KLA-Tencor Reports Fiscal 2015 Third Quarter Results

News provided by

KLA-Tencor Corporation

Apr 23, 2015, 04:15 ET

MILPITAS, Calif., April 23, 2015 /PRNewswire/ -- KLA-Tencor Corporation (NASDAQ: KLAC) today announced operating results for its third quarter of fiscal year 2015, which ended on March 31, 2015, and reported GAAP net income of $132 million and GAAP earnings per diluted share of $0.81 on revenues of $738 million.

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"KLA-Tencor delivered solid results in the third quarter," said Rick Wallace, President and Chief Executive Officer of KLA-Tencor. "As the market leader in process control, we believe our technology leadership and strong product portfolio create a unique opportunity for KLA-Tencor to benefit from the 3D device and multi-patterning industry transitions currently underway in the industry, and deliver long-term value for our customers and stockholders."

GAAP Results

Q3 FY 2015

Q2 FY 2015

Q3 FY 2014

Revenues

$738 million

$676 million

$832 million

Net Income

$132 million

$20 million

$204 million

Earnings per Diluted Share

$0.81

$0.12

$1.21


Non-GAAP Results

Q3 FY 2015

Q2 FY 2015

Q3 FY 2014

Net Income

$137 million

$113 million

$206 million

Earnings per Diluted Share

$0.84

$0.68

$1.23

KLA-Tencor also announced a plan to reduce its global employee workforce by up to 10 percent to streamline its organization and business processes in response to changing customer requirements in its industry. The goal of this reduction is to enable continued innovation and direct KLA-Tencor's resources toward its best opportunities. KLA-Tencor expects to substantially complete the employee reduction by the end of the first quarter of fiscal year 2016, but the timing of certain employee reductions may vary by country, based on local legal requirements.

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 third quarter, 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 benefit from its market leadership position, the anticipated size of KLA-Tencor's global employee workforce reduction and the expected timing of the completion of such employee reduction, 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 KLA-Tencor's existing and newly issued products; changing customer demands; industry transitions; the costs and delays related to compliance with U.S. and international labor laws and other applicable laws, including the notification procedures required thereby; and the disruption resulting from the employee reduction and its potential impact on KLA-Tencor's relationships with customers and vendors. 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)

March 31, 2015

June 30, 2014

ASSETS


   Cash, cash equivalents and marketable securities

$

2,339,785

$

3,152,637

   Accounts receivable, net

631,608

492,863

   Inventories

632,353

656,457

   Other current assets

363,365

284,873

   Land, property and equipment, net

321,081

330,263

   Goodwill

335,291

335,355

   Purchased intangibles, net

15,548

27,697

   Other non-current assets

263,189

258,519

   Total assets

$

4,902,220

$

5,538,664

LIABILITIES AND STOCKHOLDERS' EQUITY


Current liabilities:


   Accounts payable

$

103,189

$

103,422

   Deferred system profit

146,355

147,923

   Unearned revenue

58,295

59,176

   Current portion of long-term debt

37,500

—

   Other current liabilities

631,276

585,090

   Total current liabilities

976,615

895,611

Non-current liabilities:


   Long-term debt

3,199,299

747,919

   Unearned revenue

52,500

57,500

   Other non-current liabilities

179,865

168,288

   Total liabilities

4,408,279

1,869,318

Stockholders' equity:


   Common stock and capital in excess of par value

534,330

1,220,504

   Retained earnings

(2,582)

2,479,113

   Accumulated other comprehensive income (loss)

(37,807)

(30,271)

   Total stockholders' equity

493,941

3,669,346

   Total liabilities and stockholders' equity

$

4,902,220

$

5,538,664

KLA-Tencor Corporation





Condensed Consolidated Unaudited Statements of Operations











Three months ended March 31,

Nine months ended March 31,

(In thousands, except per share amounts)

2015

2014

2015

2014

Revenues:






Product

$

565,181

$

670,083

$

1,545,663

$

1,716,006

Service

173,278

161,516

512,054

479,059

Total revenues

738,459

831,599

2,057,717

2,195,065

Costs and operating expenses:






Costs of revenues

320,282

342,826

891,962

906,297

Engineering, research and development

124,583

134,161

401,777

401,021

Selling, general and administrative

98,608

93,449

305,125

288,691

Total costs and operating expenses

543,473

570,436

1,598,864

1,596,009

Income from operations

194,986

261,163

458,853

599,056

Interest expense and other, net

28,532

9,917

67,991

31,201

Loss on extinguishment of debt and other, net

—

—

131,669

—

Income before income taxes

166,454

251,246

259,193

567,855

Provision for income taxes

34,816

47,665

35,054

113,831

Net income

$

131,638

$

203,581

$

224,139

$

454,024

Net income per share:






