KLA-Tencor Reports Fiscal 2008 Third Quarter Results

SAN JOSE, Calif.--(BUSINESS WIRE)--

KLA-Tencor Corporation (NASDAQ:KLAC) today announced operating results for its third quarter of fiscal 2008, which ended on March 31, 2008. The Company reported GAAP net income of $111 million and GAAP earnings per diluted share of $0.61 on revenue of $602 million for third quarter of fiscal 2008.

"The challenging industry-wide demand environment presents an opportunity for us to further strengthen our industry leadership position. In order to capitalize on the opportunity, we continue to drive efficiencies throughout our business, while investing, internally and externally, in the technologies our customers will need to accelerate their development and production ramps," said Rick Wallace, CEO of KLA-Tencor.

                             GAAP Results
----------------------------------------------------------------------
                             Q3 FY 2008    Q2 FY 2008    Q3 FY 2007
---------------------------- ------------- ------------- -------------
Revenues                     $602 million  $636 million  $716 million
---------------------------- ------------- ------------- -------------
Net Income                   $111 million  $84 million   $155 million
---------------------------- ------------- ------------- -------------
Diluted Earnings per Share   $0.61         $0.45         $0.76
---------------------------- ------------- ------------- -------------

                           Non-GAAP Results
----------------------------------------------------------------------
                             Q3 FY 2008    Q2 FY 2008    Q3 FY 2007
---------------------------- ------------- ------------- -------------
Net Income                   $121 million  $138 million  $176 million
---------------------------- ------------- ------------- -------------
Diluted Earnings per Share   $0.67         $0.75         $0.87
---------------------------- ------------- ------------- -------------

A reconciliation between GAAP net income and non-GAAP net income is provided in a table below. Non-GAAP results include the impact of stock-based compensation, but exclude the impact of acquisition, restatement or restructuring related items.

    Highlights for the third quarter of fiscal 2008

    --  Announced an agreement under which KLA-Tencor agreed to make a
        tender offer to acquire ICOS Vision Systems Corporation NV, a
        leading supplier of packaging and interconnect inspection
        solutions for the semiconductor industry, as well as a leader
        in the inspection of photovoltaic solar technologies and LED
        lighting products.

    --  Declared and paid dividends of $27 million and repurchased
        $180 million of stock.

    --  Generated cash flow from operations of $148 million.

    --  Introduced TeraFab, a new family of Mask Inspection Systems
        that offers wafer fabs flexible options to qualify incoming
        masks and inspect production masks for contaminants. The
        TeraFab systems are offered in multiple configurations to
        provide chipmakers with advanced tools for cost-effective mask
        quality control.

    --  Introduced two additions to its Aleris(TM) family of films
        metrology systems - the Aleris 8310 and Aleris 8350. These
        systems utilize KLA-Tencor's new generation of Broadband
        Spectroscopic Ellipsometry (BBSE(TM)) optics which allow
        chipmakers to measure multi-layer film thickness, refractive
        index, and stress, meeting advanced films metrology
        requirements.

KLA-Tencor will discuss its fiscal 2008 third quarter results, along with its outlook for the fourth quarter of fiscal 2008, 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 the benefit to customers of KLA-Tencor's products, anticipated market conditions, potential market opportunities for KLA-Tencor and demand for KLA-Tencor's products, 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; new and enhanced product offerings by competitors; cancellation of orders by customers; 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 the Company's Annual Report on Form 10-K for the year ended June 30, 2007, 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).

About KLA-Tencor:

KLA-Tencor is the world's leading supplier of process control and yield management solutions for the semiconductor and related microelectronics industries. Headquartered in San Jose, Calif., the Company has sales and service offices around the world. An S&P 500 Company, KLA-Tencor is traded on the NASDAQ Global Select Market under the symbol KLAC. Additional information about the Company is available on the Internet at http://www.kla-tencor.com

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, our financial results presented in accordance with GAAP.

To supplement our condensed consolidated financial statements presented in accordance with GAAP, we provide 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 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. The presentation of this additional information is not meant to be considered in isolation or as a substitute for results prepared in accordance with United States GAAP.

KLA-Tencor Corporation
Condensed Consolidated Unaudited Balance Sheets

(In thousands)                                    March 31,  June 30,
                                                     2008       2007
                                                  ---------  ---------

ASSETS
Cash, restricted cash, short and long-term
 investments                                     $1,314,572 $1,710,629
Accounts receivable, net                            573,284    581,500
Inventories                                         443,710    535,370
Other current assets                                491,939    425,272
Land, property and equipment, net                   341,186    382,240
Goodwill                                            315,617    311,856
Purchased intangibles, net                          144,937    175,432
Other long-term assets                              485,760    500,950
                                                  ---------  ---------
Total assets                                     $4,111,005 $4,623,249
                                                  =========  =========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable                                 $  101,239 $   92,165
Deferred system profit                              188,300    201,747
Unearned revenue                                     52,216     52,304
Other current liabilities                           642,143    659,346
                                                  ---------  ---------
Total current liabilities                           983,898  1,005,562

