Exhibit 99.1
KLA-TENCOR.
SELECTED QUARTERLY CONSOLIDATED
FINANCIAL DATA
On May 22, 2006, the Wall Street Journal published an article about stock option backdating that questioned the stock option practices at several companies, including KLA-Tencor. On May 23, 2006, the Company received a subpoena from the United States Attorney’s Office for the Northern District of California (“USAO”) and a letter of inquiry from the United States Securities and Exchange Commission (“SEC”) regarding the Company’s stock option practices. Later on May 23, 2006, the Company’s Board of Directors appointed a Special Committee composed solely of independent directors to conduct a comprehensive investigation of the Company’s historical stock option practices. The Special Committee promptly engaged independent legal counsel and accounting experts to assist with the investigation. The investigation included an extensive review of the Company’s historical stock option practices, accounting policies, accounting records, supporting documentation, email communications and other documentation, as well as interviews of a number of current and former directors, officers and employees. On September 27, 2006, the Special Committee reported the bulk of its findings and recommendations to the Company’s Board of Directors.
On September 28, 2006, the Company announced that it would have to restate its previously issued financial statements to correct its past accounting for stock options. As a result of the Special Committee investigation, the Company discovered that certain of its stock options, primarily those granted from July 1, 1997 to June 30, 2002, had been retroactively priced for all employees who received these grants. This means that the option exercise price was not the market price of the option shares on the actual grant date of the option, but instead was a lower market price on an earlier date. The actual grant date—when the essential actions necessary to grant the option were completed, including the final determination of the number of shares to be granted to each employee and the exercise price—is the correct measurement date to determine the market price of the option shares under the accounting rules in effect at the time. More than 95% of the total in-the-money value (market price on the actual grant date minus exercise price) of all of our retroactively priced options was attributable to those granted from July 1, 1997 to June 30, 2002.
The Company previously applied Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees,” and its related Interpretations and provided the required pro forma disclosures under Statement of Financial Accounting Standards (“SFAS”) No. 123, “Accounting for Stock-Based Compensation,” through its fiscal year ended June 30, 2005. Under APB Opinion No. 25, a non-cash, stock-based compensation expense was recognized for any option for which the exercise price was below the market price on the actual grant date. Because each of the Company’s retroactively priced options had an exercise price below the market price on the actual grant date, there should have been a charge for each of these options under APB Opinion No. 25 equal to the number of option shares, multiplied by the difference between the exercise price and the market price on the actual grant date. That expense should have been amortized over the vesting period of the option. Starting in its fiscal year ended June 30, 2006, the Company adopted SFAS No. 123(R), “Share-Based Payment.” As a result, for fiscal year 2006, the additional stock-based compensation expense required to be recorded for each retroactively priced option was equal to the incremental fair value of the option on the actual grant date over the remaining vesting period of the option. The Company did not record these stock-based compensation expenses under APB Opinion No. 25 or SFAS No. 123(R) related to its retroactively priced options in the Company’s previously issued financial statements, and that is why it is restating them in this filing. To correct the Company’s past accounting for stock options, it recorded additional pre-tax, non-cash, stock-based compensation expense of (a) $348 million for the periods July 1, 1994 to June 30, 2005 under APB Opinion No. 25 and (b) $22 million for the year ended June 30, 2006 under SFAS No. 123(R). The Company expects to amortize an additional $6 million of such pre-tax charges under SFAS No. 123(R) in future periods to properly account for past retroactively priced stock options.
1
The previously filed financial statements for the quarter ended September 30, 2005 are restated in the Quarterly Report on Form 10-Q for the quarter ended September 30, 2006, which is filed concurrently with this Annual Report on Form 10-K. The Company will later restate its previously filed financial statements for the quarters ended December 31, 2005 and March 31, 2006 when the Company files its Quarterly Reports on Form 10-Q for the quarters ended December 31, 2006 and March 31, 2007, respectively. The Company has not amended and does not intend to amend any of its previously filed Annual Reports on Form 10-K or Quarterly Reports on Form 10-Q for the periods affected by the restatements. Such previous filings should not be relied upon.
In addition to restating the consolidated financial statements in response to the Special Committee’s findings, the Company is recording additional non-cash adjustments that were previously considered to be immaterial relating primarily to the accounting for employee stock purchase plans, corrections for the recognition of deferred tax assets, the release of tax reserves, the timing of revenue recognition, gains and losses on hedging contracts and the calculation of minority interest. The Company has also corrected the classification of certain amounts presented as cash and cash equivalents and marketable securities relating to investments in Variable Rate Demand Notes. For the fiscal years ended June 30, 2004 and prior, the Company previously recorded no stock-based compensation expense; therefore, the additional stock-based compensation expense noted below represents the total stock-based compensation expense for these periods. For the year ended June 30, 2005, the Company recorded $2.9 million of stock-based compensation with a related tax benefit of $1.1 million in its previously reported financial statements. For fiscal 2005, total stock-based compensation was $37.0 million with a related tax benefit of $12.1 million. The income statement impact of the restatement is as follows (in thousands):
2
Condensed Consolidated Statements of Operations
(Unaudited)
| Three Months Ended March 31, 2006 | Nine Months Ended March 31, 2006 | |||||||||||||||||||||||
| (In thousands, except per share data) |
As previously reported |
Adjustments | As restated |
As previously reported |
Adjustments | As restated |
||||||||||||||||||
| Revenues: |
||||||||||||||||||||||||
| Product |
$ | 427,676 | $ | 1,392 | $ | 429,068 | $ | 1,229,346 | $ | 855 | $ | 1,230,201 | ||||||||||||
| Service |
90,580 | — | 90,580 | 260,740 | 650 | 261,390 | ||||||||||||||||||
| Total revenues |
518,256 | 1,392 | 519,648 | 1,490,086 | 1,505 | 1,491,591 | ||||||||||||||||||
| Costs and operating expenses: |
||||||||||||||||||||||||
| Costs of revenues* |
226,620 | (45 | ) | 226,575 | 657,943 | (16 | ) | 657,927 | ||||||||||||||||
| Engineering, research and development* |
95,927 | 1,706 | 97,633 | 291,005 | 4,205 | 295,210 | ||||||||||||||||||
| Selling, general and administrative* |
108,364 | 2,149 | 110,513 | 296,440 | 7,103 | 303,543 | ||||||||||||||||||
| Total costs and operating expenses |
430,911 | 3,810 | 434,721 | 1,245,388 | 11,292 | 1,256,680 | ||||||||||||||||||
| Income from operations |
87,345 | (2,418 | ) | 84,927 | 244,698 | (9,787 | ) | 234,911 | ||||||||||||||||
| Interest income and other, net |
17,225 | — | 17,225 | 48,686 | (700 | ) | 47,986 | |||||||||||||||||
| Income before income taxes and minority interest |
104,570 | (2,418 | ) | 102,152 | 293,384 | (10,487 | ) | 282,897 | ||||||||||||||||
| Provision for income taxes* |
7,347 | (959 | ) | 6,388 | 44,834 | (7,793 | ) | 37,041 | ||||||||||||||||
| Income before minority interest |
97,223 | (1,459 | ) | 95,764 | 248,550 | (2,694 | ) | 245,856 | ||||||||||||||||
| Minority interest |
