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 2015 SECOND QUARTER RESULTS
MILPITAS, Calif., January 22, 2015 - KLA-Tencor Corporation (NASDAQ: KLAC) today announced operating results for its second quarter of fiscal year 2015, which ended on December 31, 2014, and reported GAAP net income of $20 million and GAAP earnings per diluted share of $0.12 on revenues of $676 million.
“We are pleased with the Company’s performance in the second quarter,” commented Rick Wallace, President and Chief Executive Officer of KLA-Tencor. “Continued market leadership and good execution led to revenue growth and strong gross margins in the period.”
GAAP Results
 
Q2 FY 2015
Q1 FY 2015
Q2 FY 2014
Revenues
$676 million
$643 million
$705 million
Net Income
$20 million
$72 million
$139 million
Earnings per Diluted Share
$0.12
$0.43
$0.83
 
 
 
 
Non-GAAP Results
 
Q2 FY 2015
Q1 FY 2015
Q2 FY 2014
Net Income
$113 million
$79 million
$143 million
Earnings per Diluted Share
$0.68
$0.47
$0.85
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 debt extinguishment loss and recapitalization charges.
KLA-Tencor will discuss the results for its fiscal year 2015 second quarter, along with its outlook, on a conference call today beginning at 2:00 p.m. Pacific Standard 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 benefit from its market leadership position, 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.

1



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.

2




KLA-Tencor Corporation
 
 
 
Condensed Consolidated Unaudited Balance Sheets
 
 
 
 
 
 
 
 
 
 
 
(In thousands)
December 31, 2014
 
June 30, 2014
ASSETS
 
 
 
Cash, cash equivalents and marketable securities
$
2,366,833

 
$
3,152,637

Accounts receivable, net
632,089

 
492,863

Inventories
662,799

 
656,457

Other current assets
384,527

 
284,873

Land, property and equipment, net
323,353

 
330,263

Goodwill
335,273

 
335,355

Purchased intangibles, net
19,551

 
27,697

Other non-current assets
262,941

 
258,519

Total assets
$
4,987,366

 
$
5,538,664

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
108,307

 
$
103,422

Deferred system profit
168,086

 
147,923

Unearned revenue
64,257

 
59,176

Current portion of long-term debt
37,500

 

Other current liabilities
564,190

 
585,090

Total current liabilities
942,340

 
895,611

Non-current liabilities:
 
 
 
Long-term debt
3,208,571

 
747,919

Unearned revenue
54,900

 
57,500

Other non-current liabilities
179,416

 
168,288

Total liabilities
4,385,227

 
1,869,318

Stockholders’ equity:
 
 
 
Common stock and capital in excess of par value
613,122

 
1,220,504

Retained earnings
24,770

 
2,479,113

Accumulated other comprehensive income (loss)
(35,753
)
 
(30,271
)
Total stockholders’ equity
602,139

 
3,669,346

Total liabilities and stockholders’ equity
$
4,987,366

 
$
5,538,664



3



 
KLA-Tencor Corporation
 
 
 
 
 
 
 
Condensed Consolidated Unaudited Statements of Operations
 
 
 
 
 
 
 
 
 
 
 
 
Three months ended December 31,
 
Six months ended December 31,
(In thousands, except per share data)
2014
 
2013
 
2014
 
2013
Revenues:
 
 
 
 
 
 
 
Product
$
503,884

 
$
544,183

 
$
980,482

 
$
1,045,923

Service
172,473

 
160,946

 
338,776

 
317,543

Total revenues
676,357

 
705,129

 
1,319,258

 
1,363,466

Costs and operating expenses:
 
 
 
 
 
 
 
Costs of revenues
283,213

 
285,814

 
571,680

 
563,471

Engineering, research and development
133,557

 
134,587

 
277,194

 
266,860

Selling, general and administrative
104,873

 
96,746

 
206,517

 
195,242

Total costs and operating expenses
521,643

 
517,147

 
1,055,391

 
1,025,573

Income from operations
154,714

 
187,982

 
263,867

 
337,893

Interest expense and other, net
29,313

 
11,237

 
39,459

 
21,284

Loss on extinguishment of debt and other, net
131,669

 

 
131,669

 

Income (loss) before income taxes
(6,268
)
 
176,745

 
92,739

 
316,609

Provision for (benefit from) income taxes
(26,536
)
 
37,499

 
238

 
66,166

Net income
$
20,268

 
$
139,246

 
$
92,501

 
$
250,443

Net income per share:
 
 
 
 
 
 
 
Basic
$
0.12

 
$
0.84

 
$
0.56

 
$
1.51

Diluted
$
0.12

 
$
0.83

 
$
0.56

 
$
1.49

Cash dividends declared per share (including a special
   cash dividend of $16.50 per share declared during the
   three months ended December 31, 2014)
$
17.00

 
$
0.45

 
$
17.50

 
$
0.90

Weighted-average number of shares:
 
 
 
 
 
 
 
Basic
164,036

 
166,414

 
164,440

 
166,150

Diluted
165,317

 
168,206

 
165,950

 
168,478



4



KLA-Tencor Corporation
Condensed Consolidated Unaudited Statements of Cash Flows

 
Three months ended
December 31,
(In thousands)
2014
 
2013
Cash flows from operating activities:
 
 
 
Net income
$
20,268

 
$
139,246

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
18,901

 
19,811

Asset impairment charges

 
1,374

Loss on extinguishment of debt and other, net
131,669

 

