KLA-Tencor Reports of Fiscal 2007 Second Quarter Results

Revenue of $649 Million and EPS of $0.44

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

KLA-Tencor Corporation (NASDAQ: KLAC) today announced operating results for its second quarter of fiscal 2007, ended December 31, 2006. The Company reported net income of $90 million (including share-based compensation and the other charges described below) and earnings per diluted share of $0.44 on revenue of $649 million in the second quarter, compared to net income of $136 million or $0.67 per diluted share on revenue of $629 million in the first quarter of fiscal 2007, and compared to net income of $77 million or $0.38 per diluted share on revenue of $488 million in the second quarter of fiscal 2006.

Net income for the second quarter of fiscal 2007 reflects $117 million pre-tax charges, as follows:

    --  One-time charges of $67 million, including $57 million for the
        write-down of buildings and related assets, and $10 million
        for severance charges related to a reduction in force.

    --  Acquisition-related charges of $19 million for in-process R&D
        and amortization of intangible assets primarily related to the
        acquisition of ADE Corporation.

    --  Net stock-based compensation charges of $16 million, net of a
        credit of $20 million related to the cancellation of a former
        executive's stock options and restricted stock units that had
        been previously expensed. Stock-based compensation for first
        quarter of fiscal 2007 was $37 million and for second quarter
        of fiscal 2006 was $39 million.

    --  Restatement-related charges of $15 million, including
        compensation expense of $11 million related to the
        reimbursement of non-executive employees for penalty taxes
        under Section 409A of the Internal Revenue Code and legal and
        other expenses of $4 million related to the stock options
        investigation, shareholder litigation and related matters.
        Other restatement-related charges for first quarter of fiscal
        2007 were $3 million.

"With the restatement of our financials recently completed, we return to regular quarterly reporting and move forward with our business with confidence. We remain focused on introducing new products that help our customers meet their mission critical production challenges," stated Rick Wallace, Chief Executive Officer of KLA-Tencor.

KLA-Tencor ended the second quarter of fiscal 2007 with more than eight months of product-related shipment and revenue backlog. The geographic breakdown of orders in the quarter was:

                                           Percent of Orders
Region                            ------------------------------------
                                   Current Quarter Historical Average
----------------------------------------------------------------------
United States                                   22%                25%
----------------------------------------------------------------------
Japan                                           21%                25%
----------------------------------------------------------------------
Taiwan                                          25%                20%
----------------------------------------------------------------------
Korea, China, & Singapore                       23%                20%
----------------------------------------------------------------------
Europe                                           9%                10%
----------------------------------------------------------------------

KLA-Tencor completed its acquisition of ADE Corporation in the second quarter at a net cost of $0.4 billion. As a result, cash, cash equivalents and marketable securities ended the quarter at $2.1 billion, down $0.3 billion.

As previously announced, on January 31, 2007, the Nasdaq Listing Qualifications Panel notified KLA-Tencor that the Company has regained compliance with the Nasdaq requirement relating to the filing of periodic reports with the Securities and Exchange Commission and has evidenced compliance with all other Nasdaq Marketplace Rules. Accordingly, the Panel determined to continue the listing of the Company's Common Stock on the Nasdaq Global Select Market, and the review of the Company's listing status has been closed.

KLA-Tencor will discuss its fiscal 2007 second quarter results, along with its outlook for the third quarter of 2007, on a conference call today beginning at 5:00 a.m. Pacific Standard 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, demand for KLA-Tencor's products and the Company's future financial 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: our ability to successfully address and resolve all issues arising from the discovery that we had retroactively priced stock options (primarily from July 1, 1997 to June 30, 2002) and had not accounted for them correctly; 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 Form 10-K, 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 leader in yield management and process control solutions for semiconductor manufacturing and related industries. Headquartered in San Jose, Calif., the Company has sales and service offices around the world. An S&P 500 Company, KLA-Tencor was named one of the Best Managed Companies in America for 2005 by Forbes Magazine and is the only Company in the semiconductor industry to receive the accolade for this year. KLA-Tencor is traded on the Nasdaq National Market under the symbol KLAC. Additional information about the Company is available on the Internet at http://www.kla-tencor.com

