FOR IMMEDIATE RELEASE

Investor Relations:
 
Media Relations:
Ed Lockwood
 
Meggan Powers
Sr. Director, Investor Relations
 
Sr. Director, Corporate Communications
(408) 875-9529
 
(408) 875-8733
ed.lockwood@kla-tencor.com    
 
meggan.powers@kla-tencor.com

KLA-TENCOR REPORTS FISCAL 2014 FOURTH QUARTER AND FULL YEAR RESULTS

MILPITAS, Calif., July 24, 2014 -KLA-Tencor Corporation (NASDAQ: KLAC) today announced operating results for its fourth quarter and fiscal year ended June 30, 2014. KLA-Tencor reported GAAP net income of $129 million and GAAP earnings per diluted share of $0.77 on revenues of $734 million for the fourth quarter of fiscal year 2014. For the year ended June 30, 2014, the company reported GAAP net income of $583 million and GAAP earnings per diluted share of $3.47 on revenues of $2.9 billion.

“KLA-Tencor’s fourth quarter results culminate a year of strong operating and financial performance for the company, as well as solid execution of our strategic objectives,” said Rick Wallace, KLA-Tencor’s President and Chief Executive Officer. “Our market leadership was highlighted by the second-highest net bookings result in the company’s history in fiscal year 2014, including record bookings for our Wafer Inspection products. This demonstrates our customer focus and market leadership, as well as the critical role KLA-Tencor plays in helping our customers address the higher cost and complexity associated with competing at the leading edge.”
GAAP Results
 
Q4 FY 2014
Q3 FY 2014
Q4 FY 2013
Revenues
$734 million
$832 million
$720 million
Net Income
$129 million
$204 million
$135 million
Earnings per Diluted Share
$0.77
$1.21
$0.80
 
 
 
 
Non-GAAP Results
 
Q4 FY 2014
Q3 FY 2014
Q4 FY 2013
Net Income
$133 million
$206 million
$139 million
Earnings per Diluted Share
$0.80
$1.23
$0.82

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, restructuring, severance and other charges, and certain discrete tax items.

KLA-Tencor will discuss the results for its fiscal year 2014 fourth quarter and full year, 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; technological challenges and focus areas of KLA-Tencor's customers; and KLA-Tencor's ability to meet its customers' needs, 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, 2013, 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)
June 30, 2014
 
June 30, 2013
 
 
 
 
ASSETS
 
 
 
Cash, cash equivalents and marketable securities
$
3,152,637

 
$
2,918,881

Accounts receivable, net
492,863

 
524,610

Inventories
656,457

 
634,448

Other current assets
284,873

 
273,564

Land, property and equipment, net
330,263

 
305,281

Goodwill
335,355

 
326,635

Purchased intangibles, net
27,697

 
34,515

Other non-current assets
258,519

 
269,423

Total assets
$
5,538,664

 
$
5,287,357

 
 
 
 
LIABILITIES AND STOCKHOLDERS' EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
103,422

 
$
115,680

Deferred system profit
147,923

 
157,965

Unearned revenue
59,176

 
60,838

Other current liabilities
585,090

 
527,049

Total current liabilities
895,611

 
861,532

 
 
 
 
Non-current liabilities:
 
 
 
Long-term debt
747,919

 
747,376

Pension liabilities
59,908

 
57,959

Income taxes payable
59,575

 
59,494

Unearned revenue
57,500

 
42,228

Other non-current liabilities
48,805

 
36,616

Total liabilities
1,869,318

 
1,805,205

 
 
 
 
Stockholders' equity:
 
 
 
Common stock and capital in excess of par value
1,220,504

 
1,159,565

Retained earnings
2,479,113

 
2,359,233

Accumulated other comprehensive income (loss)
(30,271
)
 
(36,646
)
Total stockholders' equity
3,669,346

 
3,482,152

Total liabilities and stockholders' equity
$
5,538,664

 
$
5,287,357







KLA-Tencor Corporation
 
 
 
 
 
 
 
Condensed Consolidated Unaudited Statements of Operations
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three months ended
 
Twelve months ended
(In thousands, except per share data)
June 30, 2014
 
June 30, 2013
 
June 30, 2014
 
June 30, 2013
 
 
 
 
 
 
 
 
Revenues:
 