920 | — | 920 | 2,920 | — | 2,920 | ||||||||||||||||||
| Net income |
$ | 98,143 | $ | (1,459 | ) | $ | 96,684 | $ | 251,470 | $ | (2,694 | ) | $ | 248,776 | ||||||||||
| Net income per share: |
||||||||||||||||||||||||
| Basic |
$ | 0.49 | $ | (0.01 | ) | $ | 0.48 | $ | 1.27 | $ | (0.02 | ) | $ | 1.25 | ||||||||||
| Diluted |
$ | 0.48 | $ | (0.01 | ) | $ | 0.47 | $ | 1.23 | $ | (0.01 | ) | $ | 1.22 | ||||||||||
| Weighted-average number of shares: |
||||||||||||||||||||||||
| Basic |
199,876 | — | 199,876 | 198,498 | — | 198,498 | ||||||||||||||||||
| Diluted |
204,818 | 543 | 205,361 | 203,696 | 598 | 204,294 | ||||||||||||||||||
* includes the following amounts related to equity awards: |
| |||||||||||||||||||||||
| Costs of revenues |
$ | 6,243 | $ | (45 | ) | $ | 6,198 | $ | 19,666 | $ | (17 | ) | $ | 19,649 | ||||||||||
| Engineering, research and development |
10,782 | 1,706 | 12,488 | 33,815 | 4,204 | 38,019 | ||||||||||||||||||
| Selling, general and administrative |
27,526 | 2,149 | 29,675 | 62,152 | 7,106 | 69,258 | ||||||||||||||||||
| Provision for income taxes |
(13,763 | ) | (1,484 | ) | (15,247 | ) | (34,861 | ) | (11,459 | ) | (46,320 | ) | ||||||||||||
3
Condensed Consolidated Statements of Operations
(Unaudited)
| Three Months Ended December 31, 2005 | Six Months Ended December 31, 2005 | |||||||||||||||||||||||
| (In thousands, except per share data) |
As previously reported |
Adjustments | As restated |
As previously reported |
Adjustments | As restated |
||||||||||||||||||
| Revenues: |
||||||||||||||||||||||||
| Product |
$ | 401,720 | $ | 412 | $ | 402,132 | $ | 801,670 | $ | (537 | ) | $ | 801,133 | |||||||||||
| Service |
86,250 | (700 | ) | 85,550 | 170,160 | 650 | 170,810 | |||||||||||||||||
| Total revenues |
487,970 | (288 | ) | 487,682 | 971,830 | 113 | 971,943 | |||||||||||||||||
| Costs and operating expenses: |
||||||||||||||||||||||||
| Costs of revenues* |
217,103 | (888 | ) | 216,215 | 431,323 | 29 | 431,352 | |||||||||||||||||
| Engineering, research and development* |
98,327 | 480 | 98,807 | 195,078 | 2,499 | 197,577 | ||||||||||||||||||
| Selling, general and administrative* |
96,025 | 1,641 | 97,666 | 188,076 | 4,954 | 193,030 | ||||||||||||||||||
| Total costs and operating expenses |
411,455 | 1,233 | 412,688 | 814,477 | 7,482 | 821,959 | ||||||||||||||||||
| Income from operations |
76,515 | (1,521 | ) | 74,994 | 157,353 | (7,369 | ) | 149,984 | ||||||||||||||||
| Interest income and other, net |
16,685 | — | 16,685 | 31,461 | (700 | ) | 30,761 | |||||||||||||||||
| Income before income taxes and minority interest |
93,200 | (1,521 | ) | 91,679 | 188,814 | (8,069 | ) | 180,745 | ||||||||||||||||
| Provision for income taxes* |
17,806 | (1,477 | ) | 16,329 | 37,487 | (6,834 | ) | 30,653 | ||||||||||||||||
| Income before minority interest |
75,394 | (44 | ) | 75,350 | 151,327 | (1,235 | ) | 150,092 | ||||||||||||||||
| Minority interest |
1,255 | — | 1,255 | 2,000 | — | 2,000 | ||||||||||||||||||
| Net income |
$ | 76,649 | $ | (44 | ) | $ | 76,605 | $ | 153,327 | $ | (1,235 | ) | $ | 152,092 | ||||||||||
| Net income per share: |
||||||||||||||||||||||||
| Basic |
$ | 0.39 | $ | (0.00 | ) | $ | 0.39 | $ | 0.78 | $ | (0.01 | ) | $ | 0.77 | ||||||||||
| Diluted |
$ | 0.38 | $ | (0.00 | ) | $ | 0.38 | $ | 0.76 | $ | (0.01 | ) | $ | 0.75 | ||||||||||
| Weighted-average number of shares: |
||||||||||||||||||||||||
| Basic |
198,236 | — | 198,236 | 197,824 | — | 197,824 | ||||||||||||||||||
| Diluted |
203,345 | 581 | 203,926 | 203,043 | 591 | 203,634 | ||||||||||||||||||
* includes the following amounts related to equity awards: |
| |||||||||||||||||||||||
| Costs of revenues |
6,612 | $ | (339 | ) | $ | 6,273 | $ | 13,423 | $ | 28 | $ | 13,451 | ||||||||||||
| Engineering, research and development |
12,023 | 479 | 12,502 | 23,033 | 2,498 | 25,531 | ||||||||||||||||||
| Selling, general and administrative |
17,619 | 2,444 | 20,063 | 34,626 | 4,957 | 39,583 | ||||||||||||||||||
| Provision for income taxes |
(10,442 | ) | (5,240 | ) | (15,682 | ) | (21,098 | ) | (9,975 | ) | (31,073 | ) | ||||||||||||
4
Condensed Consolidated Statements of Operations
(Unaudited)
| Three Months Ended September 30, 2005 | ||||||||||||
| (In thousands, except per share data) |
As previously reported |
Adjustments | As restated |
|||||||||
| Revenues: |
||||||||||||
| Product |
$ | 399,950 | $ | (949 | ) | $ | 399,001 | |||||
| Service |
83,910 | 1,350 | 85,260 | |||||||||
| Total revenues |
483,860 | 401 | 484,261 | |||||||||
| Costs and operating expenses: |
||||||||||||
| Costs of revenues* |
214,220 | 917 | 215,137 | |||||||||
| Engineering, research and development* |
96,751 | 2,019 | 98,770 | |||||||||
| Selling, general and administrative* |
92,051 | 3,313 | 95,364 | |||||||||
| Total costs and operating expenses |
403,022 | 6,249 | 409,271 | |||||||||
| Income from operations |
80,838 | (5,848 | ) | 74,990 | ||||||||
| Interest income and other, net |
14,776 | (700 | ) | 14,076 | ||||||||
| Income before income taxes and minority interest |
95,614 | (6,548 | ) | 89,066 | ||||||||
| Provision for income taxes* |
19,681 | (5,357 | ) | 14,324 | ||||||||
| Income before minority interest |
75,933 | (1,191 | ) | 74,742 | ||||||||
| Minority interest |
745 | — | 745 | |||||||||
| Net income |
$ | 76,678 | $ | (1,191 | ) | $ | 75,487 | |||||
| Net income per share: |
||||||||||||
| Basic |
$ | 0.39 | $ | (0.01 | ) | $ | 0.38 | |||||
| Diluted |
$ | 0.38 | $ | (0.01 | ) | $ | 0.37 | |||||
| Weighted-average number of shares: |
||||||||||||
| Basic |
197,408 | — | 197,408 | |||||||||
| Diluted |
202,715 | 577 | 203,292 | |||||||||
* includes the following amounts related to equity awards: |
||||||||||||
| Costs of revenues |
$ | 6,811 | $ | 367 | $ | 7,178 | ||||||
| Engineering, research and development |
11,010 | 2,019 | 13,029 | |||||||||
| Selling, general and administrative |
17,007 | 2,513 | 19,520 | |||||||||
| Provision for income taxes |
(10,656 | ) | (4,735 | ) | (15,391 | ) | ||||||
5
Condensed Consolidated Statements of Operations
(Unaudited)
| Three Months Ended March 31, 2005 | Nine Months Ended March 31, 2005 | ||||||||||||||||||||||
| (In thousands, except per share data) |
As previously reported |
Adjustments | As restated |
As previously reported |
Adjustments | As restated |
|||||||||||||||||
| Revenues: |
|||||||||||||||||||||||
| Product |
$ | 463,171 | $ | (1,770 | ) | $ | 461,401 | $ | 1,360,412 | $ | (1,770 | ) | $ | 1,358,642 | |||||||||
| Service |
78,440 | — | 78,440 | 232,825 | — | 232,825 | |||||||||||||||||
| Total revenues |
541,611 | (1,770 | ) | 539,841 | 1,593,237 | (1,770 | ) | 1,591,467 | |||||||||||||||
| Costs and operating expenses: |
|||||||||||||||||||||||
| Costs of revenues* |
221,838 | 3,699 | 225,537 | 655,042 | 7,276 | 662,318 | |||||||||||||||||
| Engineering, research and development* |
88,812 | 2,660 | 91,472 | 253,120 | 8,971 | 262,091 | |||||||||||||||||
| Selling, general and administrative* |
76,114 | 3,083 | 79,197 | 217,753 | 10,777 | 228,530 | |||||||||||||||||
| Total costs and operating expenses |
386,764 | 9,442 | 396,206 | 1,125,915 | 27,024 | 1,152,939 | |||||||||||||||||
| Income from operations |
154,847 | (11,212 | ) | 143,635 | 467,322 | (28,794 | ) | 438,528 | |||||||||||||||
| Interest income and other, net |
7,292 | — | 7,292 | 22,054 | 600 | 22,654 | |||||||||||||||||
| Income before income taxes and minority interest |
162,139 | (11,212 | ) | 150,927 | 489,376 | (28,194 | ) | 461,182 | |||||||||||||||
| Provision for income taxes* |
40,065 | (4,936 | ) | 35,129 | 130,055 | (15,730 | ) | 114,325 | |||||||||||||||
| Income before minority interest |
122,074 | (6,276 | ) | 115,798 | 359,321 | (12,464 | ) | 346,857 | |||||||||||||||
| Minority interest |
1,089 | — | 1,089 | 2,324 | — | 2,324 | |||||||||||||||||
| Net income |
$ | 123,163 | $ | (6,276 | ) | $ | 116,887 | $ | 361,645 | $ | (12,464 | ) | $ | 349,181 | |||||||||
| Net income per share: |
|||||||||||||||||||||||
| Basic |
$ | 0.63 | $ | (0.03 | ) | $ | 0.59 | $ | 1.84 | $ | (0.06 | ) | $ | 1.78 | |||||||||
| Diluted |
$ | 0.61 | $ | (0.03 | ) | $ | 0.58 | $ | 1.80 | $ | (0.06 | ) | $ | 1.74 | |||||||||
| Weighted-average number of shares: |
|||||||||||||||||||||||
| Basic |
196,883 | — | 196,883 | 196,244 | — | 196,244 | |||||||||||||||||
| Diluted |
202,329 | 417 | 202,746 | 201,058 | 16 | 201,074 | |||||||||||||||||
