KLA-Tencor Reports Fiscal Year 2010 Third Quarter Results

MILPITAS, Calif., April 29 /PRNewswire-FirstCall/ -- KLA-Tencor Corporation (Nasdaq: KLAC) today announced operating results for its third quarter of fiscal year 2010, which ended on March 31, 2010, and reported GAAP net income of $57 million and GAAP earnings per diluted share of $0.33 on revenues of $478 million.  

"KLA-Tencor posted strong third quarter results from the combination of an improving industry environment, solid operational execution, and customer adoption of advanced technologies at the leading edge," said Rick Wallace, KLA-Tencor's president and chief executive officer. "These results are a testament to our team's ongoing commitment to innovation and fiscal discipline.  Looking forward, we believe that our leading technology will enable us to develop solutions that address our customers' most complex process control challenges, and that our improved operating efficiencies will help us drive even stronger financial performance as industry growth continues."

 _____________________________________________________________________________
|GAAP Results                                                                ||
|____________________________________________________________________________||
|                                 |Q3 FY 2010   |Q2 FY 2010   |Q3 FY 2009    ||
|_________________________________|_____________|_____________|______________||
|Revenues                         |$ 478 million|$ 440 million|$ 310 million ||
|_________________________________|_____________|_____________|______________||
|Net Income (Loss)                |$ 57 million |$ 22 million |$ (83) million||
|_________________________________|_____________|_____________|______________||
|Earnings (Loss) per Diluted Share|$ 0.33       |$ 0.13       |$ (0.49)      ||
|_________________________________|_____________|_____________|______________||
|Non-GAAP Results                                                            ||
|____________________________________________________________________________||
|                                 |Q3 FY 2010   |Q2 FY 2010   |Q3 FY 2009    ||
|_________________________________|_____________|_____________|______________||
|Net Income (Loss)                |$ 71 million |$ 49 million |$ (58) million||
|_________________________________|_____________|_____________|______________||
|Earnings (Loss) per Diluted Share|$ 0.41       |$ 0.28       |$ (0.34)      ||
|_________________________________|_____________|_____________|______________||




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

KLA-Tencor will discuss the results for its fiscal year 2010 third quarter, along with its outlook, 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 KLATencor's anticipated ability to maintain its recent operating efficiencies and improve its financial performance in future periods, the company's expected capacity to maintain its technology leadership position relative to its competitors, and KLA-Tencor's ability to successfully innovate, develop and sell new technologies and products that meet customer needs 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; KLA-Tencor's ability to successfully control its future operating expenses; new and enhanced product and technology 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; market acceptance of the company's existing and newly issued products; 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, LED, 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. 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.




KLA-Tencor Corporation

Condensed Consolidated Unaudited Balance Sheets



(In thousands)                                  March 31, 2010   June 30, 2009



ASSETS

Cash and short-term investments               $ 1,553,524      $ 1,329,884

Accounts receivable, net                        322,542          210,143

Inventories, net                                374,435          370,206

Other current assets                            425,066          488,384

Land, property and equipment, net               243,758          291,878

Goodwill                                        328,177          329,379

Purchased intangibles, net                      125,854          149,080

Other non-current assets                        416,489          440,584

Total assets                                  $ 3,789,845      $ 3,609,538



LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

Accounts payable                              $ 91,645         $ 63,485

Deferred system profit                          166,956          95,820

Unearned revenue                                33,142           46,236

Other current liabilities                       395,019          341,441

Total current liabilities                       686,762          546,982



Non-current liabilities:

Income tax payable                              46,323           49,738

Unearned revenue                                21,471           23,059

Other non-current liabilities                   70,654           60,163

Long-term debt                                  745,611          745,204

Total liabilities                               1,570,821        1,425,146



Stockholders' equity:

Common stock and capital in excess of par
value                                           898,155          835,477

Retained earnings                               1,339,010        1,370,132

Accumulated other comprehensive income (loss)   (18,141)         (21,217)

Total stockholders' equity                      2,219,024        2,184,392

Total liabilities and stockholders' equity    $ 3,789,845      $ 3,609,538












KLA-Tencor Corporation

Condensed Consolidated Unaudited Statements of Operations





                                  Three months ended      Nine months ended

                                  March 31,   March 31,   March 31,   March 31,
(In thousands, except per share
data)                             2010        2009        2010        2009



Revenues:

Product                         $ 349,787   $ 207,332   $ 893,984   $ 885,900

Service                           128,512     102,280     367,357     352,814

Total revenues                    478,299     309,612     1,261,341   1,238,714



Costs and operating expenses:

Costs of revenues                 208,565     209,223     587,743     700,203

Engineering, research and
development                       84,741      82,609      246,251     292,236

Selling, general and
administrative                    93,714      90,061      274,023     342,505

Goodwill and purchased
intangible asset impairment       -           -           -           446,744

Total costs and operating
expenses                          387,020     381,893     1,108,017   1,781,688

Income (loss) from operations     91,279      (72,281)    153,324     (542,974)



Interest expense and other, net   (11,008)    (4,886)     (12,245)    (13,181)

Income (loss) before income
taxes                             80,271      (77,167)    141,079     (556,155)

Provision for (benefit from)
income taxes                      23,255      5,660       41,864      (58,363)



Net income (loss)               $ 57,016    $ (82,827)  $ 99,215    $ (497,792)



Net income (loss) per share:

Basic                           $ 0.33      $ (0.49)    $ 0.58      $ (2.92)

Diluted                         $ 0.33      $ (0.49)    $ 0.57      $ (2.92)



Cash dividend paid per share    $ 0.15      $ 0.15      $ 0.45      $ 0.45



Weighted average number of
shares:

