FORM 10-K
| FORM 10-K |
| x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| For the Fiscal Year Ended June 30, | |
| o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| For the Transition Period from to | |
| Delaware | 04-2564110 | |
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| One Technology Drive, Milpitas, California | 95035 | |
| (Address of Principal Executive Offices) | (Zip Code) | |
Title of Each Class | Name of Each Exchange on Which Registered | |
| Common Stock, $0.001 par value per share | The NASDAQ Stock Market LLC | |
| Securities Registered Pursuant to Section 12(g) of the Act: | ||
| None | ||
| (Title of Class) | ||
Securities Registered Pursuant to Section 12(g) of the Act:
None
(Title of Class)
Large accelerated filer x | Accelerated filer | |
Non-accelerated filer | Smaller reporting company | |
approximately
$6.4 billion.21, 2011
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| PART III | ||||
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| PART IV | ||||
| Item 15. | ||||
Other, more specialized wafers, such as epitaxial silicon (“epi”) and silicon-on-insulator (“SOI”), are also becoming common in the semiconductor industry. process issues enables our customers to improve control over their manufacturing processes. This helps them increase their yield of high-performance parts and deliver their products to market ahead of their competitors—thus maximizing their profit. With our broad portfolio of application-focused technologies and our dedicated yield technology expertise, we are in position to be a key supplier of comprehensive yield management solutions for customers’ next-generation products, circuit architecture, more demanding lithography processes, the transition from 300 millimeter to 450 millimeter wafers, and new back-end packaging techniques. The more significant of these products are included in the product table at the end of this "Products" section. Every year, we introduce a number of new products; some of the new products we introduced in the fiscal year ended create recipes offline, resulting in increased tool capacity. may be added to enable surface quality measurements and capture of low-contrast defects. For reticle inspection, we offer our TeraFab ICOS In July technologies. analyzers. together silicon-based microelectronics with micromachining technology, making possible the realization of complete systems-on-a-chip. KLA-Tencor offers the tools and techniques, first developed for the integrated circuit industry, for this emerging market. Chip Manufacturing Front-End Defect Inspection Series Back-End Defect Inspection Defect Review Metrology product family Lithography Modeling Wafer Manufacturing Surface and Defect Inspection Wafer Geometry and Nanotopography Metrology Data Management Reticle Manufacturing Defect Inspection Pattern Placement Metrology CMOS Image Sensors Manufacturing Defect Inspection Optical Inspection Media Test Defect Review Surface Sealing Inspection Defect Review General Surface Metrology: Stylus Surface Metrology: Optical Profiling Process Chamber Conditions revenues: adequate. These factors, as well as any of the other risk factors related to our international business and operations that are described in Item 1A, “Risk Factors,” could have a material adverse effect on our future business and financial results. Our shipment backlog for systems and associated warranty totaled support, as well as overall cost of ownership. As of June 30, back-end broadband critical dimension (CD) design rules die electron-beam epitaxial silicon (epi) front-end interconnect lithography mask shop metrology microelectromechanical narrowband patterned photoresist process control reticle unpatterned yield management trademark protection for our intellectual property is important, we believe our future success in highly dynamic markets is most dependent upon the technical competence and creative skills of our personnel. We attempt to protect our trade secrets and other proprietary information through confidentiality and other agreements with our customers, suppliers, employees and consultants and through other security measures. We also maintain exclusive and non-exclusive licenses with third parties for strategic technology used in certain products. However, these employees, consultants and third parties may breach these agreements, and we may not have adequate remedies for wrongdoing. In addition, the laws of certain conditions, or where the commercial documentation applicable to the transaction is subject to varying interpretations, we may have statements. Location Principal Use Principal Executive Offices, Research, Engineering, Marketing, Manufacturing, Service and Sales Administration Research, Engineering, Marketing, Manufacturing and Service Westwood, MA(1) Research, Engineering, Marketing, Manufacturing and Service Research, Engineering, Marketing, Manufacturing and Service and Sales Administration Shenzhen, China Sales, Service and Manufacturing Weilburg, Germany Research, Engineering, Marketing, Manufacturing, Service and Sales Administration Chennai, Engineering Migdal Ha’Emek, Israel Research, Engineering, Marketing, Manufacturing, Service and Sales Administration Serangoon, Manufacturing Hsinchu, Taiwan Sales and Service options at the fair market value for additional periods up to five years. Additional information regarding these leases is incorporated herein by reference from Note 13, “Commitments and Contingencies” to the Consolidated Financial Statements. We believe our properties are adequately maintained and suitable for their intended use and that our production facilities have capacity adequate for our current needs, even after giving effect to the sale of certain properties as noted above. First Fiscal Quarter Second Fiscal Quarter Third Fiscal Quarter Fourth Fiscal Quarter indicated: 15, 2011 Period April 1, 2010 to April 30, 2010 May 1, 2010 to May 31, 2010 June 1, 2010 to June 30, 2010 Total In July 1997, KLA-Tencor Corporation S&P 500 PHLX Semiconductor 2011 Year ended June 30, Consolidated Statements of Operations: Revenues Income (loss) from operations Net income (loss) Cash dividend paid per share Net income (loss) per share: Basic Diluted As of June 30, Consolidated Balance Sheets: Cash, cash equivalents and marketable securities Working capital Total assets Long-term debt(1) Stockholders’ equity When system sales to independent distributors have no installation requirement, contain no acceptance agreement, and 100% payment is due upon shipment, revenue is recognized upon shipment. When the installation of the system is deemed perfunctory, revenue is recognized upon shipment. The portion of revenue associated with installation is deferred based on estimated fair value, and that revenue is recognized upon completion of the installation. When the customer fab has When the customer withholds When the system is damaged during transit and title has passed to the customer, revenue is recognized upon receipt of cash payment from the customer. operations. We write down product inventory based on forecasted demand and technological obsolescence and parts inventory based on option-pricing model requires the input of 2011. operations or cash flows. semiconductor defectivity and improve manufacturing yields. back-end packaging techniques. longer term drivers underlying growth in our industry intact. (Dollar amounts in thousands) Total revenues Costs of revenues Gross margin percentage Net income (loss) Diluted income (loss) per share (Dollar amounts in thousands) Revenues: Product Service Total revenues Costs of revenues Stock-based compensation expense included in costs of revenues Gross margin percentage New semiconductor manufacturing products targeted towards revenues: well as higher factory utilization by our customers. United States Europe & Israel Japan Taiwan Korea Rest of Asia Total follows: continue. (Dollar amounts in thousands) R&D expenses Stock-based compensation expense included in R&D expenses R&D expenses as a percentage of total revenues (Dollar amounts in thousands) SG&A expenses Stock-based compensation expense included in SG&A expenses SG&A expenses as a percentage of total revenues (In thousands) Beginning Balance Restructuring costs Adjustments Cash payments Ending Balance Interest Income and Other, Net (Dollar amounts in thousands) Interest income and other, net Interest expense Interest income and other, net as a percentage of total revenues Interest expense as a percentage of total revenues (In thousands) Income (loss) before income taxes Provision for (benefit from) taxes Effective tax rate 2009. (Dollar amounts in thousands) Cash and cash equivalents Marketable securities Total cash, cash equivalents and marketable securities Percentage of total assets (In thousands) Net cash provided by operating activities Net cash provided by (used in) investing activities Net cash used in financing activities Effect of exchange rate changes on cash and cash equivalents Net increase (decrease) in cash and cash equivalents Lower operating expenses during the fiscal year ended June 30, 2010, reduced by approximately $165 million No material cash payments in the settlement of litigation during the fiscal year ended June 30, 2010, Contractual Obligations (In thousands) Long-term debt obligations(1) Interest expense associated with long-term debt obligations Purchase commitments Non-current income tax payable(2) Operating leases Pension obligations Total contractual cash obligations (In thousands) Receivables sold under factoring agreements Proceeds from sales of LCs Discounting fees paid on sales of LCs(1) Rating Agency Fitch Moody’s Standard & Poor’s program, which focuses on the unpredictability of financial markets and seeks to reduce the potentially adverse effects that the volatility of these markets may have on our operating results. We continue our policy of hedging our current and forecasted foreign currency exposures with hedging instruments having tenors of up to 18 months (see Note 16, “Derivative Instruments and Hedging Activities” to the Consolidated Financial Statements for a detailed description). Our outstanding hedge contracts, with maximum maturity of 18 months, were as follows: (In thousands) Cash flow hedge contracts Purchase Sell Other foreign currency hedge contracts Purchase Sell Net (In thousands, except per share data) ASSETS Current assets: Cash and cash equivalents Marketable securities Accounts receivable, net Inventories, net Deferred income taxes Other current assets Total current assets Land, property and equipment, net Goodwill Purchased intangibles, net Other non-current assets Total assets LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable Deferred system profit Unearned revenue Other current liabilities Total current liabilities Non-current liabilities: Long-term debt Income tax payable Unearned revenue Other non-current liabilities Total liabilities Commitments and contingencies (Notes 13 and 14) Stockholders’ equity: Preferred stock, $0.001 par value, 1,000 shares authorized, none outstanding Common stock, $0.001 par value, 500,000 shares authorized, 239,132 and 237,714 shares issued, 168,043 and 170,669 shares outstanding, as of June 30, 2010 and June 30, 2009, respectively Capital in excess of par value Retained earnings Accumulated other comprehensive income (loss) Total stockholders’ equity Total liabilities and stockholders’ equity (In thousands, except per share data) Revenues: Product Service Total revenues Costs and operating expenses: Costs of revenues Engineering, research and development Selling, general and administrative Goodwill and purchased intangible assets impairment Total costs and operating expenses Income (loss) from operations Interest income and other, net Interest expense Income (loss) before income taxes Provision for (benefit from) income taxes Net income (loss) Net income (loss) per share: Basic Diluted Cash dividend paid per share Weighted-average number of shares: Basic Diluted (In thousands) Balances at June 30, 2007 Components of comprehensive income: Net income Change in unrealized loss on defined benefit plan assets, net of tax Change in unrealized gain on investments Currency translation adjustments Deferred losses on cash flow hedging instruments Total comprehensive income Cumulative effect of adoption of income tax guidance Net issuance under employee stock plans Repurchase of common stock Cash dividends paid ($0.60 per share) Stock-based compensation Tax benefits of stock option transactions Balances at June 30, 2008 Components of comprehensive loss: Net loss Change in unrealized loss on defined benefit plan assets, net of tax Change in unrealized gain on investments, net of tax Currency translation adjustments Deferred gains on cash flow hedging instruments, net of tax Total comprehensive loss Net issuance under employee stock plans Repurchase of common stock Cash dividends paid ($0.60 per share) Stock-based compensation Tax charges for stock option transactions Balances at June 30, 2009 Components of comprehensive income: Net income Change in unrealized loss on defined benefit plan assets, net of tax Change in unrealized gain on investments, net of tax Currency translation adjustments Deferred losses on cash flow hedging instruments, net of tax Total comprehensive income Net issuance under employee stock plans Repurchase of common stock Cash dividends paid ($0.60 per share) Stock-based compensation Tax charges for stock option transactions Balances at June 30, 2010 (In thousands) Cash flows from operating activities: Net income (loss) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization Goodwill, purchased intangible asset and long-lived asset impairment charges Net gain on sale of real estate assets Non-cash stock-based compensation Provision for doubtful accounts Net loss (gain) on sale of marketable securities and other investments Deferred income taxes Tax benefit (charge) from equity awards Excess tax benefit from equity awards Changes in assets and liabilities, net of assets acquired and liabilities assumed in business combinations: Decrease (increase) in accounts receivable, net Decrease (increase) in inventories Decrease (increase) in other assets Increase (decrease) in accounts payable Increase (decrease) in deferred system profit Increase (decrease) in other liabilities Net cash provided by operating activities Cash flows from investing activities: Acquisitions of businesses, net of cash received Capital expenditures, net Proceeds from sale of assets Purchase of available-for-sale securities Proceeds from sale of available-for-sale securities Proceeds from maturity of available-for-sale securities Purchase of trading securities Proceeds from sale of trading securities Net cash provided by (used in) investing activities Cash flows from financing activities: Issuance of long-term debt, net of discounts Issuance of common stock Tax withholding payments related to vested and released restricted stock units Payment of dividends to stockholders Excess tax benefit from equity awards Common stock repurchases Debt issuance costs Net cash used in financing activities Effect of exchange rate changes on cash and cash equivalents Net increase (decrease) in cash and cash equivalents Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period Supplemental cash flow disclosures: Income taxes paid (refund received), net Interest paid 2011. securities, trade accounts receivable and derivative financial instruments used in hedging activities. associated financial instrument is recorded immediately in earnings. For derivative instruments used to hedge existing foreign currency denominated assets or liabilities, the gain or loss on these hedges is recorded immediately in earnings to offset the changes in the fair value of the assets or liabilities being hedged. When system sales to independent distributors have no installation requirement, contain no acceptance agreement, and 100% payment is due upon shipment, revenue is recognized When the installation of the system is deemed perfunctory, revenue is recognized upon shipment. The portion of revenue associated with installation is deferred based on estimated fair value, and that revenue is recognized upon completion of the installation. When the customer fab has When the customer withholds When the system is damaged during transit and title has passed to the customer, revenue is recognized upon receipt of cash payment from the customer. Spare parts revenue is recognized when the product has been shipped, risk of loss has passed to the customer and collection of the resulting receivable is probable. Research and Development Costs. Research and development costs are expensed as incurred. temporary differences between the book and tax bases of recorded assets and liabilities. The guidance also requires that deferred tax assets be reduced by a valuation allowance if it is more likely than not that a portion of the deferred tax asset will not be realized. The Company has determined that a valuation allowance was necessary against a portion of the deferred tax assets, but that its future taxable income will be sufficient to recover the remainder of its deferred tax assets. However, should there be a change in the Company’s ability to recover its deferred tax assets, the Company could be required to record a valuation allowance against its deferred tax assets. This would result in an increase to the Company’s tax provision in the period in which the Company determined that the recovery was not probable. In June 2011, the FASB amended its guidance on the presentation of comprehensive income. Under the amended guidance, an entity has the option to present comprehensive income in either one continuous statement or two consecutive financial statements. A single statement must present the components of net income and total net income, the components of other comprehensive income and total other comprehensive income, and a total for comprehensive income. In a two-statement approach, an entity must present the components of net income and total net income in the first statement. That statement must be immediately followed by a financial statement that presents the components of other comprehensive income, a total for other comprehensive income, and a total for comprehensive income. The option under current guidance that permits the presentation of components of other comprehensive income as part of the statement of changes in stockholders' equity has been eliminated. The amendment becomes effective retrospectively for the Company's interim period ending March 31, 2012. Early adoption is permitted. The Company does not expect that this guidance will have an impact on its financial position, results of operations or cash flows as it is disclosure-only in nature. otherwise qualifies as equity. This amendment becomes effective for the Company’s interim period ending September 30, 2011. The Company does not expect the implementation to have a material impact on its financial position, results of operations or cash flows. also requires enhanced disclosure of activity in Level 3 fair value measurements. The guidance for Level 1 and Level 2 fair value measurements was effective for the Company’s interim reporting period ended March 31, 2010. The implementation did not have an impact on the Company’s Fair Value Hierarchy.The authoritative guidance for fair value measurements establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are described below: Financial assets (excluding cash held in operating accounts and time deposits) and liabilities measured at fair value on a recurring basis as of June 30, (In thousands) U.S. Treasuries U.S. Government agency securities Municipal bonds Corporate debt securities Money market, bank deposits and other Sovereign securities Auction rate securities Total marketable securities Money market and other Mutual funds Executive deferred savings plan Derivative assets Total financial assets Derivative liabilities Total financial liabilities (In thousands) U.S. Treasuries U.S. Government agency securities Municipal bonds Corporate debt securities Money market, bank deposits and other Sovereign securities Auction rate securities Total marketable securities Money market and other Mutual funds Executive deferred savings plan Derivative assets Total financial assets Derivative liabilities Total financial liabilities (In thousands) Cash equivalents Marketable securities Other current assets Other non-current assets Total financial assets Other current liabilities Total financial liabilities (In thousands) Cash equivalents Marketable securities Other current assets Other non-current assets Total financial assets Other current liabilities Total financial liabilities Beginning aggregate estimated fair value of Level 3 securities Total unrealized gains or (losses) Unrealized gain included in other comprehensive income Unrealized loss included in income Reversal of unrealized loss associated with transfer of securities to trading securities Net purchases (settlements) Ending aggregate estimated fair value of Level 3 securities (In thousands) Accounts receivable, net: Accounts receivable, gross Allowance for doubtful accounts Inventories, net: Service parts Raw materials Work-in-process Finished goods and demonstration equipment Other current assets: Prepaid expense Income tax related receivables Other current assets Land, property and equipment, net: Land Buildings and improvements Machinery and equipment Office furniture and fixtures Leasehold improvements Construction in process Less: accumulated depreciation and amortization Other non-current assets: Long-term investments Deferred tax assets—long-term Other Other current liabilities: Warranty and retrofit obligations Compensation and benefits Income taxes payable Interest payable Accrued litigation costs Other accrued expenses Accumulated other comprehensive income (loss): Currency translation adjustments Losses on cash flow hedging instruments, net of tax benefits of $(754) in 2010 and $(608) in 2009 Unrealized gains (losses) on investments, net of taxes (benefits) of $2,163 in 2010 and $2,133 in 2009 Unrealized losses of defined benefit pension plan, net of tax benefits of $(3,721) in 2010 and $(943) in 2009 (In thousands) Interest income and other, net: Interest income Foreign exchange gains (loss), net Realized gain (losses) on sale of investments Other As of June 30, 2010 (In thousands) U.S. Treasuries U.S. Government agency securities Municipal bonds Corporate debt securities Money market, bank deposits and other Sovereign obligations Auction rate securities Subtotal Less: Cash equivalents Marketable securities As of June 30, 2009 (In thousands) U.S. Treasuries U.S. Government agency securities Municipal bonds Corporate debt securities Money market, bank deposits and other Sovereign obligations Auction rate securities Subtotal Less: Cash equivalents Marketable securities KLA-Tencor’s investment portfolio consists of both corporate and government securities that have a maximum maturity of three years. The longer the duration of these securities, the more susceptible they are to changes in market interest rates and bond yields. As yields increase, those securities with a lower yield-at-cost show a mark-to-market unrealized loss. All unrealized losses are due to changes in interest rates and bond yields. The Company has the ability to realize the full value of all of these investments upon maturity. The following table summarizes the fair value and gross unrealized losses of (In thousands) U.S. Treasuries U.S. Government agency securities Municipal bonds Corporate debt securities Sovereign obligations Total (In thousands) Due within one year Due after one year through three years security The Company accounted for the Put Option as a freestanding financial instrument, and during the three months ended December 31, 2008, it made an election to transfer these auction rate securities from available for sale to trading securities. During the fiscal year ended June 30, 2010, COMBINATION Goodwill represents the excess of the purchase price over the fair value of the net tangible and identifiable intangible assets acquired. The (In thousands) Cash Current assets Intangibles: Existing technology Patents Trade name/Trademarks Customer relationships In-process R&D Other intangible assets Non-current assets Goodwill Liabilities assumed Cash consideration (In thousands, except per share data) Total revenues Income from operations Net income Weighted-average number of shares—Basic Weighted-average number of shares—Diluted Earnings per share—Basic Earnings per share—Diluted The following table presents goodwill balances as of June 30, 2011and (In thousands) Gross beginning balance as of beginning of fiscal year Accumulated impairment losses Net beginning balance as of beginning of fiscal year Acquisitions Net exchange differences Adjustments Impairment Net ending balance as of June 30 (In thousands) Gross goodwill balance Accumulated impairment losses Net goodwill balance goodwill by reporting unit will be performed in the three months ending December 31, Company assigns an equal weighting to the (In thousands) Category Existing technology Patents Trade name/Trademark Customer relationships Other Total For the fiscal years ended June 30, 2011, 2010 Year ending June 30: 2011 2012 2013 2014 2015 Thereafter Total follows: 2011 of shares issuable under the 2004 Plan as (In thousands) Balances Restricted stock units granted(2) Restricted stock units granted(2) Restricted stock units canceled(2) Restricted stock units withheld for taxes(2)(3) Plan shares expired(4) Restricted stock units granted(2) Restricted stock units canceled(2) Options canceled/expired/forfeited Plan shares expired(4) Balances Except for options granted to non-employee (In thousands) Stock-based compensation expense by: Costs of revenues Engineering, research and development Selling, general and administrative Total stock-based compensation Stock Options Outstanding stock options as of June 30, 2009 Granted Exercised Cancelled/expired/forfeited Outstanding stock options as of June 30, 2010 Vested and exercisable as of June 30, 2010 2011 Stock option plan: Expected stock price volatility Risk free interest rate Dividend yield Expected life of options (in years) (In thousands, except for weighted-average grant date fair value) Grant-date fair value after estimated forfeitures Weighted-average grant date fair value per share Total intrinsic value of options exercised Total cash received from employees as a result of employee stock option exercises Tax benefits realized in connection with these exercises(1) (In thousands) Inventory Deferred system profit Restricted Stock Units Outstanding restricted stock units as of June 30, 2009 Granted Vested and released Traded for taxes Forfeited Outstanding restricted stock units as of June 30, 2010 (In thousands, except for weighted-average grant date fair value) Grant-date fair value after estimated forfeitures Weighted-average grant date fair value per unit Tax benefits realized in connection with vested and released restricted stock units purchase (or, if not a trading day, on the immediately preceding trading day). During the quarter ended December 31, 2008, the Company’s Board of Directors, as part of the Company’s ongoing efforts to reduce operating expenses, approved amendments to the ESPP so as to, among other things, reduce each offering period under the ESPP (and therefore the length of the look-back period) from 24 months to 6 months. This change became effective January 1, 2009, such that the offering period that began on January 1, 2009 had a duration of six months, and the purchase price with respect to such offering period was 85% of the lesser of (i) the fair market value of the Company’s common stock at the commencement of the six-month offering period or (ii) the fair market value of the Company’s common stock on the purchase date. 2009. Stock purchase plan: Expected stock price volatility Risk free interest rate Dividend yield Expected life of options (in years) (In thousands, except for weighted-average fair value per share) Total cash received from employees for the issuance of shares under the ESPP Number of shares purchased by employees through the ESPP Tax benefits realized in connection with the disqualifying dispositions of shares purchased under the ESPP Weighted-average fair value per share based on Black-Scholes model The ESPP shares are replenished annually on the first day of each fiscal year by virtue of an evergreen provision. The provision allows for share replenishment equal to the lesser of 2.0 million shares or the number of shares which KLA-Tencor estimates 2012 (In thousands) Number of shares of common stock repurchased Total cost of repurchase As of during the period, increased to include the number of additional shares of common stock that would have been outstanding if the shares of common stock underlying the Company’s outstanding dilutive stock options and restricted stock units had been issued. The dilutive effect of outstanding options and restricted stock units is reflected in diluted earnings per share by application of the treasury stock method. Under the treasury stock method, the amount the employee must pay for exercising stock options, the amount of compensation cost for future service that the Company has not yet recognized, and the amount of tax benefits that would be recorded in additional paid-in capital when the award becomes deductible are assumed to be used to repurchase shares. The following table sets forth the computation of basic and diluted net income (loss) per share: (In thousands, except per share data) Numerator: Net income (loss) Denominator: Weighted-average shares outstanding(1) Effect of dilutive options and restricted stock Denominator for diluted earnings per share Basic net income (loss) per share Diluted net income (loss) per share Potentially dilutive securities(2) The increase in the amount of dividends paid during the fiscal year ended 15, 2011 with third-party trustees or into government-managed accounts and/or accrues for the unfunded portion of the obligation. The assumptions used in calculating the obligation for the foreign plans depend on the local economic environment. 2010. (In thousands) Change in projected benefit obligation Projected benefit obligation at beginning of fiscal year Service cost, including plan participant contributions Interest cost Contributions by plan participants Adjustment Actuarial loss Benefit payments Plan amendments Acquisitions Curtailment impact Transfer in/(out) Foreign currency exchange rate changes Projected benefit obligation at the end of the fiscal year (In thousands) Change in fair value of plan assets Fair value of plan assets at beginning of fiscal year Actual return on plan assets Employer contributions Benefit and expense payments Acquisitions Curtailment impact Transfer in/(out) Foreign currency exchange rate changes Fair value of plan assets at end of fiscal year (In thousands) Funded status Ending funded status Net amount recognized (In thousands) Plans with accumulated benefit obligations in excess of plan assets Accumulated benefit obligation Projected benefit obligation Plan assets at fair value Weighted-average assumptions Discount rate Expected return on assets Rate of compensation increases (In thousands) Unrecognized transition obligation Unrecognized prior service cost Unrealized net actuarial loss Amount recognized (In thousands) Unrecognized transition obligation Unrecognized prior service cost Unrealized net actuarial loss Amount expected to be recognized The components of (In thousands) Components of net periodic pension cost Service cost, net of plan participant contributions Interest cost Return on plan assets Amortization of net transitional obligation Amortization of prior service cost Amortization of net loss Acquisitions Adjustment Loss due to settlement/curtailment Net periodic pension cost Level 1 Level 2 Level 3 2021. (In thousands) Cash and cash equivalents Government, municipal bonds, and other Total assets measured at fair value 2011 Concentration of Risk (In thousands) Domestic income (loss) before income taxes Foreign income (loss) before income taxes Total net income (loss) before income taxes (In thousands) Current: Federal State Foreign Deferred: Federal State Foreign Provision for (benefit from) income taxes For the fiscal years ended June 30, (In thousands) Deferred tax assets: Tax credits and net operating losses Employee benefits accrual Stock-based compensation Capitalized R&D expenses Inventory reserves Non-deductible reserves Deferred profit Unearned revenue Other Gross deferred tax assets Valuation allowance Net deferred tax assets Deferred tax liabilities: Unremitted earnings of foreign subsidiaries not permanently reinvested Depreciation and amortization Unrealized gain on investments Other Total deferred tax liabilities Total net deferred tax assets As of June 30, $198.0 million. The benefits of the tax holidays on diluted net income per share were Federal statutory rate State income taxes, net of federal benefit Effect of foreign operations taxed at various rates Effect of change in permanently reinvested earnings Research and development tax credit Tax exempt interest Net change in tax reserves Domestic manufacturing benefit Change in valuation allowance Non-deductible impairment of goodwill Effect of stock-based compensation Other Effective income tax rate the fiscal year ended June 30, 2011. (In thousands) Unrecognized tax benefits at the beginning of the period Increases for tax positions taken in prior years Decreases for tax positions taken in prior years Increases for tax positions taken in current year Decreases for settlements with taxing authorities Decreases for lapsing of the statute of limitations Unrecognized tax benefits at the end of the period The amount of unrecognized tax benefits that would impact the effective tax rate was (In thousands) Receivables sold under factoring agreements Proceeds from sales of LCs Discounting fees paid on sales of LCs(1) The following is a schedule of expected operating lease Year ending June 30, 2011 2012 2013 2014 2015 2016 and thereafter Total minimum lease payments payments: Beginning balance Accruals for warranties issued during the period Changes in liability related to pre-existing warranties Settlements made during the period Ending balance (In thousands) Beginning balance Restructuring costs Adjustments Cash payments Ending balance (In thousands) Derivatives Designated as Hedging Instruments Gain (loss) in accumulated OCI on derivative (effective portion) Loss reclassified from accumulated OCI into income (effective portion) Gain (loss) recognized in income on derivative (ineffective portion and amount excluded from effectiveness testing) Derivatives Not Designated as Hedging Instruments Gain (loss) recognized in income (In thousands) Cash flow hedge contracts Purchase Sell Other foreign currency hedge contracts Purchase Sell Net The location and fair value amounts of the Company’s derivative instruments reported in its Consolidated Balance (In thousands) Derivatives Designated as Hedging Instruments Foreign exchange contracts Total Derivatives Designated as Hedging Instruments Derivatives Not Designated as Hedging Instruments Foreign exchange contracts Total Derivatives Not Designated as Hedging Instruments Total derivatives (In thousands) Beginning balance Amount reclassified to income Net change Ending balance 2011 reporting, revenues are attributed to the geographic location in which the customer is located. Long-lived assets consist primarily of net property and equipment and are attributed to the geographic region in which they are located. (Dollar amounts in thousands) Revenues: United States Taiwan Japan Europe & Israel Korea Rest of Asia Total (Dollar amounts in thousands) Revenues: Defect inspection Metrology Service Other Total (In thousands) Long-lived assets: United States Europe & Israel Japan Taiwan Korea Rest of Asia Total (In thousands) Total revenues Total purchases The Company had a receivable balance from these parties of 15, 2011 (In thousands, except per share data) Revenues Total costs and operating expenses Gross margin Income from operations Net income Net income per share: Basic(1) Diluted(1) (In thousands, except per share data) Revenues Total costs and operating expenses Gross margin Income (loss) from operations Net income (loss) Net income (loss) per share: Basic(1) Diluted(1)the future impact or outcome of litigation or government investigations or audits; our future product offerings and product features; the success and market acceptance of new products; timing of shipment of backlog; the future of our product shipments and our product and service revenues; our future gross margins; our future research and development expenses and selling, general and administrative expenses; the futureour ability to successfully maintain cost savings to be realized from our recent cost reduction efforts;discipline; international sales and operations; our ability to maintain or improve our existing competitive position; success of our product offerings; creation and funding of programs for research and development; attraction and retention of employees; results of our investment in leading edge technologies; the effects of hedging transactions; the effect of the sale of trade receivables and promissory notes from customers; our future income tax rate; dividends;future payments of dividends to our stockholders; the completion of any acquisitions of third parties, or the technology or assets thereof; benefits received from any acquisitions and development of acquired technologies; sufficiency of our existing cash balance, investments and cash generated from operations to meet our operating and working capital requirements; and the adoption of new accounting pronouncements.2011.2012. You are cautioned not to place undue reliance on these forward-looking statements, and we expressly assume no obligation and do not intend to update the forward-looking statements in this report after the date hereof.ITEM 1. BUSINESS ™TM (“KLA-Tencor” or the “Company” and also referred to as “we” or “our”) is a leading supplier of process control and yield management solutions for the semiconductor and related nanoelectronics industries. Our products are also used in a number of other industries, including the high brightness light emitting diode (“HBLED”LED”), data storage and photovoltaic industries, as well as general materials research.™TM and Tencor Instruments™TM, two long-time leaders in the semiconductor equipment industry that had originally begun operations in 1975 and 1976, respectively.Web sitewebsite at www.kla-tencor.com. We make available free of charge on our Web sitewebsite our Annual Report on Form 10-K, our Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, as soon as reasonably practicable after we electronically file them with or furnish them to the Securities and Exchange Commission (“SEC”). Information contained on our Web sitewebsite is not part of this Annual Report on Form 10-K or our other filings with the SEC. Additionally, these filings may be obtained through the SEC’s Web sitewebsite (www.sec.gov), which contains reports, proxy and information statements, and other information regarding issuers that file electronically. Documents that are not available through the SEC’s Web sitewebsite may also be obtained by mailing a request to the U.S. Securities and Exchange Commission, Office of FOIA/PA Operations, 100 F Street N.E., Washington, DC 20549-2736, by submitting an online request form at the SEC’s Web sitewebsite or by sending a fax to the SEC at 1-202-772-9337.andare then polished to a mirror finish.bringing a multitudesimultaneous production integration of multiple new process technologies, into production at the same time, some requiring new substrate and film materials, new geometries and advanced lithography techniques.silicon-on-insulator (“SOI”)SOI wafers and immersion lithography-capable photoresists, require extensive characterization before they can be used in the manufacturing process. Moving several of these advanced technologies into production at once only adds to the risks that chipmakers face.including those required forhelping our customers respond to the 32nm chip generationchallenges posed by shrinking device sizes, the transition to new production materials, new device and beyond.(CMOS)("CMOS") Image Sensors Manufacturing, Solar Manufacturing, LED Manufacturing, Data Storage Media/Head Manufacturing, Solar Manufacturing, HBLED Manufacturing and Other Technologies, Microelectromechanical Systems (MEMS)("MEMS") Manufacturing, and General Purpose/Lab Applications. We also provide refurbished KLA-Tencor Certified™ tools as part of our K-T CertifiedTM program for our customers manufacturing larger design-rule devices, as well as comprehensive service and support for our products.includingincluding: research and development,development; incoming wafer qualification,qualification; reticle qualification,qualification; and tool, process and line monitoring. Patterned and unpatterned wafer inspectors find particles, pattern defects and electrical issues on the front surface, back surface and edge of the wafer, allowing engineers to detect and monitor critical yield excursions. Fabs rely on our high sensitivity reticle inspection systems to identify defects in reticles at an early stage, to prevent reticle defects from printing on production wafers. The defect data generated by our inspectors is compiled and reduced to relevant root-cause and yield-analysis information with our suite of data management tools. By implementing our front-end defect inspection and analysis systems, chipmakers are able to take quick corrective action, resulting in faster yield improvement and better time to market.In2010,ended June 30, 2011, we launched two families ofseveral front-end defect inspection products that help accelerate yield for 32nmnext-generation design node devices. Our 2830 Series broadbandTeraFabTMHT reticle defect inspection system features improvements to the previous generation TeraFab's laser, sensor, optical path and signal processing algorithms for enhanced detection sensitivity and throughput. The VisEdge® CV300R-EP is a wafer edge metrology and inspection platform uses a high-power plasma light source to illuminatesystem that combines wafer edge profile, film edge metrology and edge defect types whose size or location previously made them very difficult to consistently detect. In addition,inspection into one system. The XP Offline upgrade option for the Puma™ 9500 SeriesPumaTM 9550 narrowband wafer inspection platform incorporates new optics and image acquisition technology that improvereduces the tool’s resolution and speed comparedtime required for inspection recipe setup on manufacturing tools by allowing users to its predecessor.2010ended June 30, 2011 further strengthened our broad range of offerings that support the front-end defect inspection market. In the field of patterned wafer inspection, for example, we offer our 2367, 2810 Series, 2820 Series and 2830 Series systems (for broadband optical defect inspection); our Puma 9100 Series and 9500 Series systems (for narrowband optical defect inspection); and our eS35 system (for e-beam defect inspection). In the field of unpatterned wafer and surface inspection, our primary offering is ourthe Surfscan® SP Series (a series of wafer defect inspection systems for process tool qualification and monitoring using blanket films and bare wafers), to which ourthe SURFmonitorTM moduleTM products, which are photomask inspection systems that allow IC fabs to qualify incoming reticles and inspect production reticles for contaminants. In addition, we offer a number of other products for the front-end defect inspection market, as reflected in the product table at the conclusion of this “Products” section. a series of standalone inspection systems for various applications in the field of semiconductor packaging (i.e., at the back-end of the semiconductor manufacturing process). Our Component Inspector (“CI”) products inspect various semiconductor components that are handled in a tray, such as microprocessors or memory chips. Component inspection capability includes 3D coplanarity inspection, measurement of the evenness of the contacts and 2D surface inspection. Our Wafer Inspector (“WI”) products inspect either undiced wafers or diced wafers mounted on film frame carriers. They inspectIn March 2011, we introduced the surface quality of the wafers, the quality of the wafer cutting or wafer bumps.20092010, we introduced the eDRTM-5210,-5210S, an e-beam review and classification system with reticle defect review and critical point inspection modes to assist chipmakers in identifying systematic defect sources and resolving yield issues. Additionally, the new eDR-5210S includes improvements that features second-generation electromagnetic-field immersion technology, engineered to deliver very high quality images and, consequently, accurateenhance its automated bare wafer defect classification results.review capability.JuneAugust 2010, we launched the AlerisTM 8330 film metrology system, a targeted solution for production monitoring of the thickness, refractive index and stress of non-critical films at the 32nm node and beyond. In March 2011, we announced the ArcherSpectraShapeTM 8660 and 8810 optical CD and shape metrology systems. The new SpectraShape systems fully characterize and monitor the critical dimensions and three-dimensional shapes of geometrically complex features incorporated by some IC manufacturers in their latest generation devices. 