KLA-Tencor Reports Fiscal 2010 Fourth Quarter and Full Year Results

GAAP Results

Q4 FY 2010

Q3 FY 2010

Q4 FY 2009

Revenues

$ 559 million

$ 478 million

$ 282 million

Net Income (Loss)

$ 113 million

$ 57 million

$(26) million

Earnings (Loss) per Diluted Share

$ 0.66

$ 0.33

$ (0.15)

Non-GAAP Results

Q4 FY 2010

Q3 FY 2010

Q4 FY 2009

Net Income (Loss)

$ 120 million

$ 71 million

$ (15) million

Earnings (Loss) per Diluted Share

$ 0.70

$ 0.41

$ (0.09)

KLA-Tencor Corporation

Condensed Consolidated Unaudited Balance Sheets

(In thousands)

June 30, 2010

June 30, 2009

ASSETS

Cash and short-term investments

$

1,534,044

$

1,329,884

Accounts receivable, net

440,125

210,143

Inventories, net

401,730

370,206

Other current assets

459,566

488,384

Land, property and equipment, net

236,752

291,878

Goodwill

328,006

329,379

Purchased intangibles, net

117,336

149,080

Other non-current assets

389,497

440,584

Total assets

$

3,907,056

$

3,609,538

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

Accounts payable

$

107,938

$

63,485

Deferred system profit

204,764

95,820

Unearned revenue

37,026

46,236

Other current liabilities

422,059

341,441

Total current liabilities

771,787

546,982

Non-current liabilities:

Income tax payable

53,492

49,738

Unearned revenue

20,354

23,059

Other non-current liabilities

69,065

60,163

Long-term debt

745,747

745,204

Total liabilities

1,660,445

1,425,146

Stockholders' equity:

Common stock and capital in excess of par value

921,460

835,477

Retained earnings

1,356,454

1,370,132

Accumulated other comprehensive income (loss)

(31,303)

(21,217)

Total stockholders' equity

2,246,611

2,184,392

Total liabilities and stockholders' equity

$

3,907,056

$

3,609,538

KLA-Tencor Corporation

Condensed Consolidated Unaudited Statements of Operations

Three months ended

Twelve months ended

(In thousands, except per share data)

June 30, 2010

June 30, 2009

June 30, 2010

June 30, 2009

Revenues:

Product

$

430,286

$

176,226

$

1,324,270

$

1,062,126

Service

129,133

105,276

496,490

458,090

Total revenues

559,419

281,502

1,820,760

1,520,216

Costs and operating expenses:

Costs of revenues

227,919

164,621

815,662

864,824

Engineering, research and development

83,309

79,227

329,560

371,463

Selling, general and administrative

87,349

72,621

361,372

415,126

Goodwill and purchased intangible asset impairment

-

-

-

446,744

Total costs and operating expenses

398,577

316,469

1,506,594

2,098,157

Income (loss) from operations

160,842

(34,967)

314,166

(577,941)

Interest expense and other, net

(10,740)

(11,409)

(22,985)

(24,590)

Income (loss) before income taxes

150,102

(46,376)

291,181

(602,531)

Provision for (benefit from) income taxes

37,017

(20,800)

78,881

(79,163)

Net income (loss)

$

113,085

$

(25,576)

$

212,300

$

(523,368)

Net income (loss) per share:

Basic

$

0.67

$

(0.15)

$

1.24

$

(3.07)

Diluted

$

0.66

$

(0.15)

$

1.23

$

(3.07)

Cash dividend paid per share

$

0.15

$

0.15

$

0.60

$

0.60

Weighted average number of shares:

Basic

168,986

169,981

170,652

170,253

Diluted

171,275

169,981

173,034

170,253

KLA-Tencor Corporation

Condensed Consolidated Unaudited Statements of Cash Flows

Three months ended

June 30

(In thousands)

2010

2009

Cash flows from operating activities:

  Net income (loss)

$

113,085

$

(25,576)

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

       Depreciation and amortization

19,554

25,732

       Long-lived asset impairment charges

4,557

638

       Provision for doubtful accounts

(2,888)

(818)

       Non-cash stock-based compensation

23,459

26,092

       Tax charge from equity awards

-

(13,223)

