Consolidated Unaudited Supplemental Information

(In thousands, except per share amounts)

Reconciliation of GAAP Net Income to Non-GAAP Net Income

Three months ended

Sept. 30,
2018

June 30,
2018

Sept. 30,
2017

GAAP net income

$

395,944

$

348,767

$

280,936

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

Acquisition-related charges

a

5,551

3,973

1,587

Merger-related charges

b

—

—

3,015

Income tax effect of non-GAAP adjustments

c

(310)

(300)

(1,599)

Discrete tax items

d

(17,106)

(4,402)

—

Non-GAAP net income

$

384,079

$

348,038

$

283,939

GAAP net income per diluted share

$

2.54

$

2.22

$

1.78

Non-GAAP net income per diluted share

$

2.46

$

2.22

$

1.80

Shares used in diluted shares calculation

156,083

156,822

157,846

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 Sept. 30, 2018

Costs of revenues

$

890

$

—

$

890

Selling, general and administrative

4,661

—

4,661

Total in three months ended Sept. 30, 2018

$

5,551

$

—

$

5,551

Three months ended June 30, 2018

Costs of revenues

$

729

$

—

$

729

Selling, general and administrative

3,244

—

3,244

Total in three months ended June 30, 2018

$

3,973

$

—

$

3,973

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

a.

Acquisition-related charges include amortization of intangible assets and inventory fair value adjustments, and transaction costs associated with acquisitions or pending acquisitions, including the pending acquisition of Orbotech. 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 Sept. 30, 2018 and during the three months ended June 30, 2018 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. 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.