Non-current liabilities:
Income tax payable                                   58,921          -
Unearned revenue                                     41,885     46,950
Other non-current liabilities                        37,211     20,695
                                                  ---------  ---------
Total liabilities                                 1,121,915  1,073,207

Stockholders' equity:
Common stock and capital in excess of par value     700,028    967,886
Retained earnings                                 2,257,049  2,570,751
Accumulated other comprehensive income               32,013     11,405
                                                  ---------  ---------
Total stockholders' equity                        2,989,090  3,550,042

                                                  ---------  ---------
Total liabilities and stockholders' equity       $4,111,005 $4,623,249
                                                  =========  =========
KLA-Tencor Corporation
Condensed Consolidated Unaudited Statements Of Operations


                             Three months ended    Nine months ended
                            --------------------  --------------------
(In thousands except per    March 31,  March 31,  March 31,  March 31,
 share data)                  2008       2007       2008        2007
                            ---------  ---------  ---------  ---------

Revenues:
Product                    $  476,274 $  607,390 $1,568,155 $1,682,619
Service                       125,945    108,818    362,867    312,222
                            ---------  ---------  ---------  ---------
Total revenues                602,219    716,208  1,931,022  1,994,841

Costs and operating
 expenses:
Costs of revenues             285,650    306,751    876,548    874,642
Engineering, research and
 development                   96,646    106,265    293,503    313,659
Selling, general and
 administrative                94,723    120,537    365,006    391,536
                            ---------  ---------  ---------  ---------
Total costs and operating
 expenses                     477,019    533,553  1,535,057  1,579,837
                            ---------  ---------  ---------  ---------
Income from operations        125,200    182,655    395,965    415,004
Interest income and other,
 net                           36,009     20,817     66,752     65,931
                            ---------  ---------  ---------  ---------
Income before income taxes
 and minority interest        161,209    203,472    462,717    480,935
Provision for income taxes     50,229     48,546    179,644    101,551
                            ---------  ---------  ---------  ---------
Income before minority
 interest                     110,980    154,926    283,073    379,384
Minority interest                   -      (141)          -      1,372
                            ---------  ---------  ---------  ---------
Net income                 $  110,980 $  154,785 $  283,073 $  380,756
                            =========  =========  =========  =========

Net income per share:
Basic                      $     0.62 $     0.78 $     1.55 $     1.91
                            =========  =========  =========  =========
Diluted                    $     0.61 $     0.76 $     1.52 $     1.87
                            =========  =========  =========  =========

Weighted average number of
 shares:
Basic                         178,112    197,930    182,397    199,053
Diluted                       180,617    203,474    186,303    203,976
KLA-Tencor Corporation
Condensed Consolidated Unaudited Statements of Cash Flows

                                                  Three months ended
                                                      March 31,
                                                ----------------------
                (In thousands)                     2008       2007
----------------------------------------------- ---------- -----------
Cash flows from operating activities:
    Net income                                  $ 110,980  $  154,785
    Adjustments to reconcile net income to net
     cash provided by operating activities:
         Depreciation and amortization             26,610      29,305
         Non-cash, stock-based compensation        25,854      20,126
         Tax benefit from employee stock
          options                                   5,397       1,833
         Excess tax benefit from stock-based
          compensation                             (4,421)     (2,777)
         Minority interest                             --         141
         Net gain on sale of marketable
          securities and other investments        (20,335)       (314)
         Net gain on sale of real estate           (8,641)         --
         Changes in assets and liabilities:
           Accounts receivable, net                26,078     (43,308)
           Inventories                             29,630      37,223
           Other assets                            (4,748)      2,468
           Accounts payable                        (8,885)    (12,934)
           Deferred system profit                  (6,380)    (16,161)
           Other liabilities                      (22,927)     28,221
                                                ---------- -----------

              Net cash provided by operating
               activities                         148,212     198,608
                                                ---------- -----------

Cash flows from investing activities:
    Restricted cash                              (581,540)         --
    Acquisitions of businesses, net of cash
     received                                      (1,525)    (49,029)
    Capital expenditures, net                     (10,202)    (22,834)
    Proceeds from sale of real estate              28,668          --
    Purchase of available-for-sale securities    (139,513)   (878,095)
    Proceeds from sale of available-for-sale
     securities                                   746,146   1,164,228
    Proceeds from maturity of available-for-
     sale securities                                7,065       9,535
                                                ---------- -----------

              Net cash provided by investing
               activities                          49,099     223,805)
                                                ---------- -----------

Cash flows from financing activities:
    Issuance of common stock                        2,609     104,196
    Common stock repurchases                     (179,889)   (763,582)
    Payment of dividends to stockholders          (26,557)    (23,893)
    Excess tax benefit from stock-based
     compensation                                   4,421       2,777
                                                ---------- -----------

              Net cash used in financing
               activities                        (199,416)   (680,502)
                                                ---------- -----------

Effect of exchange rate changes on cash and
 cash equivalents                                  17,944        (879)
                                                ---------- -----------

Net increase (decrease) in cash and cash
 equivalents                                       15,839    (258,968)