* includes the following amounts related to equity awards: |
|
||||||||||||||||||||||
| Costs of revenues |
$ | — | $ | 3,698 | $ | 3,698 | $ | — | $ | 7,795 | $ | 7,795 | |||||||||||
| Engineering, research and development |
25 | 2,660 | 2,685 | 523 | 8,971 | 9,494 | |||||||||||||||||
| Selling, general and administrative |
773 | 3,083 | 3,856 | 1,394 | 10,177 | 11,571 | |||||||||||||||||
| Provision for income taxes |
— | (4,265 | ) | (4,265 | ) | (1,085 | ) | (9,346 | ) | (10,431 | ) | ||||||||||||
6
Condensed Consolidated Statements of Operations
(Unaudited)
| Three Months Ended December 31, 2004 | Six Months Ended December 31, 2004 | ||||||||||||||||||||||
| (In thousands, except per share data) |
As previously reported |
Adjustments | As restated | As previously reported |
Adjustments | As restated |
|||||||||||||||||
| Revenues: |
|||||||||||||||||||||||
| Product |
$ | 454,945 | $ | — | $ | 454,945 | $ | 897,241 | $ | — | $ | 897,241 | |||||||||||
| Service |
77,908 | — | 77,908 | 154,385 | — | 154,385 | |||||||||||||||||
| Total revenues |
532,853 | — | 532,853 | 1,051,626 | — | 1,051,626 | |||||||||||||||||
| Costs and operating expenses: |
|||||||||||||||||||||||
| Costs of revenues* |
217,735 | 1,354 | 219,089 | 433,204 | 3,577 | 436,781 | |||||||||||||||||
| Engineering, research and development* |
87,161 | 2,864 | 90,025 | 164,308 | 6,311 | 170,619 | |||||||||||||||||
| Selling, general and administrative* |
72,449 | 2,957 | 75,406 | 141,639 | 7,694 | 149,333 | |||||||||||||||||
| Total costs and operating expenses |
377,345 | 7,175 | 384,520 | 739,151 | 17,582 | 756,733 | |||||||||||||||||
| Income from operations |
155,508 | (7,175 | ) | 148,333 | 312,475 | (17,582 | ) | 294,893 | |||||||||||||||
| Interest income and other, net |
7,777 | — | 7,777 | 14,762 | 600 | 15,362 | |||||||||||||||||
| Income before income taxes and minority interest |
163,285 | (7,175 | ) | 156,110 | 327,237 | (16,982 | ) | 310,255 | |||||||||||||||
| Provision for income taxes* |
42,443 | (7,120 | ) | 35,323 | 89,990 | (10,794 | ) | 79,196 | |||||||||||||||
| Income before minority interest |
120,842 | (55 | ) | 120,787 | 237,247 | (6,188 | ) | 231,059 | |||||||||||||||
| Minority interest |
1,235 | — | 1,235 | 1,235 | — | 1,235 | |||||||||||||||||
| Net income |
$ | 122,077 | $ | (55 | ) | $ | 122,022 | $ | 238,482 | $ | (6,188 | ) | $ | 232,294 | |||||||||
| Net income per share: |
|||||||||||||||||||||||
| Basic |
$ | 0.62 | $ | (0.00 | ) | $ | 0.62 | $ | 1.22 | $ | (0.03 | ) | $ | 1.19 | |||||||||
| Diluted |
$ | 0.61 | $ | (0.00 | ) | $ | 0.61 | $ | 1.19 | $ | (0.03 | ) | $ | 1.16 | |||||||||
| Weighted-average number of shares: |
|||||||||||||||||||||||
| Basic |
195,681 | — | 195,681 | 195,976 | — | 195,976 | |||||||||||||||||
| Diluted |
200,946 | 399 | 201,345 | 200,477 | 8 | 200,485 | |||||||||||||||||
* includes the following amounts related to equity awards: |
|
||||||||||||||||||||||
| Costs of revenues |
$ | — | $ | 1,354 | $ | 1,354 | $ | — | $ | 4,097 | $ | 4,097 | |||||||||||
| Engineering, research and development |
498 | 2,864 | 3,362 | 498 | 6,311 | 6,809 | |||||||||||||||||
| Selling, general and administrative |
621 | 2,957 | 3,578 | 621 | 7,094 | 7,715 | |||||||||||||||||
| Provision for income taxes |
— | (2,293 | ) | (2,293 | ) | (1,085 | ) | (5,081 | ) | (6,166 | ) | ||||||||||||
7
Condensed Consolidated Statements of Operations
(Unaudited)
| Three Months Ended September 30, 2004 | ||||||||||||
| (In thousands, except per share data) |
As previously reported |
Adjustments | As restated | |||||||||
| Revenues: |
||||||||||||
| Product |
$ | 442,296 | $ | — | $ | 442,296 | ||||||
| Service |
76,477 | — | 76,477 | |||||||||
| Total revenues |
518,773 | — | 518,773 | |||||||||
| Costs and operating expenses: |
||||||||||||
| Costs of revenues* |
215,469 | 2,223 | 217,692 | |||||||||
| Engineering, research and development* |
77,147 | 3,447 | 80,594 | |||||||||
| Selling, general and administrative* |
69,190 | 4,737 | 73,927 | |||||||||
| Total costs and operating expenses |
361,806 | 10,407 | 372,213 | |||||||||
| Income from operations |
156,967 | (10,407 | ) | 146,560 | ||||||||
| Interest income and other, net |
6,985 | 600 | 7,585 | |||||||||
| Income before income taxes and minority interest |
163,952 | (9,807 | ) | 154,145 | ||||||||
| Provision for income taxes* |
47,547 | (3,674 | ) | 43,873 | ||||||||
| Income before minority interest |
116,405 | (6,133 | ) | 110,272 | ||||||||
| Minority interest |
||||||||||||
| Net income |
$ | 116,405 | $ | (6,133 | ) | $ | 110,272 | |||||
| Net income per share: |
||||||||||||
| Basic |
$ | 0.59 | $ | (0.03 | ) | $ | 0.56 | |||||
| Diluted |
$ | 0.58 | $ | (0.03 | ) | $ | 0.55 | |||||
| Weighted-average number of shares: |
||||||||||||
| Basic |
196,110 | — | 196,110 | |||||||||
| Diluted |
199,969 | (8 | ) | 199,961 | ||||||||
* includes the following amounts related to equity awards: |
||||||||||||
| Costs of revenues |
$ | — | $ | 2,743 | $ | 2,743 | ||||||
| Engineering, research and development |
— | 3,447 | 3,447 | |||||||||
| Selling, general and administrative |
— | 4,137 | 4,137 | |||||||||
| Provision for income taxes |
(1,085 | ) | 2,788 | (3,873 | ) | |||||||
8
Condensed Consolidated Balance Sheets
(Unaudited)
| March 31, 2006 | ||||||||||
| (in thousands, except per share data) |
As previously reported |
Adjustments | As restated | |||||||
| ASSETS |
||||||||||
| Current assets: |
||||||||||
| Cash and cash equivalents |
$ | 961,995 | $ | — | $ | 961,995 | ||||
| Marketable securities |
1,323,300 | — | 1,323,300 | |||||||
| Accounts receivable, net |
456,288 | 159 | 456,447 | |||||||
| Inventories |
438,443 | 3,912 | 442,355 | |||||||
| Deferred income taxes |
291,133 | (2,255 | ) | 288,878 | ||||||
| Other current assets |
57,014 | — | 57,014 | |||||||
| Total current assets |
3,528,173 | 1,816 | 3,529,989 | |||||||
| Land, property and equipment, net |
395,123 | — | 395,123 | |||||||
| Other assets |
438,022 | 51,828 | 489,850 | |||||||
| Total assets |
$ | 4,361,318 | $ | 53,644 | $ | 4,414,962 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY |
||||||||||
| Current liabilities: |
||||||||||
| Accounts payable |
$ | 97,709 | $ | — | $ | 97,709 | ||||
| Deferred system profit |
219,868 | 1,686 | 221,554 | |||||||
| Unearned revenue |
73,924 | 158 | 74,082 | |||||||
| Other current liabilities |
545,601 | 4,667 | 550,268 | |||||||
| Total current liabilities |
937,102 | 6,511 | 943,613 | |||||||
| Commitments and contingencies (Note 12) |
||||||||||
| Minority interest in subsidiary |
11,069 | (2,009 | ) | 9,060 | ||||||
| Stockholders’ equity: |
||||||||||
| Common stock and capital in excess of par value |
1,142,015 | 284,892 | 1,426,907 | |||||||
| Retained earnings |
2,263,647 | (233,726 | ) | 2,029,921 | ||||||
| Accumulated other comprehensive income |
7,485 | (2,024 | ) | 5,461 | ||||||
| Total stockholders’ equity |
3,413,147 | 49,142 | 3,462,289 | |||||||
| Total liabilities and stockholders’ equity |
$ | 4,361,318 | $ | 53,644 | $ | 4,414,962 | ||||
9
Condensed Consolidated Balance Sheets
(Unaudited)
| December 31, 2005 | ||||||||||
| (in thousands, except per share data) |
As previously reported |
Adjustments | As restated | |||||||
| ASSETS |
||||||||||
| Current assets: |
||||||||||
| Cash and cash equivalents |
$ | 937,193 | $ | — | $ | 937,193 | ||||
| Marketable securities |
1,290,037 | — | 1,290,037 | |||||||
| Accounts receivable, net |
371,873 | 157 | 372,030 | |||||||
| Inventories |
411,796 | 2,930 | 414,726 | |||||||
| Deferred income taxes |
288,456 | (2,255 | ) | 286,201 | ||||||
| Other current assets |
49,119 | — | 49,119 | |||||||
| Total current assets |
3,348,474 | 832 | 3,349,306 | |||||||
| Land, property and equipment, net |
387,839 | — | 387,839 | |||||||
| Other assets |
428,223 | 53,969 | 482,192 | |||||||
| Total assets |
$ | 4,164,536 | $ | 54,801 | $ | 4,219,337 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY |
||||||||||
| Current liabilities: |
||||||||||
| Accounts payable |
$ | 79,142 | $ | — | $ | 79,142 | ||||
| Deferred system profit |
163,967 | 2,500 | 166,467 | |||||||
| Unearned revenue |
74,701 | 156 | 74,857 | |||||||
| Other current liabilities |
541,911 | 4,624 | 546,535 | |||||||
| Total current liabilities |
859,721 | 7,280 | 867,001 | |||||||
| Commitments and contingencies (Note 12) |
