FOR IMMEDIATE RELEASE
Investor Relations:
 
Media Relations:
Ed Lockwood
 
Becky Howland, Ph.D.
Sr. Director, Investor Relations
 
Sr. Director, Corporate Communications
(408) 875-9529
 
(408) 875-9350
ed.lockwood@kla-tencor.com    
 
becky.howland@kla-tencor.com

KLA-TENCOR REPORTS FISCAL 2018 FIRST QUARTER RESULTS
MILPITAS, Calif., October 26, 2017 -KLA-Tencor Corporation (NASDAQ: KLAC) today announced operating results for its first quarter of fiscal year 2018, which ended on September 30, 2017, and reported GAAP net income of $281 million and GAAP earnings per diluted share of $1.78 on revenues of $970 million.

“I am very pleased to report that KLA-Tencor delivered record shipments, revenues and non-GAAP earnings per diluted share in Q1 of fiscal 2018,” commented Rick Wallace, President and Chief Executive Officer of KLA-Tencor. “These results demonstrate successful execution of our long term strategies, and the critical nature process control plays in enabling semiconductor industry growth.”
GAAP Results
 
Q1 FY 2018
Q4 FY 2017
Q1 FY 2017
Revenues
$970 million
$939 million
$751 million
Net Income
$281 million
$256 million
$178 million
Earnings per Diluted Share
$1.78
$1.62
$1.13
 
 
 
 
Non-GAAP Results
 
Q1 FY 2018
Q4 FY 2017
Q1 FY 2017
Net Income
$284 million
$259 million
$182 million
Earnings per Diluted Share
$1.80
$1.64
$1.16
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 2018 first quarter, along with its outlook, on a conference call today beginning at 3:00 p.m. Pacific Daylight 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 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 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)

1



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)
September 30, 2017
 
June 30, 2017
ASSETS
 
 
 
Cash, cash equivalents and marketable securities
$
3,056,484

 
$
3,016,740

Accounts receivable, net
666,738

 
571,117

Inventories
762,401

 
732,988

Other current assets
73,873

 
71,221

Land, property and equipment, net
279,872

 
283,975

Goodwill
349,678

 
349,526

Deferred income taxes, non-current
282,302

 
291,967

Purchased intangibles, net
17,763

 
18,963

Other non-current assets
201,287

 
195,676

Total assets
$
5,690,398

 
$
5,532,173

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
138,657

 
$
147,380

Deferred system profit
209,267

 
180,861

Unearned revenue
61,484

 
65,507

Current portion of long-term debt
249,996

 
249,983

Other current liabilities
806,636

 
649,431

Total current liabilities
1,466,040

 
1,293,162

Non-current liabilities:
 
 
 
Long-term debt
2,524,842

 
2,680,474

Unearned revenue
60,456

 
59,713

Other non-current liabilities
175,104

 
172,407

Total liabilities
4,226,442

 
4,205,756

Stockholders’ equity:
 
 
 
Common stock and capital in excess of par value
518,223

 
529,283

Retained earnings
996,514

 
848,457

Accumulated other comprehensive income (loss)
(50,781
)
 
(51,323
)
Total stockholders’ equity
1,463,956

 
1,326,417

Total liabilities and stockholders’ equity
$
5,690,398

 
$
5,532,173



3



 
KLA-Tencor Corporation
 
 
 
Condensed Consolidated Unaudited Statements of Operations
 
 
 
 
 
Three months ended September 30,
(In thousands, except per share amounts)
2017
 
2016
Revenues:
 
 
 
Product
$
760,787

 
$
561,753

Service
208,794

 
188,920

Total revenues
969,581

 
750,673

Costs and expenses:
 
 
 
Costs of revenues
353,449

 
277,836

Research and development
146,732

 
129,233

Selling, general and administrative
107,713

 
94,388

Interest expense and other, net
25,535

 
26,996

Income before income taxes
336,152

 
222,220

Provision for income taxes
55,216

 
44,119

Net income
$
280,936

 
$
178,101

Net income per share:
 
 
 
Basic
$
1.79

 
$
1.14

Diluted
$
1.78

 
$
1.13

Cash dividends declared per share
$
0.59

 
$
0.52

Weighted-average number of shares:
 
 
 
Basic
156,826

 
156,129

Diluted
157,846

 
157,021



4



KLA-Tencor Corporation
Condensed Consolidated Unaudited Statements of Cash Flows
 
Three months ended
September 30,
(In thousands)
2017
 
2016
Cash flows from operating activities:
 
 
 