 
 
 
 
 
 
Product
$
570,431

 
$
570,300

 
$
2,286,437

 
$
2,247,147

Service
163,912

 
149,732

 
642,971

 
595,634

Total revenues
734,343

 
720,032

 
2,929,408

 
2,842,781

 
 
 
 
 
 
 
 
Costs and operating expenses:
 
 
 
 
 
 
 
Costs of revenues
326,665

 
306,804

 
1,232,962

 
1,237,452

Engineering, research and development
138,448

 
127,694

 
539,469

 
487,832

Selling, general and administrative
96,216

 
97,899

 
384,907

 
387,812

Total costs and operating expenses
561,329

 
532,397

 
2,157,338

 
2,113,096

Income from operations
173,014

 
187,635

 
772,070

 
729,685

Interest income and other, net
(6,408
)
 
(10,545
)
 
(37,609
)
 
(39,064
)
Income before income taxes
166,606

 
177,090

 
734,461

 
690,621

Provision for income taxes
37,875

 
42,320

 
151,706

 
147,472

Net income
$
128,731

 
$
134,770

 
$
582,755

 
$
543,149

 
 
 
 
 
 
 
 
Net income per share:
 
 
 
 
 
 
 
Basic
$
0.78

 
$
0.81

 
$
3.51

 
$
3.27

Diluted
$
0.77

 
$
0.80

 
$
3.47

 
$
3.21

Cash dividends declared per share
$
0.45

 
$
0.40

 
$
1.80

 
$
1.60

 
 
 
 
 
 
 
 
Weighted-average number of shares:
 
 
 
 
 
 
 
Basic
165,510

 
165,463

 
166,016

 
166,089

Diluted
167,345

 
168,685

 
168,118

 
169,260






KLA-Tencor Corporation
Condensed Consolidated Unaudited Statements of Cash Flows

 
Three months ended
June 30,
(In thousands)
2014
 
2013
Cash flows from operating activities:
 
 
 
Net income
$
128,731

 
$
134,770

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
22,010

 
20,425

Non-cash stock-based compensation expense
14,128

 
17,606

Net gain on sale of marketable securities and other investments
(4,192
)
 
(218
)
Excess tax benefit from equity awards
(367
)
 
(233
)
Changes in assets and liabilities:
 
 
 
Decrease (increase) in accounts receivable, net
66,784

 
(73,102
)
Decrease in inventories
21,308

 
14,116

Decrease (increase) in other assets
(17,559
)
 
7,200

Increase (decrease) in accounts payable
(17,454
)
 
8,054

Increase (decrease) in deferred system profit
(25,672
)
 
21,150

Increase in other liabilities
60,923

 
25,801

Net cash provided by operating activities
248,640

 
175,569

Cash flows from investing activities:
 
 
 
Capital expenditures, net
(13,066
)
 
(18,910
)
Proceeds from sale of assets
3,836

 

Purchase of available-for-sale securities
(678,116
)
 
(304,916
)
Proceeds from sale of available-for-sale securities
264,287

 
206,976

Proceeds from maturity of available-for-sale securities
140,952

 
99,356

Purchase of trading securities
(11,007
)
 
(6,933
)
Proceeds from sale of trading securities
12,390

 
8,019

Net cash used in investing activities
(280,724
)
 
(16,408
)
Cash flows from financing activities:
 
 
 
Issuance of common stock
20,121

 
30,579

Tax withholding payments related to vested and released restricted stock units
(392
)
 
(522
)
Excess tax benefit from equity awards
367

 
233

Common stock repurchases
(60,157
)
 
(68,311
)
Payment of dividends to stockholders
(74,466
)
 
(66,181
)
Net cash used in financing activities
(114,527
)
 
(104,202
)
Effect of exchange rate changes on cash and cash equivalents
1,249

 
(3,770
)
Net increase (decrease) in cash and cash equivalents
(145,362
)
 
51,189

Cash and cash equivalents at beginning of period
776,223

 
934,201

Cash and cash equivalents at end of period
$
630,861

 
$
985,390

 
 
 
 
Supplemental cash flow disclosures:
 
 
 
Income taxes paid, net
$
40,471

 
$
33,097

Interest paid
$
26,038

 
$
26,574

Non-cash investing activities:
 
 
 
