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KLA-Tencor Reports Fiscal 2014 Third Quarter Results

Companies mentioned in this article: KLA-Tencor Corporation

MILPITAS, Calif., April 24, 2014 /PRNewswire/ -- KLA-Tencor Corporation (NASDAQ: KLAC) today announced operating results for its third quarter of fiscal year 2014, which ended on March 31, 2014, and reported GAAP net income of $204 million and GAAP earnings per diluted share of $1.21 on revenues of $832 million.

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"KLA-Tencor delivered solid results for the third quarter of fiscal year 2014, demonstrating our market leadership and strong operational execution," commented Rick Wallace, President and CEO of KLA-Tencor. "Semiconductor device manufacturers are facing enormous challenges in transitioning from planar to 3D transistor structures and in implementing new process technologies at the leading edge such as multi-patterning lithography. Although the semiconductor capital equipment industry is currently experiencing a pause in demand after a strong initial ramp of some of these new technologies, we remain focused on partnering with our customers to address yield issues associated with these ramps."

                             GAAP Results

                          Q3 FY 2014    Q2 FY 2014    Q3 FY 2013

    Revenues              $832 million  $705 million  $729 million
                                          -----------   -----------

    Net Income            $204 million  $139 million  $166 million
                                          -----------   -----------

    Earnings per Diluted
     Share                       $1.21         $0.83         $0.98
    --------------------         -----         -----         -----


                          Non-GAAP Results

                          Q3 FY 2014    Q2 FY 2014    Q3 FY 2013

    Net Income            $206 million  $143 million  $171 million
                                         -----------   -----------

    Earnings per Diluted
     Share                       $1.23         $0.85         $1.01
    --------------------         -----         -----         -----

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, restatement and restructuring related items, and certain discrete tax items.

KLA-Tencor will discuss the results for its fiscal year 2014 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 maintain, and benefit from, its market leadership position; technological challenges and focus areas of KLA-Tencor's customers; the future outlook for growth in the semiconductor equipment industry; and KLA-Tencor's anticipated future performance, 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)                          March 31,              June 30,
                                            2014                   2013
    -------------                          ---------              ---------

    ASSETS

    Cash, cash equivalents and
     marketable securities                             $3,026,824        $2,918,881

    Accounts receivable, net                  557,661             524,610

    Inventories                               680,919             634,448

    Other current assets                      276,925             273,564

    Land, property and
     equipment, net                           326,049             305,281

    Goodwill                                  335,246             326,635

    Purchased intangibles, net                 31,988             34,515

    Other non-current assets                  251,239             269,423

    Total assets                                       $5,486,851        $5,287,357
                                                         ========          ========

    LIABILITIES AND
     STOCKHOLDERS' EQUITY

    Current liabilities:

    Accounts payable                                     $120,771          $115,680

    Deferred system profit                    173,595             157,965

    Unearned revenue                           46,179             60,838

    Other current liabilities                 547,102             527,049
                                              -------             -------

    Total current liabilities                 887,647             861,532

    Non-current liabilities:

    Long-term debt                            747,783             747,376

    Pension liabilities                        58,408             57,959

    Income tax payable                         59,765             59,494

    Unearned revenue                           57,818             42,228

    Other non-current
     liabilities                               35,502             36,616
                                               ------             ------

    Total liabilities                       1,846,923             1,805,205

    Stockholders' equity:

    Common stock and capital in
     excess of par value                    1,206,377             1,159,565

    Retained earnings                       2,464,901             2,359,233

    Accumulated other
     comprehensive income
     (loss)                                   (31,350)            (36,646)
                                              -------             -------

    Total stockholders' equity              3,639,928             3,482,152

    Total liabilities and
     stockholders' equity                              $5,486,851        $5,287,357
                                                         ========          ========

     KLA-
     Tencor
     Corporation

    Condensed Consolidated Unaudited Statements of Operations


                                       Three months                 Nine months ended
                                       ended March                      March 31,
                                              31,
                                        -------------                 ------------------

     (In
     thousands,
     except
     per
     share
     data)                          2014             2013            2014               2013
     ----------                     ----             ----            ----               ----

    Revenues:

    Product                               $670,083         $579,746        $1,716,006         $1,676,847

    Service                      161,516            149,283           479,059              445,902
                                 -------            -------           -------              -------

     Total
     revenues                    831,599            729,029           2,195,065              2,122,749

     Costs
     and
     operating
     expenses:

     Costs
     of
     revenues                    342,826            309,508           906,297              930,648

     Engineering,
     research
     and
     development                 134,161            118,788           401,021              360,138

     Selling,
     general
     and
     administrative               93,449            98,487           288,691              289,913
                                  ------            ------           -------              -------

     Total
     costs
     and
     operating
     expenses                    570,436            526,783           1,596,009              1,580,699

     Income
     from
     operations                  261,163            202,246           599,056              542,050

     Interest
     income
     and
     other,
     net                         (9,917)             (10,131)          (31,201)              (28,519)
                                  ------            -------           -------              -------

     Income
     before
     income
     taxes                       251,246            192,115           567,855              513,531

     Provision
     for
     income
     taxes                        47,665            25,733           113,831              105,152
                                                    ------           -------              -------

     Net
     income                               $203,581         $166,382          $454,024           $408,379
                                            ======           ======          ========           ========

     Net
     income
     per
     share:

    Basic                                    $1.22            $1.00             $2.73              $2.46

    Diluted                                  $1.21            $0.98             $2.70              $2.41