300 LCM overlay metrology system. With smaller device CDs and the advent of innovative patterning technologies, tolerances for proper alignment of successive patterned layers have become more stringent. The new overlay metrology system has increased precision and introduces the capability for overlay control at the sub-die level in order to meet industry requirements.In-Situ Process MonitoringKLA-Tencor’s SensArray® SensorWafers series provides a unique way, not available from conventional equipment monitors, to capture the effect of the process environment on production wafers. Measurements, such as temperature and radio frequency voltage, are used by both chipmakers and process equipment manufacturers to visualize, diagnose and control their processes and process tools. SensArray products are used in many semiconductor and flat panel display fabrication processes, including lithography, etch and deposition.PROLITH™PROLITHTM product line provides researchers at advanced IC manufacturers, lithography hardware suppliers, track companies and material providers with virtual lithography software to explore critical-feature designs, manufacturability and process-limited yield of proposed lithographic technologies without the time and expense of printing hundreds of test wafers using experimental materials and prototype process equipment.In February 2010,launchedintroduced PROLITH X3.1,X3.2, which enables researchers at leading-edge chipmakers, consortia and equipment makerslarge-scale lithography simulations to quickly and cost-effectively troubleshoot challenging issues in EUVextreme ultra-violet (“EUV”) and double patterningadvanced optical lithography (DPL) processes.outstandingacute precision for reticle pattern placement and accurate measurement of reticles’ critical dimensions.In September 2009, we launched a newOur reticle inspection platform for mask shop applications,portfolio includes the TeronTM 600 Series. Addressing a major transition in mask design below the 32nm node, our Teron 600 Series introduces programmable scanner-illumination capability and improved sensitivity and computational lithography power over its predecessor. These advances are necessary to enablefor development and manufacturing of advanced optical and EUV masks, the innovative reticles used at sub-32nm nodes.The new Teron 600 Series adds to our existing reticle inspection portfolio, which includes our TeraScanTMXR system (forfor mask shop production of reticles for the 32nm node and above)above and our TeraFab products.products for reticle defect monitoring capability for IC fabs.In October 2009, we launched thesystem, a new tool for the CMOS Image Sensor market.system. The 8900 is designed to enable capture of a wide variety of defect types, with adjustable sensitivity and throughput settings for cost-effective defect management from initial product development through volume production of color filter arrays.photolithography and magnetics control.photolithography. In substrate and media manufacturing, we offer metrology and defect inspection solutions with KLA-Tencor’s optical surface analyzers and magneto-optical mappers.Solar ManufacturingPhotovoltaic or “solar” cells are used to produce electrical power from light. The continuing growth of the solar industry is closely related to the production cost of solar cells, as economic viability increases with lowering prices. To address our customers’ needs in this important industry, KLA-Tencor offers both surface profilers and solar wafer and cell inspection modules which are integrated in different stages of the solar wafer and cell production lines to increase yield and lower production costs.KLA-Tencor’s ICOS® PVI inspection modules are designed for high speed, automated, optical in-line inspection of both the front and backside of monocrystalline and polycrystalline solar wafers and cells, as well as optical classification of solar cells at the final stage of the production flow. The P-6TM surface profiling system provides stylus profiling and analysis of surface topography for issues such as roughness, film stress and curvature for solar cell samples up to 150mm.HBLED Manufacturing and Other TechnologiesHBLEDs are becoming more commonly used in solid-state lighting, television and notebook backlighting, and automotive applications. As HBLED device makers target aggressive cost and performance targets, they place significant emphasis on improved process control and yield during the manufacturing process.In December 2009, we launched the ICOS WI-2250 wafer inspector, which allows defect inspection of patterned whole and diced wafers up to 200mm, with macro inspection sensitivity in the pre- and post-dice inspection (i.e., front- and back-end) of HBLED and MEMS products.In addition, Candela® technology is used by industry leaders in HBLED, single-crystalline thin film, silicon carbide and semiconductor industries to monitor production lines, identify mission critical defects of interest, and create process-specific recipes to detect and classify killer defects (including pits, cracks and stains from epi and substrate processes that impact yield and field reliability) while ignoring nuisance defects. Our Candela Optical Surface Analyzer inspection technology is being used by leaders in the HBLED manufacturing industry to optimize epi productivity through improved process control.TMTM™2010:2011:MARKETS APPLICATIONS PRODUCTS Patterned Wafer 2367, Macro and Edge Unpatterned Wafer/Surface SP1 and SP2 Series Reticle Data Management ��Component Inspection Wafer InspectionICOS® WI product family e-beam Optical INM, INS & IRIS product families Overlay Optical CD Film Thickness/Index Wafer Geometry and Topography Ion Implant and Anneal Surface Metrology Resistivity RS product family Data Management In-Situ Process Monitoring Lithography In-Situ Process Monitoring Plasma Etch Implant and Wet MARKETS AND APPLICATIONS PRODUCTS SP1 and SP2 Series LMS IPRO4IPRO 8900 Data Storage Media/HeadSolar Manufacturing Surface Metrology P-Series product family Data Management LED Manufacturing Wafer Inspection Defect Inspection Surface Metrology P-Series product family Data Management Data Storage Media/Head Manufacturing Wafer and Slider Test TMHRP®-250PROLITHTM product family INM product family SolarMEMS Manufacturing Metrology P-Series product family Optical InspectionPVI-6HBLED ManufacturingWafer InspectionICOS® WI product familyDefect InspectionCandela® product familySurface MetrologyP-Series product familyMEMS ManufacturingStylus ProfilingSurface MetrologyP-Series product family IRIS INM & IRIS product families Purpose, Labs ProfilingSurface Metrology MicroXAM-100 yearyears ended June 30, 2011, 2010 two customers, Taiwan Semiconductor Manufacturing Company Limited and Intel Corporation,2009, the following customers each accounted for more than 10% of our total revenues. For the fiscal year ended June 30, 2009, two customers, Intel Corporation and Samsung Electronics Co., Ltd., each accounted for more than 10% of our total revenues. In the fiscal year ended June 30, 2008, no customer accounted for more than 10% of our total revenues.Year ended June 30, 2011 2010 2009 Intel Corporation Intel Corporation Intel Corporation Taiwan Semiconductor Manufacturing Company Limited Taiwan Semiconductor Manufacturing Company Limited Samsung Electronics Co., Ltd. Samsung Electronics Co., Ltd. — — 2010,2011, we employed approximately 2,0302,150 sales and related personnel, service engineers and applications engineers. In addition to sales and service offices in the United States, we conduct sales, marketing and services out of wholly-owned subsidiaries or branches in other countries, including Belgium, China, France, Germany, Hong Kong, India, Israel, Italy, Japan, Singapore, South Korea, Taiwan and the United Kingdom. International revenues accounted for approximately 81%, 76%81% and 79%76% of our total revenues in the fiscal years ended June 30, 2011, 2010 2009 and 2008,2009, respectively. Additional information regarding our revenues from foreign operations for our last three fiscal years can be found in Note 17, “Segment Reporting and Geographic Information” to the Consolidated Financial Statements.non-dollarnon-U.S. dollar product sales through hedging activities, there can be no assurance that such efforts will beBacklog$992$988 million and $332$992 million as of June 30, 20102011 and 2009,2010, respectively, and includesprimarily consists of sales orders where written customer requests have been received and the delivery is anticipated within the next 12 months. Orders for service contracts and unreleased products are excluded from shipment backlog. All orders are subject to cancellation or delay by the customer, often with limited or no penalties. We make adjustments for shipment backlog obtained from acquired companies, sales order cancellations, customer delivery date changesOur shipmentShipment backlog is not subject to our normal accounting controls for information that is either reported in or derived from our basic financial statements. In addition, the concept of shipment backlog is not defined in the accounting literature, making comparisons between periods and with other companies difficult and potentially misleading.$343$382 million and $186$343 million as of June 30, 20102011 and 2009,2010, respectively. Orders for service contracts are excluded from revenue backlog.2010,2011, we employed approximately 1,1001,220 research and development personnel.2010ended June 30, 2011 involved the development of process control and yield management equipment for sub-65nm processing.aimed at addressing the challenges posed by shrinking device sizes, the transition to new production materials, new device and circuit architecture, more demanding lithography processes, the transition from 300 millimeter to 450 millimeter wafers, and new back-end packaging techniques. For information regarding our research and development expenses during the last three fiscal years, including costs offset by our strategic development and engineering programs, see Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Annual Report on Form 10-K.the recent down cycles in the semiconductor industry, we have remained committed to significant engineering efforts toward both product improvement and new product development in order to contribute to thecontinuing developments inenhance our industries.competitive position. New product introductions, however, may contribute to fluctuations in operating results, since customers may defer ordering existing products, and, if new products have reliability or quality problems, those problems may result in reduced orders, higher manufacturing costs, delays in acceptance of and payment for new products, and additional service and warranty expenses. There can be no assurance that we will successfully develop and manufacture new products, or that new products introduced by us will be accepted in the marketplace. If we do not successfully introduce new products, our results of operations will be adversely affected.2010,2011, we employed approximately 800970 manufacturing personnel.WeThrough our business interruption planning, we endeavor to minimize the risk of production interruption by, selecting and qualifying alternative suppliers for key parts, byamong other things, monitoring the financial condition of suppliers of key parts and raw materials, identifying (but not necessarilybymaterials and ensuring adequate inventories of key parts and raw materials are available to maintain manufacturing schedules.support.Employees2010,2011, we employed approximately 5,0005,500 people. None of our employees are represented by a labor union; however, our employees in France (pursuant to French industrial relations law) and in the German operations of our MIE business unit are represented by employee work councils. We have not experienced work stoppages and believe that our employee relations are good. Process steps that make up the second half of the semiconductor manufacturing process, from contact through completion of the wafer prior to electrical test. An illumination source with a wide spectral bandwidth. The dimension of a specified geometry (such as the width of a patterned line or the distance between two lines) that must be within design tolerances in order to maintain semiconductor device performance consistency. Rules that set forth the allowable dimensions of particular features used in the design and layout of integrated circuits. The term for a single semiconductor chip on a wafer. An illumination source comprised of a stream of electrons emitted by a single source. excursion For a manufacturing step or process, a deviation from normal operating conditions that can lead to decreased performance or yield of the final product. fab The main manufacturing facility for processing semiconductor wafers. The processes that make up the first half of the semiconductor manufacturing process, from wafer start through final contact window processing. In-situ Refers to processing steps or tests that are done without moving the wafer. Latin for “in original position.” A highly conductive material, usually aluminum or polysilicon, that carries electrical signals to different parts of a die. A process in which a masked pattern is projected onto a photosensitive coating that covers a substrate. A manufacturer that produces the reticles used by semiconductor manufacturers. The science of measurement to determine dimensions, quantity or capacity. In the semiconductor industry, typical measurements include critical dimension, overlay and film thickness.
systems (MEMS) Micron-sized mechanical devices powered by electricity, created using processes similar to those used to manufacture IC devices. micron micron nanometer (nm) nanometer (nm) An illumination source with a narrow spectral bandwidth, such as a laser. For semiconductor manufacturing and industries using similar processing technologies, refers to substrates that have electronic circuits (transistors, interconnects, etc.) fabricated on the surface. A radiation-sensitive material that, when properly applied to a variety of substrates and then properly exposed and developed, masks portions of the substrate with a high degree of integrity. The ability to maintain specifications of product and equipment during manufacturing operations. A very flat glass plate that contains the patterns to be reproduced on a wafer. substrate Thesilicon-on-insulator (SOI) istechnology comprised of a thin top silicon layer separated from the silicon substrate by a thin insulating layer of glass or silicon dioxide, used to improve performance and reduce the power consumption of IC circuits.substrate A wafer on which layers of various materials are added during the process of manufacturing semiconductor devices or circuits. For semiconductor manufacturing and industries using similar processing technologies, refers to substrates that do not have electronic circuits (transistors, interconnects, etc.) fabricated on the surface. These can include bare silicon wafers, other bare substrates or substrates on which blanket films have been deposited. The ability of a semiconductor manufacturer to oversee, manage and control its manufacturing processes so as to maximize the percentage of manufactured wafers or die that conform to pre-determined specifications. ITEM 1A. RISK FACTORS and Market Conditions In the current environment, our ability to accurately predict our future operating results is particularly limited. During down cycles in our industry, the financial results of our customers may be negatively impacted, which could result not only in a decrease in, or cancellation or delay of, orders (which are generally subject to cancellation or delay by the customer with limited or no penalty) but also a weakening of their financial condition that could impair their ability to pay for our products or our ability to recognize revenue from certain customers. When cyclical fluctuations result in lower than expected revenue levels, operating results may be adversely affected and cost reduction measures may be necessary in order for us to remain competitive and financially sound. During periods of declining revenues, as was experienced during fiscal year 2009, we must be in a position to adjust our cost and expense structure to prevailing market conditions and to continue to motivate and retain our key employees. If we fail to respond, or if our attempts to respond fail to accomplish our intended results, then our business could be seriously harmed. Furthermore, any workforce reductions and cost reduction actions that we adopt in response to down cycles may result in additional restructuring charges, disruptions in our operations and loss of key personnel. In addition, during periods of rapid growth, we must be able to increase manufacturing capacity and personnel to meet customer demand. We can provide no assurance that these objectives can be met in a timely manner in response to industry cycles. Each of these factors could adversely impact our operating results and financial condition.These changes currently, orMany of the risks associated with operating in these industries are comparable to the risks faced by all technology companies, such as the uncertainty of future growth rates in the future may,industries that we serve, pricing trends in the end-markets for consumer electronics and other products (which place a growing emphasis on our customers' cost of ownership), changes in our customers' capital spending patterns and, in general, an environment of constant change and development, including decreasing product and component dimensions; use of new materials; and increasingly complex device structures, applications and process steps. If we fail to appropriately adjust our cost structure and operations to adapt to any of these trends, or, with respect to the variability of futurerelated industries; development into next-generation products and technologies and (b) other manufacturers that are content with existing (including previous generation) products and technologies;ever-increasingever escalating cost and complexity involvedof next-generation product development, which may result in the adoption byjoint development programs between us and our customers to help fund such programs that could restrict our control of, technology advancesownership of and profitability from the products and technologies developed through those programs;impact that may have on their rate of adoption; pricing trends in industry transition from 300mm to 450mm wafers; andend-markets for consumer electronics and other products, which places a growing emphasis on our customers’ cost of ownership; overall changes in capital spending patternsentry by our customers; and demand bysome semiconductor manufacturers for shorter cycle times for developing, manufacturing and installing capital equipment. Further, many semiconductor manufacturers have recently experienced decreased profitability, causing them to enter into collaboration or sharing arrangements for capacity, cost or risk with other manufacturers, outsourceas well as increased outsourcing of their manufacturing activities, and greater focus only on specific markets or applications, whether in response to adverse market conditions or purchase less manufacturing equipment. other market pressures.in this paragraphabove may particularly during periods of challenging macroeconomic conditions, negatively affect our customers’ rate of investment in the capital equipment that we produce, which could result in downward pressure on our prices, customer orders, revenues and gross margins. If we do not successfully manage the risks resulting from any of these or other potential changes in our industries, our business, financial condition and operating results could be adversely impacted.weakeninghighly concentrated customer base.condition of the financial marketssemiconductor industry, historically has been, and the global economy.The severe tightening of the credit markets, turmoil in the financial markets and weakening of the global economy that were experienced during the fiscal year ended June 30, 2009 contributed to slowdowns in the industries in which we operate, which slowdowns could recur or worsen if economic conditions were to deteriorate again.The markets for semiconductors, and therefore our business, are ultimately driven by the global demand for electronic devices by consumers and businesses. Economic uncertainty frequently leads to reduced consumer and business spending, which, in the recent economic slowdown, caused our customers to decrease, cancel or delay their equipment and serviceis becoming increasingly, highly concentrated. In this environment, orders from us.a relatively limited number of manufacturers have accounted for, and are expected to continue to account for, a substantial portion of our sales. In addition, the tighteningmix and type of credit marketscustomers, and concernssales to any single customer, may vary significantly from quarter to quarter and from year to year. If customers do not place orders, or they delay or cancel orders, we may not be able to replace the business. Furthermore, because our products are configured to customer specifications, any changes, delays or cancellations of orders may result in significant, non-recoverable costs. As a result of the consolidation within our customer base, the customers that survive that consolidation represent a greater portion of our sales. Those surviving customers may have more aggressive policies regarding the availability of credit that accompanied that slowdown made it more difficultengaging alternative, second-source suppliers for our customers to raise capital, whether debt or equity, to finance their purchases of capital equipment, including the products we sell. Reduced demand, combined with delaysserve and, in addition, may seek, and on occasion receive, pricing, payment, intellectual property-related, or other commercial terms that are less favorable to us. Any of these changes could negatively impact our customers’ ability to obtain financing (or the unavailability of such financing), has in recent periods adversely affected our product and service sales andprices, customer orders, revenues and therefore has harmedgross margins. Also, certain customers have undergone significant ownership changes, experienced management changes or have outsourced manufacturing activities, any of which may result in additional complexities in managing customer relationships and transactions. As a result of the challenging economic environment during fiscal year 2009, we were (and in some cases continue to be) exposed to additional risks related to the continued financial viability of certain of our business and operating results, andcustomers. To the extent our operating results and financial condition may again be adversely impacted if economic conditions decline from their current levels.In addition, a declinecustomers experience liquidity issues in the condition of the global financial markets could adversely impact the market values or liquidity of our investments. Our investment portfolio includes corporate and government securities, auction rate securities, money market funds and other types of debt and equity investments. Although we believe our portfolio continues to be comprised of sound investments due to the quality and (where applicable) credit ratings and government guarantees of the underlying investments, a decline in the capital and financial markets would adversely impact the market values of our investments and their liquidity. If the market value of such investments were to decline, or if we were to have to sell some of our investments under illiquid market conditions,future, we may be required to recognize an impairment charge onincur additional bad debt expense with respect to receivables owed to us by those customers. In addition, customers with liquidity issues may be forced to discontinue operations or may be acquired by one of our customers, and in either case such investments or a loss on such sales, eitherevent would have the effect of whichfurther consolidating our customer base. Any of these factors could have ana material adverse effect on our business, financial condition and operating results.timelymaintain our lead or protect our proprietary technology, we may lose valuable assets.appropriately adaptother proprietary rights. We own various United States and international patents and have additional pending patent applications relating to changes resulting from difficult macroeconomic conditions,some of our products and technologies. The process of seeking patent protection is lengthy and expensive, and we cannot be certain that pending or future applications will actually result in issued patents or that issued patents will be of sufficient scope or strength to provide meaningful protection or commercial advantage to us. Other companies and individuals, including our larger competitors, may develop technologies and obtain patents relating to our business financial conditionthat are similar or resultssuperior to our technology or may design around the patents we own, adversely affecting our business. In addition, we at times engage in collaborative technology development efforts with our customers and suppliers, and these collaborations may constitute a key component of operationscertain of our ongoing technology and product research and development projects. The termination of any such collaboration, or delays caused by disputes or other unanticipated challenges that may arise in connection with any such collaboration, could significantly impair our research and development efforts, which could have a material adverse impact on our business and operations.materiallyupheld or successfully deter infringement by third parties.adversely affected.We are exposed to risks associated with a highly concentrated customer base.Our customer base, particularly in the semiconductor industry, historically has been, and is becoming increasingly, highly concentrated. In this environment, orders from a relatively limited number of manufacturers have accounted for, and are expected to continue to account for, a substantial portion of our sales. In addition, the mix and type of customers, and sales to any single customer, may vary significantly from quarter to quarter and from year to year. If customers do not place orders, or they delay or cancel orders, we may not be able to replace the business. Furthermore, because our products are configured to customer specifications, any changes, delays or cancellations of orders may result in significant, non-recoverable costs. As a result of the consolidation within our customer base, the customers that survive that consolidation represent a greater portion of our sales. Those surviving customers may have more aggressive policies regarding engaging alternative, second-source suppliers for the products we serve and, in addition, may seek, and on occasion receive, pricing, payment, intellectual property-related, or other commercial terms that are less favorable to us. Any of these changes could negatively impact our prices, customer orders, revenues and gross margins. Also, certain customers have undergone significant ownership changes, experienced management changes or have outsourced manufacturing activities, any of which may result in additional complexities in managing customer relationships and transactions. As a result of the recent challenging economic environment, we have been exposed to additional risks related to the continued financial viability of certain of our customers. To the extent our customers experience liquidity issues, we may be required to incur additional bad debt expense with respect to receivables owed to us by those customers. In addition, customers with liquidity issues may be forced to discontinue operations or may be acquired by one of our customers, and in either case such event would have the effect of further consolidating our customer base. Any of these factors could have a material adverse effect on our business, financial condition and operating results.Risks Related to Our BusinessIf we do not develop and introduce new products and technologies in a timely manner in response to changing market conditions or customer requirements, our business could be seriously harmed.Success in the semiconductor equipment industry depends, in part, on continual improvement of existing technologies and rapid innovation of new solutions. For example, the size of semiconductor devices continues to shrink, and the industry is currently transitioning to the use of new materials and innovative fab processes. While we expect these trends will increase our customers’ reliance on diagnostic products such as ours, we cannot be sure that these trends will directly improve our business. These and other evolving customer needs require us to respond with continued development programs and to cut back or discontinue older programs, which may no longer have industry-wide support. Technical innovations are inherently complex and require long development cycles and appropriate staffing of highly qualified employees. Our competitive advantage and future business success depend on our ability to accurately predict evolving industry standards, to develop and introduce new products that successfully address changing customer needs, to win market acceptance of these new products and to manufacture these new products in a timely and cost-effective manner.In this environment, we must continue to make significant investments in research and development in order to enhance the performance, features and functionality of our products, to keep pace with competitive products and to satisfy customer demands. Substantial research and development costs typically are incurred before we confirm the technical feasibility and commercial viability of a new product, and not all development activities result in commercially viable products. There can be no assurance that revenues from future products or product enhancements will be sufficient to recover the development costs associated with such products or enhancements. In addition, we cannot be sure that these products or enhancements will receive market acceptance or that we will be able to sell these products at prices that are favorable to us. Our business will be seriously harmed if we are unable to sell our products at favorable prices or if the market in which we operate does not accept our products.specificationspecifications in a timely and cost-effective manner.WeThrough our business interruption planning, we seek to minimize the risk of production and service interruptions and/or shortages of key parts by, selecting and qualifying alternative suppliers for key parts,among other things, monitoring the financial stability of key suppliers, identifying (but not necessarily qualifying) possible alternative suppliers and maintaining appropriate inventories of key parts. Although we make reasonable efforts to ensure that parts are available from multiple suppliers, key parts may be available only from a single supplier or a limited group of suppliers. Also, key parts we obtain from some of our suppliers incorporate the suppliers’ proprietary intellectual property; in those cases we are increasingly reliant on third parties for high-performance, high-technology components, which reduces the amount of control we have over the availability and protection of the technology and intellectual property that is used in our products. In addition, if certain of our key suppliers experience liquidity issues and are forced to discontinue operations, which is a heightened risk during economic downturns, that would affect their ability to deliver parts and could result in delays for our products. Our operating results and business may be adversely impacted if we are unable to obtain parts to meet our production requirements and product specifications, or if we are only able to do so on unfavorable terms.Disruption of our manufacturing facilities or other operations, or in the operations of our customers, due to earthquake, flood, other natural catastrophic events, health epidemics or terrorism could result in cancellation of orders, delays in deliveries or other business activities, or loss of customers and could seriously harm our business.We have significant manufacturing operations in the United States, Singapore, Israel, Belgium and Germany. In addition, our business is international in nature, with our sales, service and administrative personnel and our customers located in numerous countries throughout the world. Operations at our manufacturing facilities and our assembly subcontractors, as well as our other operations and those of our customers, are subject to disruption for a variety of reasons, including work stoppages, acts of war, terrorism, health epidemics, fire, earthquake, volcanic eruptions, energy shortages, flooding or other natural disasters. Such disruption could cause delays in, among other things, shipments of products to our customers, our ability to perform services requested by our customers, or the installation and acceptance of our products at customer sites. We cannot ensure that alternate means of conducting our operations (whether through alternate production capacity or service providers or otherwise) would be available if a major disruption were to occur or that, if such alternate means were available, they could be obtained on favorable terms.As part of our cost-cutting actions, we have consolidated several operating facilities. Our California operations are now primarily centralized in our Milpitas facility. The consolidation of our California operations into a single campus could further concentrate the risks related to any of the disruptive events described in the preceding paragraph, such as acts of war or terrorism, earthquakes, fires or other natural disasters, if any such event were to impact our Milpitas facility.We outsource a number of services to third-party service providers, which decreases our control over the performance of these functions. Disruptions or delays at our third-party service providers could adversely impact our operations.We outsource a number of services, including our transportation and logistics management of spare parts and certain accounting functions, to domestic and overseas third-party service providers. While outsourcing arrangements may lower our cost of operations, they also reduce our direct control over the services rendered. It is uncertain what effect such diminished control will have on the quality or quantity of products delivered or services rendered, on our ability to quickly respond to changing market conditions, or on our ability to ensure compliance with all applicable domestic and foreign laws and regulations. Disruptions or delays at our third-party service providers due to events such as regional economic, business, environmental or political events, information technology system failures or military actions could adversely impact our operations and our ability to ship products, manage our product inventory or record and report financial and management information on a timely and accurate basis.Our success is dependent in part on our technology and other proprietary rights. If we are unable to maintain our lead or protect our proprietary technology, we may lose valuable assets.Our success is dependent in part on our technology and other proprietary rights. We own various United States and international patents and have additional pending patent applications relating to some of our products and technologies. The process of seeking patent protection is lengthy and expensive, and we cannot be certain that pending or future applications will actually result in issued patents or that issued patents will be of sufficient scope or strength to provide meaningful protection or commercial advantage to us. Other companies and individuals, including our larger competitors, may develop technologies and obtain patents relating to our business that are similar or superior to our technology or may design around the patents we own, adversely affecting our business. In addition, we at times engage in collaborative technology development efforts with our customers and suppliers, and these collaborations may constitute a key component of certain of our ongoing technology and product research and development projects. The termination of any such collaboration, or delays caused by disputes or other unanticipated challenges that may arise in connection with any such collaboration, could significantly impair our research and development efforts, which could have a material adverse impact on our business and operations.We also maintain trademarks on certain of our products and services and claim copyright protection for certain proprietary software and documentation. However, we can give no assurance that our trademarks and copyrights will be upheld or successfully deter infringement by third parties.While patent, copyright and trademark protection for our intellectual property is important, we believe our future success in highly dynamic markets is most dependent upon the technical competence and creative skills of our personnel. We attempt to protect our trade secrets and other proprietary information through confidentiality and other agreements with our customers, suppliers, employees and consultants and through other security measures. We also maintain exclusive and non-exclusive licenses with third parties for strategic technology used in certain products. However, these employees, consultants and third parties may breach these agreements, and we may not have adequate remedies for wrongdoing. In addition, the laws of certain territories in which we develop, manufacture or sell our products may not protect our intellectual property rights to the same extent as do the laws of the United States. In any event, the extent to which we can protect our trade secrets through the use of confidentiality agreements is limited, and our success will depend to a significant extent on our ability to innovate ahead of our competitors.We might be involved in intellectual property disputes or other intellectual property infringement claims that may be costly to resolve, prevent us from selling or using the challenged technology and seriously harm our operating results and financial condition.As is typical in the semiconductor equipment industry, from time to time we have received communications from other parties asserting the existence of patent rights, copyrights, trademark rights or other intellectual property rights which they believe cover certain of our products, processes, technologies or information. In addition, we occasionally receive notification from customers who believe that we owe them indemnification or other obligations related to intellectual property claims made against such customers by third parties. Litigation tends to be expensive and requires significant management time and attention and could have a negative effect on our results of operations or business if we lose or have to settle a case on significantly adverse terms. Our customary practice is to evaluate such infringement assertions and to consider whether to seek licenses where appropriate. However, we cannot ensure that licenses can be obtained or, if obtained, will be on acceptable termsor that costly litigation or other administrative proceedings will not occur. The inability to obtain necessary licenses or other rights on reasonable terms, or the instigation of litigation or other administrative proceedings, could seriously harm our operating results and financial condition.We depend on key personnel to manage our business effectively, and if we are unable to attract, retain and motivate our key employees, our sales and product development could be harmed.Our employees are vital to our success, and our key management, engineering and other employees are difficult to replace. We generally do not have employment contracts with our key employees. Further, we do not maintain key person life insurance on any of our employees. The expansion of high technology companies worldwide has increased demand and competition for qualified personnel. If we are unable to retain key personnel, or if we are not able to attract, assimilate or retain additional highly qualified employees to meet our needs in the future, our business and operations could be harmed.Acquisitions are an important element of our strategy but, because of the uncertainties involved, we may not find suitable acquisition candidates and we may not be able to successfully integrate and manage acquired businesses. We are also exposed to risks in connection with strategic alliances into which we may enter.In addition to our efforts to develop new technologies from internal sources, part of our growth strategy is to pursue acquisitions and acquire new technologies from external sources. As part of this effort, we may make acquisitions of, or significant investments in, businesses with complementary products, services and/or technologies. find suitable acquisition candidatescontinue to declare cash dividends at all or in any particular amounts.we complete will be successful. In addition, we may use equityand the funding of our research and development; legal risks; stock repurchase programs; changes in federal and state income tax laws or corporate laws; and changes to finance future acquisitions, which would increase our number of shares outstanding and be dilutive to current stockholders.If we are unable to successfully integrate and manage acquired businesses or if acquired businesses perform poorly, then our business model. Our dividend payments may change from time to time, and financial results may suffer. It is possible that the businesses we have acquired, aswell as businessescannot provide assurance that we may acquirewill continue to declare dividends at all or in the future, may perform worse than expected or prove to be more difficult to integrate and manage than expected. In addition, we may lose key employees of the acquired companies. Asany particular amounts. A reduction in our dividend payments could have a result,negative effect on our stock price.acquisitionour outstanding indebtedness.give risenot explicitly agree to our terms and conditions. In situations where we engage in business with a material adverse effect on our businessthird party without an explicit master agreement regarding the applicable terms and financial results for a