||||||||||
| Minority interest in subsidiary |
8,831 | (2,009 | ) | 6,822 | ||||||
| Stockholders’ equity: |
||||||||||
| Common stock and capital in excess of par value |
1,098,263 | 282,428 | 1,380,691 | |||||||
| Retained earnings |
2,189,515 | (232,267 | ) | 1,957,248 | ||||||
| Accumulated other comprehensive income |
8,206 | (631 | ) | 7,575 | ||||||
| Total stockholders’ equity |
3,295,984 | 49,530 | 3,345,514 | |||||||
| Total liabilities and stockholders’ equity |
$ | 4,164,536 | $ | 54,801 | $ | 4,219,337 | ||||
10
Condensed Consolidated Balance Sheets
(Unaudited)
| September 30, 2005 | ||||||||||
| (in thousands, except per share data) |
As previously |
Adjustments | As restated | |||||||
| ASSETS |
||||||||||
| Current assets: |
||||||||||
| Cash and cash equivalents |
$ | 748,522 | $ | — | $ | 748,522 | ||||
| Marketable securities |
1,434,224 | — | 1,434,224 | |||||||
| Accounts receivable, net |
307,194 | 157 | 307,351 | |||||||
| Inventories |
396,006 | 3,158 | 399,164 | |||||||
| Deferred income taxes |
280,253 | (2,255 | ) | 277,998 | ||||||
| Other current assets |
56,032 | — | 56,032 | |||||||
| Total current assets |
3,222,231 | 1,060 | 3,223,291 | |||||||
| Land, property and equipment, net |
382,713 | — | 382,713 | |||||||
| Other assets |
425,654 | 52,228 | 477,882 | |||||||
| Total assets |
$ | 4,030,598 | $ | 53,288 | $ | 4,083,886 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY |
||||||||||
| Current liabilities: |
||||||||||
| Accounts payable |
$ | 58,001 | $ | — | $ | 58,001 | ||||
| Deferred system profit |
180,347 | 4,159 | 184,506 | |||||||
| Unearned revenue |
75,003 | (544 | ) | 74,459 | ||||||
| Other current liabilities |
543,039 | 2,213 | 545,252 | |||||||
| Total current liabilities |
856,390 | 5,828 | 862,218 | |||||||
| Commitments and contingencies (Note 12) |
||||||||||
| Minority interest in subsidiary |
10,086 | (2,009 | ) | 8,077 | ||||||
| Stockholders’ equity: |
||||||||||
| Common stock and capital in excess of par value |
1,015,660 | 283,027 | 1,298,687 | |||||||
| Retained earnings |
2,136,607 | (232,223 | ) | 1,904,384 | ||||||
| Accumulated other comprehensive income |
11,855 | (1,335 | ) | 10,520 | ||||||
| Total stockholders’ equity |
3,164,122 | 49,469 | 3,213,591 | |||||||
| Total liabilities and stockholders’ equity |
$ | 4,030,598 | $ | 53,288 | $ | 4,083,886 | ||||
11
Condensed Consolidated Statements of Cash Flows
(Unaudited)
| Nine Months Ended March 31, 2006 | ||||||||||||
| (in thousands) |
As previously |
Adjustments | As restated |
|||||||||
| Cash flows from operating activities: |
||||||||||||
| Net income |
$ | 251,470 | $ | (2,694 | ) | $ | 248,776 | |||||
| Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||||||
| Depreciation and amortization |
51,495 | 700 | 52,195 | |||||||||
| Non-cash, stock-based compensation |
115,633 | 11,293 | 126,926 | |||||||||
| Minority interest |
(2,920 | ) | (2,920 | ) | ||||||||
| Net loss on sale of marketable securities and other investments |
3,419 | 3,419 | ||||||||||
| Tax benefit from employee stock options |
44,100 | (13,424 | ) | 30,676 | ||||||||
| Excess tax benefit from stock-based compensation cost |
(16,676 | ) | 3,432 | (13,244 | ) | |||||||
| Changes in assets and liabilities, net of assets acquired and liabilities assumed in business combinations: |
||||||||||||
| Accounts receivable, net |
(136,017 | ) | (159 | ) | (136,176 | ) | ||||||
| Inventories |
(75,850 | ) | (2,411 | ) | (78,261 | ) | ||||||
| Other assets |
(23,720 | ) | 2,458 | (21,262 | ) | |||||||
| Accounts payable |
29,611 | 29,611 | ||||||||||
| Deferred system profit |
9,969 | (552 | ) | 9,417 | ||||||||
| Other current liabilities |
(69,131 | ) | 4,789 | (64,342 | ) | |||||||
| Net cash provided by operating activities |
181,383 | 3,432 | 184,815 | |||||||||
| Cash flows from investing activities: |
||||||||||||
| Acquisitions of businesses, net of cash received |
(7,664 | ) | (7,664 | ) | ||||||||
| Purchase of property, plant and equipment |
(59,124 | ) | (59,124 | ) | ||||||||
| Purchase of available-for-sale securities |
(3,241,357 | ) | (3,241,357 | ) | ||||||||
| Proceeds from sale of available-for-sale securities |
3,290,827 | 3,290,827 | ||||||||||
| Proceeds from maturity of available-for-sale securities |
136,907 | 136,907 | ||||||||||
| Net cash provided by investing activities |
119,589 | — | 119,589 | |||||||||
| Cash flows from financing activities: |
||||||||||||
| Issuance of common stock |
180,307 | 180,307 | ||||||||||
| Payment of dividends to stockholders |
(71,461 | ) | (71,461 | ) | ||||||||
| Excess tax benefit from stock-based compensation cost |
16,676 | (3,432 | ) | 13,244 | ||||||||
| Stock repurchases |
(143,132 | ) | (143,132 | ) | ||||||||
| Proceeds from sale of minority interest in subsidiary |
4,736 | 4,736 | ||||||||||
| Net cash used in financing activities |
(12,874 | ) | (3,432 | ) | (16,306 | ) | ||||||
| Effect of exchange rate changes on cash and cash equivalents |
10,734 | 10,734 | ||||||||||
| Net increase in cash and cash equivalents |
298,832 | — | 298,832 | |||||||||
| Cash and cash equivalents at beginning of period |
663,163 | 663,163 | ||||||||||
| Cash and cash equivalents at end of period |
$ | 961,995 | $ | — | $ | 961,995 | ||||||
| Supplemental cash flow disclosures: |
||||||||||||
| Income taxes paid, net |
$ | 61,143 | $ | 61,143 | ||||||||
| Interest paid |
$ | 1,066 | $ | 1,066 | ||||||||
12
Condensed Consolidated Statements of Cash Flows
(Unaudited)
| Six Months Ended December 31, 2005 | ||||||||||||
| (in thousands) |
As previously |
Adjustments | As restated |
|||||||||
| Cash flows from operating activities: |
||||||||||||
| Net income |
$ | 153,327 | $ | (1,235 | ) | $ | 152,092 | |||||
| Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||||||
| Depreciation and amortization |
34,866 | 700 | 35,566 | |||||||||
| Non-cash, stock-based compensation |
71,082 | 7,483 | 78,565 | |||||||||
| Minority interest |
(2,000 | ) | (2,000 | ) | ||||||||
| Net loss on sale of marketable securities and other investments |
1,195 | 1,195 | ||||||||||
| Tax benefit from employee stock options |
31,086 | (10,276 | ) | 20,810 | ||||||||
| Excess tax benefit from stock-based compensation cost |
(10,791 | ) | 2,138 | (8,653 | ) | |||||||
| Changes in assets and liabilities, net of assets acquired and liabilities assumed in business combinations: |
||||||||||||
| Accounts receivable, net |
(52,921 | ) | (157 | ) | (53,078 | ) | ||||||
| Inventories |
(49,939 | ) | (1,429 | ) | (51,368 | ) | ||||||
| Other assets |
(7,795 | ) | 317 | (7,478 | ) | |||||||
| Accounts payable |
11,828 | 11,828 | ||||||||||
| Deferred system profit |
(45,932 | ) | 262 | (45,670 | ) | |||||||
| Other current liabilities |
(63,000 | ) | 4,335 | (58,665 | ) | |||||||
| Net cash provided by operating activities |
71,006 | 2,138 | 73,144 | |||||||||
| Cash flows from investing activities: |
||||||||||||
| Acquisitions of businesses, net of cash received |
(7,664 | ) | (7,664 | ) | ||||||||
| Purchase of property, plant and equipment |
(38,785 | ) | (38,785 | ) | ||||||||
| Purchase of available-for-sale securities |
(2,030,432 | ) | (2,030,432 | ) | ||||||||
| Proceeds from sale of available-for-sale securities |
2,146,643 | 2,146,643 | ||||||||||
| Proceeds from maturity of available-for-sale securities |
109,087 | 109,087 | ||||||||||
| Net cash provided by investing activities |
178,849 | — | 178,849 | |||||||||
| Cash flows from financing activities: |
||||||||||||
| Issuance of common stock |
136,340 | 136,340 | ||||||||||
| Payment of dividends to stockholders |
(47,450 | ) | (47,450 | ) | ||||||||
| Excess tax benefit from stock-based compensation cost |
10,791 | (2,138 | ) | 8,653 | ||||||||
| Stock repurchases |
(84,362 | ) | (84,362 | ) | ||||||||
| Proceeds from sale of minority interest in subsidiary |
1,579 | 1,579 | ||||||||||
| Net cash provided by financing activities |
16,898 | (2,138 | ) | 14,760 | ||||||||
| Effect of exchange rate changes on cash and cash equivalents |
7,277 | 7,277 | ||||||||||
| Net increase in cash and cash equivalents |
274,030 | — | 274,030 | |||||||||
| Cash and cash equivalents at beginning of period |
663,163 | 663,163 | ||||||||||
| Cash and cash equivalents at end of period |
$ | 937,193 | $ | — | $ | 937,193 | ||||||
| Supplemental cash flow disclosures: |
||||||||||||
| Income taxes paid, net |
