Document


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of The
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): May 6, 2019

KLA-TENCOR CORPORATION
(Exact name of registrant as specified in its charter)
 
 
 
Delaware
000-09992
04-2564110
(State or other jurisdiction of incorporation)
(Commission File Number)
(I.R.S. Employer Identification No.)
 
One Technology Drive, Milpitas, California
95035
(Address of principal executive offices)
(Zip Code)
 
 
Registrant’s telephone number, including area code: (408) 875-3000
 
(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
¨

Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
¨

Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
¨

Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
¨

Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company
¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, $0.001 par value per share
KLAC
The Nasdaq Stock Market, LLC
 
 
The Nasdaq Global Select Market


















Item 2.02
Results of Operations and Financial Condition.
On May 6, 2019, KLA-Tencor Corporation (the “Company”) issued a press release announcing selected financial and operating results for its third quarter of fiscal year 2019. A copy of the press release is furnished as Exhibit 99.1 to this Current Report on Form 8-K.
The information in Item 2.02 of this Current Report on Form 8-K and the exhibit attached hereto shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities under that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, regardless of any general incorporation language in such filing.
Item 9.01
Financial Statements and Exhibits.
(d)
Exhibits
The following exhibit is filed herewith:
 
 
 
Exhibit No.
 
Description
 
 
 






SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
 
 
 
 
 
 
 
 
 
 
 
 
 
KLA-TENCOR CORPORATION
 
 
 
 
 
Date: May 6, 2019
 
 
 
By:
 
/s/ TERI A. LITTLE
 
 
 
 
 
Name:
 
Teri A. Little
 
 
 
 
 
Title:
 
Executive Vice President and Chief Legal Officer



Exhibit




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.com    
 
becky.howland@kla.com

KLA-TENCOR REPORTS FISCAL 2019 THIRD QUARTER RESULTS

Revenue of $1,097 million
Quarterly revenue at the upper end of the range of updated guidance
Non-GAAP EPS above the range of updated guidance
Closed Orbotech acquisition on February 20 with integration activities underway

MILPITAS, Calif., May 6, 2019 -KLA-Tencor Corporation (NASDAQ: KLAC) today announced operating results for its third quarter of fiscal year 2019, which ended on March 31, 2019, and reported GAAP net income attributable to KLA-Tencor of $193 million and GAAP earnings per diluted share attributable to KLA-Tencor of $1.23 on revenues of $1,097 million.

“KLA delivered strong results for the March quarter, finishing at the upper end or above the range of guidance for revenue, and GAAP and non-GAAP EPS,” commented Rick Wallace, president and CEO of KLA. “We achieved these results despite the challenging near-term demand environment, showcasing the resiliency of KLA’s business model, and the compelling value of our strategies focused on revenue diversification and operations excellence.”

“On February 20, we closed the merger with Orbotech, expanding our reach in the electronics value chain, opening $2 billion of new market opportunity to KLA, and enhancing our ability to serve new and existing customers who are exposed to fast-growing end markets, such as 5G infrastructure, smart mobile, and automotive,” continued Mr. Wallace. “Looking forward, we see extraordinary potential with this combination, including new opportunities for enhanced product offerings and meaningful cost synergies expected within the first 12-24 months.”

GAAP Results
 
Q3 FY 2019
Q2 FY 2019
Q3 FY 2018
Revenues
$1,097 million
$1,120 million
$1,021 million
Net Income Attributable to KLA-Tencor
$193 million
$369 million
$307 million
Earnings per Diluted Share Attributable to KLA-Tencor
$1.23
$2.42
$1.95
 
 
 
 
Non-GAAP Results
 
Q3 FY 2019
Q2 FY 2019
Q3 FY 2018
Net Income Attributable to KLA-Tencor
$283 million
$372 million
$318 million
Earnings per Diluted Share Attributable to KLA-Tencor
$1.80
$2.44
$2.02

1



Effective on the first day of fiscal 2019, the Company adopted Accounting Standards Update 2014-09, Revenue from Contracts with Customers (“ASC 606”). Prior periods were not retrospectively restated, and accordingly, the condensed consolidated unaudited balance sheet as of June 30, 2018, and the condensed consolidated unaudited statements of operations for the three and nine months ended March 31, 2018 and cash flows for the three months ended March 31, 2018 were prepared using accounting standards that were different than those in effect for the three and nine months ended March 31, 2019.
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 recurring stock-based compensation, but exclude the impact of acquisitions or pending acquisitions, restructuring, severance, merger and other related charges and certain discrete tax items. KLA will discuss the results for its fiscal year 2019 third quarter, along with its outlook, on a conference call today beginning at 2:00 p.m. Pacific Time. A webcast of the call will be available at: www.kla.com.
About KLA:
KLA-Tencor Corporation (aka “KLA Corporation” or “KLA”) develops industry-leading equipment and services that enable innovation throughout the electronics industry. We provide advanced process control and process-enabling solutions for manufacturing wafers and reticles, integrated circuits, packaging, printed circuit boards and flat panel displays. In close collaboration with leading customers across the globe, our expert teams of physicists, engineers, data scientists and problem-solvers design solutions that move the world forward. Additional information may be found at www.kla.com (KLAC-F).

