MILPITAS, Calif., Jul 31, 2008 (BUSINESS WIRE) -- KLA-Tencor Corporation (NASDAQ: KLAC) today announced operating results for its fourth quarter and fiscal year ended on June 30, 2008. The Company reported GAAP net income of $76 million and GAAP earnings per diluted share of $0.43 on revenue of $591 million for the fourth quarter of fiscal 2008. For the year ended June 30, 2008, the Company reported GAAP net income of $359 million and GAAP earnings per diluted share of $1.95 on revenue of $2.5 billion.

"This was a year of solid execution for KLA-Tencor in a tough overall market environment. We expanded our potential market opportunity through the acquisition of ICOS Vision Systems, and delivered good operating performance in a very challenging demand environment. Our strong performance in the face of these challenges reflects the strength of our market leadership, the superior value we deliver to our customers in helping them meet their yield demands, and the resilience of the KLA-Tencor team," said Rick Wallace, CEO of KLA-Tencor.

                             GAAP Results
                           Q4 FY 2008     Q3 FY 2008    Q4 FY 2007
Revenues                   $ 591 million  $ 602 million $ 736 million
Net Income                 $ 76 million   $ 111 million $ 147 million
Diluted Earnings per Share $ 0.43         $ 0.61        $ 0.75

                           Non-GAAP Results
                           Q4 FY 2008     Q3 FY 2008    Q4 FY 2007
Net Income                 $ 107 million  $ 121 million $ 179 million
Diluted Earnings per Share $ 0.60         $ 0.67        $ 0.91

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 or restructuring related items.

Highlights for the fourth quarter of fiscal 2008

-- Completed the acquisition of ICOS Vision Systems Corporation NV, a leading supplier of packaging and interconnect inspection solutions for the semiconductor industry, as well as a leader in the inspection of photovoltaic solar technologies and LED lighting products.

-- Completed the issuance of $750 million aggregate principal amount of Senior Notes due May 1, 2018, with a coupon of 6.90%.

-- Declared and paid dividends of $26 million and repurchased 2.9 million shares for $122 million under the previously authorized repurchase program

-- Announced that the Company's Board of Directors authorized the repurchase of an additional 15 million shares of the Company's common stock.

-- Generated cash flow from operations of $188 million.

-- Introduced Wafer Plane Inspection (WPI), a mask inspection technology that provides the unique versatility in a single system to find defects on a mask and also show the defects that will print on the wafer. WPI is able to overcome yield-critical 32nm mask defect challenges and can also operate up to 40% faster than previous inspection systems, potentially reducing the percentage of total mask manufacturing time devoted to inspection.

-- Introduced Archer 200(TM), the Company's latest overlay metrology system featuring an enhanced optical system that provides significant performance improvements that are critical to help customers meet the much tighter overlay requirements for double-patterning lithography at the 32nm design rule node.

KLA-Tencor will discuss its fiscal 2008 fourth quarter results, along with its outlook for the first 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, benefits anticipated to be realized in connection with KLA-Tencor's acquisition of ICOS Vision Systems Corporation NV 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; new and enhanced product offerings by competitors; cancellation of orders by customers; our inability to successfully integrate and manage businesses that we acquire, including ICOS Vision Systems Corporation NV; 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 Annual Report on Form 10-K for the year ended June 30, 2007, 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 is the world's leading supplier of process control and yield management solutions for the semiconductor and related microelectronics 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 on the Internet at http://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, our financial results presented in accordance with GAAP.

To supplement our condensed consolidated financial statements presented in accordance with GAAP, we provide 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 this additional information is not meant to be considered in isolation or as a substitute for results prepared in accordance with United States GAAP.

KLA-Tencor Corporation
Condensed Consolidated Unaudited Balance Sheets

(In thousands)                                    June 30,   June 30,
                                                     2008       2007
                                                  ---------  ---------

ASSETS
Cash and short- and long-term investments        $1,579,383 $1,710,629
Accounts receivable, net                            492,488    581,500
Inventories, net                                    459,449    535,370
Other current assets                                546,591    425,272
Land, property and equipment, net                   355,474    382,240
Goodwill                                            601,882    311,856
Purchased intangibles, net                          297,778    175,432
Other long-term assets                              515,345    500,950
                                                  ---------  ---------
Total assets                                     $4,848,390 $4,623,249
                                                  =========  =========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable                                 $  104,315 $   92,165
Deferred system profit                              150,797    201,747
Unearned revenue                                     56,692     52,304
Other current liabilities                           638,528    659,346
                                                  ---------  ---------
Total current liabilities                           950,332  1,005,562

