KLA-Tencor Reports Fiscal 2015 First Quarter Results And Announces A Plan To Pursue A Leveraged Recapitalization Featuring A $2.75 Billion Special Cash Dividend And An Expanded Stock Repurchase Program

MILPITAS, Calif., Oct. 23, 2014 /PRNewswire/ -- KLA-Tencor Corporation (NASDAQ: KLAC) today announced operating results for its first quarter of fiscal year 2015, which ended on September 30, 2014, and reported GAAP net income of $72 million and GAAP earnings per diluted share of $0.43 on revenues of $643 million.

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GAAP Results


Q1 FY 2015

Q4 FY 2014

Q1 FY 2014

Revenues

$643 million

$734 million

$658 million

Net Income

$72 million

$129 million

$111 million

Earnings per Diluted Share

$0.43

$0.77

$0.66





Non-GAAP Results


Q1 FY 2015

Q4 FY 2014

Q1 FY 2014

Net Income

$79 million

$133 million

$115 million

Earnings per Diluted Share

$0.47

$0.80

$0.68

A reconciliation between GAAP operating results and non-GAAP operating results is provided following the financial statements that are part of this release. Non-GAAP results include the impact of stock-based compensation, but exclude the impact of acquisitions, and restructuring, severance and other charges.

Leveraged Recapitalization

KLA-Tencor also announced today a plan to significantly accelerate its strategy to drive stockholder returns. As part of the Company's ongoing commitment to deliver stockholder value, the Board of Directors has authorized the financing of a leveraged recapitalization, which would feature a special cash dividend of $16.50 per share, representing approximately 23% of the Company's common stock price as of October 22, 2014, or an aggregate value of approximately $2.75 billion. Subject to the close of necessary financing, the Board of Directors currently intends to declare and pay the special cash dividend before December 31, 2014. The special cash dividend would be in addition to the Company's regular $0.50 per share quarterly cash dividend. The Company's regular $0.50 per share quarterly cash dividend is expected to be declared and paid following the Company's regularly scheduled Board of Directors meeting in November 2014.

In connection with the leveraged recapitalization, the Board of Directors has approved an increase to the Company's stock repurchase program for up to 3.6 million additional shares of the Company's common stock, which is valued at approximately $250 million based upon the closing price of the Company's common stock as of October 20, 2014. This is in addition to the $1 billion stock repurchase program previously announced in July 2014. KLA-Tencor expects to complete these share repurchases within 12 to 18 months. The repurchases may occur from time to time, in the open market, with consideration given to the market price of the common stock, the Company's other investment opportunities, and general economic conditions.

Including the intended special cash dividend of $16.50 per share or an aggregate value of approximately $2.75 billion, the $250 million increase to the stock repurchase program announced today, and the $1 billion stock repurchase program previously announced in July 2014, the total capital that would be directed to stockholders would be approximately $4 billion in aggregate.

"KLA-Tencor's strong business model and the ongoing successful execution of our strategic plans enable us to continue to invest in our business at a high level to fuel our growth and support our customers' needs, while also delivering meaningful returns to stockholders," commented Rick Wallace, President and Chief Executive Officer. "These factors, coupled with a strong balance sheet and the Company's ongoing focus on cash distributions, will enable our stockholders to continue to benefit from KLA-Tencor's sustained success in the marketplace. This is another major step forward for the Company in executing our capital allocation strategies in support of our strategic objectives, while increasing returns to stockholders."

The intended special cash dividend of $2.75 billion in the aggregate will be funded in part with a portion of the cash on the Company's balance sheet, and in part with incremental debt. To fund the debt financed portion of the special cash dividend, KLA-Tencor intends to add up to $2.5 billion of incremental debt, consisting of a combination of investment grade senior notes and a pre-payable term loan facility, subject to market conditions. The Company also expects to enter into an unfunded revolving credit facility, subject to market conditions. The declaration and payment of the special cash dividend are conditioned on the Company's ability to obtain requisite debt financing on satisfactory terms and conditions. KLA-Tencor intends to manage its capital structure to preserve and maintain its investment grade rating.