2



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’s financial results presented in accordance with United States GAAP.
To supplement KLA’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’s operating performance and its prospects in the future. Specifically, KLA believes that the non-GAAP information provides useful measures to both management and investors regarding financial and business trends relating to KLA’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.

3




KLA-Tencor Corporation
 
 
 
Condensed Consolidated Unaudited Balance Sheets
 
 
 
 
 
 
 
(In thousands)
March 31, 2019
 
June 30, 2018
ASSETS
 
 
 
Cash, cash equivalents and marketable securities
$
1,897,268

 
$
2,880,318

Accounts receivable, net
958,021

 
651,678

Inventories
1,317,260

 
931,845

Other current assets
270,079

 
85,159

Land, property and equipment, net
411,852

 
286,306

Goodwill
2,172,902

 
354,698

Deferred income taxes, non-current
205,820

 
193,200

Purchased intangible assets, net
1,694,313

 
19,333

Other non-current assets
260,090

 
236,082

Total assets
$
9,187,605

 
$
5,638,619

LIABILITIES, NON-CONTROLLING INTEREST AND STOCKHOLDERS’ EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
206,248

 
$
169,354

Deferred system revenue
228,745

 

Deferred service revenue
182,119

 
69,255

Deferred system profit

 
279,581

Current portion of long-term debt
249,997

 

Other current liabilities
833,747

 
696,080

Total current liabilities
1,700,856

 
1,214,270

Non-current liabilities:
 
 
 
Long-term debt
3,172,649

 
2,237,402

Deferred tax Liability
762,303

 
1,197

Deferred service revenue
90,610

 
71,997

Other non-current liabilities
575,599

 
493,242

Total liabilities
6,302,017

 
4,018,108

Stockholders’ equity:
 
 
 
Common stock and capital in excess of par value
1,989,914

 
617,999

Retained earnings
928,086

 
1,056,445

Accumulated other comprehensive income (loss)
(68,907
)
 
(53,933
)
Total KLA-Tencor stockholders' equity
2,849,093

 
1,620,511

Non-controlling interest in consolidated subsidiary
36,495

 

Total stockholders’ equity
2,885,588

 
1,620,511

Total liabilities and stockholders’ equity
$
9,187,605

 
$
5,638,619



4



 
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)
2019
 
2018
 
2019
 
2018
Revenues:
 
 
 
 
 
 
 
Product
$
793,224

 
$
797,797

 
$
2,474,652

 
$
2,320,171

Service
304,087

 
223,497

 
835,817

 
646,526

Total revenues
1,097,311

 
1,021,294

 
3,310,469

 
2,966,697

Costs and expenses:
 
 
 
 
 
 
 
Costs of revenues
486,945

 
368,356

 
1,276,592

 
1,068,475

Research and development
184,887

 
153,239

 
504,320

 
456,626

Selling, general and administrative
182,184

 
113,237

 
409,084

 
325,934

Interest expense and other, net
21,905

 
20,479

 
55,552

 
66,220

Income before income taxes
221,390

 
365,983

 
1,064,921

 
1,049,442

Provision for income taxes
28,745

 
59,102

 
107,232

 
595,944

Net income
192,645

 
306,881

 
957,689

 
453,498

Less: Net loss attributable to non-controlling interest
(83
)
 

 
(83
)
 

Net income attributable to KLA-Tencor
$
192,728

 
$
306,881

 
$
957,772

 
$
453,498

Net income per share attributable to KLA-Tencor:
 
 
 
 
 
 
 
Basic
$
1.23

 
$
1.96

 
$
6.20

 
$
2.90

Diluted
$
1.23

 
$
1.95

 
$
6.17

 
$
2.88

Weighted-average number of shares:
 
 
 
 
 
 
 
Basic
156,349

 
156,221

 
154,561

 
156,547

Diluted
157,182

 
157,201

 
155,310

 
157,539



5



KLA-Tencor Corporation
Condensed Consolidated Unaudited Statements of Cash Flow
 
Three months ended
March 31,
(In thousands)
2019
 
2018
Cash flows from operating activities:
 
 
 
Net income
$
192,645

 
$
306,881

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
73,445

 
16,283

Loss (gain) on unrealized foreign exchange and other
73

 
(338
)
Share of net earnings of equity method investee

 

Stock-based compensation expense
34,193

 
16,210

Changes in assets and liabilities, net of assets acquired and liabilities assumed in business acquisitions:
 
 
 
Accounts receivable
(72,796
)
 
91,370

Inventories
(1,893
)
 
(60,487
)
Other assets
(3,068
)
 
(66,014
)
Accounts payable
(590
)
 
19,183

Deferred system revenue
32,105

 

Deferred service revenue
(15,371
)
 

Deferred system profit

 
9,968

Other liabilities
(75,149
)
 
19,551

Net cash provided by operating activities
163,594

 
352,607

Cash flows from investing activities:
 
 
 
Acquisition of non-marketable securities
(630
)
 

Businesses acquisitions, net of cash acquired
(1,806,496
)
 