Purchase of land, property and equipment
$
3,457

 
$
6,839







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
 
Twelve months ended
 
 
June 30, 2014
 
March 31, 2014
 
June 30, 2013
 
June 30, 2014
 
June 30, 2013
GAAP net income
 
$
128,731

 
$
203,581

 
$
134,770

 
$
582,755

 
$
543,149

Adjustments to reconcile GAAP net income to non-GAAP net income
 
 
 
 
 
 
 
 
 
 
Acquisition related charges
a
4,216

 
3,828

 
4,169

 
15,812

 
19,477

Restructuring, severance and other related charges
b
2,459

 

 
1,418

 
5,698

 
7,397

Income tax effect of non-GAAP adjustments
c
(2,168
)
 
(1,193
)
 
(1,776
)
 
(6,810
)
 
(8,359
)
Discrete tax items
d

 

 

 

 
(3,514
)
Non-GAAP net income
 
$
133,238

 
$
206,216

 
$
138,581

 
$
597,455

 
$
558,150

 
 
 
 
 
 
 
 
 
 
 
GAAP net income per diluted share
 
$
0.77

 
$
1.21

 
$
0.80

 
$
3.47

 
$
3.21

Non-GAAP net income per diluted share
 
$
0.80

 
$
1.23

 
$
0.82

 
$
3.55

 
$
3.30

Shares used in diluted shares calculation
 
167,345

 
167,989

 
168,685

 
168,118

 
169,260



Pre-tax impact of items included in Consolidated Statements of Operations
 
Acquisition related charges
 
Restructuring, severance and other related charges
 
Total pre-tax GAAP to non-GAAP adjustment
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 March 31, 2014
 
 
 
 
 
Costs of revenues
$
1,921

 
$

 
$
1,921

Engineering, research and development
836

 

 
836

Selling, general and administrative
1,071

 

 
1,071

Total in three months ended March 31, 2014
$
3,828

 
$

 
$
3,828

 
 
 
 
 
 
Three months ended June 30, 2013
 
 
 
 
 
Costs of revenues
$
1,921

 
$
950

 
$
2,871

Engineering, research and development
836

 
514

 
1,350

Selling, general and administrative
1,412

 
(46
)
 
1,366

Total in three months ended June 30, 2013
$
4,169

 
$
1,418

 
$
5,587






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 include amortization of intangible assets and transaction costs associated with acquisitions. Management believes that the expense associated with the amortization of acquisition related intangible assets and acquisition related costs are appropriate to be excluded because a significant portion of the purchase price for acquisitions may be allocated to intangible assets that have short lives, and exclusion of these expenses allows comparisons of operating results that are consistent over time for both KLA-Tencor’s newly acquired and long-held businesses. Management believes excluding these items helps investors compare our operating 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 our decision in the first quarter of fiscal year 2013 to exit from the solar inspection business, as well as those associated with reductions in force. Management believes that it is appropriate to exclude these items as they are not indicative of ongoing operating results and therefore limit comparability. Management believes excluding these items helps investors compare our operating performance with our results in prior periods as well as with the performance of other companies.
c.
Income tax effect of non-GAAP adjustments includes the income tax effects of the excluded items noted above. Management believes that it is appropriate to exclude the tax effects of the items noted above in order to present a more meaningful measure of non-GAAP net income.
d.
Discrete tax items include the tax impact of shortfalls in excess of cumulative windfall tax benefits recorded as provision for income taxes during the period. Windfall tax benefits arise when a company’s tax deduction for employee stock activity exceeds book compensation for the same activity and are generally recorded as increases to capital in excess of par value. Shortfalls arise when the tax deduction is less than book compensation and are recorded as decreases to capital in excess of par value to the extent that cumulative windfalls exceed cumulative shortfalls. Shortfalls in excess of cumulative windfalls are recorded as provision for income taxes. When there are shortfalls recorded as provision for income taxes during an earlier quarter, windfalls arising in subsequent quarters within the same fiscal year are recorded as a reduction to income taxes to the extent of the shortfalls recorded. Management believes that it is appropriate to exclude these or other adjustments to the cumulative windfall tax benefit that are not indicative of ongoing operating results and limit comparability. Management believes excluding these items helps investors compare our operating performance with our results in prior periods as well as with the performance of other companies.