Net income
$
280,936

 
$
178,101

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
15,282

 
14,422

Asset impairment charges
1,000

 
358

Non-cash stock-based compensation expense
14,031

 
11,478

Net gain on sales of marketable securities and other investments
(20
)
 
(204
)
Changes in assets and liabilities, net of business acquisition:
 
 
 
Accounts receivable, net
(95,621
)
 
(38,241
)
Inventories
(20,194
)
 
1,187

Other assets
(2,235
)
 
19,477

Accounts payable
(8,877
)
 
(1,547
)
Deferred system profit
28,406

 
11,089

Other liabilities
160,921

 
(26,343
)
Net cash provided by operating activities
373,629

 
169,777

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

 
(1,470
)
Business acquisition
(710
)
 

Capital expenditures, net
(15,756
)
 
(9,883
)
Purchases of available-for-sale securities
(191,744
)
 
(457,512
)
Proceeds from sale of available-for-sale securities
50,095

 
111,106

Proceeds from maturity of available-for-sale securities
268,665

 
197,100

Purchases of trading securities
(11,876
)
 
(52,465
)
Proceeds from sale of trading securities
14,320

 
45,301

Net cash provided by (used in) investing activities
112,994

 
(167,823
)
Cash flows from financing activities:
 
 
 
Repayment of debt
(156,250
)
 
(40,000
)
Tax withholding payments related to vested and released restricted stock units
(23,628
)
 
(17,376
)
Common stock repurchases
(39,927
)
 

Payment of dividends to stockholders
(100,327
)
 
(89,313
)
Net cash used in financing activities
(320,132
)
 
(146,689
)
Effect of exchange rate changes on cash and cash equivalents
1,155

 
2,572

Net increase (decrease) in cash and cash equivalents
167,646

 
(142,163
)
Cash and cash equivalents at beginning of period
1,153,051

 
1,108,488

Cash and cash equivalents at end of period
$
1,320,697

 
$
966,325

Supplemental cash flow disclosures:
 
 
 
Income taxes paid, net
$
23,858

 
$
39,411

Interest paid
$
3,005

 
$
3,243

Non-cash activities:
 
 
 
Purchase of land, property and equipment - investing activities
$
4,734

 
$
1,974

Business acquisition holdback amounts - investing activities
$
4,780

 
$

Unsettled common stock repurchase - financing activities
$
848

 
$

Dividends payable - financing activities
$
7,011

 
$
12,045


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
 
 
 
September 30, 2017
 
June 30, 2017
 
September 30, 2016
GAAP net income
 
$
280,936

 
$
256,162

 
$
178,101

Adjustments to reconcile GAAP net income to non-GAAP net income:
 
 
 
 
 
 
 
Acquisition-related charges
a
1,587

 
1,029

 
1,267

 
Merger-related charges
b
3,015

 
3,072

 
3,605

 
Income tax effect of non-GAAP adjustments
c
(1,599
)
 
(1,295
)
 
(1,259
)
Non-GAAP net income
 
$
283,939

 
$
258,968

 
$
181,714

GAAP net income per diluted share
 
$
1.78

 
$
1.62

 
$
1.13

Non-GAAP net income per diluted share
 
$
1.80

 
$
1.64

 
$
1.16

Shares used in diluted shares calculation
 
157,846

 
157,931

 
157,021

Pre-tax impact of items included in Condensed Consolidated Unaudited Statements of Operations
 
Acquisition- related charges
 
Merger-related charges
 
Total pre-tax GAAP to non-GAAP adjustments
Three months ended September 30, 2017
 
 
 
 
 
Costs of revenues
$
1,530

 
$
405

 
$
1,935

Research and development

 
1,147

 
1,147

Selling, general and administrative
57

 
1,463

 
1,520

Total in three months ended September 30, 2017
$
1,587

 
$
3,015

 
$
4,602

Three months ended June 30, 2017
 
 
 
 
 
Costs of revenues
$
708

 
$
9

 
$
717

Research and development

 
995

 
995

Selling, general and administrative
321

 
2,068

 
2,389

Total in three months ended June 30, 2017
$
1,029

 
$
3,072

 
$
4,101

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


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 include amortization of intangible assets and inventory fair value adjustments, 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 performances with our results in prior periods as well as with the performance of other companies.
b.
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.
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.




7