KLA-Tencor Reports Fiscal 2009 First Quarter Results

October 30, 2008 at 12:00 AM EDT

MILPITAS, Calif., Oct 30, 2008 (BUSINESS WIRE) -- KLA-Tencor Corporation (NASDAQ:KLAC) today announced operating results for its first quarter of fiscal 2009, which ended on September 30, 2008. KLA-Tencor reported GAAP net income of $19 million and GAAP earnings per diluted share of $0.11 on revenue of $533 million for the first quarter of fiscal 2009.

"Macro-economic uncertainty, declining consumer demand, and limited access to financing are having an adverse impact on semiconductor capital equipment spending across all end markets and geographies. In response to sharp order declines and uncertain outlook, we are implementing actions to reduce costs, while still maintaining our strategic focus and strengthening KLA-Tencor's competitive position, and to lay the foundation for growth once the business environment improves," commented Rick Wallace, chief executive officer of KLA-Tencor. "Our market leadership, the exceptional value of our technology and our strong balance sheet provide us with the resources to maintain a high level of customer focus during this downturn."

GAAP Results
                                Q1 FY 2009         Q4 FY 2008         Q1 FY 2008
Revenues                        $ 533 million      $ 591 million      $ 693 million
Net Income                      $ 19 million       $ 76 million       $ 88 million
Diluted Earnings per Share      $ 0.11             $ 0.43             $ 0.46
Non-GAAP Results
                                Q1 FY 2009         Q4 FY 2008         Q1 FY 2008
Net Income                      $ 55 million       $ 107 million      $ 145 million
Diluted Earnings per Share      $ 0.32             $ 0.60             $ 0.75

A reconciliation between GAAP net income and non-GAAP net income 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, restatement and restructuring related items.

Highlights for the first quarter of fiscal 2009

-- Completed the acquisition of the Microelectronic Inspection Equipment (MIE) business unit of Vistec Semiconductor Systems. The MIE business unit manufactures and sells advanced semiconductor mask registration measurement tools and wafer manufacturing defect inspection systems.

-- Generated cash flow from operations of $81 million.

-- Introduced the eS35 e-beam inspection system, capable of detecting and classifying smaller physical defects and more subtle electrical defects at significantly higher speeds. The eS35 features improved sensitivity along with substantial throughput gains, to accelerate yield of 4Xnm and 3Xnm devices.

-- Introduced the latest stylus surface profiling system, the P-6(TM), which offers a unique set of advanced features for scientific research and production environments, such as photovoltaic solar cell manufacturing.

-- Introduced the Surfscan(R) SP2XP, a new monitor-wafer inspection system for the integrated circuit (IC) market that features improved sensitivity to defects on silicon, poly and metal films and enhanced ability to sort defects by type and size, to accelerate fabs' development of 3Xnm and 2Xnm next-generation devices.

-- Introduced the Candela(TM) 7100 series for advanced defect inspection and classification of hard disk drive substrates and media, designed to help manufacturers identify and classify submicron critical defects such as pits, bumps, particles and buried defects, for maximizing yield and lowering total cost of inspection.

-- Introduced the die-to-database version of its latest mask inspection technology, Wafer Plane Inspection(TM) (WPI). WPI allows leading-edge logic and foundry mask makers to concurrently detect defects on the mask and assess whether the defects are likely to print on the wafer.

-- Introduced PROLITH(TM) 12, the latest industry-leading computational lithography tool, which enables researchers to cost-effectively explore the feasibility of various mask designs, photo materials and processes associated with Extreme Ultra-Violet (EUV) lithography.

KLA-Tencor will discuss its fiscal 2009 first quarter results, along with its outlook for the second quarter of fiscal 2009, 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 performance of the company's products, anticipated market conditions, potential market opportunities for KLA-Tencor, anticipated steps designed to reduce KLA-Tencor's costs and the success of such efforts, KLA-Tencor's ability to sustain its current market position in the future, 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; 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; KLA-Tencor's inability to successfully integrate and manage businesses that it acquires, including ICOS Vision Systems Corporation NV and the MIE business unit; 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, 2008, 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 Corporation is the world's leading supplier of process control and yield management solutions for the semiconductor and related nanoelectronics industries. Headquartered in Milpitas, California, 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 at http://www.kla-tencor.com. (KLAC-F)

P-6, Surfscan, Candela, Wafer Plane Inspection and PROLITH are all trademarks of KLA-Tencor Corporation.