number of reasons, including:to devote unanticipated financialdisputes with those third parties regarding the applicable terms and management resources to acquired businesses;the combination of businesses may cause the loss of key personnel or an interruption of, or loss of momentum in, the activitiesconditions of our company and/business relationship with them. Such disputes could lead to a deterioration of our commercial relationship with those parties, costly and time-consuming litigation, or the acquired business;we may not be ableadditional concessions or obligations being offered by us to realize expected operating efficienciesresolve such disputes, or product integration benefits fromcould impact our acquisitions;we may experience challenges in entering into new market segments for which we have not previously manufactured and sold products;we may face difficulties in coordinating geographically separated organizations, systems and facilities;the customers, distributors, suppliers, employees and others with whom the companies we acquire have business dealings may have a potentially adverse reaction to the acquisition;we may have to write-off goodwillrevenue or other intangible assets; andwe may incur unforeseen obligations or liabilities in connection with acquisitions.At times, we may also enter into strategic alliances with customers, suppliers or other business partners with respect to development of technology and intellectual property. These alliances typically require significant investments of capital and exchange of proprietary, highly sensitive information. The successcost recognition. Any of these alliances depends on various factors over which we may have limited or no control and requires ongoing and effective cooperation with our strategic partners. Mergers and acquisitions and strategic alliances are inherently subject to significant risks, and the inability to effectively manage these risksoutcomes could materially and adversely affect our business, financial condition and operating results.Complianceresults of operations.federal securities laws, ruleswhom we enter into contractual relationships, including customers and regulations,lessors, with respect to certain matters. We have agreed, under certain conditions, to hold these third parties harmless against specified losses, such as well as NASDAQ requirements,those arising from a breach of representations or covenants, other third party claims that our products when used for their intended purposes infringe the intellectual property rights of such other third parties, or other claims made against certain parties. We may be compelled to enter into or accrue for probable settlements of alleged indemnification obligations, or we may be subject to potential liability arising from our customers’ involvements in legal disputes. In addition, notwithstanding the provisions related to limitations onbecoming increasingly complex,difficult to determine the maximum potential amount of liability under any indemnification obligations, whether or not asserted, due to our limited history of prior indemnification claims and the significant attentionunique facts and expense we must devotecircumstances that are likely to those areas may have an adverse impact on our business.Federal securities laws, rules and regulations, as well as NASDAQ rules and regulations, require companies to maintain extensive corporate governance measures, impose comprehensive reporting and disclosure requirements, set strict independence andbe involved in any particular claim. Our business, financial expertise standards for audit and other committee members and impose civil and criminal penalties for companies and their chief executive officers, chief financial officers and directors for securities law violations. These laws, rules and regulations have increased, and in the future are expected to continue to increase, the scope, complexity and cost of our corporate governance, reporting and disclosure practices, which could harm our results of operations and divert management’s attention from business operations.We are predominantly uninsured for losses and interruptions caused by terrorist acts and acts of war. If international political instability continues or increases, our businesscondition and results of operations in a reported fiscal period could be harmed.The threat of terrorism targeted at the regions of the worldmaterially and adversely affected if we expend significant amounts in which we do business increases the uncertainty in our markets. Any act of terrorism which affects the economydefending or the semiconductor industry could adversely affect our business. Increased international political instability in various parts of the world, disruption in air transportation and further enhanced security measures as a result of terrorist attacks may hinder our ability to do business and may increase our costs of operations. Such continuing instability could cause us to incur increased costs in transportation, make such transportation unreliable, increase our insurance costs, and cause international currency markets to fluctuate. This same instability could have the same effects on our suppliers and their abilityto timely deliver their products. If international political instability continues or increases, our business and results of operations could be harmed. We are predominantly uninsured for losses and interruptions caused by terrorist acts and acts of war.We self insure certain risks including earthquake risk. If one or more of the uninsured events occurs, we could suffer major financial loss.We purchase insurance to help mitigate the economic impact of certain insurable risks; however, certain other risks are uninsurable or are insurable only at significant cost or cannot be mitigated with insurance. An earthquake could significantly disrupt our manufacturing operations, a significant portion of which are conducted in California, an area highly susceptible to earthquakes. It could also significantly delay our research and engineering efforts on new products, much of which is also conducted in California. We take steps to minimize the damage that would be caused by an earthquake, but there is no certainty that our efforts will prove successful in the event of an earthquake. We self insure earthquake risks because we believe this is a prudent financial decision based on our large cash reserves and the high cost and limited coverage available in the earthquake insurance market. Certain other risks are also self-insured either based on a similar cost-benefit analysis, or based on the unavailability of insurance. If one or more of the uninsured events occurs, we could suffer major financial loss.A change in accounting standards or practices or a change in existing taxation rules or practices (or changes in interpretations of such standards, practices or rules) can have a significant effect on our reported results and may even affect reporting of transactions completed before the change is effective.New accounting pronouncements and taxation rules and varying interpretations of accounting pronouncements and taxation rules have occurred and may occur in the future. Changes to (or revised interpretations of) existing tax or accounting rules or the questioning of current or past practices may adversely affect our reported financial results or the way we conduct our business.For example, the adoption of the authoritative guidance for stock-based compensation,which required us to measure all employee stock-based compensation awards using a fair value method beginning in fiscal year 2006 and record such expense in our consolidated financial statements, has had a material impact on our consolidated financial statements, as reported under accounting principles generally accepted in the United States of America.A change in our effective tax rate can have a significant adverse impact on our business.A number of factors may adversely impact our future effective tax rates, such as the jurisdictions in which our profits are determined to be earned and taxed; the resolution of issues arising from tax audits with various tax authorities; changes in the valuation of our deferred tax assets and liabilities; adjustments to estimated taxes upon finalization of various tax returns; increases in expenses not deductible for tax purposes, including write-offs of acquired in-process research and development and impairment of goodwill in connection with acquisitions; changes in available tax credits; changes in stock-based compensation expense; changes in tax laws or the interpretation of such tax laws (for example, proposals for fundamental U.S. international tax reform, such as the recent proposal by President Obama’s Administration, if enacted); changes in generally accepted accounting principles; and the repatriation of non-U.S. earnings for which we have not previously provided for U.S. taxes. A change in our effective tax rate can adversely impact our results from operations.We are exposed to various risks related to the legal, regulatory and tax environments in which we perform our operations and conduct our business.We are subject to various risks related to compliance with new, existing, different, inconsistent or even conflicting laws, rules and regulations enacted by legislative bodies and/or regulatory agencies in the countries in which we operate and with which we must comply, including environmental, safety, antitrust and export control regulations. For example, we are subject to environmental and safety regulations in connection with our global business operations, including regulations related to the development, manufacture and use of our products,recycling and disposal of materials used in our products or in producing our products, the operation of our facilities, and the use of our real property. Our failure or inability to comply with existing or future laws, rules or regulations, or changes to existing laws, rules or regulations, including changes that result in inconsistent or conflicting laws, rules or regulations, in the countries in which we operate could result in violations of contractual or regulatory obligations that may adversely affect our reported financial results or our ability to conduct our business.In addition, we may from time to time be involved in legal proceedings or claims regarding employment, contracts, product performance, product liability, antitrust, environmental regulations, securities, unfair competition and other matters (in addition to proceedings and claims related to intellectual property matters, which are separately discussed elsewhere in this Item 1A). These legal proceedings andsettling any purported claims, regardless of their merit mayor outcomes.time-consumingsubstantial and expensive to prosecute or defend, divert management’s attention and resources, and/or inhibitcould have an adverse impact upon our ability to sell our products. There can be no assurance regarding the outcome of current or future legal proceedings or claims, which could adversely affect our operating results,business, financial condition and operating results. In addition, our ability to operatereputation with our customers could be damaged as a result of such product defects, which could reduce demand for our products and negatively impact our business. also exposed to additional risks related to our receipt of external funding for certain strategic development programs from various governments and government agencies, both domestically and internationally. Governments and government agencies typically have the right to terminate funding programs at any time in their sole discretion, so there is no assurance that these sources of external funding will continue to be available to us in the future. In addition, under the terms of these government grants, the applicable granting agency typically has the right to audit the costs that we incur, directly and indirectly, in connection with such programs. Any such audit could result in modifications to, or even termination of, the applicable government funding program. For example, if an audit were to identify any costs as being improperly allocated to the applicable program, those costs would not be reimbursed, and any such costs that had already been reimbursed would have to be refunded. We do not know the outcome of any future audits. Any adverse finding resulting from any such audit could lead to penalties (financial or otherwise), termination of funding programs, suspension of payments, fines and suspension or prohibition from receiving future government funding from the applicable government or government agency, any of which could adversely impact our operating results, financial condition and our ability to operate our business.Furthermore, we are subject to tax auditsvarious jurisdictions,the past and such jurisdictions may assess additional income or other taxes against us. Although we believe our tax estimates are reasonable,do so again in the final determination of tax audits and any related litigation could be materially different from our historical income tax provisions and accruals. The results of an audit or litigationfuture, which could have a material negative impact on our business.or cash flows in the period or periods for which that determination is made.A majority of our annual revenues are derived from outside the United States, and we maintain significant operations outside the United States. We are exposed to numerous risks as a result of the international nature of our business and operations.A majority of our annual revenues are derived from outside the United States, and we maintain significant operations outside the United States. We expect that these conditions will continue in the foreseeable future. Managing global operations and sites located throughout the world presents challenges associated with, among other things, cultural diversity and organizational alignment. Moreover, each region in the global semiconductor equipment market exhibits unique characteristics that can cause capital equipment investment patterns to vary significantly from period to period. Periodic local or international economic downturns, trade balance issues, tariffs or other trade barriers, political instability, legal or regulatory changes or terrorism in regions where we have operations or where we do business, along with fluctuations in interest and currency exchange rates, could negatively affect our business and results of operations. Although we attempt to manage near-term currency risks through the use of hedging instruments, there can be no assurance that such efforts will be adequate.We are exposed to foreign currency exchange rate fluctuations; although we hedge certain currency risks, we may still be adversely affected by changes in foreign currency exchange rates or declining economic conditions in these countries.We have some exposure to fluctuations in foreign currency exchange rates, primarily the Euro and the Japanese Yen. We have international subsidiaries that operate and sell our products globally. In addition, an increasing proportion of our manufacturing activities are conducted outside of the United States, and many of the costs associated with such activities are denominated in foreign currencies. We routinely hedge our exposures to certain foreign currencies with variousrelated financial institutions in an effort to minimize the impact of certain currency exchange rate fluctuations, but these hedges may be inadequate to protect us from currency exchange rate fluctuations. To the extent that these hedges are inadequate, or if there are significant currency exchange rate fluctuations in currencies for which we do not have hedges in place, our reported financial results or the way we conduct our business could be adversely affected. Furthermore, if a financial counter-party to our hedges experiences financial difficulties or is otherwise unable to honor the terms of the foreign currency hedge, we may experience material financial losses.There are risks associated with our outstanding indebtedness.As of June 30, 2010, we had $750 million aggregate principal amount of outstanding indebtedness represented by our senior notes that will mature in 2018, and we may incur additional indebtedness in the future. Our ability to pay interest and repay the principal for our indebtedness is dependent upon our ability to manage our business operations and the other risk factors discussed in this section. There can be no assurance that we will be able to manage any of these risks successfully.In addition, changes by any rating agency to our outlook or credit rating could negatively affect the value and liquidity of both our debt and equity securities. Factors that can affect our credit rating include changes in our operating performance, the economic environment, conditions in the semiconductor and semiconductor equipment industries, our financial position, and changes in our business strategy.In certain circumstances involving a change of control followed by a downgrade of the rating of our senior notes, we will be required to make an offer to repurchase the senior notes at a purchase price equal to 101% of the aggregate principal amount of the notes repurchased, plus accrued and unpaid interest. We cannot make any assurance that we will have sufficient financial resources at such time or will be able to arrange financing to pay the repurchase price of the senior notes. Our ability to repurchase the senior notes in such event may be limited by law, by the indenture associated with the senior notes, or by the terms of other agreements to which we may be party at such time. If we fail to repurchase the senior notes as required by the indenture, it would constitute an event of default under the indenture governing the senior notes which, in turn, may also constitute an event of default under other of our obligations.There can be no assurance that we will continue to declare cash dividends at all or in any particular amounts.Our Board of Directors first instituted a quarterly dividend during the fiscal year ended June 30, 2005. Since that time, we have announced two increases in the amount of our quarterly dividend level. We intend to continue to pay quarterly dividends subject to capital availability and periodic determinations by our Board of Directors that cash dividends are in the best interest of our stockholders and are in compliance with all laws and agreements applicable to the declaration and payment of cash dividends by us. Future dividends may be affected by, among other factors: our views on potential future capital requirements for investments in acquisitions and the funding of our research and development; legal risks; stock repurchase programs; changes in federal and state income tax laws or corporate laws; and changes to our business model. Our dividend payments may change from time to time, and we cannot provide assurance that we will continue to declare dividends at all or in any particular amounts. A reduction in our dividend payments could have a negative effect on our stock price.We are exposed to fluctuations in the market values of our portfolio investments and in interest rates; impairment of our investments could harm our earnings. In addition, we and our stockholders are exposed to risks related to the volatility of the market for our common stock.Our investment portfolio consists of both corporate and government securities that have a maximum effective maturity of 10 years. The longer the duration of these securities, the more susceptible they are to changes in market interest rates and bond yields. As yields increase, those securities with a lower yield-at-cost show a mark-to-market unrealized loss. We have the ability to realize the full value of all these investments upon maturity. Unrealized losses are due to changes in interest rates and bond yields.In addition, the market price for our common stock is volatile and has fluctuated significantly during recent years. The trading price of our common stock could continue to be highly volatile and fluctuate widely in response to various factors, including without limitation conditions in the semiconductor industry and other industries in which we operate, fluctuations in the global economy or capital markets, our operating results or other performance metrics, or adverse consequences experienced by us as a result of any of the risks described elsewhere in this Item 1A. Volatility in the market price of our common stock could cause an investor in our common stock to experience a loss on the value of their investment in us and could also adversely impact our ability to raise capital through the sale of our common stock or to use our common stock as consideration to acquire other companies.We have recorded significant restructuring, inventory write-off and asset impairment charges in the past and may do so again in the future, which could have a material negative impact on our business.During the fiscal year ended June 30, 2009, we recorded material restructuring charges of $38.7 million related to our global workforce reduction, large excess inventory write-offs of $85.6 million, and material impairment charges of $446.7 million related to our goodwill and purchased intangible assets. If we were to encounter challenging economic conditions once again, we may implement additional cost reduction actions, which would require us to take additional, potentially material, restructuring charges related to, among other things, employee terminations or exit costs. We may also be required to write off additional inventory if our product build plans or usage of service inventory decline, and such additional write-offs could constitute material charges.As noted above, we recorded a material charge during the fiscal year ended June 30, 2009 related to the impairment of our goodwill and purchased intangible assets. Goodwill represents the excess of costs over the net fair value of net assets acquired in a business combination. Goodwill is not amortized, but is instead tested for impairment at least annually in accordance with authoritative guidance for goodwill. Purchased intangible assets with estimable useful lives are amortized over their respective estimated useful lives using the straight-line method, and are reviewed for impairment in accordance with authoritative guidance for long-lived assets. The valuation of goodwill and intangible assets requires assumptions and estimates of many critical factors, includingrevenue and market growth, operating cash flows, market multiples, and discount rates. A substantial decline in our stock price, or any other adverse change in market conditions, particularly if such change has the effect of changing one of the critical assumptions or estimates we used to calculate the amount of such impairment charge, could result in a change to the estimation of fair value that could result in an additional impairment charge.Any such additional material charges, whether related to restructuring or goodwill or purchased intangible asset impairment, may have a material negative impact on our operating results and related financial statements.We are exposed to risks related to our commercial terms and conditions, including our indemnification of third parties, as well as the performance of our products.Although our standard commercial documentation sets forth the terms and conditions that we intend to apply to commercial transactions with our business partners, counterparties to such transactions may not explicitly agree to our terms and conditions. In situations where we engage in business with a third party without an explicit master agreement regarding the applicable terms and conditions, or where the commercial documentation applicable to the transaction is subject to varying interpretations, we may have disputes with those third parties regarding the applicable terms and conditions of our business relationship with them. Such disputes could lead to a deterioration of our commercial relationship with those parties, costly and time-consuming litigation, or additional concessions or obligations being offered by us to resolve such disputes, or could impact our revenue or cost recognition. Any of these outcomes could materially and adversely affect our business, financial condition and results of operations.In addition, in our commercial agreements, from time to time in the normal course of business we indemnify third parties with whom we enter into contractual relationships, including customers and lessors, with respect to certain matters. We have agreed, under certain conditions, to hold these third parties harmless against specified losses, such as those arising from a breach of representations or covenants, other third party claims that our products when used for their intended purposes infringe the intellectual property rights of such other third parties, or other claims made against certain parties. We may be compelled to enter into or accrue for probable settlements of alleged indemnification obligations or subject to potential liability arising from our customers’ involvements in legal disputes. In addition, notwithstanding the provisions related to limitations on our liability that we seek to include in our business agreements, the counter-parties to such agreements may dispute our interpretation or application of such provisions, and a court of law may not interpret or apply such provisions in our favor, any of which could result in an obligation for us to pay material damages to third parties and engage in costly legal proceedings. It is difficult to determine the maximum potential amount of liability under any indemnification obligations, whether or not asserted, due to our limited history of prior indemnification claims and the unique facts and circumstances that are likely to be involved in any particular claim. Our business, financial condition and results of operations in a reported fiscal period could be materially adversely affected if we expend significant amounts in defending or settling any purported claims, regardless of their merit or outcomes.We are also exposed to potential costs associated with unexpected product performance issues. Our products and production processes are extremely complex and thus could contain unexpected product defects, especially when products are first introduced. Unexpected product performance issues could result in significant costs being incurred by us, including increased service or warranty costs, providing product replacements for (or modifications to) defective products, litigation related to defective products, product recalls, or product write-offs or disposal costs. These costs could be substantial and could have an adverse impact upon our business, financial condition and operating results. In addition, our reputation with our customers could be damaged as a result of such product defects, which could reduce demand for our products and negatively impact our business.We rely upon certain critical information systems for our daily business operation. Our inability to use or access these information systems at critical points in time could unfavorably impact the timeliness and efficiency of our business operations.Our global operations are linked by information systems, including telecommunications, the internet, our corporate intranet, network communications, email and various computer hardware and software applications. Despite our implementation of network security measures, our tools and servers are vulnerable to computer viruses, break-ins and similar disruptions from unauthorized tampering with our computer systems and tools located at customer sites, or could be subject to system failures or malfunctions for other reasons. System failures or malfunctioning, such as difficulties with our customer relationship management (“CRM”) system, could disrupt our operations and our ability to timely and accurately process and report key components of our financial results. In addition, any disruptions or difficulties that may occur in connection with our enterprise resource planning (“ERP”) system or other systems (whether in connection with the regular operation of such systems or as a result of the integration of our acquired businesses into such systems) could adversely affect our ability to complete important business processes, such as the evaluation of our internal control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act of 2002. Any such event could have an adverse effect on our business, operating results and financial condition.ITEM 1B. UNRESOLVED STAFF COMMENTS ITEM 2. PROPERTIES 20102011 is set forth below: Type Ownership Fremont, CA(1) plant Research, Engineering, Marketing, Manufacturing, Service and Sales Administration101,882LeasedMilpitas, CAOffice, plant andwarehouse 727,302 Owned San Jose, CA(1)(3) Santa Clara, CA Research, Engineering, Marketing, Manufacturing, Service and Sales Administration434,653OwnedSanta Clara, CAOffice, plant andwarehouse 58,55950,400 Leased Office and plant 116,908 Leased Leuven, Belgium(1) Leuven, Belgium(1) 99,315 Owned Office and plant 33,571 Leased Office and plant 159,732 Leased India(3) Office 79,668 Owned Office and plant 67,78889,996 Owned Yokohama, Japan Office andwarehouse Yokohama, Japan Sales, Service and Warehouse 39,76437,418 Leased Singapore(2) Office and plant 185,809 Owned Office 73,676 Leased (1) Portions of certain propertiesthis property are sublet, are vacant and marketed to sublease, or are leased to third parties.(2) The land on which the Serangoon, Singapore building resides is leased.(3)All or portionsPortions of certain propertiesthis property are being made available for sale.(3) We own the building at our location in Serangoon, Singapore, but the land on which this building resides is leased. 2010,2011, we owned or leased a total of approximately 2.51.9 million square feet of space worldwide, including the locations listed above and office space for smaller sales and service offices in several locations throughout the world. Our operating leases expire at various times through July 31, 2018 with renewalITEM 3. LEGAL PROCEEDINGS Government Inquiries and SEC Settlement Relating to Historical Stock Option PracticesSeveral government agencies previously conducted investigations beginning in May 2006 concerning the Company’s past stock options grants and related accounting matters, including investigations by the SEC and United States Attorney’s Office (“USAO”), an examination401(k) Savings Plan (“Plan”) by the U.S. Department of Labor (“DOL”), and an audit covering calendar year 2006 by the Internal Revenue Service (“IRS”). As previously reported, the SEC investigation was resolved with respect to the Company by a non-monetary settlement in July 2007, the USAO advised us that it had closed its investigation and determined not to take any action against the Company in July 2008, the IRS concluded its audit with a payment by the Company of $0.1 million in July 2008, and the DOL closed its examination on the basis of the Plan’s election to participate in our previously announced shareholder class action settlement, at no additional cost to the Company, and our separate settlement with the Plan’s independent fiduciary under which we paid the Plan $25,000 and denied all liability. These matters are now closed.Litigation Relating to Historical Stock Option PracticesBeginning on May 22, 2006, several shareholder derivative actions were filed on behalf of and in the name of the Company against several of our current and former directors and officers relating to our historical stock options and related accounting from 1994 to 2006, consisting of a consolidated action in the U.S. District Court for the Northern District of California (the “Federal Derivative Action”); an action in the California Superior Court for Santa Clara County (“California Action”); and one in the Delaware Chancery Court (“Delaware Action”).As previously reported, on March 15, 2010, we entered into a Stipulation of Settlement (the “Stipulation”) with all parties to the Federal Derivative Action to resolve the Federal Derivative Action in its entirety, subject to approval by the Federal District Court (the “Settlement”). By Addendum to the Stipulation filed on May 17, 2010, the plaintiffs in the California Action and in the Delaware Action joined in the Settlement. The Federal District Court approved the Settlement and entered its final judgment and order dismissing the Federal Derivative Action with prejudice on May 26, 2010. Thereafter, the California Action was dismissed with prejudice on June 1, 2010, and the Delaware Action was dismissed with prejudice on June 2, 2010. The Settlement became final and effective by its terms on June 28, 2010.As set forth more fully in the Stipulation, under the Settlement, among other things, (i) we received cash payments totaling $24 million from insurers; (ii) we received additional cash payments of approximately $9.2 million from certain of the settling defendants; (iii) certain of the settling defendants relinquished compensation and other benefits of approximately $9.4 million; (iv) we paid attorneys’ fees to plaintiffs’ counsel in the amount of $8 million in cash, in addition to $8 million in shares of our common stock; (v) the Federal Derivative Action was dismissed with prejudice; (vi) the Company, settling defendants, related parties, and plaintiffs and their counsel have been released from claims related to the Federal Derivative Action and the matters that were or could have been alleged therein, and further litigation on such claims is barred; and (vii) we committed to maintain certain corporate governance enhancements, including certain previously implemented policies, procedures and guidelines relating to our board of directors composition, stock option granting practices and procedures, and internal controls and procedures. This summary of the terms of the Stipulation is qualified entirely by reference to the copy of the Stipulation filed as Exhibit 99.1 to the Current Report on Form 8-K filed by the Company with the SEC on March 26, 2010, the content of which is incorporated by reference herein. Under the Addendum to the Stipulation, the California Action and Delaware Action were also dismissed withprejudice. During the year ended June 30, 2010, we recorded a charge of $1.3 million to selling, general and administrative expenses, reflecting the anticipated net amount to be paid by the Companyindemnification obligations in connection with the Settlement and the Company’s settlements during such period of separate matters with Kenneth Schroeder and Kenneth Levy, as also previously reported and further described below. As a result of the Settlement, the shareholder derivative litigation arising from our historical stock options grants and related practices is now concluded.The Company was also previously named as a defendant along with various of its current and former officers in putative securities class actions arising from its historical stock options grants and related matters in state and federal court beginning in June 2006. Those actions were resolved by settlement or dismissal, as previously reported.Finally, we entered into settlements of litigation and arbitration claims filed by our former CEO Kenneth Schroeder in connection with the termination of his employment and cancellation of certain of his stock options and restricted stock units in 2006, and also settled claims asserted by our former CEO and Chairman of the Board Kenneth Levy relatinggovernment inquiries related to our alleged refusal to permit the exercise of certain stock options in 2007 and 2008. We recorded the expenses associated with these settlements in our selling, general and administrative expenses during the three months ended March 31, 2010. The settlements have been performed and are now final.As a result of the foregoing, all litigation matters to which we were a party arising from our historical stock option grants and related practices are now closed.Indemnification ObligationsSubject to certain limitations, we are obligated to indemnify our current and former directors, officers and employees with respect to certain litigation matters and investigations that arise in connection with their service to us. These obligations arise under the terms of our certificate of incorporation, our bylaws, applicable contracts, and Delaware and California law. The obligation to indemnify generally means that we are required to pay or reimburse the individuals’ reasonable legal expenses and possibly damages and other liabilities incurred in connection with these matters. We paid or reimbursed legal expenses incurred in connection with the investigation of our historical stock option practices, and the related litigation and government inquiries by a number of our current and former directors, officers and employees. Wewe are alsocurrently paying defense costs to twoone former officersofficer and employeesemployee facing an SEC civil actionsaction to which we are not a party.party, and we are also obligated to pay the attorneys' fees and expenses incurred by former employees in connection with discovery undertaken in that case. We are further incurring costs associated with retaining counsel to respond to discovery requests and otherwise representing us in that litigation. Although the maximum potential amount of future payments we could be required to make under these agreementsarrangements is theoretically unlimited, we believe the fair value of this liability, to the extent estimable, is appropriately considered within the reserve we have established for currently pending legal proceedings.itsour business. Actions filed against us include commercial, intellectual property, customer, and labor and employment related claims, including complaints of alleged wrongful termination and potential class action lawsuits regarding alleged violations of federal and state wage and hour and other laws. Litigation, in general, and intellectual property and securities litigation in particular, can be expensive and disruptive to normal business operations. Moreover, the results of legal proceedings are difficult to predict, and the costs incurred in litigation can be substantial, regardless of outcome. We believe the amounts providedreflected in our consolidated financial statements are adequate in light of the probable and estimated liabilities. However, because such matters are subject to many uncertainties, the ultimate outcomes are not predictable and there can be no assurances that the actual amounts required to satisfy alleged liabilities from the matters described above will not exceed the amounts reflected in our consolidated financial statements or will not have a material adverse effect on our results of operations, financial condition or cash flows.ITEM 4. (Removed and Reserved) ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES indicated. Year ended June 30, 2010 Year ended June 30, 2009 High Low High Low $ 35.86 $ 25.13 $ 41.54 $ 30.92 $ 37.40 $ 31.24 $ 31.00 $ 15.19 $ 37.12 $ 28.09 $ 24.11 $ 15.54 $ 35.30 $ 27.88 $ 29.45 $ 20.34 Year ended June 30, 2011 Year ended June 30, 2010 High Low High Low First Fiscal Quarter $ 35.23 $ 27.16 $ 35.86 $ 25.13 Second Fiscal Quarter $ 40.16 $ 34.24 $ 37.40 $ 31.24 Third Fiscal Quarter $ 51.21 $ 37.69 $ 37.12 $ 28.09 Fourth Fiscal Quarter $ 46.80 $ 38.10 $ 35.30 $ 27.88 20102011 and 2009.2010. The total amount of dividends paid during the fiscal years ended June 30, 20102011 and 20092010 was $102.4$167.4 million and $102.1$102.4 million respectively., respectively, reflecting an increase during the fiscal year ended June 30, 2011 to the level of our quarterly dividend from $0.15 to $0.25 per share. On July 13, 2010,12, 2011, we announced that our Board of Directors had authorized ana further increase in the level of our quarterly dividend from $0.15$0.25 to $0.25$0.35 per share. Following such announcement, during the first quarter of the fiscal year ending June 30, 2011,2012, our Board of Directors authorizedapproved a quarterly cash dividend of $0.25$0.35 per share, which was declared on August 5, 20104, 2011 and will be paid on September 1, 20102011 to our stockholders of record on August 16, 2010.22, 2010,21, 2011, there were 622577 holders of record of our common stock.Recent Sales of Unregistered SecuritiesAs described under Item 3 of Part I, “Legal Proceedings,” on March 15, 2010 we entered into a Stipulation of Settlement with respect to the derivative lawsuits related to the Company’s historical stock option practices. In connection with such settlement, which was approved by the U.S. District Court for the Northern District of California on May 26, 2010, we became obligated as of June 28, 2010 (the effective date of the settlement, per the terms of the Stipulation) to, among other things, issue $8 million in shares of our common stock to plaintiffs’ counsel within ten business days following such effective date. On July 12, 2010, without using an underwriter, we issued 263,106 shares of our common stock to plaintiffs’ counsel in connection with such settlement, with the number of shares determined by dividing $8 million by the average daily closing price of our common stock for the ten trading days immediately preceeding June 28, 2010. Because the U.S. District Court approved the terms of the settlement, which included the issuance of these securities, the securities were issued pursuant to the exemption from registration provided by Section 3(a)(10) of the Securities Act of 1933, as amended. As of June 30, 2010, we accrued approximately $7.3 million to account for the issuance of 263,106 shares based on the closing share price of our common stock as of June 30, 2010.2010: 2011(1) Total Number of
Shares
Purchased(2) Average Price Paid
per Share Maximum Number of
Shares that May
Yet Be Purchased Under
the Plans or Programs(3) 680,000 $ 32.61 7,161,000 805,000 $ 31.26 6,356,000 1,150,000 $ 29.83 5,206,000 2,635,000 $ 30.99 Period Total Number of
Shares
Purchased (2) Average Price Paid
per Share Maximum Number of
Shares that May
Yet Be Purchased Under the Plans or Programs (3)April 1, 2011 to April 30, 2011 432,523 $ 43.72 9,957,126 May 1, 2011 to May 31, 2011 443,315 $ 42.95 9,513,811 June 1, 2011 to June 30, 2011 497,497 $ 40.01 9,016,314 Total 1,373,335 $ 42.13 (1) theour Board of Directors authorized us to systematically repurchase up to 17.8 million shares of our common stock in the open market. This plan was put into place to reduce the dilution from our employee benefit and incentiveplans, such as our stock option and employee stock purchase plans, and to return excess cash to our stockholders. The Board of Directors has authorized us to repurchase additional shares of our common stock under the repurchase program in February 2005 (up to 10.0 million shares), February 2007 (up to 10.0 million shares), August 2007 (up to 10.0 million shares) and June 2008 (up to 15.0 million shares), in each case in addition to the originally authorized 17.8 million shares described in the first sentence of this footnote.(2) All shares were purchased pursuant to the publicly announced repurchase programsprogram described in footnote 1 above.(3) The stock repurchase programs haveprogram has no expiration date. Future repurchases of our common stock under our repurchase programsprogram may be effected through various different repurchase transaction structures, including isolated open market transactions or systematic repurchase plans.shareholdersstockholders on our common stock relative to the cumulative total returns of the S&P 500 Index (as required by SEC regulations) and the Philadelphia Semiconductor Index.Index (PHLX). The graph tracks the performance of a $100 investment in our common stock and in each of the indices (with the reinvestment of all dividends) from June 30, 20052006 to June 30, 2010.
6/05 6/06 6/07 6/08 6/09 6/10 100.00 96.09 128.29 96.23 61.39 69.08 100.00 108.63 131.00 113.81 83.98 96.09 100.00 96.53 114.59 97.83 74.93 91.76 *Assumes $100 invested on June 30, 2005 in stock or index-including reinvestment of dividends.