$ | 12,434 | $ | 12,434 | ||||||||
| Interest paid |
$ | 600 | $ | 600 | ||||||||
13
Condensed Consolidated Statements of Cash Flows
(Unaudited)
| Three Months Ended September 30, 2005 | ||||||||||||
| (in thousands) |
As previously |
Adjustments | As restated |
|||||||||
| Cash flows from operating activities: |
||||||||||||
| Net income |
$ | 76,678 | $ | (1,191 | ) | $ | 75,487 | |||||
| Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||||||
| Depreciation and amortization |
17,114 | 700 | 17,814 | |||||||||
| Non-cash, stock-based compensation |
34,828 | 4,899 | 39,727 | |||||||||
| Minority interest |
(745 | ) | (745 | ) | ||||||||
| Net gain on sale of marketable securities and other investments |
(441 | ) | (441 | ) | ||||||||
| Tax benefit from employee stock options |
14,145 | (6,791 | ) | 7,354 | ||||||||
| Excess tax benefit from stock-based compensation cost |
(5,018 | ) | 527 | (4,491 | ) | |||||||
| Changes in assets and liabilities, net of assets acquired and liabilities assumed in business combinations: |
||||||||||||
| Accounts receivable, net |
21,141 | (157 | ) | 20,984 | ||||||||
| Inventories |
(36,310 | ) | (1,657 | ) | (37,967 | ) | ||||||
| Other assets |
(15,085 | ) | 2,058 | (13,027 | ) | |||||||
| Accounts payable |
(9,288 | ) | (9,288 | ) | ||||||||
| Deferred system profit |
(29,552 | ) | 1,921 | (27,631 | ) | |||||||
| Other current liabilities |
(55,505 | ) | 218 | (55,287 | ) | |||||||
| Net cash provided by operating activities |
11,962 | 527 | 12,489 | |||||||||
| Cash flows from investing activities: |
||||||||||||
| Purchase of property, plant and equipment |
(18,049 | ) | (18,049 | ) | ||||||||
| Purchase of available-for-sale securities |
(1,236,258 | ) | (1,236,258 | ) | ||||||||
| Proceeds from sale of available-for-sale securities |
1,260,882 | 1,260,882 | ||||||||||
| Proceeds from maturity of available-for-sale securities |
63,036 | 63,036 | ||||||||||
| Net cash provided by investing activities |
69,611 | — | 69,611 | |||||||||
| Cash flows from financing activities: |
||||||||||||
| Issuance of common stock |
56,142 | 56,142 | ||||||||||
| Payment of dividends to stockholders |
(23,709 | ) | (23,709 | ) | ||||||||
| Excess tax benefit from stock-based compensation cost |
5,018 | (527 | ) | 4,491 | ||||||||
| Stock repurchases |
(35,488 | ) | (35,488 | ) | ||||||||
| Proceeds from sale of minority interest in subsidiary |
1,579 | 1,579 | ||||||||||
| Net cash provided by financing activities |
3,542 | (527 | ) | 3,015 | ||||||||
| Effect of exchange rate changes on cash and cash equivalents |
244 | 244 | ||||||||||
| Net increase in cash and cash equivalents |
85,359 | — | 85,359 | |||||||||
| Cash and cash equivalents at beginning of period |
663,163 | 663,163 | ||||||||||
| Cash and cash equivalents at end of period |
$ | 748,522 | $ | — | $ | 748,522 | ||||||
| Supplemental cash flow disclosures: |
||||||||||||
| Income taxes paid, net |
$ | 8,660 | $ | 8,660 | ||||||||
| Interest paid |
$ | 297 | $ | 297 | ||||||||
14
Condensed Consolidated Statements of Cash Flows
(Unaudited)
| Nine Months Ended March 31, 2005 | ||||||||||||
| (in thousands) |
As previously |
Adjustments | As restated |
|||||||||
| Cash flows from operating activities: |
||||||||||||
| Net income |
$ | 361,645 | $ | (12,464 | ) | $ | 349,181 | |||||
| Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||||||
| Depreciation and amortization |
53,398 | 53,398 | ||||||||||
| Non-cash, stock-based compensation |
1,917 | 26,943 | 28,860 | |||||||||
| Minority interest |
(2,324 | ) | (2,324 | ) | ||||||||
| Net loss on sale of marketable securities and other investments |
3,360 | 3,360 | ||||||||||
| Changes in assets and liabilities, net of assets acquired and liabilities assumed in business combinations: |
||||||||||||
| Accounts receivable, net |
(68,891 | ) | (68,891 | ) | ||||||||
| Inventories |
(13,985 | ) | 577 | (13,408 | ) | |||||||
| Other assets |
(39,564 | ) | (4,023 | ) | (43,587 | ) | ||||||
| Accounts payable |
(15 | ) | (15 | ) | ||||||||
| Deferred system profit |
(12,606 | ) | 3,378 | (9,228 | ) | |||||||
| Other current liabilities |
70,124 | (14,411 | ) | 55,713 | ||||||||
| Net cash provided by operating activities |
353,059 | — | 353,059 | |||||||||
| Cash flows from investing activities: |
||||||||||||
| Acquisitions of businesses, net of cash received |
(44,628 | ) | (44,628 | ) | ||||||||
| Purchase of property, plant and equipment |
(54,331 | ) | (54,331 | ) | ||||||||
| Purchase of available-for-sale securities |
(2,476,221 | ) | (2,476,221 | ) | ||||||||
| Proceeds from sale of available-for-sale securities |
1,965,743 | 1,965,743 | ||||||||||
| Proceeds from maturity of available-for-sale securities |
266,372 | 266,372 | ||||||||||
| Net cash used in investing activities |
(343,065 | ) | — | (343,065 | ) | |||||||
| Cash flows from financing activities: |
||||||||||||
| Issuance of common stock |
103,304 | 103,304 | ||||||||||
| Stock repurchases |
(135,443 | ) | (135,443 | ) | ||||||||
| Proceeds from sale of minority interest in subsidiary |
10,000 | 10,000 | ||||||||||
| Net cash used in financing activities |
(22,139 | ) | — | (22,139 | ) | |||||||
| Effect of exchange rate changes on cash and cash equivalents |
9,160 | 9,160 | ||||||||||
| Net decrease in cash and cash equivalents |
(2,985 | ) | — | (2,985 | ) | |||||||
| Cash and cash equivalents at beginning of period |
353,882 | 353,882 | ||||||||||
| Cash and cash equivalents at end of period |
$ | 350,897 | $ | — | $ | 350,897 | ||||||
| Supplemental cash flow disclosures: |
||||||||||||
| Income taxes paid, net |
$ | 121,426 | $ | 121,426 | ||||||||
| Interest paid |
$ | 717 | $ | 717 | ||||||||
15
Condensed Consolidated Statements of Cash Flows
(Unaudited)
| Six Months Ended December 31, 2004 | ||||||||||||
| (in thousands) |
As previously |
Adjustments | As restated |
|||||||||
| Cash flows from operating activities: |
||||||||||||
| Net income |
$ | 238,482 | $ | (6,188 | ) | $ | 232,294 | |||||
| Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||||||
| Depreciation and amortization |
36,659 | 36,659 | ||||||||||
| Non-cash, stock-based compensation |
1,119 | 17,502 | 18,621 | |||||||||
| Minority interest |
(1,235 | ) | (1,235 | ) | ||||||||
| Net loss on sale of marketable securities and other investments |
1,939 | 1,939 | ||||||||||
| Changes in assets and liabilities, net of assets acquired and liabilities assumed in business combinations: |
||||||||||||
| Accounts receivable, net |
(60,020 | ) | (60,020 | ) | ||||||||
| Inventories |
(11,354 | ) | 979 | (10,375 | ) | |||||||
| Other assets |
(26,786 | ) | (3,966 | ) | (30,752 | ) | ||||||
| Accounts payable |
(20,767 | ) | (20,767 | ) | ||||||||
| Deferred system profit |
(16,654 | ) | (1,049 | ) | (17,703 | ) | ||||||
| Other current liabilities |
30,100 | (7,278 | ) | 22,822 | ||||||||
| Net cash provided by operating activities |
171,483 | — | 171,483 | |||||||||
| Cash flows from investing activities: |
||||||||||||
| Acquisitions of businesses, net of cash received |
(44,628 | ) | (44,628 | ) | ||||||||
| Purchase of property, plant and equipment |
(47,086 | ) | (47,086 | ) | ||||||||
| Purchase of available-for-sale securities |
(1,568,749 | ) | (1,568,749 | ) | ||||||||
| Proceeds from sale of available-for-sale securities |
1,196,402 | 1,196,402 | ||||||||||
| Proceeds from maturity of available-for-sale securities |
221,636 | 221,636 | ||||||||||
| Net cash used in investing activities |
(242,425 | ) | — | (242,425 | ) | |||||||
| Cash flows from financing activities: |
||||||||||||
| Issuance of common stock |
70,876 | 70,876 | ||||||||||
| Stock repurchases |
(111,122 | ) | (111,122 | ) | ||||||||
| Proceeds from sale of minority interest in subsidiary |
10,000 | 10,000 | ||||||||||
| Net cash used in financing activities |
(30,246 | ) | — | (30,246 | ) | |||||||
| Effect of exchange rate changes on cash and cash equivalents |
5,202 | 5,202 | ||||||||||
| Net decrease in cash and cash equivalents |
(95,986 | ) | — | (95,986 | ) | |||||||
| Cash and cash equivalents at beginning of period |
353,882 | 353,882 | ||||||||||
| Cash and cash equivalents at end of period |
$ | 257,896 | $ | — | $ | 257,896 | ||||||
| Supplemental cash flow disclosures: |
||||||||||||
| Income taxes paid, net |
$ | 80,917 | $ | 80,917 | ||||||||
| Interest paid |
