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KLA-Tencor Reports Fiscal Year 2010 Second Quarter Results
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MILPITAS, Calif., January 28, 2010—KLA-Tencor Corporation (NASDAQ: KLAC) today announced operating results for its second quarter of fiscal year 2010, which ended on December 31, 2009, and reported GAAP net income of $22 million and GAAP earnings per diluted share of $0.13 on revenues of $440 million.

"KLA-Tencor delivered strong results for the quarter from improved demand from foundry customers ramping leading edge capacity and continued investment by logic and memory customers pursuing technology transition roadmaps,” said Rick Wallace, KLA-Tencor's president and chief executive officer. "We see growing momentum in our financial performance as we execute our strategy of delivering high-performance process control solutions that create value for our customers and help them solve their mission-critical production challenges."

GAAP Results
 
Q2 FY 2010
Q1 FY 2010
Q2 FY 2009
Revenues
$ 440 million
$ 343 million
$ 397 million
Net Income (Loss)
$ 22 million
$ 20 million
$ (434) million
Earnings (Loss) per Diluted Share
$ 0.13
$ 0.12
$ (2.57)
Non-GAAP Results
 
Q2 FY 2010
Q1 FY 2010
Q2 FY 2009
Net Income (Loss)
$ 49 million
$ 26 million
$ (20) million
Earnings (Loss) per Diluted Share
$ 0.28
$ 0.15
$ (0.12)

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 acquisition, goodwill and intangible asset impairment, restatement, restructuring related, and certain discrete tax items.

KLA-Tencor will discuss the results for its fiscal year 2010 second quarter, along with its outlook, on a conference call today beginning at 2:00 p.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 perceived momentum in KLA-Tencor’s financial performance and KLA-Tencor’s ability to successfully innovate, develop and sell new technologies and products that meet customer demands 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 offerings by competitors; cancellation of orders by customers; the ability of KLA-Tencor’s research and development teams to successfully innovate and develop technology that is responsive to customer demands; KLA-Tencor’s ability to successfully integrate and manage businesses that it acquires; 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, 2009 and other subsequent 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, data storage, compound semiconductor, photovoltaic, 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 over 30 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. 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)  
December 31, 2009
 
June 30, 2009
         
ASSETS        
Cash and short-term investments
$
1,522,344
$
1,329,884
Accounts receivable, net  
298,071
  
210,143
Inventories, net  
352,241
  
370,206
Other current assets  
414,605
  
488,384
Land, property and equipment, net  
261,942
  
291,878
Goodwill  
333,984
  
329,379
Purchased intangibles, net  
132,462
  
149,080
Other non-current assets  
410,092
  
440,584
Total assets
$
3,725,741
$
3,609,538
         
LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
 
Current liabilities:        
Accounts payable
$
87,632
$
63,485
Deferred system profit  
147,578
  
95,820
Unearned revenue  
38,811
  
46,236
Other current liabilities  
339,084
  
341,441
Total current liabilities  
613,105
  
546,982
         
Non-current liabilities:        
Income tax payable  
51,787
  
49,738
Unearned revenue  
24,589
  
23,059
Other non-current liabilities  
63,851
  
60,163
Long-term debt  
745,475
  
745,204
Total liabilities  
1,498,807
  
1,425,146
         
Stockholders' equity:        
Common stock and capital in excess of par value  
886,860
  
835,477
Retained earnings  
1,357,049
  
1,370,132
Accumulated other comprehensive loss                   
(16,975)
                  
(21,217)
Total stockholders’ equity  
2,226,934
  
2,184,392
Total liabilities and stockholders’ equity
$
3,725,741
$
3,609,538

KLA-Tencor Corporation
Condensed Consolidated Unaudited Statements of Operations

   
Three months ended
  
Six months ended
(In thousands, except per share data)  
Dec. 31, 2009
  
Dec.  31, 2008
  
Dec. 31, 2009
  
Dec. 31, 2008
                 
Revenues:                
Product
$
314,946
$
273,072
$
544,197
$
678,568
Service  
125,409
  
123,517
  
238,845
  
250,534
Total revenues  
440,355
  
396,589
  
783,042
  
929,102
                 
Costs and operating expenses:                
Costs of revenues  
207,286
  
238,167
  
379,178
  
490,980
Engineering, research and development  
83,301
  
95,266
  
161,510
  
209,627
Selling, general and administrative  
102,673
  
133,954
  
180,309
  
252,444
Goodwill and purchased intangible asset impairment  
-  
  
434,833
  
-
  
446,744
Total costs and operating expenses  
393,260
  
902,220
  
720,997
  
1,399,795
Income (loss) from operations  
47,095
  
(505,631)
  