6/06 6/07 6/08 6/09 6/10 6/11 KLA-Tencor Corporation 100.00 133.51 100.14 63.88 71.89 107.11 S&P 500 100.00 120.59 104.77 77.30 88.46 115.61 PHLX Semiconductor 100.00 120.40 102.30 78.14 95.90 119.88 ITEM 6. SELECTED FINANCIAL DATA (In thousands, except per share data) 2010 2009 2008 2007 2006 $ 1,820,760 $ 1,520,216 $ 2,521,716 $ 2,731,229 $ 2,070,627 $ 314,166 $ (577,941 ) $ 499,376 $ 589,868 $ 309,791 $ 212,300 $ (523,368 ) $ 359,083 $ 528,098 $ 380,452 $ 0.60 $ 0.60 $ 0.60 $ 0.48 $ 0.48 $ 1.24 $ (3.07 ) $ 1.99 $ 2.68 $ 1.92 $ 1.23 $ (3.07 ) $ 1.95 $ 2.61 $ 1.86 2010 2009 2008 2007 2006 $ 1,534,044 $ 1,329,884 $ 1,579,383 $ 1,710,629 $ 2,325,796 $ 2,063,678 $ 1,851,635 $ 2,085,432 $ 2,247,209 $ 2,594,512 $ 3,907,056 $ 3,609,538 $ 4,848,390 $ 4,623,249 $ 4,575,911 $ 745,747 $ 745,204 $ 744,661 $ — $ — $ 2,246,611 $ 2,184,392 $ 2,981,730 $ 3,550,042 $ 3,567,991 Year ended June 30, (In thousands, except per share data) 2011 2010 2009 2008 2007 Consolidated Statements of Operations: Revenues $ 3,175,167 $ 1,820,760 $ 1,520,216 $ 2,521,716 $ 2,731,229 Income (loss) from operations $ 1,160,330 $ 314,166 $ (577,941 ) $ 499,376 $ 589,868 Net income (loss) $ 794,488 $ 212,300 $ (523,368 ) $ 359,083 $ 528,098 Cash dividend declared per share $ 1.00 $ 0.60 $ 0.60 $ 0.60 $ 0.48 Net income (loss) per share: Basic $ 4.75 $ 1.24 $ (3.07 ) $ 1.99 $ 2.68 Diluted $ 4.66 $ 1.23 $ (3.07 ) $ 1.95 $ 2.61 As of June 30, 2011 2010 2009 2008 2007 Consolidated Balance Sheets: Cash, cash equivalents and marketable securities $ 2,038,535 $ 1,534,044 $ 1,329,884 $ 1,579,383 $ 1,710,629 Working capital $ 2,793,992 $ 2,063,678 $ 1,851,635 $ 2,085,432 $ 2,247,209 Total assets $ 4,675,521 $ 3,907,056 $ 3,609,538 $ 4,848,390 $ 4,623,249 Long-term debt(1) $ 746,290 $ 745,747 $ 745,204 $ 744,661 $ — Total stockholders’ equity $ 2,860,893 $ 2,246,611 $ 2,184,392 $ 2,981,730 $ 3,550,042 (1) In April 2008, we issued $750 million aggregate principal amount of senior notes due in 2018. ITEM 7. MANAGEMENT’SMANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSbasedbase these estimates and assumptions on historical experience, and evaluate them on an on-going basis to ensure that they remain reasonable under current conditions. Actual results could differ from those estimates. We discuss the development and selection of the critical accounting estimates with the Audit Committee of our Board of Directors on a quarterly basis, and the Audit Committee has reviewed the Company’sour related disclosure in this Annual Report on Form 10-K. The items in our financial statements requiring significant estimates and judgments are as follows:written acceptance from the customer, as follows:alreadypreviously accepted the same tool, with the same specifications, and it can be objectively demonstrated that the tool meets all of the required acceptance criteria upon shipment, revenue is recognized upon shipment. The portion of revenue associated with installation is deferred based on estimated fair value, and that revenue is recognized upon completion of the installation.signature on our acceptance document due to issues unrelated to product performance, revenue is recognized when the system is performing as intended and meets all published and contractually agreed specifications.Totalwithoutfor a written acceptance fromparticular arrangement, any material changes in these allocations could impact the customer was approximately 24%, 14%timing of revenue recognition, which could have a material effect on our financial position and 16%results of total revenues for the fiscal years ended June 30, 2010, 2009 and 2008, respectively. The increase in revenue recognized without a written acceptance for the fiscal year ended June 30, 2010 compared to the fiscal year ended June 30, 2009 was primarily driven by higher shipments of the same tools with same specifications that have previously been accepted at the applicable customer fabs. The decrease in revenue recognized without a written acceptance for the fiscal year ended June 30, 2009 compared to the fiscal year ended June 30, 2008 wasprimarily driven by lower shipments of tools that had already met the required acceptance criteria at those customer fabs. Shipping charges billed to customers are included in system revenue, and the related shipping costs are included in costs of revenues.theour revenue recognition criteria of the Company.criteria. Deferred system profit does not include the profit associated with product shipments to customers in Japan, to whom title does not transfer until customer acceptance. Shipments to customers in Japan are classified as inventory at cost until the time of acceptance.Revenue Recognition for Certain Arrangements with Software Elements and/or Multiple Deliverables.In October 2009, the Financial Accounting Standards Board (“FASB”) amended the accounting standards for revenue recognition to remove tangible products containing software components and non-software components that function together to deliver the product’s essential functionality from the scope of industry-specific software revenue recognition guidance. In October 2009, the FASB also amended the accounting standards for multiple-deliverable revenue arrangements to:Inventories.provide updated guidance on how the deliverables in an arrangement should be separated, and how the consideration should be allocated;eliminate the use of the residual method and require an entity to allocate revenue using the relative selling price method; andrequire an entity to allocate revenue in an arrangement using estimated selling prices (“ESP”) of deliverables if it does not have vendor-specific objective evidence (“VSOE”) or third-party evidence (“TPE”) of selling price. Valuation terms are defined as follows:VSOE—the price at which we sell the element in a separate stand-alone transaction.TPE—evidence from us or other companies of the value of a largely interchangeable element in a transaction.ESP—our best estimate of the selling price of an element in a transaction.We elected to early adopt this accounting guidance at the beginning of our second quarter of the fiscal year ending June 30, 2010 and have applied the adoption retrospectively to the beginning of the fiscal year to apply the guidance to transactions originating or materially modified after June 30, 2009. The implementation resulted in additional qualitative disclosures that are included in the footnotes to the Consolidated Financial Statements but did not have a material impact on our financial position, results of operations or cash flows.For transactions entered into through June 30, 2009, we primarily recognized revenue based on the guidance in Staff Accounting Bulletin No. 104. During the period, for the majority of our arrangements involving multiple deliverables, the entire amount of the sales contract was allocated to each respective element based on its relative selling price, using fair value. In the limited circumstances when we were not able to determine fair value for the deliverables in the arrangement, but were able to obtain fair value for the undelivered elements, revenue was allocated using the residual method. Under the residual method, the amount of revenue allocated to delivered elements equaled the total arrangement consideration less the aggregate selling price of any undelivered elements, and no revenue was recognized until all elements without fair value had been delivered. If fair value of any undelivered elements did not exist, the entire amount of the sales contract was deferred until all elements were accepted by the customer.Inventories.Inventories are stated at the lower of cost (on a first-in, first-out basis) or market. Demonstration units are stated at their manufacturing cost and written down to their net realizable value.We review and set standard costs semi-annually at current manufacturing costs in order to approximate actual costs. Our manufacturing overhead standards for product costs are calculated assuming full absorption of forecasted spending over projected volumes, adjusted for excess capacity. Abnormal inventory costs such as costs of idle facilities, excess freight and handling costs, and wasted materials (spoilage)spoilage are recognized as current period charges.pastforecasted usage. These factors are impacted by market and economic conditions, technology changes, new product introductions and changes in strategic direction and require estimates that may include uncertain elements. Actual demand may differ from forecasted demand, and such differences may have a material effect on recorded inventory values.allthe accounts receivable. The allowance for doubtful accounts is reviewed on a quarterly basis to assess the adequacy of the allowance. We take into consideration (1) any circumstances of which we are aware of a customer’s inability to meet its financial obligations; and (2) our judgments as to prevailing economic conditions in the industry and their impact on our customers. If circumstances change, such that the financial conditions of our customers are adversely affected and they are unable to meet their financial obligations to us, we may need to take additional allowances, which would result in a reduction of our net income.stock options and for purchase rights under our Employee Stock Purchase Plan and using the closing price of our common stock on the grant date for restricted stock units. The Black-Scholes subjective assumptions, including the option’s expected life and the expected price volatility of the underlying stock. The expected stock price volatility assumption is based on the market-based implied volatility from traded options of our common stock.charge operations forrecognize as expense the estimated costs expected to be incurred over the next twelve months of adjudicationto defend or settlement ofsettle asserted and unasserted claims existing as of the balance sheet date. See Item 3, “Legal Proceedings” and Note 13, “Commitments and Contingencies” to the Consolidated Financial Statements for a detailed description.quarterthree months ended December 31, 20092010 and concluded that there was no impairment. There have been no significant events or circumstances affecting the valuation of goodwill subsequent to the impairment test performed in the second quarterthree months ended December 31, 2010. The next annual evaluation of the fiscal year ended June 30, 2010.goodwill by reporting unit will be performed in the three months ending December 31, thatwhich requires that deferred tax assets and liabilities be recognized using enacted tax rates for the effect of temporary differences between the book and tax bases of recorded assets and liabilities. The guidance also requires that deferred tax assets be reduced by a valuation allowance if it is more likely than not that a portion of the deferred tax asset will not be realized. We have determined that a valuation allowance was necessary against a portion of the deferred tax assets, but our future taxable income will be sufficient to recover the remainder of our deferred tax assets. However, should there be a change in our ability to recover our deferred tax assets, we could be required to record a valuation allowance against our deferred tax assets. This would result in an increase to our tax provision in the period in which we determined that the recovery was not probable.onin audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon ultimate settlement. We reevaluate these uncertain tax positions on a quarterly basis. This evaluation is based on factors including, but not limited to, changes in facts or circumstances, changes in tax law, effectively settled issues under audit and new audit activity. Any change in these factors could result in the recognition of a tax benefit or an additional charge to the tax provision.our abilityloss rates of the underlying collateral, structure and intentcredit enhancements to hold the investment until the earlier of market price recovery or maturity.determine if a credit loss may exist. Our assessment that an investment is not other-than-temporarily impaired could change in the future due to new developments or changes in our strategies or assumptions related to any particular investment.Fair Value Measurements.adopted authoritativedo not expect that this guidance forwill have an impact on our financial position, results of operations or cash flows as it is disclosure-only in nature.measurements asmeasurement and disclosure guidance about fair value measurement under U.S. GAAP with International Financial Reporting Standards ("IFRS"). IFRS is a comprehensive series of accounting standards published by the International Accounting Standards Board. The amendment changes the wording used to describe many of the beginning of fiscal year 2009. In February 2008, the FASB issued a provision that allowed companies to elect a one-year delayrequirements in applying the fair value measurements guidance to certain fair value measurements, primarily related to non-financial assets and liabilities. We elected the delayed adoption date for our non-financial assets and liabilities impacted by the guidance. This guidance defines fair value, establishes a frameworkU.S. GAAP for measuring fair value under generally accepted accounting principles and enhances disclosuresfor disclosing information about fair value measurements. Fair value is defined asFor many of the exchange price that would be receivedrequirements, the FASB does not intend for an asset or paidthe amendment to transferresult in a liability (an exit price)change in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The adoptionapplication of the guidance relatingrequirements in the current authoritative guidance. The amendment becomes effective prospectively for our interim period ending March 31, 2012. Early application is not permitted. We do not expect the amendment to the fair value measurement of non-financial assets and liabilities on July 1, 2009 did not have a material impact on our consolidatedfinancial position, results of operations or financial condition. See Notecash flows.“Fair Value Measurements,” toof the Consolidated Financial Statements.Concurrentlygoodwill impairment test if there are qualitative factors indicating that it is more likely than not that a goodwill impairment exists. The qualitative factors are consistent with the adoptionexisting guidance which requires goodwill of a reporting unit to be tested for impairment between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value measurementof a reporting unit below its carrying amount. This amendment was effective for our interim period ended March 31, 2011. The amendment did not have an impact on our financial position, results of operations or cash flows.disclosure provisions, we adopted authoritative guidanceearnings of the combined entity as though the business combination(s) that permits entities to elect, at specified election dates, to measure eligibleoccurred during the current year had occurred as of the beginning of the prior annual reporting period. The amendment was effective prospectively for business combinations for which the acquisition date was on or after the beginning of the first annual reporting period beginning on or after December 15, 2010. Early adoption is permitted. The amendment did not have an impact on our financial instruments at fair value. See Note 2, “Fair Value Measurements,” to the Consolidated Financial Statements.Effectsposition, results of Recent Accounting Pronouncements.In April 2010, the FASB amended the authoritative guidance addressing accounting for arrangements in which a vendor satisfies its performance obligations over time, with all or a portion of the consideration contingent on future events, referred to as “milestones.” The scope of the new guidance is limited to milestones in arrangements that involve research or development activities, such as the successful completion of a drug study phase. The amendment provides guidance on the criteria that should be met for determining whether the milestone method of revenue recognition is appropriate. A vendor can recognize consideration that is contingent upon achievement of a milestone in its entirety as revenue in the period in which the milestone is achieved only if the milestone meets all criteria to be considered substantive. A vendor that is affected by the amendments is required to provide a description of the overall arrangement, a description of each milestone and related contingent consideration, a determination of whether each milestone is considered substantive, the factors thatthe entity considered in determining whether the milestone or milestones are substantive, and the amount of consideration recognized during the period for the milestone or milestones. This amendment becomes effective for our interim period ending September 30, 2010, and we do not expect the amendment to have a material impact on our financial position, results of operations or cash flows.In March 2010, the FASB amended the authoritative guidance on derivatives and hedging. The amendment addresses the scope exception related to embedded credit derivatives to clarify when analysis of an embedded credit derivative for bifurcation from the host contract is not required. It specifies that embedded credit derivatives not qualifying for the scope exception, such as an embedded derivative related to a credit default swap on a referenced credit, would be subject to a bifurcation analysis even if their effects are allocated to interests in subordinated tranches of securitized financial instruments. The amended guidance requires that an entity separately disclose, on an instrument-by-instrument basis, the gross gains and gross losses that comprise the cumulative-effect adjustment that results from adopting the amended guidance. The amended guidance becomes effective for our interim period ending September 30, 2010. We currently do not hold such derivatives, and do not expect the amendment to have a material impact on our financial position, results of operations or cash flows.In February 2010, the SEC issued a policy statement and staff work plan regarding the potential use by U.S. issuers of financial statements prepared in accordance with International Financial Reporting Standards (“IFRS”). IFRS is a comprehensive series of accounting standards published by the International Accounting Standards Board. Under the proposed timeline set forth by the SEC, we could be required in fiscal year 2015 to prepare financial statements in accordance with IFRS, and the SEC is expected to make a determination in 2011 regarding the mandatory adoption of IFRS. We are currently assessing the impact that this potential change would have on our consolidated financial statements, and we will continue to monitor the development of the potential implementation of IFRS.In February 2010, the FASB amended its guidance on subsequent events. The amendment states that entities that are required to file or furnish their financial statements with the SEC are no longer required to disclose the date through which the entity has evaluated subsequent events. This amendment was effective for our interim reporting period ended March 31, 2010, and the implementation did not have an impact on our financial position, results of operations or cash flows as it is disclosure-only in nature.In October 2009, the FASB amended its Emerging Issues Task Force (“EITF”) authoritative guidance addressing revenue arrangements with multiple deliverables. The guidance requires revenue to be allocated to multiple elements using relative fair value based on vendor-specific objective evidence, third-party evidence or estimated selling price. The residual method also becomes obsolete under this guidance. This guidance is effective for our interim reporting period ending September 30, 2010, and allows for early adoption. We elected to early adopt the accounting guidance at the beginning of the second quarter of our fiscal year ending June 30, 2010 and have applied the adoption retrospectively to the beginning of the fiscal year to apply the guidance to transactions originating or materially modified after June 30, 2009. The implementation resulted in additional qualitative disclosures but did not have a material impact on our financial position, results of operations or cash flows.In October 2009, the FASB amended the authoritative guidance addressing certain revenue arrangements that include software elements. This guidance states that tangible products with hardware and software components that work together to deliver the product functionality are considered non-software products, and the accounting guidance for revenue arrangements with multiple deliverables is to be followed with respect to such products. This guidance is effective for our interim reporting period ending September 30, 2010, and allows for early adoption. We elected to early adopt the accounting guidance at the beginning of the second quarter of our fiscal year ending June 30, 2010 and have applied the adoption retrospectively to the beginning of the fiscal year to apply the guidance to transactions originating or materially modified after June 30, 2009. The implementation resulted in additional qualitative disclosures but did not have a material impact on our financial position, results of operations or cash flows.In August 2009, the FASB issued authoritative guidance for measuring liabilities at fair value that reaffirms the previously existing definition of fair value and reintroduces the concept of entry value into the determination of fair value of liabilities. Entry value is the amount an entity would receive to enter into an identical liability. The guidance was effective for our interim reporting period ended December 31, 2009. The implementation did not have a material impact on our financial position, results of operations or cash flows.In June 2009, the FASB issued authoritative guidance for consolidations that changes how a company determines when an entity that is insufficiently capitalized or is not controlled through voting (or similar rights) should be consolidated. The determination of whether a company is required to consolidate an entity is based on, among other things, an entity’s purpose and design and a company’s ability to direct the activities of the entity that most significantly impact the entity’s economic performance. This guidance was effective for our interim reporting period ending September 30, 2010. We are currently evaluating the impact of the guidance on our financial position, results of operations and cash flows.In June 2009, the FASB issued authoritative guidance to establish the FASB Accounting Standards Codification as the source of authoritative accounting principles and the framework for selecting the principles used in the preparation of financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting principles in the United States. This guidance was effective for our interim reporting period ended September 30, 2009 and only impacted references for accounting guidance.In April 2009, the FASB issued authoritative guidance for business combinations that amends the provisions related to the initial recognition and measurement, subsequent measurement and disclosure of assets and liabilities arising from contingencies in a business combination. This guidance will require such contingencies to be recognized at fair value on the acquisition date if fair value can be reasonably estimated during the allocation period. Otherwise, entities would typically account for the acquired contingencies in accordance with authoritative guidance for contingencies. The guidance became effective for our business combinations for which the acquisition date is on or after July 1, 2009. The implementation did not have a material impact on our financial position, results of operations or cash flows during the fiscal year ended June 30, 2010, and the effect of this guidance, if any, on our financial position, results of operations and cash flows in future periods will depend on the nature and significance of business combinations subject to this guidance.In April 2009, the FASB issued authoritative guidance to increase the frequency of fair value disclosures of financial instruments, thereby enhancing consistency in financial reporting. The guidance relates to fair value disclosures for any financial instruments that are not currently reflected on a company’s balance sheet at fair value. Prior to the effective date of this guidance, fair values for these types of financial assets and liabilities had only been disclosed once a year. The guidance requires these disclosures on a quarterly basis, providing qualitative and quantitative information about fair value estimates for all those financial instruments not measured on the balance sheet at fair value. The disclosure requirement under this guidance was effective for our interim reporting period ended September 30, 2009. The implementation did not have an impact on our financial position, results of operations or cash flows as it is disclosure-only in nature.In December 2008, the FASB issued authoritative guidance for an employer’s disclosures about plan assets of a defined benefit pension or other post-retirement plan. The guidance requires annual disclosures surrounding how investment allocation decisions are made, including the factors that are pertinent to an understanding of investment policies and strategies. The annual disclosure requirement under this guidance was effective for our fiscal year ending June 30, 2010. The implementation resulted in additional qualitative disclosures, but did not change the accounting treatment for postretirement benefit plans.In April 2008, the FASB issued authoritative guidance for general intangibles other than goodwill, amending the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset. This guidance is effective for intangible assets acquired on or after July 1, 2009. The adoption did not have a material impact on our financial position, results of operations or cash flows.Within our primary area of focus, our comprehensiveOur broad portfolio of products and services software and expertise helpsprimarily supports integrated circuit (“IC” or “chip”) manufacturers manage yield throughout the entire semiconductor fabrication process, – from research and development to final volume production. We provide leading-edge equipment, software and support that enable IC manufacturers to identify, resolve andour technologies servewe also provide a range of technology solutions to a number of other high technology industries, including the high brightness light emitting diode (“HBLED”LED”), data storage and photovoltaic industries, as well as general materials research.spending by ourequipment and related maintenance services necessary to support key transitions in their underlying product technologies, or to increase their production volumes in response to market demand. Our semiconductor customers whogenerally operate in one or more of several keythe three major semiconductor markets including the-- memory, foundry and logic markets. Our customers purchaselogic. All three of these markets are characterized by rapid technological changes and sudden shifts in end-user demand, which influences the level and pattern of our customers' spending on our products eitherand services. Although capital spending in response toall three semiconductor markets has been historically very cyclical, the need to drive advancesdemand for more advanced and lower cost chips used in process technologies or to ramp up production to satisfy demand from industries such as communication,a growing number of consumer electronics, communications, data processing, consumer electronics, automotive and aerospace.industrial products has resulted in favorable long-term revenue growth rates for our process control and yield management solutions. We believe that, over the long term, our customers will continue to invest in advanced technologies and new materials to enable smaller design rules and higher density applications, as well as reduced cost, whichto reduce cost. We expect that this in turn will drive long-term increased adoption of process control toequipment and services that reduce defectivity.business cycles, the cyclical capital spending that characterizes these industries. The timing, length and volatility of which can be difficulta capacity oriented capital spending cycle of our customers are unpredictable. In addition, our customer base continues to predict. The industries we serve have historically been cyclical due tobecome more highly concentrated over time, thereby increasing the potential impact of a sudden changeschange in demand and manufacturing capacity. Our ability to predict future capacity-related capital spending by a major customer on our revenues and profitability. Nonetheless, we believe that over the long-term our customers is extremely limited, as suchwill continue to increase their total spending is very closely connected to the unpredictable business cycles within their industries. While our customer base, particularly in the semiconductor industry, historically has been, and is becoming increasingly, highly concentrated, we expect capital spending of our customers on process control and yield management solutions, in response to increase over the long term, drivenchallenges posed by the demand for more precise diagnostics capabilities to address new defects as a result of shrinking device feature sizes, the transition to new production materials, new device and circuit architecture, more demanding lithography processes, the transition from 300 millimeter to 450 millimeter wafers, and new lithography challenges and fab process innovation.demand for our products is generally affected by the profitabilitygrowing use of our customers, which is driven by capacity and market supply for their products, as well as the willingness and ability of our customers to investincreasingly sophisticated semiconductor devices in new technologies. The increase in the semiconductor content in communication,communications, consumer electronics, data processing, consumer electronics,and automotive and aerospace products, combined with the improving globala somewhat improved economic environment during the fiscal year ended June 30, 2010, favorably impacted2011, particularly in Asia, caused many of our customers to invest in additional semiconductor manufacturing capabilities and consequently acceleratedcapacity. These investments included process control and yield management equipment and services, which had a significant favorable impact on our revenues, compared to the prior fiscal year. The resulting increase in revenues allowed us to leverage our infrastructure and improve manufacturing capacity utilization, driving an improvement in gross margin as a percentage of revenue, again as compared to the previous year.for our products. Asenvironment may be slowing in the near-term, as some of our customers accelerate capital investments,appear to be reassessing their capacity expansion plans and timelines. Nevertheless, we have startedbelieve that our customers remain committed to increase production volumes to support anticipated customer demand. However, we cannot predict the duration and sustainability of the improving business conditions. As we increase production volumes and make commitments to increase our capacity in anticipation of improved business conditions, we remain at risk of incurring inventory-relatedtheir roadmaps toward shrinking device sizes and other restructuring charges iftechnological advancements as a means for driving future competitive differentiation and to lower costs, leaving the recent improved business conditions do not continue. Year ended June 30, 2010 2009 2008 $ 1,820,760 $ 1,520,216 $ 2,521,716 $ 815,662 $ 864,824 $ 1,134,856 55 % 43 % 55 % $ 212,300 $ (523,368 ) $ 359,083 $ 1.23 $ (3.07 ) $ 1.95 Year ended June 30, (Dollar amounts in thousands) 2011 2010 2009 Total revenues $ 3,175,167 $ 1,820,760 $ 1,520,216 Costs of revenues $ 1,259,243 $ 815,662 $ 864,824 Gross margin percentage 60 % 55 % 43 % Net income (loss) $ 794,488 $ 212,300 $ (523,368 ) Diluted income (loss) per share $ 4.66 $ 1.23 $ (3.07 ) yearyears ended June 30, 2011 and 2010 reflected improved fundamentals in the semiconductor industry driven by improvement inreduced uncertainty over the global economic environment and strong demand from our foundry customers. Salescontinued economic growth in much of our products and demand for our services improved as our customers ramped up their operations in response to improved market conditions. Even asAsia. As we increased our business activity levels and shipped more products to our customers during the fiscal yearyears ended June 30, 2011 and 2010, we maintained tight controls over costs,continued to maintain cost discipline, which resulted in strongimproved gross margins as well as net income.indicatedwere adversely impacted by the weak demand for semiconductor capital equipment and service due to the unfavorable global economic and industry conditions. The macroeconomic uncertainty led our customers to significantly reduce their factory operations and spending. While we took actions to restructure our operations and reduce our cost structure in response to the deteriorating market conditions, the rapid decline in revenues resulted in a significant deterioration in gross margins and a net loss. Our financial results for the fiscal year ended June 30, 2009 also included significant charges associated with impairment of goodwill, purchased intangible assets and other long-lived assets, as well as restructuring programs. In the fiscal year ended June 30, 2009, we completed the acquisition of the Microelectronic Inspection Equipment business unit (“MIE business unit”) of Vistec Semiconductor Systems for net cash consideration of approximately $141.4 million. The acquired MIE business unit is a provider of mask registration measurement tools, Scanning Electron Microscope (“SEM”) based tools for mask critical dimension measurement and macro defect inspection systems. Our financial results for the fiscal year ended June 30, 2009 also included significant charges associated with impairment of goodwill, purchased intangible assets and other long-lived assets, as well as restructuring programs.The results for the fiscal year ended June 30, 2008 reflected the culmination of a period of improved conditions in the semiconductor industry that began with the industry recovery in the fiscal year ended June 30, 2006. While the semiconductor market, and overall economic conditions, had started to weaken throughout the fiscal year ended June 30, 2008, our backlog position driven by demand from dynamic random access memory (DRAM) and flash memory chip manufacturers enabled us to generate strong revenue, gross margin and net income. In the fiscal year ended June 30, 2008, we completed the acquisition of ICOS Vision Systems Corporation for net cash consideration of approximately $488.8 million primarily to expand our product portfolio in semiconductor packaging inspection and to gain entry into the solar cell inspection and HBLED inspection markets. Year ended June 30, 2010 2009 2008 FY10 vs. FY09 FY09 vs. FY08 $ 1,324,270 $ 1,062,126 $ 2,030,224 $ 262,144 25 % $ (968,098 ) -47 % 496,490 458,090 491,492 38,400 8 % (33,402 ) -7 % $ 1,820,760 $ 1,520,216 $ 2,521,716 $ 300,544 $ (1,001,500 ) $ 815,662 $ 864,824 $ 1,134,856 $ (49,162 ) -6 % $ (270,032 ) -24 % $ 14,275 $ 19,932 $ 22,041 $ (5,657 ) -28 % $ (2,109 ) -10 % 55 % 43 % 55 % 12 % -12 % Year ended June 30, (Dollar amounts in thousands) 2011 2010 2009 FY11 vs. FY10 FY10 vs. FY09 Revenues: Product $ 2,613,438 $ 1,324,270 $ 1,062,126 $ 1,289,168 97 % $ 262,144 25 % Service 561,729 496,490 458,090 65,239 13 % 38,400 8 % Total revenues $ 3,175,167 $ 1,820,760 $ 1,520,216 $ 1,354,407 $ 300,544 Costs of revenues $ 1,259,243 $ 815,662 $ 864,824 $ 443,581 54 % $ (49,162 ) (6 )% Gross margin percentage 60 % 55 % 43 % 5 % 12 % the most advanced production nodes were significant contributors to this increase in revenue as customers, added advanced production capacity, particularly those serving the foundry market.market, added production capacity. These factors contributed to an increase in the number of tools that we sold during the fiscal year ended as, compared to the fiscal year ended June 30, 2009.2009. The increase in tool sales over our prior fiscal year ended June 30, 2009 was primarily driven by an increase in our sales of defect inspection equipment.Product revenues decreased in the fiscal year ended June 30, 2009 compared to the fiscal year ended June 