$ | 501 | $ | 501 | ||||||||
16
Condensed Consolidated Statements of Cash Flows
(Unaudited)
| Three Months Ended September 30, 2004 | ||||||||||||
| (in thousands) |
As previously |
Adjustments | As restated |
|||||||||
| Cash flows from operating activities: |
||||||||||||
| Net income |
$ | 116,405 | $ | (6,133 | ) | $ | 110,272 | |||||
| Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||||||
| Depreciation and amortization |
18,590 | 18,590 | ||||||||||
| Non-cash, stock-based compensation |
10,327 | 10,327 | ||||||||||
| Net loss on sale of marketable securities and other investments |
536 | 536 | ||||||||||
| Changes in assets and liabilities, net of assets acquired and liabilities assumed in business combinations: |
||||||||||||
| Accounts receivable, net |
4,012 | 4,012 | ||||||||||
| Inventories |
(35,455 | ) | 111 | (35,344 | ) | |||||||
| Other assets |
(7,599 | ) | (2,085 | ) | (9,684 | ) | ||||||
| Accounts payable |
(10,775 | ) | (10,775 | ) | ||||||||
| Deferred system profit |
(3,358 | ) | 174 | (3,184 | ) | |||||||
| Other current liabilities |
8,433 | (2,394 | ) | 6,039 | ||||||||
| Net cash provided by operating activities |
90,789 | — | 90,789 | |||||||||
| Cash flows from investing activities: |
||||||||||||
| Acquisitions of businesses, net of cash received |
(4,050 | ) | (4,050 | ) | ||||||||
| Purchase of property, plant and equipment |
(17,796 | ) | (17,796 | ) | ||||||||
| Purchase of marketable securities |
(908,525 | ) | (908,525 | ) | ||||||||
| Proceeds from sale of marketable securities |
744,226 | 744,226 | ||||||||||
| Proceeds from maturity of available-for-sale securities |
106,757 | 106,757 | ||||||||||
| Net cash used in investing activities |
(79,388 | ) | — | (79,388 | ) | |||||||
| Cash flows from financing activities: |
||||||||||||
| Issuance of common stock |
11,973 | 11,973 | ||||||||||
| Stock repurchases |
(74,212 | ) | (74,212 | ) | ||||||||
| Net cash used in financing activities |
(62,239 | ) | — | (62,239 | ) | |||||||
| Effect of exchange rate changes on cash and cash equivalents |
2,043 | 2,043 | ||||||||||
| Net decrease in cash and cash equivalents |
(48,795 | ) | — | (48,795 | ) | |||||||
| Cash and cash equivalents at beginning of period |
353,882 | 353,882 | ||||||||||
| Cash and cash equivalents at end of period |
$ | 305,087 | $ | — | $ | 305,087 | ||||||
| Supplemental cash flow disclosures: |
||||||||||||
| Income taxes paid, net |
$ | 36,009 | $ | 36,009 | ||||||||
| Interest paid |
$ | 269 | $ | 269 | ||||||||
17
Management’s Discussion and Analysis for the first Three Quarters of Fiscal Year 2006
Revenues and Gross Margin
| Three months ended | Six months December 31, |
Nine months March 31, |
||||||||||||||||||
| (in millions) |
March 31, 2006 |
December 31, 2005 |
September 30, 2005 |
|||||||||||||||||
| As restated | As restated | As restated | As restated | As restated | ||||||||||||||||
| Revenues: |
||||||||||||||||||||
| Product |
$ | 429 | $ | 402 | $ | 399 | $ | 801 | $ | 1,230 | ||||||||||
| Service |
91 | 86 | 85 | 171 | 262 | |||||||||||||||
| Total revenues |
$ | 520 | $ | 488 | $ | 484 | $ | 972 | $ | 1,492 | ||||||||||
| Costs of revenues |
$ | 227 | $ | 216 | $ | 215 | $ | 431 | $ | 658 | ||||||||||
| Stock-based compensation expense included in costs of revenues |
$ | 6 | $ | 7 | $ | 7 | $ | 14 | $ | 20 | ||||||||||
| Gross margin percentage |
56 | % | 56 | % | 55 | % | 56 | % | 56 | % | ||||||||||
| Stock-based compensation expense included in costs of revenues as a percentage of total revenues |
1 | % | 1 | % | 1 | % | 1 | % | 1 | % | ||||||||||
| Three months ended | Six months December 31, |
Nine months March 31, |
||||||||||||||||||||||
| (in millions) |
June 30, 2005 |
March 31, 2005 |
December 31, 2004 |
September 30, 2004 |
||||||||||||||||||||
| As restated | As restated | As restated | As restated | As restated | As restated | |||||||||||||||||||
| Revenues: |
||||||||||||||||||||||||
| Product |
$ | 409 | $ | 462 | $ | 455 | $ | 442 | $ | 897 | $ | 1,359 | ||||||||||||
| Service |
81 | 78 | 78 | 77 | 155 | 233 | ||||||||||||||||||
| Total revenues |
$ | 490 | $ | 540 | $ | 533 | $ | 519 | $ | 1,052 | $ | 1,592 | ||||||||||||
| Costs of revenues |
$ | 209 | $ | 226 | $ | 219 | $ | 218 | $ | 437 | $ | 663 | ||||||||||||
| Stock-based compensation expense included in costs of revenues |
$ | 1 | $ | 4 | $ | 1 | $ | 3 | $ | 4 | $ | 8 | ||||||||||||
| Gross margin percentage |
57 | % | 58 | % | 59 | % | 58 | % | 58 | % | 58 | % | ||||||||||||
| Stock-based compensation expense included in costs of revenues as a percentage of total revenues |
0 | % | 1 | % | 0 | % | 1 | % | 0 | % | 1 | % | ||||||||||||
18
Product revenues
For the quarter ended March 31, 2006
Product revenues increased $27 million or 7% to $429 million during the third quarter of fiscal year 2006 from $402 million during the second quarter of fiscal year 2006. Third quarter of fiscal 2006 product revenues were $33 million or 7% lower than the same period in the previous fiscal year. Product revenues decreased by $129 million or 9% to $1,230 million during the nine months ended March 31, 2006 from $1,359 million during the nine months ended March 31, 2005. Product revenue decreases were primarily the result of a lower level of orders received in prior quarters.
Per our revenue recognition policy, we do not require written acceptance from the customer under certain situations. Revenue recognized under conditions where our policy does not require the need for a written acceptance by the customer was approximately 5.3%, 2.6% and 6.0% of total revenue for the three months ended March 31, 2006, December 31, 2005 and March 31, 2005, respectively, and 3.7% and 7.4% for the nine months ended March 31, 2006 and 2005, respectively.
For the three and nine months ended March 31, 2006, no customer accounted for greater than 10% of revenue. For the three months ended March 31, 2005, two customers accounted for 11% and 10% of revenue, respectively. For the nine months ended March 31, 2005, one customer accounted for 11% of revenue.
For the quarter ended December 31, 2005
Product revenues increased $3 million or less than 1% to $402 million during the second quarter of fiscal year 2006 from $399 million during the first quarter of fiscal year 2006. Second quarter of fiscal 2006 product revenues were $53 million or 12% lower than the same period in the previous fiscal year. Product revenues decreased by $96 million or 11% to $801 million during the six months ended December 31, 2005 from $897 million during the six months ended December 31, 2004. Product revenue decreases were primarily the result of a lower level of orders received in prior quarters.
Per our revenue recognition policy, we do not require written acceptance from the customer under certain situations. Revenue recognized under conditions where our policy does not require the need for a written acceptance by the customer was approximately 2.6%, 3.2% and 9.4% of total revenue for the three months ended December 31, 2005, September 30, 2005 and December 31, 2004, respectively, and 2.9% and 7.9% for the six months ended December 31, 2005 and 2004, respectively.
For the three months ended December 31, 2005, no customer accounted for greater than 10% of revenue. For the three months ended December 31, 2004, one customer accounted for 11% of revenue. For the six months ended December 31, 2005, two customers each accounted for 10% of revenue. For the six months ended December 31, 2004, one customer accounted for 11% of revenue.
For the quarter ended September 30, 2005
Product revenues decreased $10 million or 2% to $399 million during the first quarter of fiscal year 2006 from $409 million during the fourth quarter of fiscal year 2005. First quarter of fiscal 2006 product revenues were $43 million or 10% lower than the same period in the previous fiscal year. Product revenue decreases were primarily the result of a lower level of orders received in prior quarters.
Per our revenue recognition policy, we do not require written acceptance from the customer under certain situations. Revenue recognized under conditions where our policy does not require the need for a written acceptance by the customer was approximately 3.2%, 4.0% and 6.5% of total revenue for the three months ended September 30, 2005, June 30, 2005 and September 30, 2004, respectively.