In considering the proposed recapitalization, the Board of Directors took a number of factors into account, including the substantial net cash on KLA-Tencor's balance sheet, the likely effects of increased leverage on the Company's ability to pursue its strategic initiatives, and the Company's ability to generate cash flows to service the Company's increased debt and fund operations and investments designed to grow the business and serve customer needs.

KLA-Tencor will discuss the results for its fiscal year 2015 first quarter and its plan to pursue a recapitalization, along with its outlook, on a conference call today beginning at 2:00 p.m. Pacific Daylight Time. A webcast of the call will be available at: www.kla-tencor.com.

Forward-Looking Statements: Statements in this press release other than historical facts, such as statements regarding KLA-Tencor's ability to maintain, and benefit from, its market leadership position; KLA-Tencor's investment in its business; KLA-Tencor's ability to support its customers' needs; the declaration and payment by the Board of Directors of the special cash dividend and the regular $0.50 per share quarterly cash dividend; the completion by KLA-Tencor of the share repurchases; the issuance by KLA-Tencor of incremental debt and entry by KLA-Tencor into an unfunded revolving credit facility; and KLA-Tencor's intention to manage its capital structure to preserve and maintain its investment grade rating, are forward-looking statements, and are subject to the Safe Harbor provisions created by the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on current information and expectations, and involve a number of risks and uncertainties. Actual results may differ materially from those projected in such statements due to various factors, including but not limited to: the demand for semiconductors; the financial condition of the global capital markets and the general macroeconomic environment; new and enhanced product and technology offerings by competitors; cancellation of orders by customers; the ability of KLA-Tencor's research and development teams to successfully innovate and develop technologies and products that are responsive to customer demands; KLA-Tencor's ability to successfully manage its costs; market acceptance of the company's existing and newly issued products; and changing customer demands. For other factors that may cause actual results to differ materially from those projected and anticipated in forward-looking statements in this release, please refer to KLA-Tencor's Annual Report on Form 10-K for the year ended June 30, 2014, subsequently filed Quarterly Reports on Form 10-Q and other filings with the Securities and Exchange Commission (including, but not limited to, the risk factors described therein). KLA-Tencor assumes no obligation to, and does not currently intend to, update these forward-looking statements.

About KLA-Tencor:
KLA-Tencor Corporation (NASDAQ: KLAC), a leading provider of process control and yield management solutions, partners with customers around the world to develop state-of-the-art inspection and metrology technologies. These technologies serve the semiconductor, LED and other related nanoelectronics industries. With a portfolio of industry-standard products and a team of world-class engineers and scientists, the company has created superior solutions for its customers for more than 35 years. Headquartered in Milpitas, California, KLA-Tencor has dedicated customer operations and service centers around the world. Additional information may be found at www.kla-tencor.com. (KLAC-F)

Use of Non-GAAP Financial Information:
The non-GAAP and supplemental information provided in this press release is a supplement to, and not a substitute for, KLA-Tencor's financial results presented in accordance with United States GAAP.

To supplement KLA-Tencor's condensed consolidated financial statements presented in accordance with GAAP, the company provides certain non-GAAP financial information, which is adjusted from results based on GAAP to exclude certain costs and expenses, as well as other supplemental information. The non-GAAP and supplemental information is provided to enhance the user's overall understanding of KLA-Tencor's operating performance and its prospects in the future. Specifically, KLA-Tencor believes that the non-GAAP information provides useful measures to both management and investors regarding financial and business trends relating to KLA-Tencor's financial performance by excluding certain costs and expenses that the company believes are not indicative of its core operating results. The non-GAAP information is among the budgeting and planning tools that management uses for future forecasting. However, because there are no standardized or generally accepted definitions for most non-GAAP financial metrics, definitions of non-GAAP financial metrics (for example, determining which costs and expenses to exclude when calculating such a metric) are inherently subject to significant discretion. As a result, non-GAAP financial metrics may be defined very differently from company to company, or even from period to period within the same company, which can potentially limit the usefulness of such information to an investor. The presentation of non-GAAP and supplemental information is not meant to be considered in isolation or as a substitute for results prepared and presented in accordance with United States GAAP.