62,045
  
(470,693)
                 
Interest income and other, net  
(9,079)
  
(12,472)
  
(1,237)
  
(8,295)
Income (loss) before income taxes  
38,016
  
(518,103)
  
60,808
  
(478,988)
Provision for (benefit from) income taxes  
16,222
  
(83,849)
  
18,609
  
(64,023)
                 
Net income (loss)
$
21,794
$
(434,254)
$
42,199
$
(414,965)
                 
Net income (loss) per share:                
Basic
$
0.13
$
(2.57)
$
0.25
$
(2.43)
Diluted
$
0.13
$
(2.57)
$
0.24
$
(2.43)
                 
Cash dividend paid per share
$
0.15
$
0.15
$
0.30
$
0.30
                 
Weighted average number of shares:                
Basic  
171,408
  
169,022
  
171,053
  
170,552
Diluted  
173,808
  
169,022
  
173,292
  
170,552

KLA-Tencor Corporation
Condensed Consolidated Unaudited Statements of Cash Flows

   
Three months ended
 
December 31,
(In thousands)  
2009
 
2008
Cash flows from operating activities:        
Net income (loss)
$
21,794
$
(434,254)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:        
Depreciation and amortization  
23,240
  
35,646
Goodwill, purchased intangible asset and long-lived asset impairment charges  
10,592
  
436,833
Provision for doubtful accounts  
─
  
23,887
Non-cash stock-based compensation  
20,855
  
22,303
Tax charge from equity awards  
─
  
(3,294)
Excess tax benefit from equity awards  
─
  
(2)
Net loss (gain) on sale of marketable securities and other investments  
(1,582)
  
641
Gain on sale of real estate assets  
(160)
  
(1,997)
Changes in assets and liabilities, net of assets acquired and liabilities assumed in business combinations:        
Decrease (increase) in accounts receivable, net  
(55,564)
  
31,119
Decrease (increase) in inventories  
(2,621)
       
30,322
Decrease (increase) in other assets  
101,550
  
(16,314)
Increase in accounts payable  
12,328
  
736
Increase in deferred system profit  
32,856
  
1,302
Increase (decrease) in other liabilities  
313
  
(162,528)
Net cash provided by (used in) operating activities  
163,601
  
(35,600)
         
Cash flows from investing activities:        
Acquisitions of businesses, net of cash received  
─
  
(13,952)
Capital expenditures, net  
(10,735)
  
(6,967)
Proceeds from sale of long-lived assets  
5,878
  
19,348
Purchase of available-for-sale securities  
(337,025)
  
(124,775)
Proceeds from sale and maturity of available-for-sale securities  
182,799
  
129,770
Purchase of trading securities  
(15,001)
  
(19,206)
Proceeds from sale of trading securities  
17,476
  
18,707
Net cash provided by (used in) investing activities  
(156,608)
  
2,925
         
Cash flows from financing activities:        
Issuance of common stock  
20,545
  
21,164
Tax withholding payments related to vested and released restricted stock units  
(10,371)
  
(46)
Common stock repurchases  
─
  
(49,046)
Payment of dividends to stockholders  
(25,686)
  
(25,335)
Excess tax benefit from stock-based compensation  
─
  
2
Net cash used in financing activities  
(15,512)
  
(53,261)
         
Effect of exchange rate changes on cash and cash equivalents  
(876)
  
8,807
         
Net decrease in cash and cash equivalents  
(9,395)
  
(77,129)
         
Cash and cash equivalents at beginning of period  
540,839
  
733,459
         
Cash and cash equivalents at end of period
$
531,444
$
656,330
         
Supplemental cash flow disclosures:        
Income tax refunds (received), net
$
(68,491)
$
(7,176)
Interest paid
$
26,084
$
28,887

KLA-Tencor Corporation
Condensed Consolidated Unaudited Supplemental Information
(In thousands, except per share data) Reconciliation of GAAP Net Income (Loss) to Non-GAAP Net Income (Loss)

   
Three months ended
  
Six months ended
   
Dec. 31, 2009
Sept. 30, 2009
Dec. 31, 2008
  
Dec. 31, 2009
Dec. 31, 2008
GAAP net income (loss)  
$   21,794
$   20,405
$(434,254)
  