30, 2008 as a result of a reduction in capital spending by our customers due to the weakness in the semiconductor industry and a deteriorating macroeconomic environment, which resulted in customers delaying their purchases and installations of our products. The decline in revenues reflected the slowdown in worldwide demand for semiconductor equipment, as semiconductor manufacturers reduced capital spending and conserved cash in response to their business environment, even as their need for more precise diagnostics capabilities increased with technological advances. The weak macroeconomic and credit environments during the year adversely impacted the profitability of our customers, their access to capital and their capital spending.yearyears ended June 30, 2011, 2010 two customers, Taiwan Semiconductor Manufacturing Company Limited and Intel Corporation,2009, the following customers each accounted for more than 10% of total revenues. For the fiscal year ended June 30, 2009, two customers, Intel Corporation and Samsung Electronics Co., Ltd., accounted for more than 10% of total revenues. For the fiscal year ended June 30, 2008, no customer accounted for more than 10% of total revenues. As of June 30, 2010, two customers, Samsung Electronics Co., Ltd. and Taiwan Semiconductor Manufacturing Company Limited, each accounted for more than 10% of net accounts receivable. As of June 30, 2009, two customers, Taiwan Semiconductor Manufacturing Company Limited and Intel Corporation, each accounted for more than 10% of net accounts receivable.Year ended June 30, 2011 2010 2009 Intel Corporation Intel Corporation Intel Corporation Taiwan Semiconductor Manufacturing Company Limited Taiwan Semiconductor Manufacturing Company Limited Samsung Electronics Co., Ltd. Samsung Electronics Co., Ltd. — — billable service calls made to our customers after the expiration of the warranty period. The amount of service revenues generated is generally a function of the number of post-warranty systems installed at our customers’ sites and the utilization of those systems. Service revenues increased incontinued to steadily increase during the fiscal year ended June 30, 20102011 compared to the fiscal yearyears ended June 30, 2010 and 2009 as the increase in wafer processing activity by semiconductor manufacturing customers drove higher system utilizationa result of our previously installed equipment. This higher utilization level led to an increase in demand for service. Service revenues decreased in the fiscal year ended June 30, 2009 compared to the fiscal year ended June 30, 2008number of post-warranty systems installed at our customers' sites as customers idled their under-utilized production equipment in response to the weakness in the semiconductor industry and the deteriorating macroeconomic environment.follows (in thousands): Year ended June 30, 2010 2009 2008 $ 341,079 19 % $ 372,887 24 % $ 518,851 21 % 111,497 6 % 162,665 11 % 305,350 12 % 239,393 13 % 437,081 29 % 617,214 24 % 688,089 38 % 181,411 12 % 570,904 23 % 151,198 8 % 187,624 12 % 225,119 9 % 289,504 16 % 178,548 12 % 284,278 11 % $ 1,820,760 100 % $ 1,520,216 100 % $ 2,521,716 100 % Year ended June 30, (Dollar amounts in thousands) 2011 2010 2009 United States $ 610,955 19 % $ 341,079 19 % $ 372,887 24 % Taiwan 864,378 27 % 688,089 38 % 181,411 12 % Japan 413,208 13 % 239,393 13 % 437,081 29 % Europe & Israel 340,249 11 % 111,497 6 % 162,665 11 % Korea 480,488 15 % 151,198 8 % 187,624 12 % Rest of Asia 465,889 15 % 289,504 16 % 178,548 12 % Total $ 3,175,167 100 % $ 1,820,760 100 % $ 1,520,216 100 % will continuetrend to be the case.Gross Margin Percentage June 30, 2009 43.1 % Revenue volume of products and service 2.4 % Mix of products and services sold (1.5 )% Manufacturing labor, overhead and efficiencies 4.1 % Other service and manufacturing costs 7.1 % June 30, 2010 55.2 % Revenue volume of products and service 3.9 % Mix of products and services sold (0.1 )% Manufacturing labor, overhead and efficiencies 1.6 % Other service and manufacturing costs (0.3 )% June 30, 2011 60.3 % 55%55.2% during the fiscal year ended June 30, 2010 from 43%43.1% during the fiscal year ended June 30, 2009 primarily due to demand for new high value products, significant volume efficiencies in manufacturing operations worldwide, lower inventory obsolescence, as well as a lower overall manufacturing cost structure as a result of our outsourcing and globalization initiatives. In addition, productivity improvements resulting from better utilization of field service resources contributed to the gross margin improvement.Our gross margin percentage decreased to 43% during the fiscal year ended June 30, 2009 from 55% during the fiscal year ended June 30, 2008 primarily due to lower product and service revenues, higher intangible assets amortization expense as a result of our acquisitions of ICOS and the MIE business unit, decreased manufacturing capacity utilization, and excess inventory write-downs. Year ended June 30, 2010 2009 2008 FY10 vs. FY09 FY09 vs. FY08 $ 329,560 $ 371,463 $ 409,973 $ (41,903 ) -11 % $ (38,510 ) -9 % $ 27,289 $ 33,127 $ 32,623 $ (5,838 ) -18 % $ 504 2 % 18 % 24 % 16 % -6 % 8 % Year ended June 30, (Dollar amounts in thousands) 2011 2010 2009 FY11 vs. FY10 FY10 vs. FY09 R&D expenses $ 386,163 $ 329,560 $ 371,463 $ 56,603 17 % $ (41,903 ) (11 )% R&D expenses as a percentage of total revenues 12 % 18 % 24 % (6 )% (6 )% continuedmade significant investments in product research and development. The decrease during the fiscal year ended June 30, 2010 was primarily attributable to cost reduction activities initiated during the fiscal year ended June 30, 2009, the benefits of which were fully realized in the fiscal year ended June 30, 2010. In addition, no in-process R&D expense associated with acquisitions that we completed during that year was recorded during the fiscal year ended June 30, 2010 compared to $8.6 million of in-process R&D expense recorded during the fiscal year ended June 30, 2009. Furthermore,, partially offset by higher variable compensation. In addition, development material costs and consulting services related to R&D product development decreased compared to the fiscal year ended June 30, 2009 as certain significant new products completed the product development cycle during the fiscal year ended June 30, 2009 and came to market in the fiscal year ended June 30, 2010. The following are expenses that were recorded in the fiscal year ended June 30, 2010 compared to the fiscal year ended June 30, 2009:$209.6 million for. The decrease in R&D expenses primarily consisted of a decrease in employee-related expenses compared to $220.8 million during the fiscal year ended June 30, 2009,$83.8 million forof $11.2 million; a decrease in engineering material costs compared to $97.9 millionof $14.1 million; a decrease in the fiscal year ended June 30, 2009,$26.5 million for outsideexternal services such as consulting, compared to $31.6 million during the fiscal year ended June 30, 2009,$15.6 million forof $5.1 million; and a decrease in depreciation of fixed assets, amortization of intangibles and expensed in-process R&D (“IPR&D”), compared of $15.5 million; offset by a decrease in benefit to $31.1 million duringR&D expense from external funding of $8.0 million.and$13.7 million of benefit to R&D expense from external funding, compared to $21.7 million in the fiscal year ended June 30, 2009.R&D expenses during the fiscal year ended June 30, 2009 decreased compared to the fiscal year ended June 30, 2008. The decrease is primarily attributable to reduced employee-related expenses as a result of a number of cost reduction activities that we have undertaken, as well as reduced engineering material costs during the fiscal year ended June 30, 2009. These decreases were partially offset by additional R&D spending as a result of our acquisitions of ICOS and the MIE business unit. The following are expenses that were recorded in the fiscal year ended June 30, 2009 compared to the fiscal year ended June 30, 2008:$220.8 million for employee-related expenses, compared to $226.5 million during the fiscal year ended June 30, 2008,$97.9 million for engineering material costs, compared to $112.7 million in the fiscal year ended June 30, 2008,$31.6 million for outside services such as consulting, compared to $36.8 million during the fiscal year ended June 30, 2008,$31.1 million for depreciation of fixed assets, amortization of intangibles and expensed IPR&D, compared to $47.4 million during the fiscal year ended June 30, 2008, and$21.7 million of benefit to R&D expense from external funding, compared to $20.4 million in the fiscal year ended June 30, 2008.During the fiscal years ended June 30, 2009 and 2008, we expensed IPR&D of $8.6 million and $22.7 million, respectively, upon the completion of the acquisitions during the applicable fiscal year in connection with acquired intellectual property for which, as of the acquisition date, technological feasibility had not been established and no future alternative uses existed. The fair value of the purchased IPR&D was determined using the income approach, which discounts expected future cash flows from projects to their net present value. Future cash flows were estimated, taking into account the expected life cycles of the products and the underlying technology, relevant market sizes and industry trends. We determined a discount rate for each project based on the relative risks inherent in the project’s development horizon, the estimated costs of development, and the level of technological change in the project and the industry, among other factors. IPR&D was expensed upon acquisition because technological feasibility had not been achieved and no future alternative uses existed. The development of these technologies remains a risk due to the remaining efforts to achieve technological feasibility, rapidly changing customer markets, uncertain standards for new products, and significant competitive threats. The nature of the efforts to develop these technologies into commercially viable products consists primarily of planning, designing, experimenting and testing activities necessary to determine that the technologies can meet market expectations, including functionality and technical requirements.$13.7$18.8 million $21.7, $13.7 million and $20.4$21.7 million of external funding received during the fiscal years ended June 30, 2011, 2010 2009 and 2008,2009, respectively, for certain strategic development programs primarily from government grants. We expect our R&D expenses to increase with increases in our business activity levels as we accelerate our investments in critical programs focusing on new technologies and enhancements to existing products. Year ended June 30, 2010 2009 2008 FY10 vs. FY09 FY09 vs. FY08 $ 361,372 $ 415,126 $ 464,890 $ (53,754 ) -13 % $ (49,764 ) -11 % $ 44,418 $ 52,476 $ 51,806 $ (8,058 ) -15 % $ 670 1 % 20 % 27 % 18 % -7 % 9 % Year ended June 30, (Dollar amounts in thousands) 2011 2010 2009 FY11 vs. FY10 FY10 vs. FY09 SG&A expenses $ 369,431 $ 361,372 $ 415,126 $ 8,059 2 % $ (53,754 ) (13 )% SG&A expenses as a percentage of total revenues 12 % 20 % 27 % (8 )% (7 )% 2010.2010, partially offset by higher variable compensation. The decrease in SG&A expenses primarily consisted of a decrease in employee-related expenses of $21.3 million and a decrease in depreciation of fixed assets and amortization of intangibles of $10.5 million, partially offset by an increase in legal expenses for stockholder litigation relating to our historical stock option practices of $3.0 million. In addition, $2.9 million of bad debt recovery was recorded duringin the fiscal year ended June 30, 2010, compared to $23.2 million of bad debt expense recorded during the fiscal year ended June 30, 2009. The following are expenses that were recorded in the fiscal year ended June 30, 2010 compared to the fiscal year ended June 30, 2009:$306.7 million for employee-related expenses, compared to $328.0 million during the fiscal year ended June 30, 2009$2.9 million of bad debt recovery, compared to $23.2 million of bad debt expense during the fiscal year ended June 30, 2009,$48.7 million for depreciation of fixed assets and amortization of intangibles, compared to $59.2 million during the fiscal year ended June 30, 2009, and$16.9 million for expenses and settlements, net, related to the shareholder litigation relating to our historical stock option practices, compared to $13.9 million during the fiscal year ended June 30, 2009.SG&A expenses during the fiscal year ended June 30, 2009 were lower compared to the fiscal year ended June 30, 2008 primarily due to lower expenses related to the shareholder litigation relating to our historical stock option practices and reduced employee-related expenses as a result of a number of cost reduction activities that we have undertaken, which are partially offset by additional SG&A spending and higher intangible assets amortization expense as a result of our acquisitions of ICOS and the MIE business unit, additional bad debt expense and lower gain on sale of real estate assets. The following are expenses that were recorded in the fiscal year ended June 30, 2009 compared to the fiscal year ended June 30, 2008:$328.0 million for employee-related expenses, compared to $378.2 million during the fiscal year ended June 30, 2008,$23.2 million for bad debt expense, compared to $0.2 million during the fiscal year ended June 30, 2008,$59.2 million for depreciation of fixed assets and amortization of intangibles, compared to $34.3 million during the fiscal year ended June 30, 2008,$13.9 million for expenses related to the shareholder litigation relating to our historical stock option practices, compared to $76.9 million during the fiscal year ended June 30, 2008, and$4.1 million in net gains recorded on the sale of real estate assets, compared to $20.1 million recorded in the fiscal year ended June 30, 2008.Impairment of Goodwill and Purchased Intangible AssetsFor the three months ended December 31, 2009, we performed our annual evaluation of goodwill by reporting unit and concluded that there was no impairment as of December 31, 2009. As of December 31, 2009, our assessment indicated that the fair value of our reporting units was substantially in excess of their estimatedcarrying values, and therefore goodwill in the reporting units was not impaired. There have been no significant events or circumstances affecting the valuation of goodwill subsequent to the impairment test performed in the second quarter of the fiscal year ended June 30, 2010.For the three months ended December 31, 2008, we performed our annual evaluation of goodwill by reporting unit and concluded that, as of December 31, 2008, the carrying value of our Metrology reporting unit exceeded its estimated fair value. As a result of the global economic downturn, reductions to our revenue and operating forecasts and a significant reduction in our market capitalization, we determined that the goodwill related to our Metrology reporting unit was fully impaired. As a result, we recorded a goodwill impairment charge of $272.1 million during the three months ended December 31, 2008.As a result of the aforementioned impairment indicators for the three months ended December 31, 2008 and in accordance with the authoritative guidance on impairment of long-lived assets, we performed an analysis utilizing discounted future cash flows related to the long-lived and intangible assets to determine the fair value of each of our asset groups. Based on the assessment, we recorded an intangible asset impairment charge of $162.8 million related to existing technology, patents, customer relationships and trademarks, as well as an additional $2.0 million impairment charge related to long-lived assets during the three months ended December 31, 2008.Restructuring ChargesIn March 2009, we announced a plan to further reduce our global workforce by approximately 10%, which followed our announcement in November 2008 of a global workforce reduction of approximately 15%. We have undertaken a number of cost reduction activities, including these workforce reductions, in an effort to lower our quarterly operating expense run rate. The program in the United States is accounted for in accordance with the authoritative guidance related to compensation for nonretirement post-employment benefits, whereas the programs in the international locations are accounted for in accordance with the authoritative guidance for contingencies. During the fiscal year ended June 30, 2010, we recorded a $4.5 million net restructuring charge, of which $2.2 million was recorded to costs of revenues, $0.4 million to engineering, research and development expense and $1.9 million to selling, general and administrative expense. These charges represent the estimated minimum liability associated with expected termination benefits to be provided to employees.The following table shows the activity primarily related to severance and benefits expense for the fiscal years ended June 30, 2010 and 2009: Year ended
June 30, 2010 Year ended
June 30, 2009 $ 8,086 $ 1,333 5,580 40,596 (1,045 ) (1,912 ) (12,174 ) (31,931 ) $ 447 $ 8,086 Substantially all of the remaining accrued restructuring balance as of June 30, 2010 related to our workforce reductions is expected to be paid out by the end of calendar year 2010. Year ended June 30, 2010 2009 2008 $ 31,532 $ 30,749 $ 71,625 $ 54,517 $ 55,339 $ 10,767 2 % 2 % 3 % 3 % 4 % 0 % Year ended June 30, (Dollar amounts in thousands) 2011 2010 2009 Interest income and other, net $ 4,064 $ 31,532 $ 30,749 Interest expense $ 54,328 $ 54,517 $ 55,339 Interest income and other, net as a percentage of total revenues 0 % 2 % 2 % Interest expense as a percentage of total revenues 2 % 3 % 4 % as well as gains or losses recorded upon settlementfrom revaluation of certain foreign currency contracts. Interest incomedenominated assets and other, net during the fiscal year ended June 30, 2010 compared to the fiscal year ended June 30, 2009 remained flat.liabilities as well as foreign currency contracts, and impairments associated with equity investments in privately-held companies. The decrease in interest income and other, net during the fiscal year ended June 30, 20092011 compared to the fiscal year ended June 30, 20082010 was primarily the resultattributable to impairment charges of lower interest income from our investment and cash portfolio due to lower market interest rates, as well as lower foreign currency transaction gain.Interest expense in The increase in interestin the fiscal year ended June 30, 2009 comparedis primarily attributable to the fiscal year ended June 30, 2008 was primarily due to additional interest expense as a result of the issuance of $750$750 million aggregate principal amount of senior fixed rate notes that we issued in the fourth quarter of the fiscal year ended June 30, 2008. Year ended June 30, 2010 2009 2008 $ 291,181 $ (602,531 ) $ 560,234 78,881 (79,163 ) 201,151 27.1 % 13.1 % 35.9 % (In thousands) Year ended June 30, 2011 2010 2009 Income (loss) before income taxes $ 1,110,066 $ 291,181 $ (602,531 ) Provision for (benefit from) taxes 315,578 78,881 (79,163 ) Effective tax rate 28.4 % 27.1 % 13.1 % has decreasedas a percentage of income during the fiscal year ended June 30, 2011 was 28.4% compared to 27.1% for the fiscal year ended June 30, 2010. Tax expense increased primarily from an increase in state tax expense, a decrease in the benefit from lower income earned outside the U.S. with lower tax rates, and an increase in tax reserves, offset by a decrease in the effect of shortfalls from employee stock activity.2010 due2009 from a goodwill impairment charge of $277.0 million related to a year-over-year increase in the proportion of our income earned outside the United States in countries with lower incomecertain business units, which was non-deductible for tax rates.We incurred $12.0 million in additional tax expense during the fiscal year ended June 30, 2010 due to shortfalls from employee stock activity. 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.We incurredpurposes, and $38.1 million in additional tax expense during the fiscal year ended June 30, 2009 due to a reduction in non-current deferred tax assets asassets. The reduction in the deferred tax asset was a result of the adoption of California budget legislation, signed on February 20, 2009, which will allow a taxpayer to elect an alternative method to attribute taxable income to California for tax years beginning on or after January 1, 2011. We expect to make the election to use the alternative method to attribute taxable income to California for our fiscal year ending June 30, 2012. The expense included a reductionIn addition, there was less income earned outside the U.S. subject to lower tax rates in non-current deferred tax assets of $9.7 million and a $28.4 million valuation allowance on excess California research and development credits that we believe will not be utilized due to the effect of the lower apportionment rate.Tax expense was also increased during the fiscal year ended June 30, 2009 due to a goodwill impairment charge of $277.0 million related to certain business units, which was non-deductible for tax purposes.We incurred $52.9 million in additional tax expense during the fiscal year ended June 30, 2008 due to the implementation of our global manufacturing strategy. The incremental U.S. tax expense was a result of an inter-company licensing agreement related to the migration of manufacturing to Singapore.The additional tax expense was partially offset by a tax benefit of $14.4 million during the year ended June 30, 2008 that we realized due to the revision of prior year cumulative undistributed earnings of foreign subsidiaries considered to be permanently reinvested outside the United States.2011,2012, cumulative shortfalls from employee stock activity may continue to exceed cumulative windfalls from employee stock activity, and we may therefore report higher provision for income taxes as a result. Because we cannot determine all of the factors that will enter into our income tax expense computation for the fiscal year ended ending June 30, 2011,2012, we cannot currently estimate this impact on our tax rate for the next fiscal year.operating results of operations or cash flows in the period or periods for which that determination is made.We are under United States federal income tax examination for the fiscal years ended June 30, 2007 through June 30, 2009, which represents all years for which tax returns have been filed and the statute of limitations has not expired. We are subject to state income tax examinations for all years beginning from the fiscal year ended June 30, 2006. We are also subject to examinations in major foreign jurisdictions, including Japan, Israel and Singapore, for all years beginning from the fiscal year ended June 30, 2006 and are currently under tax examinations in various other foreign tax jurisdictions. It is possible that certain examinations may be concluded in the next twelve months. We believe it is possible that we may recognize up to $3.6 million of our existing unrecognized tax benefits within the next twelve months as a result of the lapse of statutes of limitations, and the resolution of agreements with various foreign tax authorities. As of June 30, (Dollar amounts in thousands) 2011 2010 2009 Cash and cash equivalents $ 711,329 $ 529,918 $ 524,967 Marketable securities 1,327,206 1,004,126 804,917 Total cash, cash equivalents and marketable securities $ 2,038,535 $ 1,534,044 0 $ 1,329,884 Percentage of total assets 44 % 39 % 37 % Year ended June 30, (In thousands) 2011 2010 2009 Net cash provided by operating activities $ 823,166 $ 447,800 $ 195,684 Net cash used in investing activities (359,510 ) (227,964 ) (484,900 ) Net cash used in financing activities (300,155 ) (216,331 ) (299,117 ) Effect of exchange rate changes on cash and cash equivalents 17,910 1,446 (14,806 ) Net increase (decrease) in cash and cash equivalents $ 181,411 $ 4,951 $ (603,139 ) As of June 30, 2010 2009 2008 $ 529,918 $ 524,967 $ 1,128,106 1,004,126 804,917 451,277 $ 1,534,044 $ 1,329,884 $ 1,579,383 39 % 37 % 33 % Year ended June 30, 2010 2009 2008 $ 447,800 $ 195,684 $ 662,611 (227,964 ) (484,900 ) 58,063 (216,331 ) (299,117 ) (318,938 ) 1,446 (14,806 ) 3,859 $ 4,951 $ (603,139 ) $ 405,595 At June 30, 2010,2011, our cash, cash equivalents and marketable securities totaled $1.5$2 billion, which is an increase of $204$504 million from June 30, 2009. 2010. As of June 30, 2011, $678 million of the $2 billion of cash, cash equivalents, and marketable securities were held by our foreign subsidiaries and branch offices. We currently intend to permanently reinvest approximately $421 million of the cash held by our foreign subsidiaries. If, however, a portion of these funds were to be needed for our operations in the United States, we would be required to accrue and pay U.S. and foreign taxes of approximately 30%-50% of the funds repatriated. The amount of taxes due will depend on the amount and manner of the repatriation, as well as the location from where the funds are repatriated. We have accrued (but have not paid) U.S. taxes on the remaining cash of $257 million of the $678 million held by our foreign subsidiaries and branch offices. As such, these funds can be returned to the U.S. without accruing any additional U.S. tax expense.operationsliquidity requirements through cash generated from operations.was $448 million and $196 million forduring the fiscal yearsyear ended June 30, 2011 increased compared to the fiscal year ended June 30, 2010 from $448 million to $823 million primarily as a result of the following key factors: respectively. as compared to the fiscal year ended June 30, 2009, resulting primarily from our cost cutting measures initiated during the fiscal year ended June 30, 2009, the benefits of which were fully realized in the fiscal year ended June 30, 2010, as compared to a cash payment of $65 million during the fiscal year ended June 30, 2009 in connection with the settlement of the shareholderstockholder class action litigation related to our historical stock option practices,IncreaseAn increase in customer collections byof approximately $58 million during the fiscal year ended June 30, 2010 as compared to the fiscal year ended June 30, 2009, andIncreaseAn increase in taxes paid of approximately $26 million during the fiscal year ended June 30, 2010 as compared to the fiscal year ended June 30, 2009.DecreaseA decrease of $140 million in acquisitions, primarily driven by the acquisition of the MIE business unit during the fiscal year ended June 30, 2009,DecreaseA decrease in the use of cash for purchases of available-for-sale and trading securities, net of sales and maturities, of approximately $141 million during the fiscal year ended June 30, 2010 as compared to the fiscal year ended June 30, 2009, partially offset byDecreaseA decrease in cash collections by approximately $16 million during the fiscal year ended June 30, 2010 from sale of assets, as compared to the fiscal year ended June 30, 2009.as compared to $227 million in stock repurchases during the fiscal year ended June 30, 2009.Cash provided by operating activities during the fiscal year ended June 30, 2009 decreased compared to the fiscal year ended June 30, 2008 from $663 million to $196 million primarily as a result of the following key factors:Lower customer collections as a result of a decline in revenue during the fiscal year ended June 30, 2009, reduced by approximately $862 million as compared to the fiscal year ended June 30, 2008,Decrease of $78 million in interest income during the fiscal year ended June 30, 2009 as compared to fiscal year ended June 30, 2008, primarily due to lower market interest rates,Cash payments of $65 million in the settlement of litigation in connection with the settlement of the shareholder class action litigation related to our historical stock option practices during the fiscal year ended June 30, 2009, as compared to no such payments during the fiscal year ended June 30, 2008,Interest payments of $52 million on the $750 million of our outstanding senior notes during the fiscal year ended June 30, 2009, as compared to no such payments during the fiscal year ended June 30, 2008, partially offset byReduced operating expenses by approximately $346 million during the fiscal year ended June 30, 2009 as compared to the fiscal year ended June 30, 2008, primarily from our cost reduction measures, andLower tax payments of $238 million during the fiscal year ended June 30, 2009, as compared to the fiscal year ended June 30, 2008.Cash flow from investing activities during the fiscal year ended June 30, 2009 declined compared to the fiscal year ended June 30, 2008 from $58 million of cash provided by investing activities to $485 million of cash used in investing activities, primarily as a result of the following key factors:Increase in the use of cash for purchases of available-for-sale and trading securities, net of sales and maturities, of approximately $884 million during the fiscal year ended June 30, 2009 as compared to the fiscal year ended June 30, 2008,Decrease in cash collections by approximately $47 million during the fiscal year ended June 30, 2009 from sale of real estate assets, as compared to the fiscal year ended June 30, 2008, partially offset byDecrease of $353 million in acquisition expenses during the fiscal year ended June 30, 2009 as compared to the fiscal year ended June 30, 2008, primarily driven by our acquisition of ICOS for net cash consideration of approximately $489 million during the fiscal year ended June 30, 2008 and our acquisition of the MIE business unit of Vistec Semiconductor Systems for net cash consideration of approximately $141 million during the fiscal year ended June 30, 2009, andLower capital expenditures during the fiscal year ended June 30, 2009 by approximately $35 million, as compared to the fiscal year ended June 20, 2008.Cash used in financing activities during the fiscal year ended June 30, 2009 declined compared to the fiscal year ended June 30, 2008 from $319 million to $299 million as a result of lower common stock repurchases, largely offset by cash proceeds from the issuance of long-term debt. We repurchased $227 million of our common stock during the fiscal year ended June 30, 2009, as compared to $1.1 billion in stock repurchases during the fiscal year ended June 30, 2008.During the fiscal year ended June 30, 2009, we announced plans to reduce our global workforce by approximately 15% and 10% in November 2008 and March 2009, respectively. We recorded $4.5 million and $38.7 million in net restructuring charges during the fiscal years ended June 30, 2010 and 2009, respectively. As of June 30, 2010, we have paid out approximately $44.1 million in restructuring payments. The remaining balance will be paid out by the end of calendar year 2010.The total amount of dividends paid during the fiscal years ended June 30, 2010, 2009 and 2008 was $102.4 million, $102.1 million and $108.5 million, respectively.The shares repurchased under our share repurchase program have decreased our basic and diluted weighted-average shares outstanding. The decrease was partially offset by additional shares issued upon the exercise of employee stock options and in connection with stock purchases under our Employee Stock Purchase Plan. In October 2008, we suspended our stock repurchase program, and we subsequently restarted the program in February 2010.2010: Fiscal year ending June 30, Total 2011 2012 2013 2014 2015 Thereafter Other $ 750,000 $ — $ — $ — $ — $ — $ 750,000 — 405,375 51,750 51,750 51,750 51,750 51,750 146,625 — 338,097 334,050 2,700 603 491 253 — — 58,982 — — — — — — 58,982 28,505 8,779 5,848 3,970 2,876 1,849 5,183 — 24,240 1,735 1,572 1,960 1,927 2,541 14,505 — $ 1,605,199 $ 396,314 $ 61,870 $ 58,283 $ 57,044 $ 56,393 $ 916,313 $ 58,982 Fiscal year ending June 30, (In thousands) Total 2012 2013 2014 2015 2016 Thereafter Other Long-term debt obligations(1) $ 750,000 $ — $ — $ — $ — $ — $ 750,000 — Interest expense associated with long-term debt obligations 353,625 51,750 51,750 51,750 51,750 51,750 94,875 — Purchase commitments 352,404 340,730 8,136 3,390 130 18 — — Non-current income tax payable(2) 85,537 — — — — — — 85,537 Operating leases 24,987 7,992 6,001 3,889 2,106 1,869 3,130 — Pension obligations 27,556 2,001 1,240 2,185 2,927 2,466 16,737 — Total contractual cash obligations $ 1,594,109 $ 402,473 $ 67,127 $ 61,214 $ 56,913 $ 56,103 $ 864,742 $ 85,537 (1) In April 2008, we issued $750 million aggregate principal amount of senior notes due in 2018. (2) Represents the non-current income tax payable obligation.obligation and related accrued interest. We are unable to make a reasonably reliable estimate of the timing of payments in individual years beyond 12 months due to uncertainties in the timing of tax audit outcomes.duringfor the years ended June 30, 2011, 2010 2009 and 2008: Year ended June 30, 2010 2009 2008 $ 107,666 $ 262,998 $ 290,250 $ 37,226 $ 27,799 $ 39,379 $ 189 $ 145 $ 232 Year ended June 30, (In thousands) 2011 2010 2009 Receivables sold under factoring agreements $ 313,578 $ 107,666 $ 262,998 Proceeds from sales of LCs $ 140,534 $ 37,226 $ 27,799 Discounting fees paid on sales of LCs(1) $ 213 $ 189 $ 145 (1) Discounting fees were equivalent toinclude bank fees and interest expense and were recorded in interest income and other, net.$16.7which$17.9 million in various locations had been issued as of June 30, 2011 primarily to fund guarantees to customs guaranteesauthorities for VAT and LC needsother operating requirements of our subsidiaries in Europe and Asia. Approximately $14.4 million was outstanding under these arrangements as of June 30, 2010. chain for key components. Our liability under these purchase commitments is generally restricted to a forecasted time-horizon as mutually agreed upon between the parties. This forecastforecasted time-horizon can vary among different suppliers. We estimate ourOur open inventory purchase commitments were approximately $352 millionas of June 30, 2010 to be approximately $338.1 million, most of which is2011, and are primarily due within the next 12 months. Actual expenditures will vary based upon the volume of the transactions and length of contractual service provided. In addition, the amounts paid under these arrangements may changebe less in the event that the arrangements are renegotiated or canceled. Certain agreements provide for potential cancellation penalties.reservesaccruals accordingly. The difference between the estimated and actual warranty costs tends to be larger for new product introductions as there is limited historical product performance to estimate warranty expense; more mature products with longer product performance histories tend to be more stable in our warranty charge estimates. Non-standard warranty coverage generally includes services incremental to the standard 40-hour per week coverage for twelve months. See Note 13, “Commitments and Contingencies” to the Consolidated Financial Statements for a detailed description.