 

KLA-Tencor Corporation




Condensed Consolidated Unaudited Balance Sheets












(In thousands)

September 30, 2014


June 30, 2014

ASSETS




Cash, cash equivalents and marketable securities

$

2,942,492


$

3,152,637

Accounts receivable, net

444,048


492,863

Inventories

676,241


656,457

Other current assets

305,756


284,873

Land, property and equipment, net

329,959


330,263

Goodwill

335,315


335,355

Purchased intangibles, net

23,624


27,697

Other non-current assets

244,137


258,519

Total assets

$

5,301,572


$

5,538,664

LIABILITIES AND STOCKHOLDERS' EQUITY




Current liabilities:




Accounts payable

$

108,287


$

103,422

Deferred system profit

88,801


147,923

Unearned revenue

54,034


59,176

Other current liabilities

553,715


585,090

Total current liabilities

804,837


895,611

Non-current liabilities:




Long-term debt

748,054


747,919

Unearned revenue

56,003


57,500

Other non-current liabilities

162,958


168,288

Total liabilities

1,771,852


1,869,318

Stockholders' equity:




Common stock and capital in excess of par value

1,235,986


1,220,504

Retained earnings

2,329,936


2,479,113

Accumulated other comprehensive income (loss)

(36,202)


(30,271)

Total stockholders' equity

3,529,720


3,669,346

Total liabilities and stockholders' equity

$

5,301,572


$

5,538,664

 

 

KLA-Tencor Corporation

Condensed Consolidated Unaudited Statements of Operations






Three months ended September 30,

(In thousands, except per share data)

2014


2013

Revenues:




Product

$

476,598


$

501,740

Service

166,303


156,597

Total revenues

642,901


658,337

Costs and operating expenses:




Costs of revenues

288,467


277,657

Engineering, research and development

143,637


132,273

Selling, general and administrative

101,644


98,496

Total costs and operating expenses

533,748


508,426

Income from operations

109,153


149,911

Interest income and other, net

(10,146)


(10,047)

Income before income taxes

99,007


139,864

Provision for income taxes

26,774


28,667

Net income

$

72,233


$

111,197

Net income per share:




Basic

$

0.44


$

0.67

Diluted

$

0.43


$

0.66

Cash dividends declared per share

$

0.50


$

0.45

Weighted-average number of shares:




Basic

164,845


165,886

Diluted

166,580


168,734

 

 

KLA-Tencor Corporation

Condensed Consolidated Unaudited Statements of Cash Flows




Three months ended

September 30,

(In thousands)

2014


2013

Cash flows from operating activities:




Net income

$

72,233


$

111,197

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




Depreciation and amortization

21,159


20,637

Non-cash stock-based compensation expense

15,483


19,219

Excess tax benefit from equity awards

(14,223)


(18,605)

Net gain on sale of marketable securities and other investments

(1,635)


(234)

Changes in assets and liabilities:




Decrease in accounts receivable, net

39,261


85,771

Increase in inventories

(23,445)


(29,805)

Increase in other assets

(2,732)


(9,425)

Increase (decrease) in accounts payable

5,276


(1,058)

Increase (decrease) in deferred system profit

(59,122)


7,966

Decrease in other liabilities

(17,329)


(8,415)

Net cash provided by operating activities

34,926


177,248

Cash flows from investing activities:




Capital expenditures, net

(13,445)


(21,751)

Purchase of available-for-sale securities

(624,860)


(348,031)

Proceeds from sale of available-for-sale securities

732,337


203,541

Proceeds from maturity of available-for-sale securities

135,097


32,058

Purchase of trading securities

(22,567)


(20,851)

Proceeds from sale of trading securities

18,986


18,366

Net cash provided by (used in) investing activities

225,548


(136,668)

Cash flows from financing activities:




Issuance of common stock

4,677


41,047

Tax withholding payments related to vested and released restricted stock units

(27,168)


(48,264)

Common stock repurchases

(124,839)


(60,504)

Payment of dividends to stockholders

(82,413)


(74,617)

Excess tax benefit from equity awards

14,223


18,605

Net cash used in financing activities

(215,520)


(123,733)

Effect of exchange rate changes on cash and cash equivalents

(6,132)


2,712

Net increase (decrease) in cash and cash equivalents

38,822


(80,441)