$   42,199
$(414,965)
Adjustments to reconcile GAAP net income (loss)
to non-GAAP net income (loss)
               
Acquisition related charges
a
8,104
8,095
22,590
  
16,199
51,008
Restructuring, severance and other related charges
b
14,450
(4,409)
23,621
  
10,041
27,782
Restatement related charges
c
7,077
5,188
9,190
  
12,265
12,974
Goodwill and purchased intangible asset impairment
d
-  
-  
434,833
  
-  
446,744
Income tax effect of non-GAAP adjustments
e
(10,762)
(3,121)
(75,882)
  
(13,883)
(88,096)
Discrete tax items
f
8,693 
-  
-  
  
8,693
-  
Non-GAAP net income (loss)  
$   49,356
$   26,158
$ (19,902)
  
$   75,514
$   35,447
               
GAAP net income (loss) per diluted share  
$       0.13
$       0.12
$     (2.57)
  
$       0.24
$     (2.43)
Non-GAAP net income (loss) per diluted share  
$       0.28
$       0.15
$     (0.12)
  
$       0.44
$       0.21
Shares used in diluted shares calculation  
173,808
172,718
169,022
  
173,292
170,552

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

 
Acquisition related charges
Restructuring, severance
and other related charges
Restatement
related charges
Goodwill and purchased
intangible asset impairment
Total pre-tax GAAP
to non-GAAP adjustment
Costs of revenues
$      5,727
$        2,052
$              -  
$           -  
$        7,779
Engineering, research and development
898
566
-  
-  
1,464
Selling, general and administrative
1,479
11,832
7,077
-  
20,388
Total in three months ended Dec. 31, 2009
$      8,104
$      14,450
$       7,077
$           -  
$      29,631
           
Total in three months ended Sept. 30, 2009
$      8,095
$       (4,409)
$       5,188
$           -  
$        8,874
           
Total in three months ended Dec. 31, 2008
$     22,590
$      23,621
$       9,190
$  434,833
$    490,234

Stock-based compensation:

 
Three months ended
 
 
December 31, 2009
  
September 30, 2009
  
December 31, 2008
Costs of revenues
$
3,325
$
3,288
$
4,679
Engineering, research and development  
6,667
  
6,603
  
6,981
Selling, general and administrative  
10,863
  
10,308
  
10,643
Total
$
20,855
$
20,199
$
22,303

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. 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 include amortization of intangible assets, inventory fair value adjustments, and in-process research and development associated with acquisitions.  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 the amortization expense allows comparisons of operating results that are consistent over time for both KLA-Tencor’s newly acquired and long-held businesses.  Management believes that it is appropriate to exclude acquisition related inventory fair value adjustments and in-process research and development 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.
b Restructuring, severance and other related charges include gains and costs associated with the company’s facilities divestment and consolidation program, reductions in force, entry into a severance and consulting agreement with the company’s former president/chief operating officer, gains and losses from sales of facilities, and asset impairment (other than impairment of goodwill and purchased intangible assets, which is included within the category described in note (d) below) from discontinuing or making available for sale certain acquired product lines.  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 our results in prior periods as well as with the performance of other companies.
c Restatement related charges include 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 our results in prior periods as well as with the performance of other companies.
d Goodwill and purchased intangible asset impairment includes non-cash expense recognized as a result of the company’s annual evaluation of goodwill or the testing for intangible asset impairment driven by certain company-specific triggering events, as well as the impairment of goodwill and intangible assets as a result of discontinuing acquired products and making acquired products available for sale. 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 our results in prior periods as well as with the performance of other companies. 
e 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.
f Discrete tax items include the tax impact of shortfalls in excess of cumulative windfall tax benefits recorded as provision for income taxes during the quarter. Windfall tax benefits arise when a company’s tax deductions for employee stock activity exceeds book compensation for the same activity.  A shortfall arises when the tax deduction is less than book compensation.  Windfalls are recorded as increases to capital in excess of par value.  Shortfalls 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.  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.

# # #

Investor Relations:
Ed Lockwood
Sr. Director, Investor Relations
(408) 875-9529
ed.lockwood@kla-tencor.com		 Media Relations:
Meggan Powers
Sr. Director, Corporate Communications
(408) 875-8733
meggan.powers@kla-tencor.com

 
 

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