Non-cash stock-based compensation expense
14,848

 
14,870

Excess tax benefit from equity awards
(565
)
 
(925
)
Net gain on sale of marketable securities and other investments
(281
)
 
(1,213
)
Changes in assets and liabilities:
 
 
 
Increase in accounts receivable, net
(200,282
)
 
(136,562
)
Decrease (increase) in inventories
10,702

 
(2,938
)
Increase in other assets
(79,856
)
 
(30,567
)
Increase in accounts payable
478

 
26,997

Increase in deferred system profit
79,285

 
77,672

Increase in other liabilities
15,917

 
7,506

Net cash provided by operating activities
11,084

 
115,271

Cash flows from investing activities:
 
 
 
Capital expenditures, net
(12,783
)
 
(14,465
)
Purchase of available-for-sale securities
(469,416
)
 
(448,777
)
Proceeds from sale of available-for-sale securities
709,123

 
317,034

Proceeds from maturity of available-for-sale securities
248,035

 
18,831

Purchase of trading securities
(16,999
)
 
(11,256
)
Proceeds from sale of trading securities
17,807

 
12,513

Net cash provided by (used in) investing activities
475,767

 
(126,120
)
Cash flows from financing activities:
 
 
 
Proceeds from issuance of debt, net of issuance costs
3,224,906

 

Repayment of debt
(877,367
)
 

Issuance of common stock
24,726

 
37,719

Tax withholding payments related to vested and released restricted stock units
(632
)
 
(945
)
Common stock repurchases
(141,521
)
 
(60,302
)
Payment of dividends to stockholders
(2,796,739
)
 
(74,983
)
Excess tax benefit from equity awards
565

 
925

Net cash used in financing activities
(566,062
)
 
(97,586
)
Effect of exchange rate changes on cash and cash equivalents
(5,607
)
 
(3,132
)
Net decrease in cash and cash equivalents
(84,818
)
 
(111,567
)
Cash and cash equivalents at beginning of period
669,683

 
904,949

Cash and cash equivalents at end of period
$
584,865

 
$
793,382

Supplemental cash flow disclosures:
 
 
 
Income taxes paid, net
$
37,368

 
$
48,189

Interest paid
$
33,092

 
$
26,084

Non-cash activities:
 
 
 
Purchase of land, property and equipment - investing activities
$
3,962

 
$
5,923

Dividends payable - financing activities
$
42,829

 
$


5



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
 
Six months ended
 
 
December 31, 2014
 
September 30, 2014
 
December 31, 2013
 
December 31, 2014
 
December 31, 2013
GAAP net income
 
$
20,268

 
$
72,233

 
$
139,246

 
$
92,501

 
$
250,443

Adjustments to reconcile GAAP net income to non-GAAP net income
 
 
 
 
 
 
 
 
 
 
Acquisition related charges
a
3,832

 
3,998

 
3,599

 
7,830

 
7,768

Restructuring, severance and other related charges
b
3,299

 
4,057

 
2,002

 
7,356

 
3,239

Debt extinguishment loss and recapitalization charges
c
134,147

 

 

 
134,147

 

Income tax effect of non-GAAP adjustments
d
(48,720
)
 
(1,539
)
 
(1,777
)
 
(50,259
)
 
(3,449
)
Non-GAAP net income
 
$
112,826

 
$
78,749

 
$
143,070

 
$
191,575

 
$
258,001

GAAP net income per diluted share
 
$
0.12

 
$
0.43

 
$
0.83

 
$
0.56

 
$
1.49

Non-GAAP net income per diluted share
 
$
0.68

 
$
0.47

 
$
0.85

 
$
1.15

 
$
1.53

Shares used in diluted shares calculation
 
165,317

 
166,580

 
168,206

 
165,950

 
168,478

Pre-tax impact of items included in Condensed Consolidated Unaudited Statements of Operations
 
Acquisition related charges
 
Restructuring, severance and other related charges
 
Debt extinguishment loss and recapitalization charges
 
Total pre-tax GAAP to non-GAAP adjustments
Three months ended December 31, 2014
 
 
 
 
 
 
 
Costs of revenues
$
2,577

 
$

 
$

 
$
2,577

Engineering, research and development
700

 
1,289

 

 
1,989

Selling, general and administrative
555

 
2,010

 
2,478

 
5,043

Loss on extinguishment of debt and other, net

 

 
131,669

 
131,669

Total in three months ended December 31, 2014
$
3,832

 
$
3,299

 
$
134,147

 
$
141,278

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 December 31, 2013
 
 
 
 
 
 
 
Costs of revenues
$
1,921

 
$
469

 
$

 
$
2,390

Engineering, research and development
836

 
1,132

 

 
1,968

Selling, general and administrative
842

 
401

 

 
1,243

Total in three months ended December 31, 2013
$
3,599

 
$
2,002

 
$

 
$
5,601


6



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.
Debt extinguishment loss and recapitalization charges include a pre-tax loss on early extinguishment of debt related to the 6.900% Senior Notes due in 2018, net and certain other expenses incurred in connection with the leveraged recapitalization plan which was completed in the second quarter of fiscal year ending June 30, 2015. Management believes that it is appropriate to exclude these items as they are not indicative of ongoing operating results and therefore limit comparability and excluding these items helps investors compare our operating performance with our results in prior periods as well as with the performance of other companies.
d.
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.




7