KLA-Tencor Reports Fiscal 2018 Third Quarter Results

GAAP Results

Q3 FY 2018

Q2 FY 2018

Q3 FY 2017

Revenues

$1,021 million

$976 million

$914 million

$(134) million

$254 million

Earnings (Loss) per Diluted Share

$1.95

$(0.86)

$1.61

Q3 FY 2018

Q2 FY 2018

Q3 FY 2017

$318 million

$309 million

$256 million

Earnings per Diluted Share

$2.02

$1.97

$1.62

KLA-Tencor Corporation

Condensed Consolidated Unaudited Balance Sheets

(In thousands)

March 31, 2018

June 30, 2017

ASSETS

Cash, cash equivalents and marketable securities

$

2,889,982

$

3,016,740

Accounts receivable, net

660,455

571,117

Inventories

858,924

732,988

Other current assets

131,153

71,221

Land, property and equipment, net

284,496

283,975

Goodwill

349,998

349,526

Deferred income taxes, non-current

193,953

291,967

Purchased intangibles, net

15,376

18,963

Other non-current assets

213,847

195,676

Total assets

$

5,598,184

$

5,532,173

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

Accounts payable

$

169,459

$

147,380

Deferred system profit

258,142

180,861

Unearned revenue

56,141

65,507

Current portion of long-term debt

—

249,983

Other current liabilities

716,693

649,431

Total current liabilities

1,200,435

1,293,162

Non-current liabilities:

Long-term debt

2,461,914

2,680,474

Unearned revenue

70,934

59,713

Other non-current liabilities

494,758

172,407

Total liabilities

4,228,041

4,205,756

Stockholders' equity:

Common stock and capital in excess of par value

561,677

529,283

Retained earnings

862,743

848,457

Accumulated other comprehensive income (loss)

(54,277)

(51,323)

Total stockholders' equity

1,370,143

1,326,417

Total liabilities and stockholders' equity

$

5,598,184

$

5,532,173

KLA-Tencor Corporation

Condensed Consolidated Unaudited Statements of Operations

Three months ended March 31,

Nine months ended March 31,

(In thousands, except per share amounts)

2018

2017

2018

2017

Revenues:

Product

$

797,797

$

721,016

$

2,320,171

$

1,966,502

Service

223,497

192,793

646,526

574,865

Total revenues

1,021,294

913,809

2,966,697

2,541,367

Costs and expenses:

Costs of revenues

368,688

343,274

1,069,471

939,617

Research and development

153,284

130,170

456,761

390,315

Selling, general and administrative

113,518

96,252

326,777

284,172

Interest expense and other, net

19,821

24,964

64,246

79,049

Income before income taxes

365,983

319,149

1,049,442

848,214

Provision for income taxes

59,102

65,587

595,944

178,300

Net income

$

306,881

$

253,562

$

453,498

$

669,914

Net income per share:

Basic

$

1.96

$

1.62

$

2.90

$

4.28

Diluted

$

1.95

$

1.61

$

2.88

$

4.26

Cash dividends declared per share

$

0.59

$

0.54

$

1.77

$

1.60

Weighted-average number of shares:

Basic

156,221

156,749

156,547

156,402

Diluted

157,201

157,746

157,539

157,297

KLA-Tencor Corporation

Condensed Consolidated Unaudited Statements of Cash Flows

Three months ended

March 31,

(In thousands)

2018

2017

Cash flows from operating activities:

Net income

$

306,881

$

253,562

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

Depreciation and amortization

16,283

14,198

Non-cash stock-based compensation expense

16,210

12,536

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

(2)

53

Changes in assets and liabilities, net of business acquisition:

Accounts receivable, net

90,906

(64,509)

Inventories

(65,238)

(28,288)

Other assets

(65,350)

(18,751)

Accounts payable

19,183

23,017

Deferred system profit

9,313

(4,426)

Other liabilities

24,421

37,446

Net cash provided by operating activities

352,607

224,838

Cash flows from investing activities:

Capital expenditures, net

(14,994)

(9,414)

Purchases of available-for-sale securities

(112,661)

(382,138)

Proceeds from sale of available-for-sale securities

58,429

175,188

Proceeds from maturity of available-for-sale securities

97,809

115,547

Purchases of trading securities

(34,370)

(14,553)

Proceeds from sale of trading securities

31,681

16,999

Net cash provided by (used in) investing activities

25,894

(98,371)

Cash flows from financing activities:

Repayment of debt

(25,000)

(25,000)

Issuance of common stock

(8)

—

Tax withholding payments related to vested and released restricted stock units

(428)

(1,714)

Common stock repurchases

(84,724)

—

Payment of dividends to stockholders

(92,128)

(85,514)

Net cash used in financing activities

(202,288)

(112,228)

Effect of exchange rate changes on cash and cash equivalents

6,075

4,535

Net increase in cash and cash equivalents

182,288

18,774

Cash and cash equivalents at beginning of period

1,073,394

937,033

Cash and cash equivalents at end of period

$

1,255,682

$

955,807

Supplemental cash flow disclosures:

Income taxes paid, net

$

74,314

$

79,590

Interest paid

$

2,330

$

3,117

Non-cash activities:

Purchase of land, property and equipment - investing activities

$

9,728

$

3,218

Dividends payable - financing activities

$

8,408

$

12,643

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

Nine months ended

March 31,
 2018

Dec. 31,
 2017

March 31,
 2017

March 31,
 2018

March 31,
 2017

GAAP net income (loss)

$

306,881

$

(134,319)

$

253,562

$

453,498

$

669,914

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

Acquisition-related charges

a

7,413

1,608

513

10,608

2,293

Merger-related charges

b

—

—

3,221

3,015

10,895

Income tax effect of non-GAAP adjustments

c

(343)

(465)

(1,272)

(2,407)

(4,111)

Discrete tax items

d

4,184

441,894

—

446,078

(3,064)

Non-GAAP net income

$

318,135

$

308,718

$

256,024

$

910,792

$

675,927

GAAP net income (loss) per diluted share

$

1.95

$

(0.86)

$

1.61

$

2.88

$

4.26

Non-GAAP net income per diluted share

$

2.02

$

1.97

$

1.62

$

5.78

$

4.30

Shares used in diluted shares calculation

157,201

156,587

157,746

157,539

157,297

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 March 31, 2018

Costs of revenues

$

1,122

$

—

$

1,122

Selling, general and administrative

6,291

—

6,291

Total in three months ended March 31, 2018

$

7,413

$

—

$

7,413

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 March 31, 2017

Costs of revenues

$

500

$

362

$

862

Research and development

—

997

997

Selling, general and administrative

13

1,862

1,875

Total in three months ended March 31, 2017

$

513

$

3,221

$

3,734

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 and nine months ended March 31, 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. Discrete tax item during the nine months ended March 31, 2017 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.