Basic                             171,506     169,934     171,202     170,349

Diluted                           173,357     169,934     173,432     170,349








KLA-Tencor Corporation

Condensed Consolidated Unaudited Statements of Cash Flows

                                                          Three months ended

                                                          March 31,

(In thousands)                                            2010        2009

Cash flows from operating activities:

Net income (loss)                                       $ 57,016    $ (82,827)

Adjustments to reconcile net income (loss) to net cash
provided by operating activities:

Depreciation and amortization                             21,420      31,762

Long-lived asset impairment charges                       -           2,791

Non-cash stock-based compensation                         21,469      22,758

Tax charge from equity awards                             -           (745)

Net gain on sale of marketable securities and other
investments                                               (815)       (38)

Gain on sale of real estate assets                        -           (353)

Changes in assets and liabilities, net of assets
acquired and liabilities assumed in business
combinations:

Decrease (increase) in accounts receivable, net           (23,518)    77,797

Decrease (increase) in inventories                        (25,604)    53,555

Decrease in other assets                                  20,117      24,363

Increase (decrease) in accounts payable                   4,843       (44,371)

Increase (decrease) in deferred system profit             19,378      (9,245)

Increase in other liabilities                             33,366      1,042

Net cash provided by operating activities                 127,672     76,489



Cash flows from investing activities:

Acquisition of business, net of cash received             (1,500)     (424)

Capital expenditures, net                                 (10,041)    (3,147)

Purchase of available-for-sale securities                 (262,618)   (140,394)

Proceeds from sale of available-for-sale securities       194,255     59,253

Proceeds from maturity of available-for-sale securities   45,320      57,906

Purchase of trading securities                            (15,981)    (18,693)

Proceeds from sale of trading securities                  18,354      21,829

Net cash used in investing activities                     (32,211)    (23,670)



Cash flows from financing activities:

Issuance of common stock                                  351         6

Tax withholding payments related to vested and released
restricted stock units                                    (709)       (1,315)

Common stock repurchases                                  (54,630)    -

Payment of dividends to stockholders                      (25,731)    (25,484)

Net cash used in financing activities                     (80,719)    (26,793)



Effect of exchange rate changes on cash and cash
equivalents                                               (2,681)     (17,427)



Net increase in cash and cash equivalents                 12,061      8,599



Cash and cash equivalents at beginning of period          531,444     656,330



Cash and cash equivalents at end of period              $ 543,505   $ 664,929



Supplemental cash flow disclosures:

Income tax paid (refunds received), net                 $ 14,929    $ (21,736)

Interest paid                                           $ 102       $ 236








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                 Nine months ended

                       March 31, December 31, March 31,   March 31, March 31,

                       2010      2009         2009        2010      2009



GAAP net income
(loss)                 $ 57,016  $ 21,794     $ (82,827)  $ 99,215  $(497,792)

Adjustments to
reconcile GAAP net
income (loss) to
non-GAAP net income
(loss)



Acquisition related
charges              a 8,370     8,104        16,718      24,569    67,726

Restructuring,
severance and other
related charges      b 4,426     14,450       19,330      14,467    47,112

Restatement related
charges              c 4,750     7,077        2,018       17,015    14,992

Goodwill and
purchased intangible
asset impairment     d -         -            -           -         446,774

Income tax effect of
non-GAAP adjustments e (6,417)   (10,762)     (13,524)    (20,300)  (101,620)

Discrete tax items   f 3,165     8,693        -           11,858    -

Non-GAAP net income
(loss)                 $ 71,310  $ 49,356     $ (58,285)  $ 146,824 $ (22,838)



GAAP net income
(loss) per diluted
share                  $ 0.33    $ 0.13       $ (0.49)    $ 0.57    $ (2.92)

Non-GAAP net income
(loss) per diluted
share                  $ 0.41    $ 0.28       $ (0.34)    $ 0.85    $ (0.13)

Shares used in
diluted shares
calculation            173,357   173,808      169,934     173,432   170,349








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

                   Acquisition Restructuring, Restatement Total pre-tax GAAP
                               severance and  related     to non-GAAP
                   related     other related              adjustment
                               charges        charges
                   charges

Costs of revenues  $ 5,908     $ 345          $ (98)      $ 6,155

Engineering,
research and
development        898         11             (260)       649

Selling, general
and administrative 1,564       4,070          5,108       10,742

Total in three
months ended March
31, 2010           $ 8,370     $ 4,426        $ 4,750     $ 17,546



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
December 31, 2009  $ 8,104     $ 14,450       $ 7,077     $ 29,631



Costs of revenues  $ 10,626    $ 6,584        $ -         $ 17,210

Engineering,
research and
development        943         4,309          -           5,252

Selling, general
and administrative 5,149       8,437          2,018       15,604

Total in three
months ended March
31, 2009           $ 16,718    $ 19,330       $ 2,018     $ 38,066










                          Three months ended

                           March 31, 2010  December 31, 2009  March 31, 2009

Stock-based compensation

Costs of revenues          $ 3,793         $ 3,325            $ 4,706

Engineering, research and  6,843           6,667              7,524
development

Selling, general and       10,833          10,863             10,528
administrative

Total                      $ 21,469        $ 20,855           $ 22,758







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 include amortization of intangible assets,
  inventory fair value adjustments, and in-process research and development
  charges 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 charges 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
  investigation regarding the company's historical stock option granting
  process and related shareholder litigation and other matters, including an
  expense accrual reflecting the anticipated net amount to be paid by
  KLA-Tencor in connection with proposed settlements of various separate
  litigation 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
  deduction 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.





SOURCE KLA-Tencor Corporation