19
For the three months ended September 30, 2005, two customers accounted for 16% and 11% of revenue, respectively. For the three months ended June 30, 2005, one customer accounted for 11% of revenue. For the three months ended September 30, 2004, one customer accounted for 11% of revenue.
Service revenues
For the quarter ended March 31, 2006
Service revenue is generated from maintenance service contracts, as well as time and material billable service calls made to our customers after the expiration of the warranty period. Service revenues increased by $5 million or 6% to $91 million during the third quarter of fiscal year 2006 from $86 million during the second quarter of fiscal year 2006. Third quarter of fiscal 2006 service revenues were $13 million or 17% higher than the same period in the previous fiscal year. Service revenues increased by $29 million or 12% to $262 million during the nine months ended March 31, 2006 from $233 million during the nine months ended March 31, 2005. The increase in service revenue is due to an increase in the number of post-warranty systems installed at our customers’ sites and the degree of utilization of those systems.
For the quarter December 31, 2005
Service revenues increased by $1 million or 1% to $86 million during the second quarter of fiscal year 2006 from $85 million during the first quarter of fiscal year 2006. Second quarter of fiscal 2006 service revenues were $8 million or 10% higher than the same period in the previous fiscal year. Service revenues increased by $16 million or 10% to $171 million during the six months ended December 31, 2005 from $155 million during the six months ended December 31, 2004. The increase in service revenue is due to an increase in the number of post-warranty systems installed at our customers’ sites and the degree of utilization of those systems.
For the quarter ended September 30, 2005
Service revenues increased by $4 million or 5% to $85 million during the first quarter of fiscal year 2006 from $81 million during the fourth quarter of fiscal year 2005. First quarter of fiscal 2006 service revenues were $8 million or 10% higher than the same period in the previous fiscal year. The increase in service revenue is due to an increase in the number of post-warranty systems installed at our customers’ sites and the degree of utilization of those systems.
Gross margin
For the quarter ended March 31, 2006
Gross margin percentage remained relatively flat at 56% during the third quarter of fiscal year 2006 compared to the second quarter of fiscal year 2006 and declined by 2 percentage points compared to 58% during the same period in the prior fiscal year. This decline is attributable to lower revenue levels and stock-based compensation expense recorded during the third quarter of fiscal year 2006. Gross margin percentage at 56% during the nine months ended March 31, 2006 declined by 2 percentage points compared to 58% during the same period in the prior fiscal year. This decline is attributable to lower revenue levels and stock-based compensation expense recorded during the nine months ended March 31, 2006.
For the quarter ended December 31, 2005
Gross margin percentage increased by 1 percentage point to 56% during the during the second quarter of fiscal year 2006 compared to 55% during the first quarter of fiscal year 2006 and declined by 3 percentage points compared to 59% during the same period in the prior fiscal year. Of this decline, 2 percentage points are attributable to lower revenue levels; and 1 percentage point is attributable to stock-based compensation expense recorded during the second quarter of fiscal year 2006.
20
For the quarter ended September 30, 2005
Gross margin percentage declined by 2 percentage points to 55% during the first quarter of fiscal year 2006 compared to 57% during the fourth quarter of fiscal year 2005 and declined by 3 percentage points compared to 58% during the same period in the prior fiscal year. Of this decline, 1 percentage point is attributable to lower revenue levels and the increased costs of our installation, customer service and support programs; and 1 percentage point is attributable to stock-based compensation expense recorded during the first quarter of fiscal year 2006.
Engineering, Research and Development (“R&D”)
| Three months ended | Six months December 31, |
Nine months March 31, |
||||||||||||||||||
| (in millions) |
March 31, 2006 |
December 31, 2005 |
September 30, 2005 |
|||||||||||||||||
| As restated | As restated | As restated | As restated | As restated | ||||||||||||||||
| R&D expenses |
$ | 97 | $ | 99 | $ | 99 | $ | 198 | $ | 295 | ||||||||||
| Stock-based compensation expense included in R&D expenses |
$ | 12 | $ | 13 | $ | 13 | $ | 26 | $ | 38 | ||||||||||
| R&D expenses as a percentage of total revenues |
19 | % | 20 | % | 20 | % | 20 | % | 20 | % | ||||||||||
| Stock-based compensation expense included in R&D expenses as a percentage of total revenues |
2 | % | 3 | % | 3 | % | 3 | % | 3 | % | ||||||||||
| Three months ended | Six months December 31, |
Nine months March 31, |
||||||||||||||||||||||
| (in millions) |
June 30, 2005 |
March 31, 2005 |
December 31, 2004 |
September 30, 2004 |
||||||||||||||||||||
| As restated | As restated | As restated | As restated | As restated | As restated | |||||||||||||||||||
| R&D expenses |
$ | 90 | $ | 91 | $ | 90 | $ | 81 | $ | 171 | $ | 262 | ||||||||||||
| Stock-based compensation expense included in R&D expenses |
$ | 3 | $ | 3 | $ | 3 | $ | 3 | $ | 6 | $ | 9 | ||||||||||||
| R&D expenses as a percentage of total revenues |
18 | % | 17 | % | 17 | % | 16 | % | 16 | % | 16 | % | ||||||||||||
| Stock-based compensation expense included in R&D expenses as a percentage of total revenues |
1 | % | 1 | % | 1 | % | 1 | % | 1 | % | 1 | % | ||||||||||||
For the quarter ended March 31, 2006
R&D expenses decreased $2 million or 2% to $97 million during the third quarter of fiscal year 2006 from $99 million during the second quarter of fiscal year 2006. Third quarter of fiscal 2006 R&D expenses were $6 million or 7% higher than the same period in the previous fiscal year. R&D expenses increased by $33 million or 13% to $295 million during the nine months ended March 31, 2006 from $262 million during the six months ended March 31, 2005. The increase in R&D expenses compared to the previous fiscal year is primarily attributable to stock-based compensation expenses recorded during the current fiscal year.
R&D expenses include the benefit of external funding received of $2 million during each of the three months ended March 31, 2006, December 31, 2005, and March 31, 2005. R&D expenses include $7 million and
21
$5 million of external funding received during the nine months ended March 31, 2006 and 2005, respectively. The external funding was received for certain strategic development programs conducted with several of our customers and from government grants.
Our future operating results will depend significantly on our ability to produce products and provide services that have a competitive advantage in our marketplace. To do this, we believe that we must continue to make substantial investments in our research and development. We remain committed to product development in new and emerging technologies as we address the yield challenges our customers face at future technology nodes.
For the quarter ended December 31, 2005
R&D expenses remained relatively flat at $99 million during the second quarter of fiscal year 2006 compared to the first quarter of fiscal year 2006. Second quarter of fiscal 2006 R&D expenses were $9 million or 10% higher than the same period in the previous fiscal year primarily due to stock-based-compensation and increased cost of engineering project materials. R&D expenses increased by $27 million or 16% to $198 million during the six months ended December 31, 2005 from $171 million during the six months ended December 31, 2004 primarily due to stock-based compensation expense.
R&D expenses include the benefit of $2 million, $3 million and $1 million of external funding received during the three months ended December 31, 2005, September 30, 2005, and December 31, 2004, respectively. R&D expenses include the benefit of $5 million and $3 million of external funding received during the six months ended December 31, 2005 and 2004, respectively. The external funding was received for certain strategic development programs conducted with several of our customers and from government grants.
Our future operating results will depend significantly on our ability to produce products and provide services that have a competitive advantage in our marketplace. To do this, we believe that we must continue to make substantial investments in our research and development efforts. We remain committed to product development in new and emerging technologies as we address the yield challenges our customers face at future technology nodes.
For the quarter ended September 30, 2005
R&D expenses increased $9 million or 10% to $99 million during the first quarter of fiscal year 2006 from $90 million during the fourth quarter of fiscal year 2005 and increased $18 million or 22% compared to the same period in the previous fiscal year primarily due to stock-based compensation expense. Stock-based compensation expense included in R&D expenses was $13 million or 3% of total revenues during the first quarter of fiscal year 2006 compared to $3 million during the fourth quarter of fiscal year 2005 and the same period in the previous fiscal year.
R&D expenses include the benefit of $3 million of external funding received during the three months ended September 30, 2005 for certain strategic development programs conducted with several of our customers and from government grants.
The businesses acquired during fiscal year 2005 contributed $4 million of the R&D expenses during the three months ended September 30, 2005 and June 30, 2005 and none during the same period in the previous fiscal year.
Our future operating results will depend significantly on our ability to produce products and provide services that have a competitive advantage in our marketplace. To do this, we believe that we must continue to make substantial investments in our research and development efforts. We remain committed to product development in new and emerging technologies as we address the yield challenges our customers face at future technology nodes.