$2.1$2.8 billion as of June 30, 2011, compared to $2.1 billion as of June 30, 2010 compared to $1.9 billion as of June 30, 2009.. This increase is primarily due to cash generated from operations, offset by cash payments for the shareour stock repurchase program, cash payments of dividends to stockholders, and purchases of fixed assets. As of June 30, 2010,2011, our principal sources of liquidity consisted of $1.5$2.0 billion of cash, cash equivalents and marketable securities. Our liquidity is affected by many factors, some of which are based on the normal ongoing operations of the business, and others of which relate to the uncertainties of global economies and the semiconductor and the semiconductor equipment industries. Although cash requirements will fluctuate based on the timing and extent of these factors, we believe that cash generated from operations, together with the liquidity provided by existing cash balances, will be sufficient to satisfy our liquidity requirements for at least the next twelve months.Our investment portfolio included auction rate securities, which are investments with contractual maturities generally between 20 to 30 years. They are typically issued in the form of municipal bonds, preferred stock, a pool of student loans, or collateralized debt obligations whose interest rates are reset. The reset typically occurs every seven to forty-nine days, through an auction process. At the end of each reset period, investors can sell or continue to hold the securities at par. The auction rate securities held by us are backed by student loans and are collateralized, insured and guaranteed by the United States Federal Department of Education. In addition, all auction rate securities held by us are rated by the major independent rating agencies as either AAA or Aaa. In February 2008, auctions failed for approximately $48.2 million in par value of municipal auction rate securities that we held because sell orders exceeded buy orders. These failures are not believed to be a credit issue, but rather caused by a lack of liquidity. The funds associated with these failed auctions may not be accessible until the issuer calls the security, a successful auction occurs, a buyer is found outside of the auction process, or the security matures.By letter dated August 8, 2008, we received notification from UBS AG (“UBS”), in connection with a settlement entered into between UBS and certain regulatory agencies, offering to repurchase all of our auction rate security holdings at par value. We formally accepted the settlement offer and entered into a repurchase agreement (“Agreement”) with UBS on November 11, 2008 (“Acceptance Date”). By accepting the Agreement, we (1) received the right (“Put Option”) to sell our auction rate securities at par value to UBS between June 30, 2010 and June 30, 2012 and (2) gave UBS the right to purchase the auction rate securities from us any time after the Acceptance Date as long as we receive the par value. As of June 30, 2009, we had $40.7 million par value of auction rate securities. During the fiscal year ended June 30, 2010, $23.9 million of the auction rate securities were called at par by the issuers. The Put Option was exercised on June 30, 2010 to sell the remaining auction rate securities of $16.8 million at par value and was subsequently settled. As of June 30, 2010, those remaining auction rate securities that had been sold but had not yet been settled as of such date are included in marketable securities and valued at par.We accounted for the Put Option as a freestanding financial instrument, and during the three months ended December 31, 2008, we made an election to transfer these auction rate securities from available for sale to trading securities.In April 2008, we issued $750 million aggregate principal amount of 6.90% senior, unsecured long-term debt due in 2018 with an effective interest rate of 7.00%. The discount on the debt amounted to $5.4 million and is being amortized over the life of the debt using the straight-line method as opposed to the interest method due to immateriality. Interest is payable semi-annually on November 1 and May 1. The debt indenture includes covenants that limit our ability to grant liens on our facilities and to enter into sale and leaseback transactions, subject to significant allowances under which certain sale and leaseback transactions are not restricted. We are in compliance with all of our covenants as at June 30, 2010.22, 201011, 2011 are summarized below.below:Rating RatingOutlook BBB Stable Baa1 Stable BBB NegativeStable As of June 30, 2010 2009 $ 15,835 $ — (32,853 ) (36,938 ) 82,535 73,914 (104,414 ) (106,080 ) $ (38,897 ) $ (69,104 ) As of June 30, (In thousands) 2011 2010 Cash flow hedge contracts Purchase $ 3,381 $ 15,835 Sell $ 30,133 $ 32,853 Other foreign currency hedge contracts Purchase $ 174,499 $ 82,535 Sell $ 216,738 $ 104,414 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 2010.2011. Actual results may differ materially.2010,2011, we had an investment portfolio of fixed income securities of $1.0$1.3 billion, excluding those classified as cash and cash equivalents. These securities, as with all fixed income instruments, are subject to interest rate risk and will fall in value if market interest rates increase. If market interest rates were to increase immediately and uniformly by 10% from levels as of June 30, 2010,2011, the fair value of the portfolio would decline by $1.3$1.1 million.2010,2011, we had net forward and option contracts to sell $38.9$69.0 million in foreign currency in order to hedge certain currency exposures (detail of these contracts and hedging activities is included in Note 16, “Derivative Instruments and Hedging Activities” to the Consolidated Financial Statements). If we had entered into these contracts on June 30, 2010,2011, the U.S. dollar equivalent would have been $44.4 million.$69.1 million. A 10% adverse move in all currency exchange rates affecting the contracts would decrease the fair value of the contracts by $21.5$18.3 million. However, if this occurred, the fair value of the underlying exposures hedged by the contracts would increase by a similar amount. Accordingly, we believe that, as a result of the hedging of certain of our foreign currency exposure, changes in most relevant foreign currency exchange rates should have no material impact on our income or cash flows.$750$750 million aggregate principal amount of 6.90% senior unsecured notes due in 2018. The fair market value of long-term fixed interest rate debt is subject to interest rate risk. Generally, the fair market value of fixed interest rate debt will increase as interest rates fall and decrease as interest rates rise. At As of June 30, 2010,2011, the book value and the fair value of our fixed rate debt were $745.7$746.3 million and $834.4$863.5 million, respectively. At As of June 30, 2009,2010, the book value and the fair value of our fixed rate debt were $745.2$745.7 million and $702.0$834.4 million, respectively.ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 58 59 60 61 62109 As of June 30, 2010 2009 $ 529,918 $ 524,967 1,004,126 804,917 440,125 210,143 401,730 370,206 328,522 261,121 131,044 227,263 2,835,465 2,398,617 236,752 291,878 328,006 329,379 117,336 149,080 389,497 440,584 $ 3,907,056 $ 3,609,538 $ 107,938 $ 63,485 204,764 95,820 37,026 46,236 422,059 341,441 771,787 546,982 745,747 745,204 53,492 49,738 20,354 23,059 69,065 60,163 1,660,445 1,425,146 — — 168 171 921,292 835,306 1,356,454 1,370,132 (31,303 ) (21,217 ) 2,246,611 2,184,392 $ 3,907,056 $ 3,609,538 As of June 30, (In thousands, except per share data) 2011 2010 ASSETS Current assets: Cash and cash equivalents $ 711,329 $ 529,918 Marketable securities 1,327,206 1,004,126 Accounts receivable, net 583,270 440,125 Inventories, net 575,730 401,730 Deferred income taxes 331,397 328,522 Other current assets 147,078 131,044 Total current assets 3,676,010 2,835,465 Land, property and equipment, net 257,358 236,752 Goodwill 328,156 328,006 Purchased intangibles, net 85,902 117,336 Other non-current assets 328,095 389,497 Total assets $ 4,675,521 $ 3,907,056 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $ 142,945 $ 107,938 Deferred system profit 192,338 204,764 Unearned revenue 44,264 37,026 Other current liabilities 502,471 422,059 Total current liabilities 882,018 771,787 Non-current liabilities: Long-term debt 746,290 745,747 Income tax payable 78,337 53,492 Unearned revenue 34,905 20,354 Other non-current liabilities 73,078 69,065 Total liabilities 1,814,628 1,660,445 Commitments and contingencies (Notes 13 and 14) Stockholders’ equity: Preferred stock, $0.001 par value, 1,000 shares authorized, none outstanding — — Common stock, $0.001 par value, 500,000 shares authorized, 244,281 and 239,132 shares issued, 167,118 and 168,043 shares outstanding, as of June 30, 2011 and June 30, 2010, respectively 167 168 Capital in excess of par value 1,010,492 921,292 Retained earnings 1,852,633 1,356,454 Accumulated other comprehensive income (loss) (2,399 ) (31,303 ) Total stockholders’ equity 2,860,893 2,246,611 Total liabilities and stockholders’ equity $ 4,675,521 $ 3,907,056 Year ended June 30, 2010 2009 2008 $ 1,324,270 $ 1,062,126 $ 2,030,224 496,490 458,090 491,492 1,820,760 1,520,216 2,521,716 815,662 864,824 1,134,856 329,560 371,463 409,973 361,372 415,126 464,890 — 446,744 12,621 1,506,594 2,098,157 2,022,340 314,166 (577,941 ) 499,376 31,532 30,749 71,625 54,517 55,339 10,767 291,181 (602,531 ) 560,234 78,881 (79,163 ) 201,151 $ 212,300 $ (523,368 ) $ 359,083 $ 1.24 $ (3.07 ) $ 1.99 $ 1.23 $ (3.07 ) $ 1.95 $ 0.60 $ 0.60 $ 0.60 170,652 170,253 180,594 173,034 170,253 184,259 Year ended June 30, (In thousands, except per share data) 2011 2010 2009 Revenues: Product $ 2,613,438 $ 1,324,270 $ 1,062,126 Service 561,729 496,490 458,090 Total revenues 3,175,167 1,820,760 1,520,216 Costs and operating expenses: Costs of revenues 1,259,243 815,662 864,824 Engineering, research and development 386,163 329,560 371,463 Selling, general and administrative 369,431 361,372 415,126 Goodwill and purchased intangible assets impairment — — 446,744 Total costs and operating expenses 2,014,837 1,506,594 2,098,157 Income (loss) from operations 1,160,330 314,166 (577,941 ) Interest income and other, net 4,064 31,532 30,749 Interest expense 54,328 54,517 55,339 Income (loss) before income taxes 1,110,066 291,181 (602,531 ) Provision for (benefit from) income taxes 315,578 78,881 (79,163 ) Net income (loss) $ 794,488 $ 212,300 $ (523,368 ) Net income (loss) per share: Basic $ 4.75 $ 1.24 $ (3.07 ) Diluted $ 4.66 $ 1.23 $ (3.07 ) Cash dividends declared per share $ 1.00 $ 0.60 $ 0.60 Weighted-average number of shares: Basic 167,261 170,652 170,253 Diluted 170,352 173,034 170,253 Common Stock and
Capital in Excess of
Par Value Retained
Earnings Accumulated
Other
Comprehensive
Income (Loss) Total
Stockholders’
Equity Shares Amount 191,364 967,886 2,570,751 11,405 3,550,042 — — 359,083 — 359,083 — — — (498 ) (498 ) — — — 180 180 — — — 46,134 46,134 — — — (9,537 ) (9,537 ) 395,362 — — (8,455 ) — (8,455 ) 4,170 155,635 — — 155,635 (21,496 ) (510,554 ) (608,441 ) — (1,118,995 ) — — (108,521 ) — (108,521 ) — 106,013 — — 106,013 — 10,649 — — 10,649 174,038 729,629 2,204,417 47,684 2,981,730 — — (523,368 ) — (523,368 ) — — — 2,467 2,467 — — — 4,829 4,829 — — — (79,463 ) (79,463 ) — — — 3,266 3,266 (592,269 ) 3,041 27,856 — — 27,856 (6,410 ) (9,930 ) (208,768 ) — (218,698 ) — — (102,149 ) — (102,149 ) — 105,535 — — 105,535 — (17,613 ) — — (17,613 ) 170,669 835,477 1,370,132 $ (21,217 ) 2,184,392 — — 212,300 — 212,300 — — — (4,446 ) (4,446 ) — — — 36 36 — — — (5,439 ) (5,439 ) — — — (237 ) (237 ) 202,214 1,999 22,353 — — 22,353 (4,625 ) (17,341 ) (123,569 ) — (140,910 ) — — (102,409 ) — (102,409 ) — 85,982 — — 85,982 — (5,011 ) — — (5,011 ) 168,043 $ 921,460 $ 1,356,454 $ (31,303 ) $ 2,246,611 (In thousands) Shares Amount Balances as of June 30, 2008 174,038 $ 729,629 $ 2,204,417 $ 47,684 $ 2,981,730 Components of comprehensive loss: Net loss — — (523,368 ) — (523,368 ) Change in unrealized gain on defined benefit plan assets, net of tax — — — 2,467 2,467 Change in unrealized gain on investments, net of tax — — — 4,829 4,829 Currency translation adjustments — — — (79,463 ) (79,463 ) Deferred gains on cash flow hedging instruments, net of tax — — — 3,266 3,266 Total comprehensive loss (592,269 ) Net issuance under employee stock plans 3,041 27,856 — — 27,856 Repurchase of common stock (6,410 ) (9,930 ) (208,768 ) — (218,698 ) Cash dividends declared ($0.60 per share) — — (102,149 ) — (102,149 ) Stock-based compensation expense — 105,535 — — 105,535 Tax charges for stock option transactions — (17,613 ) — — (17,613 ) Balances as of June 30, 2009 170,669 835,477 1,370,132 (21,217 ) 2,184,392 Components of comprehensive income: Net income — — 212,300 — 212,300 Change in unrealized loss on defined benefit plan assets, net of tax — — — (4,446 ) (4,446 ) Change in unrealized gain on investments, net of tax — — — 36 36 Currency translation adjustments — — — (5,439 ) (5,439 ) Deferred losses on cash flow hedging instruments, net of tax — — — (237 ) (237 ) Total comprehensive income 202,214 Net issuance under employee stock plans 1,999 22,353 — — 22,353 Repurchase of common stock (4,625 ) (17,341 ) (123,569 ) — (140,910 ) Cash dividends declared ($0.60 per share) — — (102,409 ) — (102,409 ) Stock-based compensation expense — 85,982 — — 85,982 Tax charges for stock option transactions — (5,011 ) — — (5,011 ) Balances as of June 30, 2010 168,043 921,460 1,356,454 (31,303 ) 2,246,611 Components of comprehensive income: Net income — — 794,488 — 794,488 Change in unrealized loss on defined benefit plan assets, net of tax — — — (643 ) (643 ) Change in unrealized gain on investments, net of tax — — — 347 347 Currency translation adjustments — — — 27,951 27,951 Deferred gains on cash flow hedging instruments, net of tax — — — 1,249 1,249 Total comprehensive income 823,392 Net issuance under employee stock plans 5,002 102,016 — 102,016 Repurchase of common stock (6,190 ) (102,013 ) (130,911 ) — (232,924 ) Issuance of common stock for litigation settlement related to historical stock option practices 263 7,766 — — 7,766 Cash dividends declared ($1.00 per share) — — (167,398 ) — (167,398 ) Stock-based compensation expense — 81,430 — — 81,430 Balances as of June 30, 2011 167,118 $ 1,010,659 $ 1,852,633 $ (2,399 ) $ 2,860,893 Year Ended June 30, 2010 2009 2008 $ 212,300 $ (523,368 ) $ 359,083 87,348 135,848 126,376 15,149 452,620 13,685 (2,984 ) (4,071 ) (20,163 ) 85,982 105,535 106,468 (2,888 ) 23,279 — (5,077 ) 635 (7,993 ) (19,865 ) 59,697 16,644 (5,133 ) (17,880 ) 10,649 — (1,691 ) (7,899 ) (220,857 ) 277,331 149,309 (27,715 ) 120,249 100,168 102,033 17,729 (94,787 ) 44,381 (46,796 ) 7,162 108,943 (54,978 ) (50,950 ) 76,183 (348,455 ) (45,141 ) 447,800 195,684 662,611 (1,500 ) (141,399 ) (494,036 ) (30,202 ) (22,226 ) (57,323 ) 5,878 21,814 68,787 (1,080,412 ) (1,008,905 ) (1,129,522 ) 702,826 554,958 1,647,728 152,144 98,333 16,865 (77,295 ) (67,240 ) (91,236 ) 100,597 79,765 96,800 (227,964 ) (484,900 ) 58,063 — — 744,570 35,867 40,108 155,635 (13,514 ) (12,252 ) — (102,409 ) (102,149 ) (108,521 ) — 1,691 7,899 (136,275 ) (226,515 ) (1,111,170 ) — — (7,351 ) (216,331 ) (299,117 ) (318,938 ) 1,446 (14,806 ) 3,859 4,951 (603,139 ) 405,595 524,967 1,128,106 722,511 $ 529,918 $ 524,967 $ 1,128,106 $ (13,989 ) $ (23,144 ) $ 250,327 $ 52,438 $ 56,021 $ 3,195 Year Ended June 30, (In thousands) 2011 2010 2009 Cash flows from operating activities: Net income (loss) $ 794,488 $ 212,300 $ (523,368 ) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 86,044 87,348 135,848 Asset impairment charges 10,568 15,149 452,620 Net gain on sale of real estate assets (1,372 ) (2,984 ) (4,071 ) Non-cash stock-based compensation expense 81,430 85,982 105,535 Provision for doubtful accounts — (2,888 ) 23,279 Net loss (gain) on sale of marketable securities and other investments (2,479 ) (5,077 ) 635 Deferred income taxes 64,736 (19,865 ) 59,697 Tax charge from equity awards — (5,133 ) (17,880 ) Excess tax benefit from equity awards (71 ) — (1,691 ) Changes in assets and liabilities, net of assets acquired and liabilities assumed in business combinations: Decrease (increase) in accounts receivable, net (128,219 ) (220,857 ) 277,331 Decrease (increase) in inventories (170,141 ) (27,715 ) 120,249 Decrease (increase) in other assets (56,743 ) 102,033 17,729 Increase (decrease) in accounts payable 34,259 44,381 (46,796 ) Increase (decrease) in deferred system profit (12,425 ) 108,943 (54,978 ) Increase (decrease) in other liabilities 123,091 76,183 (348,455 ) Net cash provided by operating activities 823,166 447,800 195,684 Cash flows from investing activities: Acquisitions of businesses, net of cash received — (1,500 ) (141,399 ) Capital expenditures, net (51,151 ) (30,202 ) (22,226 ) Proceeds from sale of assets 18,185 5,878 21,814 Purchase of available-for-sale securities (1,142,491 ) (1,080,412 ) (1,008,905 ) Proceeds from sale and maturity of available-for-sale securities 795,762 854,970 653,291 Purchase of trading securities (63,005 ) (77,295 ) (67,240 ) Proceeds from sale of trading securities 83,190 100,597 79,765 Net cash used in investing activities (359,510 ) (227,964 ) (484,900 ) Cash flows from financing activities: Issuance of common stock 124,573 35,867 40,108 Tax withholding payments related to vested and released restricted stock units (22,557 ) (13,514 ) (12,252 ) Payment of dividends to stockholders (167,398 ) (102,409 ) (102,149 ) Excess tax benefit from equity awards 71 — 1,691 Common stock repurchases (234,844 ) (136,275 ) (226,515 ) Net cash used in financing activities (300,155 ) (216,331 ) (299,117 ) Effect of exchange rate changes on cash and cash equivalents 17,910 1,446 (14,806 ) Net increase (decrease) in cash and cash equivalents 181,411 4,951 (603,139 ) Cash and cash equivalents at beginning of period 529,918 524,967 1,128,106 Cash and cash equivalents at end of period $ 711,329 $ 529,918 $ 524,967 Supplemental cash flow disclosures: Income taxes paid (refunds received), net $ 262,086 $ (13,989 ) $ (23,144 ) Interest paid $ 52,819 $ 52,438 $ 56,021 KLA-Tencor’sthe Company's cash, cash equivalents, accounts receivable, accounts payable and other current liabilities approximate their carrying amounts due to the relatively short maturity of these items.KLA-Tencorthe Company typically does not attempt to reduce or eliminate the inherent market risks. Non-marketable equity securities and other investments are recorded at historical cost. Non-marketable equity securities and other investments are included in “Other non-current assets” on the balance sheet. Non-marketable equity securities are subject to a periodic impairment review; however, there are no open-market valuations, and the impairment analysis requires significant judgment. This analysis includes assessment of the investee’s financial condition, the business outlook for its products and technology, its projected results and cash flow, the likelihood of obtaining subsequent rounds of financing and the impact of any relevant contractual equity preferences held by KLA-Tencorthe Company or others.KLA-Tencorthe Company is not considered to be the primary beneficiary based on an assessment performed by management.KLA-TENCOR CORPORATIONInventories.Notes to Consolidated Financial Statements—(Continued)Inventories. Inventories are stated at the lower of cost (on a first-in, first-out basis) or market. Demonstration units are stated at their manufacturing cost and written down to state the demonstration units at their net realizable value. The Company reviews and sets standard costs semi-annually at current manufacturing costs in order to approximate actual costs. The Company’s manufacturing overhead standards for product costs are calculated assuming full absorption of forecasted spending over projected volumes, adjusted for excess capacity. Abnormal inventory costs such as costs of idle facilities, excess freight and handling costs, and wasted materials (spoilage)spoilage are recognized as current period charges. The Company writes down product inventory based on forecasted demand and technological obsolescence and parts inventory based on pastforecasted usage. These factors are impacted by market and economic conditions, technology changes, new product introductions and changes in strategic direction and require estimates that may include uncertain elements. Actual demand may differ from forecasted demand, and such differences may have a material effect on recorded inventory values.allthe accounts receivable. The allowance for doubtful accounts is reviewed on a quarterly basis to assess the adequacy of the allowance. 2009 and 20082009 was $43.5$39.3 million $54.7, $43.5 million and $60.6$54.7 million, respectively.quarterthree months ended December 31, 20092010 and concluded that there was no impairment. There have been no significant events or circumstances affecting the valuation of goodwill subsequent to the impairment test performed in the second quarterthree months ended December 31, 2010. The next annual evaluation of the fiscal year ended June 30, 2010.goodwill by reporting unit will be performed in the three months ending December 31, KLA-TENCOR CORPORATIONNotes to Consolidated Financial Statements—(Continued)KLA-TencorThe Company invests in a variety of financial instruments, such as, but not limited to, certificates of deposit, corporate and municipal bonds,securities, United States Treasury and Government agency securities, and equity securities and, by policy, limits the amount of credit exposure with any one financial institution or commercial issuer. KLA-TencorThe Company has not experienced any material credit losses on its investments.KLA-Tencor’sthe Company's trade receivables are derived from sales to large multinational semiconductor manufacturers located throughout the world, with a majority located in Asia. Concentration of credit risk with respect to trade receivables is considered to be limited due to the Company’s customer base and the diversity of its geographic sales areas. KLA-TencorThe Company performs ongoing credit evaluations of its customers’ financial condition and generally requires no collateral to secure accounts receivable. KLA-TencorThe Company maintains an allowance for potential credit losses based upon expected collectibility of all accounts receivable. In addition, KLA-Tencorthe Company may utilize letters of credit or non-recourse factoring to mitigate credit risk when considered appropriate.KLA-Tencornonperformancenon-performance by counterparties on the foreign exchange contracts that the Company uses in hedging activities and in certain factoring transactions. These counterparties are large international financial institutions, and to date no such counterparty has failed to meet its financial obligations under such contracts.Year ended June 30, 2011 2010 2009 Intel Corporation Intel Corporation Intel Corporation Taiwan Semiconductor Manufacturing Company Limited Taiwan Semiconductor Manufacturing Company Limited Samsung Electronics Co., Ltd. Samsung Electronics Co., Ltd. — — As of June 30, 2011 2010 GlobalFoundries Inc. Samsung Electronics Co., Ltd. Taiwan Semiconductor Manufacturing Company Limited Taiwan Semiconductor Manufacturing Company Limited KLA-Tencor’speriod, except for non-monetary assets, such as inventories and property, plant and equipment that are remeasured using historical exchange rates.period. Revenues and costs in local currency are translatedremeasured using average exchange rates for the period, except for costs related to those balance sheet items that are translatedremeasured using historical exchange rates. The resulting remeasurement gains and losses are included in the Consolidated Statements of Operations as incurred.transactions expected to occur within twelve months.transactions. The purpose of KLA-Tencor’sthe Company's foreign currency program is to manage the effect of exchange rate fluctuations on certain foreign currency denominated revenues, costs and eventual cash flows. The effect of exchange rate changes on forward exchange contracts is expected to offset the effect of exchange rate changes on the underlying hedged items. KLA-TencorThe Company believes these financial instruments do not subject the Company to speculative risk that would otherwise result from changes in currency exchange rates. KLA-TencorThe Company does not use derivative financial instruments for speculative or trading purposes.KLA-Tencor’sthe Company's derivative financial instruments are recorded at fair value based upon quoted market prices for comparable instruments adjusted for risk of counterparty non-performance. For derivative instruments designated and qualifying as cash flow hedges of forecasted foreign currency denominated transactions expected to occur within twelve months, the effective portion of the gain or loss on these hedges is reported as a component of accumulated"Accumulated other comprehensive income (loss)" in stockholders’ equity, and is reclassified into earnings when the hedged transaction affects earnings. If the transaction being hedged fails to occur, or if a portion of any derivative is (or becomes) ineffective, the gain or loss on theKLA-TENCOR CORPORATIONNotes to Consolidated Financial Statements—(Continued)KLA-TencorThe Company accounts for the estimated warranty cost as a charge to costs of revenues when revenue is recognized. The estimated warranty cost is based on historical product performance and field expenses. Utilizing actual service records, KLA-Tencorthe Company calculates the average service hours andKLA-TencorThe Company updates these estimated charges on a quarterly basis. The actual product performance and/or field expense profiles may differ, and in those cases KLA-Tencorthe Company adjusts its warranty accruals accordingly (see Note 13, “Commitments and Contingencies”).KLA-TencorThe Company derives revenue from three sources—sales of systems, spare parts and services. KLA-TencorThe Company typically recognizes revenue for system sales upon acceptance by the customer that the system has been installed and is operating according to predetermined specifications. Under certain circumstances, however, KLA-Tencorthe Company recognizes revenue prior to written acceptance from the customer, as follows:onupon shipment.alreadypreviously accepted the same tool, with the same specifications, and it can be objectively demonstrated that the tool meets all of the required acceptance criteria upon shipment, revenue is recognized upon shipment. The portion of revenue associated with installation is deferred based on estimated fair value, and that revenue is recognized upon completion of the installation.signature on the acceptance document due to issues unrelated to product performance, revenue is recognized when the system is performing as intended and meets all published and contractually agreed specifications.KLA-Tencorcontractarrangement are not delivered and accepted at the same time.in one reporting period. In such cases, KLA-Tencorthe Company defers the relative fair value of the undelivered elementelements until that element is delivered to the customer. To be considered a separate element, the product or service in question must represent a separate unit of accounting and fulfill the following criteria: (a) the delivered item(s) has value to the customer on a standalone basis; (b) there is objective and reliable evidence of the fair value of the undelivered item(s)items(s); and (c) if the arrangement includes a general right of return relative to the delivered item(s), delivery or performance of the undelivered item(s) is considered probable and substantially in the control of the Company. If the arrangement does not meet all the above criteria, the entire amount of the sales contract is deferred until all elements are accepted by the customer.KLA-TENCOR CORPORATIONNotes to Consolidated Financial Statements—(Continued)vendor specific objective evidence of fair value. Services performed in the absence of a contract, such as consulting and training revenue, are recognized when the related services are performed and collectibility is reasonably assured. as of June 30, 2010 and 2009 was $204.8 million and $95.8 million, respectively, and equals the amount of deferred system revenue that was invoiced and due on shipment, less applicable product and warranty costs. Deferred system revenue represents the value of products that have been shipped and billed to customers which has not met the Company's revenue recognition criteria of the Company.criteria. Deferred system profit does not include the profit associated with product shipments to customers in Japan, to whom title does not transfer until customer acceptance. Shipments to customers in Japan are classified as inventory at cost until the time of acceptance.KLA-Tencor40-hour40-hour per week coverage for twelve months. Non-standard warranty is recognized ratably as revenue when the applicable warranty term period commences. The unearned revenue balance was $57.4 million and $69.3 million as of June 30, 2010 and 2009, respectively.Revenue Recognition for Certain Arrangements with Software Elements and/or Multiple Deliverables.In October 2009, the FASB amended the accounting standards for revenue recognition to remove tangible products containing software components and non-software components that function together to deliver the product’s essential functionality from the scope of industry-specific software revenue recognition guidance. In October 2009, the FASB also amended the accounting standards for multiple-deliverable revenue arrangements to:provide updated guidance on how the deliverables in an arrangement should be separated, and how the consideration should be allocated;eliminate the use of the residual method and require an entity to allocate revenue using the relative selling price method; andrequire an entity to allocate revenue in an arrangement using estimated selling prices (“ESP”) of deliverables if it does not have vendor-specific objective evidence (“VSOE”) or third-party evidence (“TPE”) of selling price. Valuation terms are defined as follows:VSOE—the price at which the Company sells the element in a separate stand-alone transaction.TPE—evidence from the Company or other companies of the value of a largely interchangeable element in a transaction.ESP—the Company’s best estimate of the selling price of an element in a transaction.The Company elected to early adopt this accounting guidance at the beginning of its second quarter of the fiscal year ending June 30, 2010 and has applied the adoption retrospectively to the beginning of the fiscal year to apply the guidance to transactions originating or materially modified after June 30, 2009. The implementation resulted in additional qualitative disclosures that are included below but did not have a material impact on the Company’s financial position, results of operations or cash flows.KLA-TENCOR CORPORATIONNotes to Consolidated Financial Statements—(Continued)For transactions entered into through June 30, 2009, the Company primarily recognized revenue based on the guidance in Staff Accounting Bulletin No. 104. During the period, for the majority of the Company’s arrangements involving multiple deliverables, the entire amount of the sales contract was allocated to each respective element based on its relative selling price, using fair value. In the limited circumstances when the Company was not able to determine fair value for the deliverables in the arrangement, but was able to obtain fair value for the undelivered elements, revenue was allocated using the residual method. Under the residual method, the amount of revenue allocated to delivered elements equaled the total arrangement consideration less the aggregate selling price of any undelivered elements, and no revenue was recognized until all elements without fair value had been delivered. If fair value of any undelivered elements did not exist, the entire amount of the sales contract was deferred until all elements were accepted by the customer.The Company enters into revenue arrangements that may consist of multiple deliverables of its products and services where certain elements of a sales contract are not delivered and accepted in one reporting period.In many instances, products are sold in stand-alone arrangements. Services are sold separately through renewals of annual maintenance contracts. As a result, for substantially all of the arrangements with multiple deliverables pertaining to products and services, the Company uses VSOE or TPE to allocate the selling price to each deliverable. The Company determines TPE based on historical prices charged for products and services when sold on a stand-alone basis.When the Company is unable to establish relative selling price using VSOE or TPE, the Company uses ESP in its allocation of arrangement consideration. The objective of ESP is to determine the price at which the Company would transact a sale if the product or service were sold on a stand-alone basis. ESP could potentially be used for new or customized products.The Company regularly reviews relative selling prices and maintains internal controls over the establishment and updates of these estimates.$13.7$18.8 million $21.7, $13.7 million and $20.4$21.7 million in external funding received under certain strategic development programs primarily from government grants in the fiscal years ended June 30, 2011, 2010 2009 and 2008,2009, respectively. for stock options and for purchase rights under the Company’s Employee Stock Purchase Plan and using the closing price of the Company’s common stock on the grant date for restricted stock units. The Company has elected to not include the indirect tax effects of stock-based compensation deductions when calculating the windfall benefits and recognizes the full effect of these deductions in the income statement in the period in which the taxable event occurs. 2009 and 20082009 were $1.6$2.2 million $2.3, $1.6 million and $4.5$2.3 million, respectively.KLA-TENCOR CORPORATIONNotes to Consolidated Financial Statements—(Continued)On July 1, 2007, theadopted the authoritative guidance that containsapplies a two-step approach, based on authoritative guidance, to recognizing and measuring uncertain tax positions. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained onin audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon ultimate settlement. The Company reevaluates these uncertain tax positions on a quarterly basis. This evaluation is based on factors including, but not limited to, changes in facts or circumstances, changes in tax law, effectively settled issues under audit, and new audit activity. Any change in these factors could result in the recognition of a tax benefit or an additional charge to the tax provision.charges operations forrecognizes as expense the estimated costs expected to be incurred over the next twelve months of adjudicationto defend or settlement ofsettle asserted and unasserted claims existing as of the balance sheet date. See Note 13, “Commitments and Contingencies” and Note 14, “Litigation and Other Legal Matters” for a detailed description.Starting in fiscal year 2009, goodwill and purchased intangible assets impairment is now presented as a separate line item in the Consolidated Statements of Operations (previously reported as a component of the respective operating expenses). TheseThe reclassifications had no effect on the consolidated operating resultsConsolidated Statements of Operations or the change in cash and cash equivalents, as previously reported.Cash Flows.Financial Accounting Standards Board (“FASB”)FASB amended its guidance on share-based payment awards denominated in certain currencies. The amendment clarifies that an employee share-based payment award with an exercise price denominated in the currency of a market in which a substantial portion of the entity’s equity securities trades should not be considered to contain a condition that is not a market, performance, or service condition. Therefore, an entity would not classify such an award as a liability if itKLA-TENCOR CORPORATIONNotes to Consolidated Financial Statements—(Continued)In April 2010, the FASB amended the authoritative guidance addressing accounting for arrangements in which a vendor satisfies its performance obligations over time, with all or a portion of the consideration contingent on future events, referred to as “milestones.” The scope of the new guidance is limited to milestones in arrangements that involve research or development activities, such as the successful completion of a drug study phase. The amendment provides guidance on the criteria that should be met for determining whether the milestone method of revenue recognition is appropriate. A vendor can recognize consideration that is contingent upon achievement of a milestone in its entirety as revenue in the period in which the milestone is achieved only if the milestone meets all criteria to be considered substantive. A vendor that is affected by the amendments is required to provide a description of the overall arrangement, a description of each milestone and related contingent consideration, a determination of whether each milestone is considered substantive, the factors that the entity considered in determining whether the milestone or milestones are substantive, and the amount of consideration recognized during the period for the milestone or milestones. This amendment becomes effective for the Company’s interim period ending September 30, 2010, and the Company does not expect the amendment to have a material impact on its financial position, results of operations or cash flows.In March 2010, the FASB amended the authoritative guidance on derivatives and hedging. The amendment addresses the scope exception related to embedded credit derivatives to clarify when analysis of an embedded credit derivative for bifurcation from the host contract is not required. It specifies that embedded credit derivatives not qualifying for the scope exception, such as an embedded derivative related to a credit default swap on a referenced credit, would be subject to a bifurcation analysis even if their effects are allocated to interests in subordinated tranches of securitized financial instruments. The amended guidance requires that an entity separately disclose, on an instrument-by-instrument basis, the gross gains and gross losses that comprise the cumulative-effect adjustment that results from adopting the amended guidance. The amended guidance becomes effective for our interim period ending September 30, 2010. The Company currently does not hold such derivatives, and does not expect the amendment to have a material impact on its financial position, results of operations or cash flows.In February 2010, the SEC issued a policy statement and staff work plan regarding the potential use by U.S. issuers of financial statements prepared in accordance with International Financial Reporting Standards (“IFRS”). IFRS is a comprehensive series of accounting standards published by the International Accounting Standards Board. Under the proposed timeline set forth by the SEC, the Company could be required in fiscal year 2015 to prepare financial statements in accordance with IFRS, and the SEC is expected to make a determination in 2011 regarding the mandatory adoption of IFRS. The Company is currently assessing the impact that this potential change would have on its consolidated financial statements, and it will continue to monitor the development of the potential implementation of IFRS.In February 2010, the FASB amended its guidance on subsequent events. The amendment states that entities that are required to file or furnish their financial statements with the SEC are no longer required to disclose the date through which the entity has evaluated subsequent events. This amendment was effective for the Company’s interim reporting period ended March 31, 2010, and the implementation did not have an impact on the Company’s financial position, results of operations or cash flows as it is disclosure-only in nature.KLA-TENCOR CORPORATIONNotes to Consolidated Financial Statements—(Continued)In October 2009, the FASB amended its Emerging Issues Task Force (“EITF”) authoritative guidance addressing revenue arrangements with multiple deliverables. guidance requires revenue to be allocated to multiple elements using relative fair value based on vendor-specific objective evidence, third-party evidence or estimated selling price. The residual method also becomes obsolete under this guidance. This guidance is effective for the Company’s interim reporting period ending September 30, 2010, and allows for early adoption. The Company elected to early adopt the accounting guidance at the beginning of the second quarter of its fiscal year ending June 30, 2010 and has applied the adoption retrospectively to the beginning of the fiscal year to apply the guidance to transactions originating or materially modified after June 30, 2009. The implementation resulted in additional qualitative disclosures but did not have a material impact on the Company’s financial position, results of operations or cash flows.In October 2009, the FASB amended the authoritative guidance addressing certain revenue arrangements that include software elements. This guidance states that tangible products with hardware and software components that work together to deliver the product functionality are considered non-software products, and the accounting guidance for revenue arrangements with multiple deliverables is to be followed with respect to such products. This guidance is effective for the Company’s interim reporting period ending September 30, 2010, and allows for early adoption. The Company elected to early adopt the accounting guidance at the beginning of the second quarter of its fiscal year ending June 30, 2010 and has applied the adoption retrospectively to the beginning of the fiscal year to apply the guidance to transactions originating or materially modified after June 30, 2009. The implementation resulted in additional qualitative disclosures but did not have a material impact on the Company’s financial position, results of operations or cash flows.In August 2009, the FASB issued authoritative guidance for measuring liabilities at fair value that reaffirms the previously existing definition of fair value and reintroduces the concept of entry value into the determination of fair value of liabilities. Entry value is the amount an entity would receive to enter into an identical liability. The guidance was effective for the Company’s interim reporting period ended December 31, 2009. The implementation did not have a material impact on the Company’s financial position, results of operations or cash flows.In June 2009, the FASB issued authoritative guidance for consolidations that changes how a company determines when an entity that is insufficiently capitalized or is not controlled through voting (or similar rights) should be consolidated. The determination of whether a company is required to consolidate an entity is based on, among other things, an entity’s purpose and design and a company’s ability to direct the activities of the entity that most significantly impact the entity’s economic performance. This guidance is effective for the Company’s interim reporting period ending September 30, 2010. The Company is currently evaluating the impact of the guidance on its financial position, results of operations and cash flows.In June 2009, the FASB issued authoritative guidance to establish the FASB Accounting Standards Codification as the source of authoritative accounting principles and the framework for selecting the principles used in the preparation of financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting principles in the United States. This guidance was effective for the Company’s interim reporting period ended September 30, 2009 and only impacted references for accounting guidance.KLA-TENCOR CORPORATIONNotes to Consolidated Financial Statements—(Continued)In April 2009, the FASB issued authoritative guidance for business combinations that amends the provisions related to the initial recognition and measurement, subsequent measurement and disclosure of assets and liabilities arising from contingencies in a business combination. This guidance will require such contingencies to be recognized at fair value on the acquisition date if fair value can be reasonably estimated during the allocation period. Otherwise, entities would typically account for the acquired contingencies in accordance with authoritative guidance for contingencies. The guidance became effective for the Company’s business combinations for which the acquisition date is on or after July 1, 2009. The Company did not complete any material business combinations during the fiscal year ended June 30, 2010, and the effect of this guidance, if any, on the Company’s financial position, results of operations and cash flows in future periods will depend on the nature and significance of business combinations subject to this guidance.In April 2009, the FASB issued authoritative guidance to increase the frequency of fair value disclosures of financial instruments, thereby enhancing consistency in financial reporting. The guidance relates to fair value disclosures for any financial instruments that are not currently reflected on a company’s balance sheet at fair value. Prior to the effective date of this guidance, fair values for these types of financial assets and liabilities had only been disclosed once a year. The guidance requires these disclosures on a quarterly basis, providing qualitative and quantitative information about fair value estimates for all those financial instruments not measured on the balance sheet at fair value. The disclosure requirement under this guidance was effective for the Company’s interim reporting period ended September 30, 2009. The implementation did not have an impact on the Company’s financial position, results of operations or cash flows as it is disclosure-only in nature.In December 2008, the FASB issued authoritative guidance for an employer’s disclosures about plan assets of a defined benefit pension or other post-retirement plan. The guidance requires annual disclosures surrounding how investment allocation decisions are made, including the factors that are pertinent to an understanding of investment policies and strategies. The annual disclosure requirement under this guidance was effective for the Company’s fiscal year ending June 30, 2010. The implementation resulted in additional qualitative disclosures but did not change the accounting treatment for post-retirement benefit plans.In April 2008, the FASB issued authoritative guidance for general intangibles other than goodwill, amending the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset. This guidance is effective for intangible assets acquired on or after July 1, 2009. The adoption did not have a material impact on the Company’s financial position, results of operations or cash flows.NOTE 2—FAIR VALUE MEASUREMENTSOn July 1, 2009, the Company adopted the newly issued accounting standard for fair value measurements of all non-financial assets and non-financial liabilities not recognized or disclosed at fair value in the financial statements on a recurring basis. The Company’s financial assets are measured and recorded at fair value, except for equity investments in privately-held companies. These equity investments are generally accounted for under the cost method of accounting and are periodically assessed for other-than-temporary impairment when an event or circumstance indicates that an other-than-temporary decline in value may have occurred. The Company’s non-financial assets, such as goodwill, intangible assets, and property, plant and equipment, are recorded at cost and are assessed for impairment when an event or circumstance indicates that an other-than-temporary decline in value may have occurred.As of June 30, 2010, the Company did not elect the fair value option that permits companies to measure eligible financial instruments at fair value for any financial assets and liabilities that were not previously measured at fair value.KLA-TENCOR CORPORATIONNotes to Consolidated Financial Statements—(Continued)Level 1 Valuations based on quoted prices in active markets for identical assets or liabilities that the entity has the ability to access. Level 2 Valuations based on quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable data for substantially the full term of the assets or liabilities. Level 3 Valuations based on inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Mostarewere classified within Level 1 or Level 2 of the fair value hierarchy as of June 30, 2011, because they arewere valued using quoted market prices, broker or dealer quotations, or alternative pricing sources with reasonable levels of price transparency. The types of instruments valued based on quoted market prices in active markets include money market funds, U.S. Government agency securities and U.S. Treasury securities. Such instruments are generally classified within Level 1 of the fair value hierarchy.U.S. corporate bondsdebt securities, municipal securities and municipal obligations.sovereign securities. The market inputs used to value these instruments generally consist of market yields, reported trades and broker/dealer quotes. Such instruments are generally classified within Level 2 of the fair value hierarchy.we execute ourthe Company executes its foreign currency contracts is the institutional market in an over-the-counter environment with a relatively high level of price transparency. The market participants usually are large commercial banks. OurThe Company's foreign currency contracts’ valuation inputs are based on quoted prices and quoted pricing intervals from public data sources and do not involve management judgment. These contracts are typically classified within Level 2 of the fair value hierarchy.includeincluded the auction rate securities that were held by the Company as of and prior to June 30, 2010. Such instruments are generallywere classified within Level 3 of the fair value hierarchy. The Company estimated the fair value of these auction rate securities using a discounted cash flow model incorporating assumptions that market participants would use in their estimates of fair value. Some of these assumptions includeincluded estimates for interest rates, timing and amount of cash flows and expected holding periods of the auction rate securities.KLA-TENCOR CORPORATIONNotes to Consolidated Financial Statements—(Continued)20102011 were as follows: Total Quoted Prices in
Active Markets
for Identical
Assets (Level 1) Significant Other
Observable Inputs
(Level 2) Significant
Unobservable Inputs
(Level 3) $ 42,293 $ 35,194 $ 7,099 — 250,280 243,144 7,136 — 55,459 — 55,459 — 603,156 — 603,156 — 373,081 373,070 11 — 39,355 10,500 28,855 — 16,825 — — 16,825 1,380,449 661,908 701,716 16,825 4 4 — — 109,226 85,254 23,972 — 109,230 85,258 23,972 — 296 — 296 — $ 1,489,975 $ 747,166 $ 725,984 $ 16,825 $ (5,824 ) $ — $ (5,824 ) $ — $ (5,824 ) $ — $ (5,824 ) $ — (In thousands) Total U.S. Treasury securities $ 58,896 $ 52,396 $ 6,500 $ — U.S. Government agency securities 320,183 320,183 — — Municipal securities 38,957 — 38,957 — Corporate debt securities 875,385 — 875,385 — Money market and other 481,770 481,770 — — Sovereign securities 32,086 14,696 17,390 — Total marketable securities and cash equivalents(1) 1,807,277 869,045 938,232 — Executive Deferred Savings Plan: Money market and other 1,806 1,806 — — Mutual funds 126,227 95,971 30,256 — Executive Deferred Savings Plan total 128,033 97,777 30,256 — Derivative assets 1,970 — 1,970 — Total financial assets(1) $ 1,937,280 $ 966,822 $ 970,458 $ — Derivative liabilities $ (2,127 ) $ — $ (2,127 ) $ — Total financial liabilities $ (2,127 ) $ — $ (2,127 ) $ — 20092010 were as follows: Total Quoted Prices in
Active Markets
for Identical
Assets (Level 1) Significant Other
Observable Inputs
(Level 2) Significant
Unobservable Inputs
(Level 3) $ 86,411 $ 61,453 $ 24,958 — 279,696 222,132 57,564 — 30,420 — 30,420 — 352,444 55,477 296,967 — 325,014 325,014 — — 10,361 — 10,361 — 38,168 38,168 1,122,514 664,076 420,270 38,168 32 32 — — 107,192 107,192 — — 107,224 107,224 — — 4,659 — 2,243 2,416 $ 1,234,397 $ 771,300 $ 422,513 $ 40,584 $ (2,799 ) $ — $ (2,799 ) $ — $ (2,799 ) $ — $ (2,799 ) $ — (In thousands) Total U.S. Treasury securities $ 42,293 $ 35,194 $ 7,099 $ — U.S. Government agency securities 250,280 243,144 7,136 — Municipal securities 55,459 — 55,459 — Corporate debt securities 603,156 — 603,156 — Money market and other 334,674 334,663 11 — Sovereign securities 39,355 10,500 28,855 — Auction rate securities 16,825 — — 16,825 Total marketable securities and cash equivalents(1) 1,342,042 623,501 701,716 16,825 Executive Deferred Savings Plan: Money market and other 4 4 — — Mutual funds 109,226 85,254 23,972 — Executive Deferred Savings Plan total 109,230 85,258 23,972 — Derivative assets $ 296 $ — $ 296 $ — Total financial assets(1) $ 1,451,568 $ 708,759 $ 725,984 $ 16,825 Derivative liabilities $ (5,824 ) $ — $ (5,824 ) $ — Total financial liabilities $ (5,824 ) $ — $ (5,824 ) $ — KLA-TENCOR CORPORATION(1) Excludes cash of Notes to Consolidated $153.6 million held in operating accounts and time deposits of $38.4 million as of June 30, 2010.Statements—(Continued)Assetsassets (excluding cash held in operating accounts and time deposits) and liabilities measured at fair value on a recurring basis were presented onin the Company’s Consolidated Balance Sheet as of June 30, 20102011 as follows: Total Quoted Prices in
Active Markets
for Identical
Assets (Level 1) Significant Other
Observable Inputs
(Level 2) Significant
Unobservable Inputs
(Level 3) $ 376,323 $ 356,224 $ 20,099 $ — 1,004,126 305,684 681,617 16,825 296 — 296 — 109,230 85,258 23,972 — $ 1,489,975 $ 747,166 $ 725,984 $ 16,825 $ (5,824 ) $ — $ (5,824 ) $ — $ (5,824 ) $ — $ (5,824 ) $ — Assets(In thousands) Total Cash equivalents $ 514,162 $ 487,780 $ 26,382 $ — Marketable securities 1,293,115 381,265 911,850 — Other current assets 1,970 — 1,970 — Other non-current assets 128,033 97,777 30,256 — Total financial assets(1) $ 1,937,280 $ 966,822 $ 970,458 $ — Other current liabilities $ (2,127 ) $ — $ (2,127 ) $ — Total financial liabilities $ (2,127 ) $ — $ (2,127 ) $ — onin the Company’s Consolidated Balance Sheet as of June 30, 20092010 as follows: Total Quoted Prices in
Active Markets
for Identical
Assets (Level 1) Significant Other
Observable Inputs
(Level 2) Significant
Unobservable Inputs
(Level 3) $ 317,597 $ 317,597 $ — $ — 804,917 346,479 420,270 38,168 4,659 — 2,243 2,416 107,224 107,224 — — $ 1,234,397 $ 771,300 $ 422,513 $ 40,584 $ (2,799 ) $ — $ (2,799 ) $ — $ (2,799 ) $ — $ (2,799 ) $ — (In thousands) Total Cash equivalents $ 363,623 $ 343,524 $ 20,099 $ — Marketable securities 978,419 279,977 681,617 16,825 Other current assets 296 — 296 — Other non-current assets 109,230 85,258 23,972 — Total financial assets(1) $ 1,451,568 $ 708,759 $ 725,984 $ 16,825 Other current liabilities $ (5,824 ) $ — $ (5,824 ) $ — Total financial liabilities $ (5,824 ) $ — $ (5,824 ) $ — ourthe Company's Level 3 securities for the fiscal yearyears ended June 30, 20102011 and 20092010 were as follows: 2010 2009 $ 40,584 $ 42,147 — 22 66 (6,482 ) — 1,281 (23,825 ) 3,616 $ 16,825 $ 40,584 KLA-TENCOR CORPORATIONNotes to Consolidated Financial Statements—(Continued) 2011 2010 Beginning aggregate estimated fair value of Level 3 securities $ 16,825 $ 40,584 Unrealized gain included in income — 66 Net settlements (16,825 ) (23,825 ) Ending aggregate estimated fair value of Level 3 securities $ — $ 16,825 3—3 — FINANCIAL STATEMENT COMPONENTS As of June 30, 2010 2009 $ 471,999 $ 245,618 (31,874 ) (35,475 ) $ 440,125 $ 210,143 $ 131,951 $ 146,724 123,301 99,383 95,641 66,292 50,837 57,807 $ 401,730 $ 370,206 $ 39,121 $ 61,854 47,934 138,500 43,989 26,909 $ 131,044 $ 227,263 $ 41,807 $ 52,493 122,467 132,872 443,351 410,643 23,345 23,976 101,936 106,811 2,603 1,171 735,509 727,966 (498,757 ) (436,088 ) $ 236,752 $ 291,878 $ 132,829 $ 128,776 244,927 295,536 11,741 16,272 $ 389,497 $ 440,584 $ 22,650 $ 21,812 268,446 176,828 35,340 15,536 8,769 8,769 10,439 4,848 76,415 113,648 $ 422,059 $ 341,441 $ (27,701 ) $ (22,260 ) (1,241 ) (1,005 ) 3,562 3,525 (5,923 ) (1,477 ) $ (31,303 ) $ (21,217 ) KLA-TENCOR CORPORATIONNotes to Consolidated Financial Statements—(Continued)As of June 30, 2010 and 2009, the net book value of property and equipment includes assets held for sale of $19.3 million and $4.7 million, respectively. As of June 30, (In thousands) 2011 2010 Accounts receivable, net: Accounts receivable, gross $ 605,376 $ 471,999 Allowance for doubtful accounts (22,106 ) (31,874 ) $ 583,270 $ 440,125 Inventories, net: Customer service parts $ 148,466 $ 131,951 Raw materials 235,605 123,301 Work-in-process 131,804 95,641 Finished goods 59,855 50,837 $ 575,730 $ 401,730 Other current assets: Prepaid expense $ 61,796 $ 39,121 Income tax related receivables 59,774 47,934 Other current assets 25,508 43,989 $ 147,078 $ 131,044 Land, property and equipment, net(1): Land $ 41,956 $ 41,807 Buildings and leasehold improvements 234,173 224,403 Machinery and equipment 447,772 443,351 Office furniture and fixtures 19,645 23,345 Construction in process 6,979 2,603 750,525 735,509 Less: accumulated depreciation and amortization (493,167 ) (498,757 ) $ 257,358 $ 236,752 Other non-current assets: Executive Deferred Savings Plan(2) $ 128,033 $ 109,230 Deferred tax assets—long-term 173,788 244,927 Other 26,274 35,340 $ 328,095 $ 389,497 Other current liabilities: Warranty $ 41,528 $ 21,109 Executive Deferred Savings Plan(2) 128,088 109,964 Compensation and benefits 186,761 158,482 Income taxes payable 16,564 35,340 Interest payable 8,769 8,769 Accrued litigation costs 4,824 10,439 Other accrued expenses 115,937 77,956 $ 502,471 $ 422,059 Accumulated other comprehensive income (loss): Currency translation adjustments $ 251 $ (27,701 ) 8 (1,241 ) 3,909 3,562 Unrealized losses of defined benefit pension plan, net of tax benefits of $(4,637) in 2011 and $(3,721) in 2010 (6,567 ) (5,923 ) $ (2,399 ) $ (31,303 ) (1) (2) Year ended June 30, 2010 2009 2008 $ 17,512 $ 27,157 $ 47,009 (5,009 ) 5,375 13,243 4,021 (568 ) 10,138 15,008 (1) (1,215 ) 1,235 $ 31,532 $ 30,749 $ 71,625 Year ended June 30, (In thousands) 2011 2010 2009 Interest income and other, net: Interest income $ 15,513 $ 17,512 $ 27,157 Foreign exchange gains (losses), net (2,108 ) (5,009 ) 5,375 Realized gains (losses) on sale of investments 2,479 4,021 (568 ) Other (11,820 ) (1) 15,008 (2) (1,215 ) $ 4,064 $ 31,532 $ 30,749 (1) (2) $15.9$15.9 million that the Company recorded upon expiration of a statute of limitations related to an uncertainty in the Company’s position with respect to a foreign transaction-based tax.4—4 — MARKETABLE SECURITIEScostscost and estimated fair value of marketable securities as of June 30, 20102011 and 20092010 were as follows: Amortized
Cost Gross
Unrealized
Gains Gross
Unrealized
Losses Fair Value $ 42,182 $ 112 $ (1 ) $ 42,293 249,182 1,108 (10 ) 250,280 55,171 368 (80 ) 55,459 599,118 5,314 (1,276 ) 603,156 373,081 — — 373,081 39,166 210 (21 ) 39,355 16,825 — — 16,825 1,374,725 7,112 (1,388 ) 1,380,449 376,316 7 — 376,323 $ 998,409 $ 7,105 $ (1,388 ) $ 1,004,126 Amortized
Cost Gross
Unrealized
Gains Gross
Unrealized
Losses Fair Value $ 85,843 $ 576 $ (7 ) $ 86,412 277,762 2,089 (155 ) 279,696 30,228 260 (68 ) 30,420 349,522 3,478 (557 ) 352,443 325,014 — — 325,014 10,319 73 (31 ) 10,361 40,650 — (2,482 ) 38,168 1,119,338 6,476 (3,300 ) 1,122,514 317,597 — — 317,597 $ 801,741 $ 6,476 $ (3,300 ) $ 804,917 As of June 30, 2011 (In thousands) Fair Value U.S. Treasury securities $ 58,754 $ 165 $ (23 ) $ 58,896 U.S. Government agency securities 319,375 931 (123 ) 320,183 Municipal securities 38,688 275 (6 ) 38,957 Corporate debt securities 870,591 5,162 (368 ) 875,385 Money market and other 481,770 — — 481,770 Sovereign securities 31,932 179 (25 ) 32,086 Subtotal 1,801,110 6,712 (545 ) 1,807,277 Add: Time deposits(1) 65,402 — — 65,402 Less: Cash equivalents 545,475 — (2 ) 545,473 Marketable securities $ 1,321,037 $ 6,712 $ (543 ) $ 1,327,206 As of June 30, 2010 (In thousands) Fair Value U.S. Treasury securities $ 42,182 $ 112 $ (1 ) $ 42,293 U.S. Government agency securities 249,182 1,108 (10 ) 250,280 Municipal securities 55,171 368 (80 ) 55,459 Corporate debt securities 599,118 5,314 (1,276 ) 603,156 Money market and other 334,674 — — 334,674 Sovereign securities 39,166 210 (21 ) 39,355 Auction rate securities 16,825 — — 16,825 Subtotal 1,336,318 7,112 (1,388 ) 1,342,042 Add: Time deposits(1) 38,407 — — 38,407 Less: Cash equivalents 376,316 7 — 376,323 Marketable securities $ 998,409 $ 7,105 $ (1,388 ) $ 1,004,126 KLA-TENCOR CORPORATION(1) Time deposits excluded from fair value measurements.Notes to Consolidated Financial Statements—(Continued)itsthe Company's investments aggregated by investment instrument and length of time that the individual securities have beenwere in a continuousan unrealized loss position as of June 30, 2010: Fair Value Gross
Unrealized
Losses(1) $ 5,030 $ (1 ) 16,928 (10 ) 8,510 (80 ) 84,029 (1,276 ) 14,965 (21 ) $ 129,462 $ (1,388 ) (In thousands) Fair Value U.S. Treasury securities $ 15,660 $ (23 ) U.S. Government agency securities 63,345 (121 ) Municipal securities 3,181 (6 ) Corporate debt securities 137,990 (368 ) Sovereign securities 7,542 (25 ) Total $ 227,718 $ (543 ) (1) haveas of June 30, 2011, had been in a continuous loss position for 12 months or more.2010,2011, regardless of the consolidated balance sheet classification, arewere as follows: Amortized
Cost Estimated
Fair Value $ 234,206 $ 235,324 747,378 751,977 $ 981,584 $ 987,301 (In thousands) Fair Value Due within one year $ 338,240 $ 339,968 Due after one year through three years 982,797 987,238 $ 1,321,037 $ 1,327,206 gaingains for the fiscal years ended June 30, 2011 and June 30, 2010 were $2.5 million and $4.0 million, respectively. Net realized losses for the fiscal year ended June 30, 2010 was approximately $4.0 million. Net realized loss for the fiscal year ended June 30, 2009 was approximately $0.6 million. Net realized gain for the fiscal year ended June 30, 2008 was approximately $10.2 million. were $0.6 million.arewere investments with contractual maturities generally between 20 to 30 years. They are usually found in the form of municipal bonds,securities, preferred stock, a pool of student loans, or collateralized debt obligations whose interest rates are reset. The reset typically occurs every seven to forty-nine days, through an auction process. At the end of each reset period, investors can sell or continue to hold the securities at par. The auction rate securities that were held by the Company arewere backed by student loans and arewere collateralized, insured and guaranteed by the United States Federal Department of Education. In addition, all auction rate securities that were held by the Company arewere rated by the major independent rating agencies as either AAA or Aaa. In February 2008, because sell orders exceeded buy orders, auctions failed for approximately $48.2$48.2 million in par value of municipal auction rate securities that were then held by the Company. These failures arewere not believed to be a credit issue, but rather caused by a lack of liquidity. The funds associated with these failed auctions maymight not behave been accessible until the issuer callscalled the security, a successful auction occurs,occurred, a buyer iswas found outside of the auction process, or theKLA-TENCOR CORPORATIONNotes to Consolidated Financial Statements—(Continued)matures.matured. By letter dated August 8, 2008, the Company received notification from UBS AG (“UBS”), in connection with a settlement entered into between UBS and certain regulatory agencies, offering to repurchase all of the Company’s auction rate security holdings at par value. The Company formally accepted the settlement offer and entered into a repurchase agreement (“Agreement”) with UBS on November 11, 2008 (“Acceptance Date”). By accepting the Agreement, the Company (1) received the right (“Put Option”) to sell its auction rate securities at par value to UBS between June 30, 2010 and June 30, 2012 and (2) gave UBS the right to purchase the auction rate securities from the Company any time after the Acceptance Date as long as the Company receivesreceived the par value. As of June 30, 2009, the Company had $40.7 million par value of auction rate securities. During the fiscal year ended June 30, 2010, $23.9 million of the auction rate securities were called at par by the issuers. The Put Option was exercised on June 30, 2010 to sell the remaining auction rate securities of $16.8 million at par value and was subsequently settled. As of June 30, 2010, those remaining auction rate securities that had been sold but had not yet been settled as of such date are included in marketable securities and valued at par.5—5 — BUSINESS COMBINATIONSapproximately $141.4 million.$141.4 million. The acquired MIE business unit is a provider of mask registration measurement tools, scanning electron microscopy (“SEM”) based tools for mask critical dimension measurement and macro defect inspection systems.(In thousands) Cash $ 14,219 Current assets 60,094 Intangibles: Existing technology 39,800 Patents 18,200 Trade name/Trademarks 4,800 Customer relationships 19,300 In-process R&D (“IPR&D”) 8,600 Backlog 6,750 Other intangible assets 9,950 Non-current assets 2,749 Goodwill 33,071 Liabilities assumed (61,915 ) $ 155,618 Cash consideration – paid $ 155,618 KLA-TENCOR CORPORATIONNotes to Consolidated Financial Statements—(Continued)$33.1$33.1 million of goodwill is assigned to the defect inspection reporting unit, which is not expected to be deductible for tax purposes. This acquisition provided the Company with a line of mask registration measurement tools to complement the Company’s previously existing mask inspection products. In addition, through the acquisition, the Company acquired a provider of SEM-based tools for mask critical dimension measurement. Other technologies of the MIE business unit acquired by the Company in the transaction included macro defect inspection systems, overlay measurement systems for microelectromechanical systems (“MEMS”) applications and software packages for defect classification and data analysis.The results of operations of the acquired MIE business unit are included in the accompanying Consolidated Statement of Operations from the closing date of the acquisition on September 30, 2008. Pro forma earnings information has not been presented because the effect of the acquisition of the MIE business unit is not material to the Company’s results of operations, balance sheet or statement of cash flows.During the fiscal year ended June 30, 2008, the Company completed its acquisition of ICOS Vision Systems Corporation NV for net cash consideration of approximately $488.8 million primarily to expand the Company’s product portfolio in semiconductor packaging inspection and to gain entry into the solar cell inspection and high brightness light-emitting diode (“HBLED”) wafer inspection markets. In addition to the ICOS acquisition, in the fiscal year ended June 30, 2008, the Company acquired two development stage companies for a total cash consideration of $5.5 million, and these acquisitions have been accounted for as a purchase of assets primarily consisting of IPR&D and certain patents. The following table summarizes the aggregate estimated fair values of the net assets acquired on the date of acquisition of ICOS: Final
Purchase
Price Allocation $ 129,505 60,144 84,300 32,000 12,900 35,200 18,500 4,000 29,282 287,175 (74,681 ) $ 618,325 $ 618,325 Goodwill represents the excess of the purchase price over the fair value of the net tangible and identifiable intangible assets acquired. The $287.2 million of goodwill was assigned to the wafer inspection business unit, which is not expected to be deductible for tax purposes. This acquisition expanded the Company’s capabilities to back-end markets and provided entry into the potentially high-growth solar and HBLED markets.The results of operations of ICOS are included in the accompanying Consolidated Statement of Operations from the date of the acquisition of majority control on May 30, 2008. The Company considers the acquisition of ICOS to be material to its results of operations and therefore is presenting pro forma financial information for theKLA-TENCOR CORPORATIONNotes to Consolidated Financial Statements—(Continued)fiscal year ended June 30, 2008. The pro forma financial information is presented for informational purposes only and is not indicative of the results of operations that would have been achieved if the merger had taken place at July 1, 2008, nor is it indicative of future operating results.The following unaudited pro forma information presents a summary of the results of operations of the Company assuming the acquisition of ICOS occurred at the beginning of the periods presented. The pro forma financial results for the fiscal year ended June 30, 2008 include the Company’s and ICOS’ historical results for the twelve months ended June 30, 2008, including amortization related to fair value adjustments based on the fair values of assets acquired and liabilities assumed recognized as of the ICOS acquisition date of May 30, 2008. (Unaudited)
Pro-forma for
fiscal year ended
June 30, 2008 $ 2,627,145 $ 477,373 $ 347,495 180,594 184,259 $ 1.92 $ 1.89 Goodwill represents the excess of purchase price over the fair value of the net tangible and identifiable intangible assets acquired in each business combination.$8.6$8.6 million and $22.7 million upon the completion of the acquisitionsacquisition in the fiscal yearsyear ended June 30, 2009 and 2008, respectively, in connection with acquired intellectual property for which as of the acquisition date, technological feasibility had not been established and no future alternative uses existed.AsJune 30, 2010, the actual development timelines and costs for the IPR&D projects were in line with the original estimates. Technical innovations are inherently complex and require long development cycles. Therefore, developmentoperations of the technology, includingacquired MIE business unit are included in the remaining effortaccompanying Consolidated Statement of Operations from the closing date of the acquisition on September 30, 2008. Pro forma earnings information had not been presented because the effect of the acquisition of the MIE business unit was not material to achieve feasibility, rapidly changing customer needs, and competitive threats from others, remains a substantial risk to us.KLA-TENCOR CORPORATIONthe Company’s results of operations, balance sheet or statement of cash flows.Notes to Consolidated Financial Statements—(Continued)6—6 — GOODWILL AND PURCHASED INTANGIBLE ASSETSGoodwillthe movements2010:(In thousands) As of
June 30, 2011 As of
June 30, 2010Gross goodwill balance $ 604,742 $ 604,592 Accumulated impairment losses (276,586 ) (276,586 ) Net goodwill balance $ 328,156 $ 328,006 20102011 and 2009: Year ended June 30, 2010 2009 $ 605,965 $ 601,882 (276,586 ) — 329,379 601,882 877 33,071 (2,250 ) (30,697 ) — 1,709 — (276,586 ) $ 328,006 $ 329,379 As of
June 30, 2010 As of
June 30, 2009 $ 604,592 $ 605,965 (276,586 ) (276,586 ) $ 328,006 $ 329,379 month periodmonths ended December 31, 20092010 and 2009 and concluded in each case that there was no impairment. As of December 31, 2009, the Company’s assessment of goodwill impairment, indicated thatbecause the fair valuesvalue of each of the Company’sCompany's reporting units werewas substantially in excess of theirits estimated carrying values, and therefore goodwill in the reporting units was not impaired.value. There have been no significant events or circumstances affecting the valuation of goodwill subsequent to the impairment test performed in the second quarterthree months ended December 31, 2010. The next annual evaluation of the fiscal year ended June 30, 2010.fiscal yearthree months ended June 30, 2009,December 31, 2008, the Company completed its annual evaluation of the goodwill by reporting unit for the fiscal year ended June 30, 2009 and determined that the goodwill related to its Metrology reporting unit was impaired as of December 31, 2008. As a result of the global economic downturn, reductions to the Company’s revenue, operating income and cash flow forecasts, and a significant reduction in the Company’s market capitalization, the Company determined that the goodwill related to its Metrology reporting unit was impaired as of December 31, 2008.capitalization. As a result, the Company recorded an impairment charge of $272.1$272.1 million, which represented the entire goodwill amount related to the Metrology reporting unit, during the three months ended December 31, 2008. The Company’s assessment of goodwill impairment indicated that the fair values of the Company’s other reporting units exceeded their estimated carrying values, and therefore goodwill in those reporting units was not impaired.one of the market-based approaches,approach, the Company utilizes information regarding the Company as well as publicly available industry information to determine earnings multiples and sales multiples that are used to value the Company’s reporting units. TheKLA-TENCOR CORPORATIONNotes to Consolidated Financial Statements—(Continued) second market-based approach – calculation of fair value of a reporting unit based on its discounted cash flow. Under the income approach, the Company determines fair value based on estimated future cash flows of each reporting unit, discounted by an estimated weighted-average cost of capital, which reflects the overall level of inherent risk of a reporting unit and the rate of return an outside investor would expect to earn. Determining the fair value of a reporting unit is judgmental in nature and requires the use of significant estimates and assumptions, including revenue growth rates, operating margins, discount rates and future market conditions, among others.Adjustments to goodwill during the fiscal year ended June 30, 2009 resulted primarily from revisions to purchase price allocations related to entities that were acquired in the fiscal year ended June 30, 2008 as well as foreign currency translation adjustments.20102011 and 20092010 were as follows: Range of
Useful Lives As of June 30, 2010 As of June 30, 2009 Gross
Carrying
Amount Accumulated
Amortization Net
Amount Gross
Carrying
Amount Accumulated
Amortization Net