                        KLA-TENCOR CORPORATION
                Condensed Consolidated Balance Sheets
                             (Unaudited)
(in thousands)                              December 31,   June 30,
                                                2006          2006
----------------------------------------------------------------------

ASSETS

Current assets:
Cash and cash equivalents                  $    863,384  $  1,129,191
Marketable securities                         1,279,506     1,196,605
Accounts receivable, net                        448,520       439,899
Inventories                                     564,566       449,156
Deferred income taxes                           262,206       253,811
Other current assets                             73,323        74,581
                                            ------------  ------------
  Total current assets                        3,491,505     3,543,243

Land, property and equipment, net               355,057       395,412
Other assets                                    996,166       637,256
                                            ------------  ------------
  Total assets                             $  4,842,728  $  4,575,911
                                            ============  ============

LIABILITIES, MINORITY INTEREST AND
 STOCKHOLDERS' EQUITY

Current liabilities:
Accounts payable                           $    104,204  $     95,192
Deferred system profit                          233,393       226,142
Unearned revenue                                 87,352        80,543
Other current liabilities                       585,220       600,604
                                            ------------  ------------
  Total current liabilities                   1,010,169     1,002,481
                                            ------------  ------------

Commitments and contingencies (Note 10)

Minority interest in subsidiary            $      3,010  $      5,439

Stockholders' equity:
Common stock and capital in excess of par
 value                                        1,492,696     1,421,373
Retained earnings                             2,315,554     2,137,710
Accumulated other comprehensive income           21,299         8,908
                                            ------------  ------------
  Total stockholders' equity                  3,829,549     3,567,991
                                            ------------  ------------

       Total liabilities, minority interest
        and stockholders' equity           $  4,842,728  $  4,575,911
                                            ============  ============
                        KLA-TENCOR CORPORATION
           Condensed Consolidated Statements of Operations
                             (Unaudited)
                            Three months ended     Six months ended
                               December 31,          December 31,
(in thousands except per     2006       2005       2006        2005
 share data)                             As                     As
                                       restated               restated
----------------------------------------------------------------------

Revenues:
  Product                 $ 544,302  $ 402,132  $1,075,229  $ 801,133
  Service                   104,968     85,550     203,404    170,810
                           ---------  ---------  ----------  ---------
  Total revenues            649,270    487,682   1,278,633    971,943
                           ---------  ---------  ----------  ---------

Costs and operating
 expenses:
  Costs of revenues(1)      295,997    216,215     566,116    431,352
  Engineering, research
   and development(1)       106,106     98,807     205,399    197,577
  Selling, general and
   administrative(1)        168,808     97,666     274,769    193,030
                           ---------  ---------  ----------  ---------
Total costs and operating
 expenses                   570,911    412,688   1,046,284    821,959
                           ---------  ---------  ----------  ---------

Income from operations       78,359     74,994     232,349    149,984

Interest income and other,
 net                         22,657     16,685      45,114     30,761
                           ---------  ---------  ----------  ---------

Income before income taxes
 and minority interest      101,016     91,679     277,463    180,745

Provision for income taxes   11,637     16,329      53,005     30,653
                           ---------  ---------  ----------  ---------

Income before minority
 interest                    89,379     75,350     224,458    150,092

Minority interest               670      1,255       1,513      2,000

                           ---------  ---------  ----------  ---------
Net income                $  90,049  $  76,605  $  225,971  $ 152,092
                           =========  =========  ==========  =========

Net income per share:
  Basic                   $    0.45  $    0.39  $     1.13       0.77
                           =========  =========  ==========  =========
  Diluted                 $    0.44  $    0.38  $     1.11       0.75
                           =========  =========  ==========  =========

Weighted average number of
 shares:
  Basic                     199,789    198,236     199,603    197,824
                           =========  =========  ==========  =========
  Diluted                   204,955    203,926     203,826    203,634
                           =========  =========  ==========  =========

(1) includes the following
 stock-based compensation
 charges:
  Costs of revenues       $   8,002  $   6,273  $   16,589  $  13,451
  Engineering, research
   and development           11,243     12,502      22,948     25,531
  Selling, general and
   administrative            (3,177)    20,063      13,578     39,583
  Provision for Incomes
   Taxes                     (4,858)   (15,682)    (16,247)   (31,073)

Source: KLA-Tencor Corporation