Non-current liabilities:
Income tax payable                                   63,634          -
Unearned revenue                                     31,745     46,950
Other non-current liabilities                        76,288     20,695
Long-term debt                                      744,661          -
                                                  ---------  ---------
Total liabilities                                 1,866,660  1,073,207

Stockholders' equity:
Common stock and capital in excess of par value     729,629    967,886
Retained earnings                                 2,204,417  2,570,751
Accumulated other comprehensive income               47,684     11,405
                                                  ---------  ---------
Total stockholders' equity                        2,981,730  3,550,042

                                                  ---------  ---------
Total liabilities and stockholders' equity       $4,848,390 $4,623,249
                                                  =========  =========

KLA-Tencor Corporation
Condensed Consolidated Unaudited Statements Of Operations


                              Three months ended  Twelve months ended
                              ------------------  --------------------
(In thousands except per      June 30,  June 30,  June 30,   June 30,
 share data)                    2008      2007      2008       2007
                              --------  --------  ---------  ---------

Revenues:
Product                      $462,069  $ 626,323 $2,030,224 $2,308,942
Service                       128,625    110,065    491,492    422,287
                              --------  --------  ---------  ---------
Total revenues                590,694    736,388  2,521,716  2,731,229

Costs and operating expenses:
Costs of revenues             268,868    315,681  1,145,416  1,190,323
Engineering, research and
 development                  116,470    123,854    409,973    437,513
Selling, general and
 administrative               101,945    121,989    466,951    513,525
                              --------  --------  ---------  ---------
Total costs and operating
 expenses                     487,283    561,524  2,022,340  2,141,361
                              --------  --------  ---------  ---------
Income from operations        103,411    174,864    499,376    589,868
Interest income and other,
 net                           (5,894)    21,436     60,858     87,367
                              --------  --------  ---------  ---------
Income before income taxes and
 minority interest             97,517    196,300    560,234    677,235
Provision for income taxes     21,507     48,958    201,151    150,509
                              --------  --------  ---------  ---------
Income before minority
 interest                      76,010    147,342    359,083    526,726
Minority interest                   -          -          -      1,372
                              --------  --------  ---------  ---------
Net income                   $ 76,010  $ 147,342 $  359,083 $  528,098
                              ========  ========  =========  =========

Net income per share:
Basic                        $   0.43  $    0.77 $     1.99 $     2.68
                              ========  ========  =========  =========
Diluted                      $   0.43  $    0.75 $     1.95 $     2.61
                              ========  ========  =========  =========

Cash dividend paid per share $   0.15  $    0.12 $     0.60 $     0.48
                              ========  ========  =========  =========

Weighted average number of
 shares:
Basic                         175,143    191,370    180,594    197,126
Diluted                       178,090    197,062    184,259    202,204

KLA-Tencor Corporation
Condensed Consolidated Unaudited Statements of Cash Flows

                                                  Three months ended
                                                       June 30,
(In thousands)                                      2008       2007
------------------------------------------------  ---------  --------
Cash flows from operating activities:
    Net income                                   $   76,010 $ 147,342
    Adjustments to reconcile net income to net
     cash provided by operating activities:
         Depreciation and amortization               46,469    36,138
         Impairment charges                           7,522    10,720
         Non-cash, stock-based compensation          29,279    26,394
         Tax benefit from employee stock options       (924)    1,570
         Excess tax benefit from stock-based
          compensation                                 (354)   (3,224)
         Net (gain) loss on sale of marketable
          securities and other investments           12,813    (3,473)
         Net gain on sale of real estate             (2,480)    -
         Changes in assets and liabilities:
              (Increase) decrease in accounts
               receivable, net                       93,081   (67,608)
              Decrease in inventories                13,059    40,690
              Increase in other assets              (73,548)   (6,336)
              Decrease in accounts payable           (5,730)  (34,564)
              Decrease in deferred system profit    (37,503)  (15,485)
              Increase in other liabilities          30,680    23,306
                                                 ---------------------

              Net cash provided by operating
               activities                           188,374   155,470
                                                 ---------------------

Cash flows from investing activities:
    Proceeds from restricted cash                   581,540     -
    Acquisitions of businesses, net of cash
     received                                      (488,545)  (82,503)
    Capital expenditures, net                        (9,629)  (29,141)
    Proceeds from sale of real estate                 5,497     -
    Purchase of available-for-sale securities      (406,210) (387,615)
   Proceeds from sale of available-for-sale
    securities                                       87,008   343,606
    Proceeds from maturity of available-for-sale
     securities                                       -        34,345
                                                 ---------------------

              Net cash used in investing
               activities                          (230,339) (121,308)
                                                 ---------------------

