What is the primary reason for the financial restatement?

The company is restating its financial statements because a Special Committee investigation found that KLA-Tencor intentionally engaged in the retroactive pricing of stock options, meaning the exercise price was set at a lower market price from an earlier date, rather than the actual grant date. This practice was not correctly accounted for in prior financial statements.

What is the financial impact of the stock option accounting correction?

To correct the accounting, KLA-Tencor recorded additional pre-tax, non-cash, stock-based compensation expenses totaling $348 million for periods up to June 30, 2005, and $22 million for the year ended June 30, 2006. The company expects to amortize an additional $6 million in future periods.

What actions has the company taken regarding the stock option issue and its executives?

The company terminated the employment of former CEO Kenneth L. Schroeder and had other executive departures (Stuart J. Nichols, Kenneth Levy). Several executive options were repriced to align with the correct grant dates. The board concluded that current management was not involved, but former executives and officers were implicated in the improper pricing and record falsification.

What is the status of the company's stock listing on Nasdaq?

KLA-Tencor was initially subject to delisting from the Nasdaq Global Select Market due to its inability to file reports on time. However, the company received a reprieve and continued listing was granted, provided it filed its delinquent reports by January 31, 2007, which it has now done with this filing.

KLAC 10-K FY2006 Annual Report — Revenue, Net Income, EPS

Summary

KLA-Tencor Corporation, a leading supplier of process control and yield management solutions for the semiconductor industry, filed its 2007 Form 10-K amidst significant scrutiny regarding its historical stock option practices. The company announced a restatement of its financial statements due to intentional retroactive pricing of stock options, primarily between July 1997 and June 2002. This restatement resulted in a substantial pre-tax, non-cash, stock-based compensation charge of $348 million for periods up to June 2005 and an additional $22 million for fiscal year 2006. The company faced delisting proceedings from the Nasdaq Global Select Market due to late filings but secured continued listing contingent on timely filing of delinquent reports. The investigation led to the termination of employment for former CEO Kenneth L. Schroeder and executive changes, with ongoing government inquiries from the SEC and USAO. Despite these significant accounting and legal challenges, KLA-Tencor's core business operations showed resilience, with revenues largely stable year-over-year, and significant cash reserves maintained.

Key Highlights

1KLA-Tencor is restating prior financial statements due to intentional retroactive pricing of stock options granted primarily between July 1997 and June 2002.
2A significant pre-tax, non-cash, stock-based compensation expense of $348 million (for periods up to June 2005) and $22 million (for FY2006) was recorded to correct accounting for these options.
3The company was under threat of Nasdaq delisting due to late filings but secured continued listing subject to filing delinquent reports by January 31, 2007.
4Government inquiries from the SEC and USAO are ongoing, creating potential for civil and criminal actions, fines, and penalties.
5Shareholder derivative and class action lawsuits have been filed against current and former directors and officers concerning stock option practices.
6Despite these issues, KLA-Tencor reported revenues of $2.07 billion for the fiscal year ended June 30, 2006, with strong liquidity maintained through significant cash and marketable securities balances.
7Key executives, including the former CEO, were terminated or resigned as a result of the stock option investigation findings.

KLA CORP Annual Report, Year Ended Jun 30, 2006

Summary

Key Highlights

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