FOR IMMEDIATE RELEASE
Investor Relations:
 
Media Relations:
Ed Lockwood
 
Cathy Silva
Sr. Director, Investor Relations
 
Corporate Communications Manager
(408) 875-9529
 
(408) 875-7042
ed.lockwood@kla-tencor.com    
 
cathy.silva@kla-tencor.com

KLA-TENCOR REPORTS FISCAL 2017 SECOND QUARTER RESULTS
MILPITAS, Calif., January 26, 2017 - KLA-Tencor Corporation (NASDAQ: KLAC) today announced operating results for its second quarter of fiscal year 2017, which ended on December 31, 2016, and reported GAAP net income of $238 million and GAAP earnings per diluted share of $1.52 on revenues of $877 million.
“I am pleased to announce that KLA-Tencor’s business continues to perform at a very high level, as we delivered another quarter of outstanding results in Q2 of fiscal 2017, exceeding our guidance for shipments, revenue and Non-GAAP earnings per diluted share for the period,” commented Rick Wallace, President and Chief Executive Officer of KLA-Tencor. “In addition, new orders topped $1 billion for the first time in the December quarter, reflecting KLA-Tencor’s market leadership and the critical role process control plays in enabling our customers’ success at the leading edge. These outstanding results are against the backdrop of a healthy overall demand environment for wafer fab equipment in the marketplace today, and position KLA-Tencor with good momentum heading into calendar 2017.”

GAAP Results
 
Q2 FY 2017
Q1 FY 2017
Q2 FY 2016
Revenues
$877 million
$751 million
$710 million
Net Income
$238 million
$178 million
$152 million
Earnings per Diluted Share
$1.52
$1.13
$0.98
 
 
 
 
Non-GAAP Results
 
Q2 FY 2017
Q1 FY 2017
Q2 FY 2016
Net Income
$238 million
$182 million
$162 million
Earnings per Diluted Share
$1.52
$1.16
$1.04
A reconciliation between GAAP operating results and non-GAAP operating results is provided following the financial statements included in this release. Non-GAAP results include the impact of stock-based compensation, but exclude the impact of acquisitions, restructuring, severance, merger and other related charges and certain discrete tax items. KLA-Tencor will discuss the results for its fiscal year 2017 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.
About KLA-Tencor:
KLA-Tencor Corporation, 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 40 years. Headquartered in Milpitas, Calif., KLA-Tencor has dedicated customer operations and service centers around the world. Additional information may be found at http://www.kla-tencor.com. (KLAC-F)

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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 (benefits), 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 (benefits) 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 (benefits) 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, 2016
 
June 30, 2016
ASSETS
 
 
 
Cash, cash equivalents and marketable securities
$
2,592,977

 
$
2,491,294

Accounts receivable, net
663,852

 
613,233

Inventories
671,172

 
698,635

Other current assets
103,638

 
64,870

Land, property and equipment, net
279,966

 
278,014

Goodwill
335,170

 
335,177

Deferred income taxes, non-current
259,507

 
302,219

Purchased intangibles, net
2,551

 
4,331

Other non-current assets
185,623

 
174,659

Total assets
$
5,094,456

 
$
4,962,432

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
116,163

 
$
106,517

Deferred system profit
193,942

 
174,551

Unearned revenue
56,750

 
59,147

Current portion of long-term debt
249,958

 

Other current liabilities
570,923

 
662,208

Total current liabilities
1,187,736

 
1,002,423

Non-current liabilities:
 
 
 
Long-term debt
2,729,239

 
3,057,936

Unearned revenue
62,619

 
56,336

Other non-current liabilities
149,766

 
156,623

Total liabilities
4,129,360

 
4,273,318

Stockholders’ equity:
 
 
 
Common stock and capital in excess of par value
483,077

 
452,974

Retained earnings
534,175

 
284,825

Accumulated other comprehensive income (loss)
(52,156
)
 
(48,685
)
Total stockholders’ equity
965,096

 
689,114

Total liabilities and stockholders’ equity
$
5,094,456

 
$
4,962,432



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 amounts)
2016
 
2015
 
2016
 
2015
Revenues:
 
 
 