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

(1,388)

160

       Net 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

(113,496)

37,261

             Decrease (increase) in inventories

(26,461)

53,111

             Decrease (increase) in other assets

26,734

(40,943)

             Increase in accounts payable

15,922

6,720

             Increase in deferred system profit

37,807

21,632

             Decrease in other liabilities

(13,607)

(16,995)

                    Net cash provided by operating activities

83,278

73,438

Cash flows from investing activities:

  Capital expenditures, net

(5,791)

(1,980)

  Purchase of available-for-sale securities

(217,123)

(349,358)

  Proceeds from sale of available-for-sale securities

187,900

116,127

  Proceeds from maturity of available-for-sale securities

23,108

21,000

  Purchase of trading securities

(22,740)

(20,402)

  Proceeds from sale of trading securities

35,622

27,525

                    Net cash provided by (used in) investing activities

976

(207,088)

Cash flows from financing activities:

  Issuance of common stock

12,054

12,971

  Tax withholding payments related to vested and released restricted stock units

(601)

(549)

  Common stock repurchases

(81,645)

-

  Payment of dividends to stockholders

(25,386)

(25,490)

                    Net cash used in financing activities

(95,578)

(13,068)

Effect of exchange rate changes on cash and cash equivalents

(2,263)

6,756

Net decrease in cash and cash equivalents

(13,587)

(139,962)

Cash and cash equivalents at beginning of period

543,505

664,929

Cash and cash equivalents at end of period

$

529,918

$

524,967

Supplemental cash flow disclosures:

       Income tax paid (refunds received), net

$

28,982

$

(5,274)

       Interest paid

$

26,006

$

26,474

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

Twelve months ended

June 30, 2010

March 31, 2010

June 30, 2009

June 30, 2010

June 30, 2009

GAAP net income (loss)

$  113,085

$  57,016

$  (25,576)

$  212,300

$(523,368)

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

Acquisition related charges

a

8,280

8,370

11,561

32,849

79,287

Restructuring, severance and other related charges

b

3,311

4,426

7,007

17,778

54,119

Restatement related charges

c

(866)

4,750

(1,731)

16,149

13,261

Goodwill and purchased intangible asset impairment

d

-

-

-

-

446,744

Income tax effect of non-GAAP adjustments

e

(3,824)

(6,417)

(5,883)

(24,124)

(107,503)

Discrete tax items

f

-

3,165

-

11,858

-

Non-GAAP net income (loss)

$  119,986

$  71,310

$  (14,622)

$  266,810

$  (37,460)

GAAP net income (loss) per diluted share

$        0.66

$      0.33

$      (0.15)

$        1.23

$      (3.07)

Non-GAAP net income (loss) per diluted share

$        0.70

$      0.41

$      (0.09)

$        1.54

$      (0.22)

Shares used in diluted shares calculation

171,275

173,357

169,981

173,034

170,253

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

Total pre-tax GAAP to
non-GAAP
adjustment

Three months ended June 30, 2010

Costs of revenues

$    5,790

$        (57)

$           -

$    5,733

Engineering, research and development

898

-

-

898

Selling, general and administrative

1,592

3,368

(866)

4,094

Total in three months ended June 30, 2010

$    8,280

$    3,311

$     (866)

$  10,725

Three months ended March 31, 2010

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

Three months ended June 30, 2009

Costs of revenues

$    9,314

$    3,662

$          -

$  12,976

Engineering, research and development

742

4

-

746

Selling, general and administrative

1,505

3,341

(1,731)

3,115

Total in three months ended June 30, 2009

$  11,561

$   7,007

$ (1,731)

$  16,837

Three months ended

June 30, 2010

March 31, 2010

June 30, 2009

Stock-based compensation

Costs of revenues

$    3,869

$    3,793

$    5,091

Engineering, research and development

7,176

6,843

8,650

Selling, general and administrative

12,414

10,833

12,351

Total

$  23,459

$  21,469

$  26,092

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 during the fiscal year ended June 30, 2009, 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 net amount paid by KLA-Tencor during the fiscal year ended June 30, 2010 in connection with 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 period. 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.