Cash flows from financing activities:
    Issuance of long-term debt, net of discounts    744,570     -
    Issuance of common stock                         24,607   140,449
    Common stock repurchases                       (121,510)  (44,879)
   Payment of dividends to stockholders             (26,354)  (23,037)
    Excess tax benefit from stock-based
     compensation                                       354     3,224
    Debt issuance costs                              (7,351)    -
                                                 ---------------------

              Net cash provided by financing
               activities                           614,316    75,757
                                                 ---------------------

Effect of exchange rate changes on cash and cash
 equivalents                                         (7,727)    8,177
                                                 ---------------------

Net increase (decrease) in cash and cash
 equivalents                                        564,624   118,096

Cash and cash equivalents at beginning of period    563,482   604,415
                                                 ---------------------

Cash and cash equivalents at end of period       $1,128,106 $ 722,511
                                                 =====================

Supplemental cash flow disclosures:
    Income taxes paid, net                       $   59,720 $  46,988
    Interest paid                                $      417 $     658

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       Twelve months ended
                     -------------------------------------------------
                     June 30,  March 31, June 30,  June 30,  June 30,
                        2008      2008      2007      2008      2007
                     -------------------------------------------------

GAAP net income       $76,010  $110,980  $147,342  $359,083  $528,098
Adjustments to
 reconcile GAAP net
 income to non-GAAP
 net income
-------------------
Acquisition related
 charges            a  50,377    (2,174)   37,875    82,473    74,790
Restructuring,
 severance and
 other              b  (1,391)   13,477    10,808     8,379    77,988
Restatement related
 charges            c   2,660     5,169     1,179    76,940    34,328
Income tax effect
 of non-GAAP
 adjustments        d (12,038)   (6,210)  (18,555)  (53,315)  (68,058)
Non recurring tax
 item               e  (8,438)        -         -    38,175         -
                     --------- --------- --------- --------- ---------
Non-GAAP net income  $107,180  $121,242  $178,649  $511,735  $647,146
                     ========= ========= ========= ========= =========

GAAP net income per
 diluted share          $0.43     $0.61     $0.75  $   1.95  $   2.61
                     ========= ========= ========= ========= =========
Non-GAAP net income
 per diluted share      $0.60     $0.67     $0.91  $   2.78  $   3.20
                     ========= ========= ========= ========= =========
Shares used in
 diluted shares
 calculation          178,090   180,617   197,062   184,259   202,204
                     ========= ========= ========= ========= =========

Impact of items included in Condensed Consolidated Unaudited
 Statements of Operations:
----------------------------------------------------------------------
                    Acquisition Restructuring, Restatement Total pre-
                      related    severance and   related    tax GAAP
                      charges        other       charges     to non-
                                                              GAAP
                                                            adjustment
                    ----------- -------------- ----------- -----------
Costs of revenues      $12,822        $  (121)      $    -     $12,701
Engineering,
 research and
 development            19,151            101            -      19,252
Sales, general and
 administrative          5,404         (1,371)       2,660       6,693
Interest income and
 other, net             13,000              -            -      13,000
                    ----------- -------------- ----------- -----------
Total in three
 months ended June
 30, 2008              $50,377        $(1,391)      $2,660     $51,646
                    =========== ============== =========== ===========

Total in three
 months ended March
 31, 2008              $(2,174)       $13,477       $5,169     $16,472
                    =========== ============== =========== ===========

Total in three
 months ended June
 30, 2007              $37,875        $10,808       $1,179     $49,862
                    =========== ============== =========== ===========

                                               Three months ended
                                          ----------------------------
                                           June 30, March 31, June 30,
                                             2008     2008      2007
                                          ----------------------------
Stock-based compensation
------------------------------------------
Costs of revenues                          $ 5,418   $ 5,670  $ 5,965
Engineering, research and development        8,870     8,052    8,447
Sales, general and administrative           14,992    12,133   11,982
Provision for income taxes                  (9,077)   (7,757)  (8,182)
                                          ============================
Total                                      $20,203   $18,098  $18,212
                                          ============================

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 budgeting and planning tools that management uses for future forecasting. The presentation of this additional information is not meant to be considered in isolation or as a substitute for results prepared 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 the Company'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 the Company's newly acquired and long-held business. Management believes that it is appropriate to exclude asset impairment from discontinuing acquired products as well as 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 facilities divestment program, worldwide reduction in force, 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 of 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 it limits 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
Sr. Director of Investor Relations
Ed.lockwood@kla-tencor.com
Meggan Powers, 408-875-8733
Sr. Director of Corporate Communications
Meggan.powers@kla-tencor.com

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