 
 
 
 
Product
$
683,733

 
$
527,780

 
$
1,245,486

 
$
988,519

Service
193,152

 
182,465

 
382,072

 
364,370

Total revenues
876,885

 
710,245

 
1,627,558

 
1,352,889

Costs and expenses:
 
 
 
 
 
 
 
Costs of revenues
318,507

 
280,980

 
596,343

 
551,224

Research and development
130,912

 
118,272

 
260,145

 
238,215

Selling, general and administrative
93,532

 
96,532

 
187,920

 
188,195

Interest expense and other, net
27,089

 
28,986

 
54,085

 
55,481

Income before income taxes
306,845

 
185,475

 
529,065

 
319,774

Provision for income taxes
68,594

 
33,268

 
112,713

 
62,670

Net income
$
238,251

 
$
152,207

 
$
416,352

 
$
257,104

Net income per share:
 
 
 
 
 
 
 
Basic
$
1.52

 
$
0.98

 
$
2.66

 
$
1.65

Diluted
$
1.52

 
$
0.98

 
$
2.65

 
$
1.64

Cash dividends declared per share
$
0.54

 
$
0.52

 
$
1.06

 
$
1.04

Weighted-average number of shares:
 
 
 
 
 
 
 
Basic
156,335

 
155,252

 
156,232

 
156,036

Diluted
157,123

 
155,996

 
157,071

 
156,971



4



KLA-Tencor Corporation
Condensed Consolidated Unaudited Statements of Cash Flows
 
Three months ended
December 31,
(In thousands)
2016
 
2015
Cash flows from operating activities:
 
 
 
Net income
$
238,251

 
$
152,207

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
14,892

 
16,529

Asset impairment charges

 
358

Non-cash stock-based compensation expense
12,444

 
11,325

Excess tax benefit from equity awards

 
(1,382
)
Net gain on sales of marketable securities and other investments
(681
)
 
(25
)
Changes in assets and liabilities:
 
 
 
Decrease (increase) in accounts receivable, net
(24,386
)
 
32,098

Decrease (increase) in inventories
13,132

 
(36,668
)
Increase in other assets
(28,315
)
 
(38,044
)
Increase in accounts payable
11,786

 
15,047

Increase (decrease) in deferred system profit
8,302

 
(2,339
)
Decrease in other liabilities
(23,012
)
 
(48,782
)
Net cash provided by operating activities
222,413

 
100,324

Cash flows from investing activities:
 
 
 
Acquisition of non-marketable securities
(900
)
 

Capital expenditures, net
(8,629
)
 
(7,938
)
Proceeds from sale of assets
2,582

 
1,215

Purchases of available-for-sale securities
(372,950
)
 
(281,503
)
Proceeds from sale of available-for-sale securities
78,136

 
284,734

Proceeds from maturity of available-for-sale securities
159,077

 
141,362

Purchases of trading securities
(20,813
)
 
(16,738
)
Proceeds from sale of trading securities
23,164

 
20,036

Net cash provided by (used in) investing activities
(140,333
)
 
141,168

Cash flows from financing activities:
 
 
 
Repayment of debt
(40,000
)
 
(20,000
)
Issuance of common stock
23,694

 
21,908

Tax withholding payments related to vested and released restricted stock units
(79
)
 
(495
)
Common stock repurchases

 
(39,119
)
Payment of dividends to stockholders
(84,529
)
 
(81,380
)
Excess tax benefit from equity awards

 
1,382

Net cash used in financing activities
(100,914
)
 
(117,704
)
Effect of exchange rate changes on cash and cash equivalents
(10,458
)
 
(894
)
Net increase (decrease) in cash and cash equivalents
(29,292
)
 
122,894

Cash and cash equivalents at beginning of period
966,325

 
763,697

Cash and cash equivalents at end of period
$
937,033

 
$
886,591

Supplemental cash flow disclosures:
 
 
 