Basic

$

0.81

$

1.22

$

1.37

$

2.73

Diluted

$

0.81

$

1.21

$

1.36

$

2.70

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

$

0.50

$

0.45

$

18.00

$

1.35

Weighted-average number of shares:






Basic

161,559

166,253

163,494

166,184

Diluted

162,794

167,989

164,930

168,355

KLA-Tencor Corporation

Condensed Consolidated Unaudited Statements of Cash Flows



Three months ended

March 31,

(In thousands)

2015

2014

Cash flows from operating activities:


Net income

$

131,638

$

203,581

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


Depreciation and amortization

20,510

20,614

Asset impairment charges

1,698

—

Non-cash stock-based compensation expense

12,767

12,723

Excess tax benefit from equity awards

(398)

(657)

Net gain on sale of marketable securities and other investments

(60)

(281)

Changes in assets and liabilities, net of impact of acquisition of business:


Decrease (increase) in accounts receivable, net

(1,213)

16,598

Decrease (increase) in inventories

23,745

(14,738)

Decrease in other assets

20,096

48,463

Decrease in accounts payable

(5,054)

(20,818)

Decrease in deferred system profit

(21,732)

(70,008)

Increase in other liabilities

60,420

42,250

Net cash provided by operating activities

242,417

237,727

Cash flows from investing activities:


Acquisition of non-marketable securities

—

(1,345)

Acquisition of business

—

(18,000)

Capital expenditures, net

(10,326)

(18,220)

Purchase of available-for-sale securities

(339,580)

(359,299)

Proceeds from sale of available-for-sale securities

223,438

202,650

Proceeds from maturity of available-for-sale securities

181,151

60,035

Purchase of trading securities

(9,383)

(20,939)

Proceeds from sale of trading securities

13,765

22,521

Net cash provided by (used in) investing activities

59,065

(132,597)

Cash flows from financing activities:


Repayment of debt

(9,375)

—

Issuance of common stock

175

13,334

Tax withholding payments related to vested and released restricted stock units

(1,990)

(2,347)

Common stock repurchases

(168,670)

(59,880)

Payment of dividends to stockholders

(82,250)

(74,805)

Excess tax benefit from equity awards

398

657

Net cash used in financing activities

(261,712)

(123,041)

Effect of exchange rate changes on cash and cash equivalents

(2,743)

752

Net increase (decrease) in cash and cash equivalents

37,027

(17,159)

Cash and cash equivalents at beginning of period

584,865

793,382

Cash and cash equivalents at end of period

$

621,892

$

776,223

Supplemental cash flow disclosures:


Income taxes paid, net

$

8,101

$

9,636

Interest paid

$

4,341

$

135

Non-cash activities:


Purchase of land, property and equipment - investing activities

$

2,255

$

4,103

Dividends payable - financing activities

$

41,412

$

—

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

Nine months ended

March 31, 2015

December 31, 2014

March 31, 2014

March 31, 2015

March 31, 2014

GAAP net income

$

131,638

$

20,268

$

203,581

$

224,139

$

454,024

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









Acquisition related charges

a

3,928

3,832

3,828

11,758

11,596

Restructuring, severance and other related charges

b

3,636

3,299

—

10,992

3,239

Debt extinguishment loss and recapitalization charges

c

—

134,147

—

134,147

—

Income tax effect of non-GAAP adjustments

d

(1,840)

(48,720)

(1,193)

(52,099)

(4,642)

Non-GAAP net income

$

137,362

$

112,826

$

206,216

$

328,937

$

464,217

GAAP net income per diluted share

$

0.81

$

0.12

$

1.21

$

1.36

$

2.70

Non-GAAP net income per diluted share

$

0.84

$

0.68

$

1.23

$

1.99

$

2.76

Shares used in diluted shares calculation

162,794

165,317

167,989

164,930

168,355

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 March 31, 2015






Costs of revenues

$

2,507

$

211

$

—

$

2,718

Engineering, research and development

700

680

—

1,380

Selling, general and administrative

721

2,745

—

3,466

Total in three months ended March 31, 2015

$

3,928

$

3,636

$

—

$

7,564

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 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

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, 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.  

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 the 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 as well as  additional true up adjustment to the tax rate arising from the tax impacts associated with the pre-tax loss on extinguishment of debt that was recognized in the three months ended December 31, 2014. 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