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 United States GAAP.

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 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.

KLA-Tencor Corporation
Condensed Consolidated Unaudited Balance Sheets
(In thousands)                                                 Sept. 30, 2008                    June 30, 2008
ASSETS
Cash and short- and long-term investments               $      1,306,511                  $      1,579,383
Accounts receivable, net                                       370,343                           492,488
Inventories, net                                               503,673                           459,449
Other current assets                                           488,094                           546,591
Land, property and equipment, net                              350,700                           355,474
Goodwill                                                       612,977                           601,882
Purchased intangibles, net                                     359,177                           297,778
Other long-term assets                                         490,772                           515,345
Total assets                                            $      4,482,247                  $      4,848,390
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable                                        $      102,661                    $      104,315
Deferred system profit                                         82,130                            150,797
Unearned revenue                                               61,757                            56,692
Other current liabilities                                      529,038                           638,528
Total current liabilities                                      775,586                           950,332
Non-current liabilities:
Income tax payable                                             63,468                            63,634
Unearned revenue                                               24,087                            31,745
Other non-current liabilities                                  113,709                           76,288
Long-term debt                                                 744,796                           744,661
Total liabilities                                              1,721,646                         1,866,660
Stockholders' equity:
Common stock and capital in excess of par value                763,925                           729,629
Retained earnings                                              2,012,838                         2,204,417
Accumulated other comprehensive income (loss)                  (16,162    )                      47,684
Total stockholders' equity                                     2,760,601                         2,981,730
Total liabilities and stockholders' equity              $      4,482,247                  $      4,848,390
KLA-Tencor Corporation
Condensed Consolidated Unaudited Statements of Operations
                                                                      Three months ended
(In thousands except per share data)                                  Sept. 30,                      Sept. 30,
                                                                      2008                           2007
Revenues:
Product                                                     $         405,496              $         578,432
Service                                                               127,017                        114,588
Total revenues                                                        532,513                        693,020
Costs and operating expenses:
Costs of revenues                                                     258,203                        305,893
Engineering, research and development                                 114,361                        99,344
Selling, general and administrative                                   125,011                        110,505
Total costs and operating expenses                                    497,575                        515,742
Income from operations                                                34,938                         177,278
Interest income and other, net                                        4,177                          17,474
Income before income taxes and minority interest                      39,115                         194,752
Provision for income taxes                                            19,826                         106,594
Net income                                                  $         19,289               $         88,158
Net income per share:
Basic                                                       $         0.11                 $         0.47
Diluted                                                     $         0.11                 $         0.46
Cash dividend paid per share                                $         0.15                 $         0.15
Weighted average number of shares:
Basic                                                                 172,088                        187,789
Diluted                                                               174,386                        193,043
KLA-Tencor Corporation
Condensed Consolidated
Unaudited Statements of Cash Flows
                                                                        Three months ended
                                                                        September 30,
(In thousands)                                                               2008                      2007
Cash flows from operating activities:
Net income                                                              $    19,289               $    88,158
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization                                                42,708                    24,952
Impairment charges                                                           12,358                    -
Non-cash, stock-based compensation                                           34,382                    28,083
Tax benefit (charge) from employee stock options                             (618       )              6,516
Excess tax benefit from stock-based compensation                             (1,689     )              (2,840    )
Net gain on sale of marketable securities and other investments              (128       )              (62       )
Gain on sale of real estate                                                  (1,368     )              -
Changes in assets and liabilities:
(Increase) decrease in accounts receivable, net                              131,364                   (18,755   )
(Increase) decrease in inventories                                           (16,739    )              39,697
Decrease in other assets                                                     50,623                    15,155
Increase (decrease) in accounts payable                                      (9,881     )              26,320
Increase (decrease) in deferred system profit                                (68,667    )              6,299
Decrease in other liabilities                                                (110,277   )              (7,738    )
Net cash provided by operating activities                                    81,357                    205,785
Cash flows from investing activities:
Acquisitions of businesses, net of cash received                             (127,023   )              -
Capital expenditures, net                                                    (10,132    )              (14,883   )
Proceeds from sale of real estate                                            2,466                     -
Purchase of available-for-sale securities                                    (394,378   )              (336,373  )
Proceeds from sale and maturity of available-for-sale securities             269,235                   555,683
Purchase of trading securities                                               (8,939     )              (23,880   )
Proceeds from sale of trading securities                                     11,704                    23,257
Net cash provided by (used in) investing activities                          (257,067   )              203,804
Cash flows from financing activities:
Issuance of common stock                                                     5,967                     96,655
Tax withholding payment related to vested and released restricted            (10,342    )              -
stock units
Common stock repurchases                                                     (177,469   )              (683,534  )
Payment of dividends to stockholders                                         (25,840    )              (28,459   )
Excess tax benefit from stock-based compensation                             1,689                     2,840
Net cash used in financing activities                                        (205,995   )              (612,498  )
Effect of exchange rate changes on cash and cash equivalents                 (12,942    )              (5,551    )
Net decrease in cash and cash equivalents                                    (394,647   )              (208,460  )
Cash and cash equivalents at beginning of period                             1,128,106                 722,511
Cash and cash equivalents at end of period                              $    733,459              $    514,051
Supplemental cash flow disclosures:
Income taxes paid, net                                                  $    11,042               $    31,858
Interest paid                                                           $    424                  $    395
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
                                                      Sept. 30,               June 30,                Sept. 30,
                                                      2008                    2008                    2007
GAAP net income                                       $    19,289             $    76,010             $    88,158
Adjustments to reconcile GAAP net
income to non-GAAP net income
Acquisition related charges                      a         40,330                  50,377                  12,366
Restructuring, severance and other               b         4,161                   (1,391   )              2,279
Restatement related charges                      c         3,784                   2,660                   2,111
Income tax effect of non-GAAP adjustments        d         (12,214  )              (12,038  )              (6,320   )
Non recurring tax item                           e         -                       (8,438   )              46,613
Non-GAAP net income                                   $    55,350             $    107,180            $    145,207
GAAP net income per diluted share                     $    0.11               $    0.43               $    0.46
Non-GAAP net income per diluted share                 $    0.32               $    0.60               $    0.75
Shares used in diluted shares calculation                  174,386                 178,090                 193,043
Impact of items included in
Condensed Consolidated Unaudited Statements of Operations:
                                                      Acquisition related charges         Restructuring, severance and other           Restatement related charges         Total pre-tax GAAP to non-GAAP adjustment
Costs of revenues                                     $              18,204               $            (377         )                  $              -                    $                     17,827
Engineering, research and development                                10,126                            (299         )                                 -                                          9,827
Sales, general and administrative                                    12,000                            4,837                                          3,784                                      20,621
Total in three months ended September 30, 2008        $              40,330               $            4,161                           $              3,784                $                     48,275
Total in three months ended June 30, 2008             $              50,377               $            (1,391       )                  $              2,660                $                     51,646
Total in three months ended September 30, 2007        $              12,366               $            2,279                           $              2,111                $                     16,756
                                         Three months ended
                                         Sept. 30,         June 30,          Sept. 30,
                                         2008              2008              2007
Stock-based compensation
Costs of revenues                        $     5,456       $     5,418       $     6,253
Engineering, research and development          9,971             8,870             8,592
Sales, general and administrative              18,955            14,992            13,238
Total                                    $     34,382      $     29,280      $     28,083