Cash and cash equivalents at beginning of
 period                                           547,643     863,384
                                                ---------- -----------

Cash and cash equivalents at end of period      $ 563,482  $  604,416
                                                ========== ===========

Supplemental cash flow disclosures:
    Income taxes paid, net                      $  53,200  $   37,585
    Interest paid                               $   1,435  $      339
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  March 31, March 31, March 31,
                        2008    31, 2007    2007      2008      2007
                     -------------------------------------------------

GAAP net income      $110,980  $ 83,935  $154,785  $283,073  $380,756
Adjustments to
 reconcile GAAP net
 income to non-GAAP
 net income
--------------------
Acquisition related
 charges            a  (2,174)   21,904    18,023    32,096    36,915
Restructuring,
 severance and
 others             b  13,477    (5,986)        -     9,770    67,180
Restatement related
 charges            c   5,169    67,000    15,289    74,280    33,149
Income tax effect of
 non-GAAP
 adjustments        d  (6,210)  (28,747)  (11,921)  (41,277)  (49,503)
Non recurring tax
 item               e       -         -         -    46,613         -
                     --------- --------- --------- --------- ---------
Non-GAAP net income  $121,242  $138,106  $176,176  $404,555  $468,497
                     ========= ========= ========= ========= =========

GAAP net income per
 diluted share       $   0.61  $   0.45  $   0.76  $   1.52  $   1.87
                     ========= ========= ========= ========= =========
Non-GAAP net income
 per diluted share   $   0.67  $   0.75  $   0.87  $   2.17  $   2.30
                     ========= ========= ========= ========= =========
Shares used in
 diluted shares
 calculation          180,617   185,199   203,474   186,303   203,976
                     ========= ========= ========= ========= =========
Impact of items included in Condensed Statements of Operations:
----------------------------------------------------------------------
                                                           Total pre-
                                                            tax GAAP
                    Acquisition Restructuring, Restatement   to non-
                      related    severance and   related      GAAP
                      charges        other       charges    adjustment
                    ----------- -------------- ----------- -----------
Cost of revenues    $    6,322  $      19,624  $         - $   25,946
Engineering,
 research and
 development             1,223            642            -      1,865
Sales, general and
 administrative          2,137         (6,789)       5,169        517
Interest income and
 other, net            (11,856)             -            -    (11,856)
                    ----------- -------------- ----------- -----------
Total in three
 months ended March
 31, 2008           $   (2,174) $      13,477  $     5,169 $   16,472
                    =========== ============== =========== ===========

Total in three
 months ended
 December 31, 2007  $   21,904  $      (5,986) $    67,000 $   82,918
                    =========== ============== =========== ===========

Total in three
 months ended March
 31, 2007           $   18,023  $           -  $    15,289 $   33,312
                    =========== ============== =========== ===========

                                             Three months ended
                                     ---------------------------------
                                      March 31, December 31, March 31,
                                        2008        2007       2007
                                     ---------------------------------
Stock-based compensation
-------------------------------------
Costs of revenues                     $  5,670   $    4,700   $ 6,629
Engineering, research and development    8,052        7,109    11,036
Sales, general and administrative       12,133       11,443    11,604
Provision for income taxes              (7,757)      (8,038)   (9,349)
                                     =================================
Total                                 $ 18,098   $   15,214   $19,920
                                     =================================

To supplement our condensed consolidated financial statements presented in accordance with GAAP, we provide 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 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 budgeting and planning tools that management uses for future forecasting. The presentation of this additional information is not meant to be considered in isolation or as a substitute for results prepared in accordance with United States GAAP.

a Acquisition related charges include impairment and amortization of
   intangibles, inventory fair value adjustments, in-process research
   and development associated with acquisitions, asset impairment from
   discontinuing acquired products, as well as unrealized gains
   resulting from the Euro call option contracts related to the ICOS
   acquisition. Management believes that the expense associated with
   the impairment and 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 the
   amortization expense allows comparisons of operating results that
   are consistent over time for both the Company's newly acquired and
   long-held business. Management believes that it is appropriate to
   exclude asset impairment from discontinuing acquired products as
   well as gains on foreign exchange contracts associated with
   business acquisitions 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 that of other companies.

b Restructuring, severance and others includes costs associated with
   facilities divestment program, worldwide reduction in force, gains
   from sale of facilities and one-time inventory write-off associated
   with the disposal of service inventory in excess of future needs.
   Management believes that it is appropriate to exclude those 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 that
   of other companies.

c Restatement related charges include compensation related to
   reimbursement of non-executive employees for penalty taxes under
   section 409A of the Internal Revenue Code, as well as legal and
   other expenses related to the stock option investigation,
   shareholder litigation and related matters. Management believes
   that it is appropriate to exclude those 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 that of other
   companies.

d Income tax effect on 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 Non recurring tax item includes the U.S. tax impact associated with
   the implementation of our global manufacturing strategy. Management
   believes that it is appropriate to exclude this item as it limits
   comparability. Management believes excluding this item helps
   investors compare our operating performance with that of other
   companies.

Source: KLA-Tencor Corporation