Income taxes paid, net
$
71,164

 
$
51,631

Interest paid
$
56,773

 
$
56,711

Non-cash activities:
 
 
 
Purchase of land, property and equipment - investing activities
$
1,985

 
$
2,253

Dividends payable - financing activities
$
12,763

 
$
20,284


5



KLA-Tencor Corporation
Condensed Consolidated Unaudited Supplemental Information
(In thousands, except per share amounts)
Reconciliation of GAAP Net Income to Non-GAAP Net Income
 
 
 
Three months ended
 
Six months ended
 
 
 
December 31, 2016
 
September 30, 2016
 
December 31, 2015
 
December 31, 2016
 
December 31, 2015
GAAP net income
 
$
238,251

 
$
178,101

 
$
152,207

 
$
416,352

 
$
257,104

Adjustments to reconcile GAAP net income to non-GAAP net income:
 
 
 
 
 
 
 
 
 
 
 
Acquisition-related charges
a
513

 
1,267

 
1,309

 
1,780

 
4,890

 
Restructuring, severance and other related charges
b

 

 
1,742

 

 
8,808

 
Merger-related charges
c
4,069

 
3,605

 
8,820

 
7,674

 
8,820

 
Income tax effect of non-GAAP adjustments
d
(1,580
)
 
(1,259
)
 
(2,321
)
 
(2,839
)
 
(5,669
)
 
Discrete tax items
e
(3,064
)
 

 

 
(3,064
)
 

Non-GAAP net income
 
$
238,189

 
$
181,714

 
$
161,757

 
$
419,903

 
$
273,953

GAAP net income per diluted share
 
$
1.52

 
$
1.13

 
$
0.98

 
$
2.65

 
$
1.64

Non-GAAP net income per diluted share
 
$
1.52

 
$
1.16

 
$
1.04

 
$
2.67

 
$
1.75

Shares used in diluted shares calculation
 
157,123

 
157,021

 
155,996

 
157,071

 
156,971

Pre-tax impact of items included in Condensed Consolidated Unaudited Statements of Operations
 
Acquisition- related charges
 
Restructuring, severance and other related charges
 
Merger-related charges
 
Total pre-tax GAAP to non-GAAP adjustments
Three months ended December 31, 2016
 
 
 
 
 
 
 
Costs of revenues
$
500

 
$

 
$
348

 
$
848

Research and development

 

 
1,054

 
1,054

Selling, general and administrative
13

 

 
2,667

 
2,680

Total in three months ended December 31, 2016
$
513

 
$

 
$
4,069

 
$
4,582

Three months ended September 30, 2016
 
 
 
 
 
 
 
Costs of revenues
$
650

 
$

 
$
260

 
$
910

Research and development

 

 
982

 
982

Selling, general and administrative
617

 

 
2,363

 
2,980

Total in three months ended September 30, 2016
$
1,267

 
$

 
$
3,605

 
$
4,872

Three months ended December 31, 2015
 
 
 
 
 
 
 
Costs of revenues
$
663

 
$
470

 
$
67

 
$
1,200

Research and development

 
479

 

 
479

Selling, general and administrative
646

 
793

 
8,753

 
10,192

Total in three months ended December 31, 2015
$
1,309

 
$
1,742

 
$
8,820

 
$
11,871


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 is 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, and impairment of certain long-lived assets. 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.
Merger-related charges associated with the terminated merger agreement between KLA-Tencor and Lam Research Corporation (“Lam”) primarily includes employee retention-related expenses, legal expenses and other costs. Management believes that it is appropriate to exclude these items as they are not indicative of ongoing operating results and therefore limit comparability and excluding these items helps investors compare our operating performance with our results in prior periods as well as with the performance of other companies.
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.
e.
Discrete tax items includes the tax impact of certain merger-related charges that only became deductible during the three months ended December 31, 2016 as a result of the termination of the proposed merger between KLA-Tencor and Lam. Management believes that it is appropriate to exclude these items as they are not indicative of ongoing operating results and therefore limit comparability. Management believes excluding these items helps investors compare our operating performance with our results in prior periods as well as with the performance of other companies.



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