     Cash
     dividends
     declared
     per
     share                                   $0.45            $0.40             $1.35              $1.20
                                             -----            -----             -----              -----

     Weighted-
     average
     number
     of
     shares:

    Basic                        166,253            166,234           166,184              166,297

    Diluted                      167,989            169,180           168,355              169,425

    KLA-Tencor Corporation

    Condensed Consolidated Unaudited Statements of Cash Flows


                                         Three months
                                            ended

                       March 31,
                       ---------

    (In thousands)                       2014             2013
    -------------                        ----             ----

    Cash flows from operating
     activities:

    Net income                       $203,581         $166,382

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

    Depreciation and
     amortization                      20,614           21,168

    Non-cash stock-based
     compensation expense              12,723           18,536

    Excess tax benefit from
     equity awards                       (657)            (872)

    Net gain on sale of
     marketable securities and
     other investments                   (281)            (712)

    Changes in assets and liabilities:

    Decrease in accounts
     receivable, net                   16,598          142,764

    Decrease (increase) in
     inventories                      (14,738)          11,138

    Decrease in other assets           48,463            2,753

    Increase (decrease) in
     accounts payable                 (20,818)           4,552

    Decrease in deferred system
     profit                           (70,008)         (19,959)

    Increase in other
     liabilities                       42,250           69,033
                                       ------           ------

    Net cash provided by
     operating activities             237,727          414,783

    Cash flows from investing
     activities:

    Acquisition of cost method
     investment                        (1,345)              -

    Acquisition of business           (18,000)              -

    Capital expenditures, net         (18,220)         (18,300)

    Purchase of available-for-
     sale securities                 (359,299)        (460,124)

    Proceeds from sale of
     available-for-sale
     securities                       202,650          258,067

    Proceeds from maturity of
     available-for-sale
     securities                        60,035           63,671

    Purchase of trading
     securities                       (20,939)         (14,005)

    Proceeds from sale of
     trading securities                22,521           15,054
                                       ------           ------

    Net cash used in investing
     activities                      (132,597)        (155,637)

    Cash flows from financing
     activities:

    Issuance of common stock           13,334           48,685

    Tax withholding payments
     related to vested and
     released restricted stock
     units                             (2,347)            (728)

    Common stock repurchases          (59,880)         (68,343)

    Payment of dividends to
     stockholders                     (74,805)         (66,561)

    Excess tax benefit from
     equity awards                        657              872
                                          ---              ---

    Net cash used in financing
     activities                      (123,041)         (86,075)

    Effect of exchange rate
     changes on cash and cash
     equivalents                          752           (6,183)
                                          ---           ------

    Net increase (decrease) in
     cash and cash equivalents        (17,159)         166,888

    Cash and cash equivalents
     at beginning of period           793,382          767,313
                                      -------          -------

    Cash and cash equivalents
     at end of period                $776,223         $934,201
                                     ========         ========

    Supplemental cash flow disclosures:

    Income taxes paid, net             $9,636          $11,041

    Interest paid                        $135             $204

    Non-cash investing activities:

    Purchase of land, property
     and equipment                     $4,103     $          -

    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                             Nine months ended
                                                      ------------------                             -----------------

                                     March 31,            December 31,              March 31,            March 31,           March 31,
                                          2014                  2013                     2013                 2014                   2013
                                          ----                  ----                     ----                 ----                   ----

    GAAP net income                             $203,581                 $139,246             $166,382              $454,024     $408,379

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

    Acquisition
     related
     charges                         a             3,828       3,599                4,180       11,596      15,308

     Restructuring,
     severance
     and other
     related
     charges                         b                 -       2,002                2,845        3,239       5,979

    Income tax
     effect of
     non-GAAP
     adjustments                     c            (1,193)    (1,777)              (2,212)       (4,642)    (6,583)

    Discrete tax
     items                           d                 -           -                    -            -     (3,514)
                                     ---

    Non-GAAP net
     income                                     $206,216                 $143,070             $171,195              $464,217     $419,569
                                                ========                 ========             ========              ========     ========

    GAAP net income
     per diluted
     share                                         $1.21                    $0.83                $0.98                 $2.70        $2.41
                                                   =====                    =====                =====                 =====        =====

    Non-GAAP net
     income per
     diluted share                                 $1.23                    $0.85                $1.01                 $2.76        $2.48
                                                   =====                    =====                =====                 =====        =====

    Shares used in
     diluted shares
     calculation                       167,989               168,206                  169,180              168,355                169,425
                                       =======               =======                  =======              =======                =======

    Pre-tax impact of items included in Condensed Consolidated Unaudited Statements of Operations
    ---------------------------------------------------------------------------------------------


                                  Acquisition
                                    related                    Restructuring,                            Total pre-tax GAAP
                                    charges                    severance and other                            to non-GAAP
                                                               related charges                            adjustment
                                                               ---------------                            ----------

    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
     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
                                                       ======                                     ======                   ======

    Three months
     ended March
     31, 2013
    ------------

    Costs of
     revenues                                          $1,921                                       $713                   $2,634

    Engineering,
     research and
     development                          835                        2,405                                 3,240

    Selling,
     general and
     administrative                     1,424                         (273)                                1,151
                                        -----                         ----                                 -----

    Total in
     three
     months
     ended March
     31, 2013                                          $4,180                                     $2,845                   $7,025
                                                       ======                                     ======                   ======

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 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.

SOURCE KLA-Tencor Corporation