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 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 impairment and amortization of
     intangible assets, inventory fair value adjustments, in-process
     research and development associated with acquisitions, asset
     impairment from discontinuing acquired products as well as making
     acquired products available for sale, and realized and unrealized
     gains and losses resulting from the Euro call option contracts
     related to KLA-Tencor's acquisition of ICOS Vision Systems
     Corporation NV. 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 KLA-Tencor's newly acquired and
     long-held businesses. Management believes that it is appropriate to
     exclude asset impairment from discontinuing acquired products as
     well as inventory fair value adjustments, in-process research and
     development and gains and losses 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 our results in prior periods as well
     as with the performance of other companies.
b    Restructuring, severance and other includes gains and costs
     associated with the company's facilities divestment program,
     worldwide reduction in force, entry into a severance and consulting
     agreement with its president/chief operating officer, 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 our results in
     prior periods as well as with the performance of other companies.
c    Restatement related charges include compensation related to
     reimbursement payments by KLA-Tencor to 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 our results in
     prior periods as well as with the performance of other companies.
d    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.
e    Non recurring tax items includes the U.S. tax impact associated with
     the implementation of our global manufacturing strategy and a
     benefit from revision of the amount of undistributed earnings of
     foreign subsidiaries considered to be permanently reinvested outside
     the United States. 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.

SOURCE: KLA-Tencor Corporation

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

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