22
Selling, General and Administrative (“SG&A”)
| Three months ended | Six months December 31, |
Nine months March 31, |
||||||||||||||||||
| (in millions) |
March 31, 2006 |
December 31, 2005 |
September 30, 2005 |
|||||||||||||||||
| As restated | As restated | As restated | As restated | As restated | ||||||||||||||||
| SG&A expenses |
$ | 111 | $ | 98 | $ | 95 | $ | 193 | $ | 304 | ||||||||||
| Stock-based compensation expense included in SG&A expenses |
$ | 30 | $ | 20 | $ | 20 | $ | 40 | $ | 70 | ||||||||||
| SG&A expenses as a percentage of total revenues |
21 | % | 20 | % | 20 | % | 20 | % | 20 | % | ||||||||||
| Stock-based compensation expense included in SG&A expenses as a percentage of total revenues |
6 | % | 4 | % | 4 | % | 4 | % | 5 | % | ||||||||||
| Three months ended | Six months December 31, |
Nine months March 31, |
||||||||||||||||||||||
| (in millions) |
June 30, 2005 |
March 31, 2005 |
December 31, 2004 |
September 30, 2004 |
||||||||||||||||||||
| As restated | As restated | As restated | As restated | As restated | As restated | |||||||||||||||||||
| SG&A expenses |
$ | 85 | $ | 79 | $ | 75 | $ | 74 | $ | 149 | $ | 228 | ||||||||||||
| Stock-based compensation expense included in SG&A expenses |
$ | 4 | $ | 4 | $ | 4 | $ | 4 | $ | 8 | $ | 12 | ||||||||||||
| SG&A expenses as a percentage of total revenues |
17 | % | 15 | % | 14 | % | 14 | % | 14 | % | 14 | % | ||||||||||||
| Stock-based compensation expense included in SG&A expenses as a percentage of total revenues |
1 | % | 1 | % | 1 | % | 1 | % | 1 | % | 1 | % | ||||||||||||
For the quarter ended March 31, 2006
SG&A expenses increased $13 million or 13% to $111 million during the third quarter of fiscal year 2006 from $98 million during the second quarter of fiscal year 2006. Third quarter of fiscal 2006 SG&A expenses were $32 million or 41% higher than the same period in the previous fiscal year. SG&A expenses increased by $76 million or 33% to $304 million during the nine months ended March 31, 2006 from $228 million during the nine months ended March 31, 2005. The increase in SG&A expenses compared to the previous fiscal year is primarily attributable to stock-based compensation expenses recorded during the current fiscal year.
The increase in SG&A compared to the previous quarter is primarily due to higher compensation costs associated with an increase in customer application support and increased staffing and stock-based compensation expense. The increase in SG&A expenses compared to the same period in the prior fiscal year is due to an increase in customer application support, increased staffing and consolidating the results of operations of the entities acquired during fiscal year 2005 in addition to stock-based compensation expense. The businesses acquired during fiscal year 2005 contributed $9 million and $6 million of the SG&A expenses during the nine months ended March 31, 2006 and 2005, respectively.
For the quarter ended December 31, 2005
SG&A expenses increased $3 million or 3% to $98 million during the second quarter of fiscal year 2006 from $95 million during the first quarter of fiscal year 2006. Second quarter of fiscal 2006 SG&A expenses were
23
$23 million or 31% higher than the same period in the previous fiscal year. SG&A expenses increased by $44 million or 30% to $193 million during the six months ended December 31, 2005 from $149 million during the six months ended December 31, 2004. The increase in SG&A expenses compared to the previous fiscal year is primarily attributable to stock-based compensation expenses recorded during the current fiscal year.
The increase in SG&A expenses compared to the previous quarter is primarily due to higher compensation costs associated with an increase in customer application support and increased staffing. The increase in SG&A expenses compared to the same period in the prior fiscal year is due to an increase in customer application support, increased staffing and consolidating the results of operations of the entities acquired during fiscal year 2005 in addition to stock-based compensation expense. The entities acquired during fiscal year 2005 contributed $3 million, $3 million and $3 million of the SG&A expenses for the three months ended December 31, 2005, September 30, 2005 and December 31, 2004, respectively. The businesses acquired during fiscal year 2005 contributed $6 million and $3 million of the SG&A expenses during the six months ended December 31, 2005 and 2004, respectively.
For the quarter ended September 30, 2005
SG&A expenses increased $10 million or 12% to $95 million during the first quarter of fiscal year 2006 from $85 million during the fourth quarter of fiscal year 2005 and increased $21 million or 28% compared to the same period in the previous fiscal year.
The increase in SG&A expenses compared to the previous quarter is primarily due to stock-based compensation expense offset by Company mandated time-off during the first quarter of fiscal 2006 and. The increase in SG&A expenses compared to the same period in the prior fiscal year is due to an increase in customer application support, increased staffing and consolidating the results of operations of the entities acquired during fiscal year 2005 in addition to stock-based compensation expense. The entities acquired during fiscal year 2005 contributed $3 million of the SG&A expenses for the three months ended September 30, 2005, $4 million of the SG&A expenses during the three months ended June 30, 2005 and none during the same period in the previous fiscal year.
Interest Income and Other, Net
| Three months ended | Six months December 31, |
Nine months March 31, |
||||||||||||||||||
| (in millions) |
March 31, 2006 |
December 31, 2005 |
September 30, 2005 |
|||||||||||||||||
| As restated | As restated | As restated | As restated | As restated | ||||||||||||||||
| Interest income and other, net |
$ | 17 | $ | 17 | $ | 14 | $ | 31 | $ | 48 | ||||||||||
| Percentage of total revenues |
3 | % | 3 | % | 3 | % | 3 | % | 3 | % | ||||||||||
| Three months ended | Six months December 31, |
Nine months March 31, |
||||||||||||||||||||||
| (in millions) |
June 30, 2005 |
March 31, 2005 |
December 31, 2004 |
September 30, 2004 |
||||||||||||||||||||
| As restated | As restated | As restated | As restated | As restated | As restated | |||||||||||||||||||
| Interest income and other, net |
$ | 15 | $ | 7 | $ | 8 | $ | 7 | $ | 15 | $ | 22 | ||||||||||||
| Percentage of total revenues |
3 | % | 1 | % | 2 | % | 1 | % | 1 | % | 1 | % | ||||||||||||
For the quarter ended March 31, 2006
Interest income and other, net is comprised primarily of interest income earned on the investment and cash portfolio, realized gains or losses on sales of marketable securities, as well as income recognized upon settlement of certain foreign currency contracts. The increase in interest income and other, net, compared to the same period in the prior fiscal year is primarily due to the increase in cash levels and short-term interest rates.
24
For the quarter ended December 31, 2005
Interest income and other, net is comprised primarily of interest income earned on the investment and cash portfolio, realized gains or losses on sales of marketable securities, as well as income recognized upon settlement of certain foreign currency contracts. The increase in interest income and other, net compared to the same period in the prior fiscal year is primarily due to the increase in short-term interest rates.
For the quarter ended September 30, 2005
Interest income and other, net is comprised primarily of interest income earned on the investment and cash portfolio, realized gains or losses on sales of marketable securities, as well as income recognized upon settlement of certain foreign currency contracts. The increase in interest income and other, net compared to the same period in the prior fiscal year is primarily due to the increase in short-term interest rates.
Provision for Income Taxes
For the quarter ended March 31, 2006
Our effective income tax rate, after deduction for stock-based compensation, was 6.2% and 23.5% for the three months ended March 31, 2006 and 2005, respectively, and 13.1% and 24.9% for the nine months ended March 31, 2006 and 2005, respectively. The current quarter decrease in the effective tax rate is primarily due to adjustments to our estimated liabilities for income taxes resulting from the expiration of the statute of limitations for certain tax years. Excluding these items, our tax rate for the three months ending March 31, 2006 would have been 26.8%.
Our future effective income tax rate depends on various factors, such as tax legislation, the geographic composition of our pre-tax income, non tax-deductible expenses incurred in connection with acquisitions, amount of tax-exempt interest income and research and development credits as a percentage of aggregate pre-tax income, the resolution of outstanding tax contingencies, and the effectiveness of our tax planning strategies.
For the quarter ended December 31, 2005
Our effective income tax rate, after deduction for stock-based compensation, was 17.8% and 22.6% for the three months ended December 31, 2005 and 2004, respectively, and 17.0% and 25.6% for the six months ended December 31, 2005 and 2004, respectively. The current quarter decrease in the effective tax rate is primarily due to implementation of SFAS No. 123(R), favorable adjustments due to statute of limitation expiration and adjustments to previously estimated tax liabilities. Excluding these items, our tax rate after stock-based compensation deduction for the three months ended December 31, 2005 would have been 29.9%. In general, our tax rate differs from the statutory rate of 35% largely due to benefits realized from Extraterritorial Income (“ETI”) exclusion, research and development tax credits, reduced taxes on foreign earnings, tax exempt interest and domestic production deduction benefits.
Our future effective income tax rate depends on various factors, such as tax legislation, the geographic composition of our pre-tax income, non tax-deductible expenses incurred in connection with acquisitions, amount of tax-exempt interest income and research and development credits as a percentage of aggregate pre-tax income, the resolution of outstanding tax contingencies, and the effectiveness of our tax planning strategies.
For the quarter ended September 30, 2005
Our effective income tax rate was 16.1% and 28.55% for the three months ended September 30, 2005 and 2004, respectively. The current quarter decrease in the effective tax rate is primarily due to implementation of SFAS No. 123(R), reinstatement of the federal research and development tax credit, successful conclusion of international tax audits and the expiration of applicable statutes of limitations. In general, the effective income tax rate differs from the statutory rate of 35% largely as a function of benefits realized from our ETI exclusion, research and development tax credits and tax exempt interest.
25
On October 22, 2004 the American Jobs Creation Act (“AJCA”) was signed into law. The AJCA provides for a deduction of 85% of certain non-U.S. earnings that are repatriated to the U.S., as defined in the AJCA. The Company decided not to repatriate earnings from overseas under this provision after a careful review of the law, U.S. Treasury published guidance and the Company’s earnings by jurisdiction.
Our future effective income tax rate depends on various factors, such as tax legislation, the geographic composition of our pre-tax income, non tax-deductible expenses incurred in connection with acquisitions, amounts of tax-exempt interest income and research and development credits as a percentage of aggregate pre-tax income, the resolution of outstanding tax contingencies, and the effectiveness of our tax planning strategies.
26