Cash and cash equivalents at beginning of period

630,861


985,390

Cash and cash equivalents at end of period

$

669,683


$

904,949

Supplemental cash flow disclosures:




Income taxes paid, net

$

20,361


$

19,052

Interest paid

$

136


$

217

Non-cash investing activities:




Purchase of land, property and equipment

$

3,571


$

1,798

 

 

KLA-Tencor Corporation

Condensed Consolidated Unaudited Supplemental Information

(In thousands, except per share data)


Reconciliation of GAAP Net Income to Non-GAAP Net Income




Three months ended



September 30, 2014


June 30, 2014


September 30, 2013

GAAP net income


$

72,233


$

128,731


$

111,197

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







Acquisition related charges

a

3,998


4,216


4,169

Restructuring, severance and other related charges

b

4,057


2,459


1,237

Income tax effect of non-GAAP adjustments

c

(1,539)


(2,168)


(1,672)

Non-GAAP net income


$

78,749


$

133,238


$

114,931

GAAP net income per diluted share


$

0.43


$

0.77


$

0.66

Non-GAAP net income per diluted share


$

0.47


$

0.80


$

0.68

Shares used in diluted shares calculation


166,580


167,345


168,734

 

 

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








Acquisition related charges


Restructuring, severance and other related charges


Total pre-tax GAAP to non-GAAP adjustment

Three months ended September 30, 2014






Costs of revenues

$

2,577


$

355


$

2,932

Engineering, research and development

700


2,933


3,633

Selling, general and administrative

721


769


1,490

Total in three months ended September 30, 2014

$

3,998


$

4,057


$

8,055

Three months ended June 30, 2014






Costs of revenues

$

2,623


$

245


$

2,868

Engineering, research and development

872


1,811


2,683

Selling, general and administrative

721


403


1,124

Total in three months ended June 30, 2014

$

4,216


$

2,459


$

6,675

Three months ended September 30, 2013






Costs of revenues

$

1,921


$

651


$

2,572

Engineering, research and development

836


306


1,142

Selling, general and administrative

1,412


280


1,692

Total in three months ended September 30, 2013

$

4,169


$

1,237


$

5,406

 

To supplement our condensed consolidated financial statements presented in accordance with GAAP, we provide certain non-GAAP financial information, which is adjusted from results based on GAAP to exclude certain costs and expenses, as well as other supplemental information. The non-GAAP and supplemental information is provided to enhance the user's overall understanding of our operating performance and our prospects in the future. Specifically, we believe that the non-GAAP information provides useful measures to both management and investors regarding financial and business trends relating to our financial performance by excluding certain costs and expenses that we believe are not indicative of our core operating results. The non-GAAP information is among the budgeting and planning tools that management uses for future forecasting. However, because there are no standardized or generally accepted definitions for most non-GAAP financial metrics, definitions of non-GAAP financial metrics (for example, determining which costs and expenses to exclude when calculating such a metric) are inherently subject to significant discretion. As a result, non-GAAP financial metrics may be defined very differently from company to company, or even from period to period within the same company, which can potentially limit the usefulness of such information to an investor. The presentation of non-GAAP and supplemental information is not meant to be considered in isolation or as a substitute for results prepared and presented in accordance with United States GAAP.


a.

Acquisition related charges includes amortization of intangible assets associated with acquisitions. Management believes that the expense associated with the amortization of acquisition related intangible assets are appropriate to be excluded because a significant portion of the purchase price for acquisitions may be allocated to intangible assets that have short lives, and exclusion of these expenses allows comparisons of operating results that are consistent over time for both KLA-Tencor's newly acquired and long-held businesses. Management believes excluding these items helps investors compare our operating performance with our results in prior periods as well as with the performance of other companies.



b.

Restructuring, severance and other related charges include costs associated with employee severance and other exit costs. Management believes excluding these items helps investors compare our operating performance with our results in prior periods as well as with the performance of other companies.



c.

Income tax effect of non-GAAP adjustments includes the income tax effects of the excluded items noted above. Management believes that it is appropriate to exclude the tax effects of the items noted above in order to present a more meaningful measure of non-GAAP net income.



SOURCE KLA-Tencor Corporation