Capital expenditures
(25,956
)
 
(14,994
)
Purchases of available-for-sale securities

 
(112,661
)
Proceeds from sale of available-for-sale securities
40,920

 
58,429

Proceeds from maturity of available-for-sale securities
60,298

 
97,809

Purchases of trading securities
(30,328
)
 
(34,370
)
Proceeds from sale of trading securities
27,289

 
31,681

Net cash (used in) provided by investing activities
(1,734,903
)
 
25,894

Cash flows from financing activities:
 
 
 
Proceeds from issuance of debt, net of issuance costs
1,186,263

 

Proceeds from revolving credit facility, net of debt issuance costs
900,000

 

Repayment of debt
(902,474
)
 
(25,000
)
Issuance of common stock

 
(8
)
Tax withholding payments related to equity awards
(381
)
 
(428
)
Common stock repurchases
(200,029
)
 
(84,724
)
Payment of contingent consideration payable
(513
)
 

Payment of dividends to stockholders
(113,581
)
 
(92,128
)
Net cash provided by (used in) financing activities
869,285

 
(202,288
)
Effect of exchange rate changes on cash and cash equivalents
205

 
6,075

Net (decrease) increase in cash and cash equivalents
(701,819
)
 
182,288

Cash and cash equivalents at beginning of period
1,793,982

 
1,073,394

Cash and cash equivalents at end of period
$
1,092,163

 
$
1,255,682

Supplemental cash flow disclosures:
 
 
 
Income taxes paid
$
51,885

 
$
74,314

Interest paid
$
3,856

 
$
2,330

Non-cash activities:
 
 
 
Issuance of common stock for the acquisition of Orbotech Ltd. - financing activities
$
1,330,786

 
$

Contingent consideration payable - financing activities
$
6,740

 
$

Dividends payable - financing activities
$
6,494

 
$
8,408

Unsettled common stock repurchase - financing activities
$
5,988

 
$

Accrued debt issuance costs - financing activities
$
2,530

 
$

Accrued purchase of land, property and equipment - investing activities
$
6,370

 
$
9,728


6



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,
2019
 
December 31,
2018
 
March 31,
2018
 
March 31,
2019
 
March 31,
2018
GAAP net income attributable to KLA-Tencor
 
$
192,728

 
$
369,100

 
$
306,881

 
$
957,772

 
$
453,498

Adjustments to reconcile GAAP net income to non-GAAP net income:
 
 
 
 
 
 
 
 
 
 
 
Acquisition-related charges
a
103,755

 
4,281

 
7,413

 
113,587

 
10,608

 
Merger-related charges
b

 

 

 

 
3,015

 
Income tax effect of non-GAAP adjustments
c
(21,127
)
 
(276
)
 
(343
)
 
(21,713
)
 
(2,407
)
 
Discrete tax items
d
7,482

 
(765
)
 
4,184

 
(10,389
)
 
446,078

Non-GAAP net income attributable to KLA-Tencor
 
$
282,838

 
$
372,340

 
$
318,135

 
$
1,039,257

 
$
910,792

GAAP net income (loss) per diluted share attributable to KLA-Tencor
 
$
1.23

 
$
2.42

 
$
1.95

 
$
6.17

 
$
2.88

Non-GAAP net income per diluted share attributable to KLA-Tencor
 
$
1.80

 
$
2.44

 
$
2.02

 
$
6.69

 
$
5.78

Shares used in diluted shares calculation
 
157,182

 
152,648

 
157,201

 
155,310

 
157,539

Pre-tax impact of GAAP to non-GAAP adjustments included in Condensed Consolidated Unaudited Statements of Operations
 
Acquisition- related charges
Three months ended March 31, 2019
 
Costs of revenues
$
47,659

Research and development
3,328

Selling, general and administrative
52,768

Total in three months ended March 31, 2019
$
103,755

Three months ended December 31, 2018
 
Costs of revenues
$
967

Selling, general and administrative
3,314

Total in three months ended December 31, 2018
$
4,281

Three months ended March 31, 2018
 
Costs of revenues
$
1,122

Selling, general and administrative
6,291

Total in three months ended March 31, 2018
$
7,413


7



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 primarily include amortization of intangible assets and other acquisition-related adjustments including adjustments for the fair valuation of inventory and backlog, certain employee compensation arrangements, acceleration of certain stock-based compensation arrangements, and transaction costs associated with our acquisitions, primarily Orbotech. 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’s newly acquired and long-held businesses. Management believes that the other acquisition-related expenses are appropriate to be excluded because such costs would not have otherwise been incurred in the periods presented. 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 and Lam Research Corporation (“Lam”) primarily includes employee retention-related 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.
d.
Discrete tax items include charges associated with the acquisition of Orbotech as well as the income tax effects of an income tax expense from the enacted tax reform legislation through the Tax Cuts and Jobs-Act (the “Act”), which was signed into law on December 22, 2017, of which the impact is primarily related to the provisional tax amounts recorded for the transition tax on accumulated foreign earnings and the re-measurement of certain deferred tax assets and liabilities as a result of the enactment of the Act. 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.



8