Amount 4-7 years $ 133,066 $ 75,524 $ 57,542 $ 131,966 $ 56,367 $ 75,599 6-13 years 57,648 34,217 23,431 57,626 27,847 29,779 4-10 years 19,893 11,130 8,763 19,616 9,221 10,395 6-7 years 54,823 27,606 27,217 54,409 21,673 32,736 0-1 year 16,200 15,817 383 16,759 16,188 571 $ 281,630 $ 164,294 $ 117,336 $ 280,376 $ 131,296 $ 149,080 (In thousands) As of June 30, 2011 As of June 30, 2010 Category Existing technology 4-7 years $ 134,561 $ 94,172 $ 40,389 $ 133,066 $ 75,524 $ 57,542 Patents 6-13 years 57,648 40,591 17,057 57,648 34,217 23,431 Trade name/Trademark 4-10 years 19,893 12,907 6,986 19,893 11,130 8,763 Customer relationships 6-7 years 54,823 33,565 21,258 54,823 27,606 27,217 Other 0-1 year 16,200 15,988 212 16,200 15,817 383 Total $ 283,125 $ 197,223 $ 85,902 $ 281,630 $ 164,294 $ 117,336 $0.8$0.8 million in connection with the sale.$162.8$162.8 million, of which $73.1$73.1 million related to existing technology, $26.3$26.3 million to patents, $38.1$38.1 million to customer relationships, $16.6$16.6 million to trademarks and $8.7$8.7 million to other intangible assets.KLA-TENCOR CORPORATIONNotes to Consolidated Financial Statements—(Continued) 2009 and 2008,2009, amortization expense for other intangible assets was $33.8$32.9 million $69.3, $33.8 million and $55.4$69.3 million, respectively. Based on the intangible assets recorded as of June 30, 2010,2011, and assuming no subsequent additions to or impairment of the underlying assets, the remaining estimated annual amortization expense is expected to be as follows (in thousands): Amount $ 32,705 29,931 20,658 15,238 12,472 6,332 $ 117,336 Year ending June 30: 2012 $ 30,230 2013 20,957 2014 15,537 2015 12,771 2016 5,582 Thereafter 825 Total $ 85,902 7—7 — LONG-TERM DEBT$750$750 million aggregate principal amount of 6.90% senior, unsecured long-term debt due in 2018 with an effective interest rate of 7.00%. The discount on the debt amounted to $5.4$5.4 million and is being amortized over the life of the debt using the straight-line method as opposed to the interest method due to immateriality. Interest is payable semi-annually on November 1 and May 1. The debt indenture includes covenants that limit the Company’s ability to grant liens on its facilities and to enter into sale and leaseback transactions, subject to significant allowances under which certain sale and leaseback transactions are not restricted. The Company was in compliance with all of its covenants as at of June 30, 2010. repurchased, plus accrued and unpaid interest. The Company’s ability to repurchase the senior notes in such event may be limited by law, by the indenture associated with the senior notes, by the Company’s then-available financial resources or by the terms of other agreements to which the Company may be party at such time. If the Company fails to repurchase the senior notes as required by the indenture, it would constitute an event of default under the indenture governing the senior notes which, in turn, may also constitute an event of default under other obligations.at as of June 30, 20102011 and 2009,2010, the estimated fair value of the debt at as of June 30, 20102011 and 20092010 was $834.4$863.5 million and $702.0$834.4 million, respectively.8—8 — STOCK-BASED COMPENSATIONwas approved by the Company’s stockholders on October 18, 2004 and permits the issuance of up to 32.0 million shares of common stock, including 11.0 million shares approved by the Company’s stockholders on November 4, 2009. As of June 30, 2010, 13.5 million shares were available for grant under the 2004 Plan.stock. Any 2004 Plan awards of restricted stock units, performance shares, performance units or deferred stock units with a per share or unit purchase price lower than 100% of fair market value on the grant date are counted against the total numberKLA-TENCOR CORPORATIONNotes to Consolidated Financial Statements—(Continued) During the fiscal year ended June 30, 2010, approximately 0.3 million restricted stock units were granted to senior management with performance-based and service-based vesting criteria.atas of June 30, 2007(1)9,245 3,317(3,996 ) Restricted stock units canceled (2) 1,117 Restricted stock units withheld for taxes(2)(3) 695 Options canceled/expired/forfeited 2,414 Plan shares expired(4) (1,773 ) Balances as of June 30, 2009(1) 7,702 Shares added to 2004 Plan 11,000 8,500Options granted(24) ( 3,9245,213) 1,140 899244 Options canceled/expired/forfeited 1,161 579( 102872) Balances as of June 30, 2010(1) 15,162 Balances at June 30, 2008(1)9,245(5) ( 3,9964,062) 367 1,117Restricted stock units traded for taxes(3)6951,141 2,414( 1,7731,054) atas of June 30, 2009(1)11,554 7,702Shares added to 2004 Plan11,000Restricted stock units granted(2)(5,213) Restricted stock units canceled(2)1,140Restricted stock units traded for taxes(3)244Options canceled/expired/forfeited1,161Plan shares expired(4)(872) Balances at June 30, 2010(1)15,162(1) directors.members of the Board of Directors. As of June 30, 2010, approximately 2011, 1.6 million shares were available for grant under the Outside Director Plan.(2) Any 2004 Plan awardsperformance shares, performance units or deferred stock units with a per share or unit purchase price lower than 100%provided in this row reflects the application of fair market value on the grant date are counted against the total number of shares issuable under the 2004 Plan as 1.8 shares for every one share subject thereto.x multiple described above.(3) Effective November 4, 2009, any shares withheld by the Company after such date in satisfaction of applicable withholding taxes upon the issuance, vesting or settlement of equity awards under the 2004 Plan will no longer be available for future issuance under the 2004 Plan. (4) Represents the portion of shares listed as “Options canceled/expired/forfeited” above that were issued under the Company’s equity incentive plans other than the 2004 Plan or the Outside Director Plan. Because the Company is only currently authorized to issue equity awards under the 2004 Plan and the Outside Director Plan, any equity awards that are canceled, expire or are forfeited under any other Company equity incentive plan do not result in additional shares being available to the Company for future grant. (5) KLA-TENCOR CORPORATIONNotes to Consolidated Financial Statements—(Continued)directorsBoard members as part of their regular compensation package for service through the end of the first quarter of fiscal year 2008, the Company has granted only restricted stock units under its equity incentive program since September 2006. For the preceding several years until June 30, 2006, stock options were granted at the market price of the Company’s common stock on the date of grant (except for the previously disclosed retroactively priced options which were granted primarily prior to the fiscal year ended June 30, 2002), generally with a vesting period of five years and an exercise period not to exceed seven years (ten years for options granted prior to July 1, 2005) from the date of issuance. Restricted stock units may be granted with varying criteria such as service-based and/or performance-based vesting.stock options and for purchase rights under the Company’s Employee Stock Purchase Plan and using the closing price of the Company’s common stock on the grant date for restricted stock units. Year ended June 30, 2010 2009 2008 $ 14,275 $ 19,932 $ 22,041 27,289 33,127 32,623 44,418 52,476 51,804 $ 85,982 $ 105,535 $ 106,468 Year ended June 30, (In thousands) 2011 2010 2009 Stock-based compensation expense by: Costs of revenues $ 13,935 $ 14,275 $ 19,932 Engineering, research and development 24,539 27,289 33,127 Selling, general and administrative 42,956 44,418 52,476 Total stock-based compensation expense $ 81,430 $ 85,982 $ 105,535 (In thousands) As of June 30, 2011 2010 Inventory $ 6,701 $ 6,687 2010: Shares
(In thousands) Weighted-Average
Exercise Price 12,979 $ 43.49 — $ — (460 ) $ 32.91 (1,161 ) $ 45.39 11,358 $ 43.72 11,135 $ 43.64 Stock Options Outstanding stock options as of June 30, 2010 11,358 $ 43.72 Granted — $ — Exercised (2,542 ) $ 37.17 Cancelled/expired/forfeited (1,141 ) $ 46.73 Outstanding stock options as of June 30, 2011 7,675 $ 45.38 Vested and exercisable as of June 30, 2011 7,672 $ 45.38 20102011 were each 2.72.1 years. The aggregate intrinsic values for total options outstanding under all plans and for total options vested and exercisable under all plans as of June 30, 20102011 were each $0.3 million.KLA-TENCOR CORPORATION$7.4 millionNotes to Consolidated Financial Statements—(Continued).The Company has not issued any stock options since November 1, 2007. Therefore, no comparative information is presented in the table below for the fiscal years ended June 30, 2010 and 2009. The following table shows the weighted-average assumptions used in the Black-Scholes valuation model: Year ended June 30, 2010 2009 2008 ( *) ( *) 34 % ( *) ( *) 4.4 % ( *) ( *) 1.0 % ( *) ( *) 4.7 (*)The Company did not issue any stock options during the fiscal years ended June 30, 2010 and 2009.onof the Company’s common stock. grant-date fair value after estimated forfeitures, weighted-average grant date fair value per share, total intrinsic value of options exercised, total cash received from employees as a result of employee stock option exercises, and tax benefits realized by the Company in connection with these exercises of the stock optionsoption exercises for the indicated periods: Year ended June 30, 2010 2009 2008 $ — $ — $ 426 $ — $ — $ 17.95 $ 1,217 $ 10,647 $ 58,960 $ 15,154 $ 9,804 $ 115,556 $ 447 $ 4,482 $ 28,569 (1)Tax benefits realized in connection with option exercises for the fiscal year ended June 30, 2008 includes $7.9 million of tax benefit realized by the Company for the cash bonuses paid during the three months ended March 31, 2008 related to 409A Affected Options (as defined under “IRC Section 409A Affected Options” below).(In thousands) Year ended June 30, 2011 2010 2009 Total intrinsic value of options exercised $ 19,408 $ 1,217 $ 10,647 Total cash received from employees as a result of employee stock option exercises $ 94,488 $ 15,154 $ 9,804 Tax benefits realized in connection with these exercises $ 6,653 $ 447 $ 4,482 2010,2011, the unrecognized stock-based compensation balance related to stock options was $3.0$0.1 million and will be recognized over an estimated weighted-average amortization period of 0.50.8 years.The following table shows stock-based compensation capitalized as inventory and deferred system profit as of June 30, 2010 and 2009: As of June 30, 2010 2009 $ 6,687 $ 6,561 $ — $ — KLA-TENCOR CORPORATIONNotes to Consolidated Financial Statements—(Continued)tradedwithheld for taxes, and forfeited during the fiscal year ended June 30, 20102011 and restricted stock units outstanding as of June 30, 20102011 and 2009: Shares
(in thousands) (1) Weighted-Average
Grant-Date
Fair Value 5,464 $ 24.77 2,896 $ 22.18 (844 ) $ 29.91 (413 ) $ 31.06 (633 ) $ 25.01 6,470 $ 22.52 Restricted Stock Units Outstanding restricted stock units as of June 30, 2010 6,470 $ 22.52 Granted(2) 2,256 $ 20.35 Vested and released (1,337 ) $ 24.12 Withheld for taxes (645 ) $ 24.60 Forfeited (204 ) $ 21.13 Outstanding restricted stock units as of June 30, 2011(2) 6,540 $ 21.28 (1) areis multiplied by 1.8 to calculate theirthe impact on the share reserve under the 2004 Plan.(2) anniversary date of the grant. The value of the restricted stock units is based on the closing market price of the Company’s common stock on the date of award. The restricted stock units have been awarded under the Company’s 2004 Plan, and each unit will entitle the recipient to one share of common stock when the applicable vesting requirements for that unit are satisfied. However, for each share actually issued under the awarded restricted stock units, the share reserve under the 2004 Plan will be reduced by 1.8 shares, as provided under the terms of the 2004 Plan. Year ended June 30, 2010 2009 2008 $ 64,230 $ 32,480 $ 63,733 $ 22.18 $ 14.63 $ 29.24 $ 14,181 $ 13,270 $ 49 (In thousands, except for weighted-average grant date fair value) Year ended June 30, 2011 2010 2009 Grant-date fair value after estimated forfeitures $ 45,915 $ 64,230 $ 32,480 Weighted-average grant date fair value per unit $ 20.35 $ 22.18 $ 14.63 Tax benefits realized in connection with vested and released restricted stock units $ 23,302 $ 14,181 $ 13,270 2010,2011, the unrecognized stock-based compensation expense balance related to restricted stock units was $99.0$99.3 million and will be recognized over an estimated weighted-average amortization period of 2.2 years.fair market valueclosing price of the common stock aton the timefirst day of enrollment into the offering period versus the fair market valueclosing price on the date of purchase.KLA-TENCOR CORPORATIONNotes to Consolidated Financial Statements—(Continued)in continuation of the Company’s cost reduction efforts. Those amendments to the ESPPthat (a) eliminated the look-back feature (i.e., the reference to the fair market value of the Company’s common stock at the commencement of the applicable six-month offering period) and (b) reduced the purchase price discount from 15% to 5%. These changes were effective July 1, 2009, such that the purchase price with respect to the six-month offering period that began on July 1, 2009 was 95% of the fair market value of the Company’s common stock on the purchase date, December 31, 2009 purchase date. Year ended June 30, 2010 2009 2008 35 % 41 % 33 % 0.2 % 1.8 % 4.2 % 1.6 % 1.4 % 1.1 % 0.5 1.3 1.3 Year ended June 30, 2011 2010 2009 Stock purchase plan: Expected stock price volatility 38.0 % 35.0 % 41.0 % Risk free interest rate 0.2 % 0.2 % 1.8 % Dividend yield 3.1 % 1.6 % 1.4 % Expected life of options (in years) 0.50 0.50 1.30 Year ended June 30, 2010 2009 2008 $ 20,714 $ 30,306 $ 40,175 758 1,615 1,136 $ 994 $ 1,612 $ 1,606 $ 8.51 $ 11.06 $ 14.13 (In thousands, except for weighted-average fair value per share) Year ended June 30, 2011 2010 2009 Total cash received from employees for the issuance of shares under the ESPP $ 30,085 $ 20,714 $ 30,306 Number of shares purchased by employees through the ESPP 1,123 758 1,615 Tax benefits realized in connection with the disqualifying dispositions of shares purchased under the ESPP $ 2,194 $ 994 $ 1,612 Weighted-average fair value per share based on Black-Scholes model $ 7.41 $ 8.51 $ 11.06 KLA-TENCOR CORPORATIONNotes to Consolidated Financial Statements—(Continued)that it will be required to issuebe issued under the ESPP during the forthcoming fiscal year. During each of the fiscal years ended June 30, 2011, 2010 2009 and 2008, a total of 2009, 2.0 million 2.0 million and 1.0 million additional shares respectively, were reserved under the ESPP. As of June 30, 2010,2011, a total of 2.63.5 million shares were reserved and available for issuance under the ESPP.IRC Section 409A Affected OptionsBecause virtually all holders of retroactively priced options that had been issued by the Company were not involved in or aware of the retroactive pricing, the Company took certain actions to deal with the adverse tax consequences that mayESPP, and no additional shares have been incurred by the holders of retroactively priced options. The adverse tax consequences were that retroactively priced stock options vesting after December 31, 2004 (“409A Affected Options”) subject the option holder to a penalty tax under IRC Section 409A (and, as applicable, similar penalty taxes under California and other state tax laws). One such action by the Company involved offering to amend the 409A Affected Options to increase the exercise priceadded to the market price on the actual grant date or, if lower, the market price at the time of the amendment, in exchange for cash bonus paymentsESPP with respect to the option holders that were paid in January 2008 in an amount equal to the aggregate increase in exercise prices of the amended 409A Affected Options held by such option holders. The amended options would not be subject to taxation under IRC Section 409A. Under IRS regulations, these option amendments had to be completed by December 31, 2006 for anyone who was an executive officer when he or she received 409A Affected Options; the amendments for non-officers could not be offered until after the Company’s Annual Report on Form 10-K for the fiscal year ended ending June 30, 2006 and Quarterly Report on Form 10-Q for the quarter ended September 30, 2006 were filed and did not need to be completed until December 31, 2007. During the fiscal year ended June 30, 2007, the Company accrued approximately $20.2 million for the cash bonuses payable to non-executive holders of the amended options to compensate them for the resulting increase in their option exercise prices. The $20.2 million of cash bonuses were paid in January 2008. The amount of these bonuses would be effectively repaid to the Company if and when the options are exercised and the increased exercise price is paid. However, there is no assurance that the options will be exercised, and the employees will retain the bonuses under all circumstances. In order to compensate certain option holders whose employment terminated or who had already exercised 409A Affected Options for the additional taxes they would incur under IRC Section 409A (and, as applicable, similar state tax laws), the Company also recorded approximately $13.9 million during the fiscal year ended June 30, 2007. The Company recorded no such charges during the fiscal years ended June 30, 2008, 2009 and 2010.Three of the Company’s option holders were subject to the December 31, 2006 deadline described above. Accordingly, in December 2006, the Company offered to amend the 409A Affected Options held by Richard P. Wallace, the Company’s Chief Executive Officer, and two former executive officers to increase the options’ exercise prices so that their 409A Affected Options would not subject the option holders to a penalty tax under IRC Section 409A. All three individuals accepted the Company’s offer. In addition, the Company agreed to pay each of the three individuals a cash bonus in January 2008 equal to the aggregate increase in the exercise prices for his amended options. For Mr. Wallace, the amount of this bonus was $0.4 million. To account for these actions, the Company recorded a charge of $0.3 million, net of the amount reclassified from capital in excess of par, during the nine months ended March 31, 2007. The cash bonus was paid in January 2008.In addition, in the three months ended December 31, 2007, the Company agreed to amend 409A Affected Options held by two other executives and, in connection with those amendments, agreed to pay cash bonuses in January 2008 to those two executives equal to the aggregate increase in the exercise prices for such 409A Affected Options. Accordingly, the Company accrued $0.2 million during the three months ended December 31, 2007. These cash bonuses were paid in January 2008.KLA-TENCOR CORPORATION.Notes to Consolidated Financial Statements—(Continued)With respect to certain individuals whose options were canceled or re-priced by the Company following the Special Committee investigation, no bonuses of the type described above will be paid.$4.7$4.7 million during the fiscal year ended June 30, 2009, which was included as a component of selling, general and administrative (“SG&A”) expense.9—9 — STOCK REPURCHASE PROGRAM62.872.8 million shares of its common stock under a repurchase program.program, including 10.0 million shares authorized in February 2011. This program was put into place to reduce the dilution from KLA-Tencor’s equity incentive plans and employee stock purchase plan, and to return excess cash to the Company’s shareholders.stockholders. Subject to market conditions, applicable legal requirements and other factors, the repurchases will be made from time to time in the open market in compliance with applicable securities laws, including the Securities Exchange Act of 1934 and the rules promulgated thereunder such as Rule 10b-18. In October 2008, the Company suspended its stock repurchase program, and the Company subsequently restarted the program in February 2010. At As of June 30, 2010, 5.22011, 9.0 million shares were available for repurchase under the Company’s repurchase program.20102011 and 20092010 were as follows: Year ended June 30, 2010 2009 4,625 6,410 $ 140,910 $ 218,698 (In thousands) Year ended June 30, 2011 2010 Number of shares of common stock repurchased 6,190 4,625 Total cost of repurchases $ 232,924 $ 140,910 of 239.1 million and 168.0 million, respectively. As of June 30, 2009,, shares issued and outstanding were 237.7239.1 million and 170.7168.0 million, respectively. The difference between shares issued and outstanding is related to shares repurchased under various repurchase programs.10—10 — NET INCOME (LOSS) PER SHAREKLA-TENCOR CORPORATIONNotes to Consolidated Financial Statements—(Continued) Year ended June 30, 2010 2009 2008 $ 212,300 $ (523,368 ) $ 359,083 170,652 170,253 180,594 2,382 — 3,665 173,034 170,253 184,259 $ 1.24 $ (3.07 ) $ 1.99 $ 1.23 $ (3.07 ) $ 1.95 11,109 18,444 9,614 (1)Outstanding shares do not include unvested restricted stock units.(2)The potentially dilutive securities are excluded from the computation of diluted net income (loss) per share for the above periods because their effect would have been anti-dilutive.(In thousands, except per share data) Year ended June 30, 2011 2010 2009 Numerator: Net income (loss) $ 794,488 $ 212,300 $ (523,368 ) Denominator: 167,261 170,652 170,253 Effect of dilutive options and restricted stock 3,091 2,382 — 170,352 173,034 170,253 Basic net income (loss) per share $ 4.75 $ 1.24 $ (3.07 ) Diluted net income (loss) per share $ 4.66 $ 1.23 $ (3.07 ) Anti-dilutive securities excluded from the computation of diluted net income (loss) per share 8,003 11,109 18,444 2009 and 20082009 were $102.4$167.4 million $102.1, $102.4 million and $108.5$102.1 million, respectively.5, 2010,4, 2011, the Company declared a quarterly cash dividend of $0.25$0.35 per share on the outstanding shares of the Company’s common stock, to be paid on September 1, 20102011 to stockholders of record on August 16, 2010.11—11 — EMPLOYEE BENEFIT PLANSKLA-Tencorthe Company has an employee savings plan that qualifies as a deferred salary arrangement under Section 401(k) of the Internal Revenue Code. KLA-TencorThrough March 31, 2011, the Company matched upa portion of each participating eligible employee's 401(k) contribution equal to50% of the first $6,000 of the employee’s contribution (i.e., a maximum of $3,000 or 50% of the first $6,000 of an eligible employee’s contribution through the$3,000) during each fiscal year ended June 30, 2010. During the quarter ended March 31, 2009, as part of the Company’s continuing cost reduction efforts, the Company’syear. The Company's Board of Directors approved an amendment to the Company’sCompany's 401(k) plan which suspendedeffective April 1, 2011 to increase the employer match feature effective July 1, 2009. Duringamount to 50% of the quarter ended December 31, 2009, in response to improvements in the business conditions within the industries that the Company serves, the Company’s Boardfirst $8,000 of Directors approved amendments to the 401(k) plan that reinstated the employer match feature effective January 1, 2010. an eligible employee's contribution (i.e., a maximum of $4,000) during each fiscal year.charge to operationsexpenses under the profit sharing and 401(k) programs aggregated $6.4$11.6 million $7.9, $6.4 million and $14.3$7.9 million in the fiscal years ended June 30, 2011, 2010 2009 and 2008,2009, respectively. KLA-TencorThe Company has no defined benefit plans in the United States. In addition to the profit sharing plan and the United States employee savings plan,401(k), several of KLA-Tencor’sthe Company's foreign subsidiaries have retirement plans for their full-time employees, several of which are defined benefit plans. Consistent with the requirements of local law, the Company deposits funds for certain of these plans with insurance companies,KLA-TENCOR CORPORATIONNotes to Consolidated Financial Statements—(Continued)KLA-Tencor adopted theThe Company applies authoritative guidance,effective June 30, 2007, that requires an employer to recognize the funded status of each of its defined pension and postretirementpost-retirement benefit plans as a net asset or liability in its statement of financial position with an offsetting amount in accumulated other comprehensive income (loss). Additionally, the authoritative guidance requires an employer to measure the funded status of each of its plans as of the date of its year-end statement of financial position. The benefit obligations and related assets under the Company’s plans have been measured as of June 30, 20102011 and 2009.KLA-Tencor’sCompany's foreign defined benefit pension plans, including key weighted-average assumptions used is provided in the following tables: Year ended June 30, 2010 2009 $ 33,388 $ 29,190 2,249 2,429 1,020 757 111 — 5,059 — 4,721 16 (557 ) (2,460 ) — 99 551 7,849 — (4,113 ) (417 ) (211 ) 219 (167 ) $ 46,344 $ 33,389 Year ended June 30, 2010 2009 $ 8,139 $ 8,320 86 95 1,045 3,440 (290 ) (2,460 ) 169 117 — (605 ) (160 ) — (297 ) (768 ) $ 8,692 $ 8,139 KLA-TENCOR CORPORATIONNotes to Consolidated Financial Statements—(Continued) As of June 30, 2010 2009 $ (37,652 ) $ (25,249 ) $ (37,652 ) $ (25,249 ) As of June 30, 2010 2009 $ 32,457 $ 20,143 $ 46,344 $ 33,389 $ 8,692 $ 8,139 Year ended June 30, 2010 2009 2008 1.8%-4.9% 2.0%-6.3% 2.0%-5.4% 1.8%-4.5% 1.8%-4.5% 2.8%-4.5% 3.0%-4.0% 3.0%-4.0% 3.0%-4.0% Year ended June 30, (In thousands) 2011 2010 Change in projected benefit obligation Projected benefit obligation as of the beginning of the fiscal year $ 46,344 $ 33,388 Service cost, including plan participant contributions 3,184 2,249 Interest cost 1,270 1,020 Contributions by plan participants 126 111 Adjustment 9 5,059 Actuarial loss 1,363 4,721 Benefit payments (1,357 ) (557 ) Acquisitions — 551 Transfer in/(out) — (417 ) Foreign currency exchange rate changes 5,871 219 Projected benefit obligation as of the end of the fiscal year $ 56,810 $ 46,344 Year ended June 30, (In thousands) 2011 2010 Change in fair value of plan assets Fair value of plan assets as of the beginning of the fiscal year $ 8,692 $ 8,139 Actual return on plan assets 78 86 Employer contributions 2,024 1,045 Benefit and expense payments (1,010 ) (290 ) Acquisitions — 169 Transfer in/(out) — (160 ) Foreign currency exchange rate changes 1,251 (297 ) Fair value of plan assets as of the end of fiscal the year $ 11,035 $ 8,692 As of June 30, (In thousands) 2011 2010 Funded status Ending funded status $ (45,775 ) $ (37,652 ) Net amount recognized $ (45,775 ) $ (37,652 ) As of June 30, (In thousands) 2011 2010 Plans with accumulated benefit obligations in excess of plan assets Accumulated benefit obligation $ 39,748 $ 32,457 Projected benefit obligation $ 56,810 $ 46,344 Plan assets at fair value $ 11,035 $ 8,692 Year ended June 30, 2011 2010 2009 Weighted-average assumptions Discount rate 1.8%-5.5% 1.8%-4.9% 2.0%-6.3% Expected return on assets 1.8%-4.5% 1.8%-4.5% 1.8%-4.5% Rate of compensation increases 3.0%-4.0% 3.0%-4.0% 3.0%-4.0% Year ended June 30, 2010 2009 $ 2,430 $ 221 468 288 7,015 2,072 $ 9,913 $ 2,581 Year ended June 30, (In thousands) 2011 2010 Unrecognized transition obligation $ 2,318 $ 2,430 Unrecognized prior service cost 450 468 Unrealized net loss 9,288 7,015 Amount recognized $ 12,056 $ 9,913 20112012 are as follows: Year ending
June 30, 2011 $ 347 58 169 $ 574 (In thousands) Unrecognized transition obligation $ 386 Unrecognized prior service cost 64 Unrealized net loss 296 Amount expected to be recognized $ 746 KLA-TENCOR CORPORATIONNotes to Consolidated Financial Statements—(Continued)KLA-Tencor’sthe Company's net periodic cost relating to its foreign subsidiariessubsidiaries' defined pension plans are as follows: Year ended June 30, 2010 2009 2008 $ 2,249 $ 2,422 $ 2,175 1,020 756 629 (215 ) (283 ) (225 ) 28 35 35 44 27 13 98 249 265 313 — — 3,154 — — — 271 — $ 6,691 $ 3,477 $ 2,892 Year ended June 30, (In thousands) 2011 2010 2009 Components of net periodic pension cost Service cost, net of plan participant contributions $ 3,184 $ 2,249 $ 2,422 Interest cost 1,270 1,020 756 Return on plan assets (289 ) (215 ) (283 ) Amortization of transitional obligation 366 28 35 Amortization of prior service cost 61 44 27 Amortization of net loss 178 98 249 Acquisitions — 313 — Adjustment — 3,154 — Loss due to settlement/curtailment — — 271 Net periodic pension cost $ 4,770 $ 6,691 $ 3,477 Valuations based on quoted prices in active markets for identical assets or liabilities that the entity has the ability to access. Valuations based on quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable data for substantially the full term of the assets or liabilities. Valuations based on inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. KLA-TencorThe Company is not actively involved in the investment strategy nor does it have control over the target allocation of these investments. These investments made up 100% of total foreign plan assets in the fiscal years ended June 30, 2011, 2010 2009 and 2008.2009.20112012 is $1.1 million.$1.4 million.$3.0$3.3 million in any year through 2020.2010: Total Quoted Prices in
Active Markets
for Identical
Assets (Level 1) Significant Other
Observable Inputs
(Level 2) Significant
Unobservable Inputs
(Level 3) $ 5,879 $ 5,879 $ — — 2,813 — 2,813 — 8,692 5,879 2,813 — KLA-TENCOR CORPORATION:(In thousands) Total Cash and cash equivalents $ 7,455 $ 7,455 $ — $ — Government, municipal securities, and other 3,580 — 3,580 — Total assets measured at fair value $ 11,035 $ 7,455 $ 3,580 $ — Notes to Consolidated Financial Statements—(Continued)ourits plan assets through ourits investment managers. The Company defines a concentration of risk as an undiversified exposure to one of the above-mentioned risks that increases the exposure of the loss of plan assets unnecessarily. The Company monitors exposure to such risks in the foreign plans by monitoring the magnitude of the risk in each plan and diversifying ourthe Company's exposure to such risks across a variety of instruments, markets and counterparties. As of June 30, 2010,2011, the Company did not have concentrations of risk in any single entity, manager, counterparty, sector, industry or country.Executive Savings PlanKLA-Tencor has a non-qualified deferred compensation plan whereby certain executives and non-employee directors may defer a portion of their compensation. Participants are credited with returns based on their allocation of their account balances among measurement funds. KLA-Tencor controls the investment of these funds and the participants remain general creditors of KLA-Tencor. Distributions from the plan commence the quarter following a participant’s retirement or termination of employment. As of June 30, 2010, KLA-Tencor had a deferred compensation plan related asset and liability of $109.2 million and $110.0 million included as a component of other non-current assets and other current liabilities on the Consolidated Balance Sheet, respectively. As of June 30, 2009, KLA-Tencor had a deferred compensation plan related asset and liability of $107.2 million and $108.3 million included as a component of other non-current assets and other current liabilities on the Consolidated Balance Sheet, respectively.12—12 — INCOME TAXES net income (loss) before income taxes are as follows: Year ended June 30, 2010 2009 2008 $ 122,219 $ (534,439 ) $ 511,710 168,962 (68,092 ) 48,524 $ 291,181 $ (602,531 ) $ 560,234 Year ended June 30, (In thousands) 2011 2010 2009 Domestic income (loss) before income taxes $ 752,163 $ 122,219 $ (534,439 ) Foreign income (loss) before income taxes 357,903 168,962 (68,092 ) Total income (loss) before income taxes $ 1,110,066 $ 291,181 $ (602,531 ) Year ended June 30, 2010 2009 2008 $ 63,687 $ (136,906 ) $ 126,807 8,799 (3,545 ) 11,984 30,225 32,647 40,324 $ 102,711 $ (107,804 ) $ 179,115 (9,258 ) 43,194 34,886 (3,689 ) 31,577 (5,948 ) (10,883 ) (46,130 ) (6,902 ) (23,830 ) 28,641 22,036 $ 78,881 $ (79,163 ) $ 201,151 (In thousands) Year ended June 30, 2011 2010 2009 Current: Federal $ 225,192 $ 63,687 $ (136,906 ) State 2,095 8,799 (3,545 ) Foreign 31,578 30,225 32,647 $ 258,865 $ 102,711 $ (107,804 ) Deferred: Federal $ 40,908 $ (9,258 ) $ 43,194 State 26,458 (3,689 ) 31,577 Foreign (10,653 ) (10,883 ) (46,130 ) 56,713 (23,830 ) 28,641 Provision for (benefit from) income taxes $ 315,578 $ 78,881 $ (79,163 ) KLA-TENCOR CORPORATIONNotes to Consolidated Financial Statements—(Continued)20102011 and 2009,2010, the Company did not recognize any benefits from employee stock activity deductions, and therefore the Company haddid not reducedreduce actual current tax liabilities, or recordedrecord any increases to capital in excess of par value, for those years in connection with such benefits. For the fiscal year ended June 30, 2008, actual current tax liabilities are lower than reflected in the table above by $4.9 million due primarily to employee stock activity deduction benefits recorded as increases to capital in excess of par value.(liabilities)and liabilities are as follows: As of June 30, 2010 2009 $ 83,480 $ 85,714 70,845 49,229 88,078 91,611 110,286 134,166 67,141 72,963 54,038 42,971 83,700 61,051 19,648 25,463 43,352 27,368 620,568 590,536 (44,184 ) (38,791 ) $ 576,384 $ 551,745 $ (19,863 ) $ (9,400 ) (6,148 ) (12,043 ) (1,409 ) (1,526 ) — (927 ) (27,420 ) (23,896 ) $ 548,964 $ 527,849 (In thousands) As of June 30, 2011 2010 Deferred tax assets: Tax credits and net operating losses $ 62,173 $ 83,480 Employee benefits accrual 86,741 70,845 Stock-based compensation 66,638 88,078 Capitalized R&D expenses 84,283 110,286 Inventory reserves 55,451 67,141 Non-deductible reserves 50,304 54,038 Deferred profit 95,157 83,700 Unearned revenue 27,723 19,648 Other 36,853 43,352 Gross deferred tax assets 565,323 620,568 Valuation allowance (30,722 ) (44,184 ) Net deferred tax assets $ 534,601 $ 576,384 Deferred tax liabilities: Unremitted earnings of foreign subsidiaries not permanently reinvested $ (25,293 ) $ (19,863 ) Depreciation and amortization (21,047 ) (6,148 ) Unrealized gain on investments (2,215 ) (1,409 ) Total deferred tax liabilities (48,555 ) (27,420 ) Total net deferred tax assets $ 486,046 $ 548,964 2010,2011, the Company had U.S. federal, state and foreign net operating loss (“NOL”) carry-forwards of approximately $55.1$45.5 million $117.6, $117.6 million and $50.4$43.9 million, respectively. The U.S. net operating loss and tax credit carry-forwards will expire at various dates beginning in 2023 through 2029.2029. The utilization of NOLs created by acquired companies is subject to annual limitations under Section 382 of the Internal Revenue Code. However, it is not expected that such annual limitation will impair the realization of these NOLs. The state NOLs will begin to expire in 2013.2013. State credits of $53.3$42.7 million will be carried over indefinitely. The foreign net operating loss carry-forwards will begin to expire in 2013.2013.$44.2$30.7 million as of June 30, 20102011 and $38.8$44.2 million as of June 30, 2009.2010. The valuation allowance is based on the Company’s assessment that it is more likely than not that certain deferred tax assets will not be realized in the foreseeable future. Of the valuation allowance as of June 30, 2010, $34.02011, $26.8 million relates to state credit carry-forwards. The remainder of the valuation allowance relates primarily to foreign net operating loss carry-forwards.KLA-TENCOR CORPORATIONNotes to Consolidated Financial Statements—(Continued)2010,2011, U.S. income taxes were not provided for on a cumulative total of approximately $314.7$599.0 million of undistributed earnings for certain non-U.S. subsidiaries. If these undistributed earnings were repatriated to the United States, they would generate foreign tax credits to reduce the federal tax liability associated with the foreign dividend. Assuming a full utilization of the foreign tax credits, the potential deferred tax liability associated with undistributed earnings would be approximately $88.9 million.fivethree to twelveten years. The Company was in compliance with all the terms and conditions of the tax holidays as of June 30, 2010.2011. The net impact of these tax holidays was to decrease the Company’s tax expense by approximately $12.7$30.4 million $8.9, $12.7 million and $15.9$8.9 million in the fiscal years ended June 30, 2011, 2010 2009 and 2008,2009, respectively. Year ended June 30, 2010 2009 2008 35.0 % 35.0 % 35.0 % 0.7 (0.1 ) 0.4 (9.6 ) (1.5 ) 4.5 — — (3.3 ) (1.2 ) 1.8 (1.0 ) — 0.1 (1.4 ) 0.5 2.2 0.8 (1.7 ) (0.2 ) (1.4 ) (0.1 ) (6.4 ) — — (16.0 ) — 4.0 (0.5 ) 0.6 (0.5 ) (1.3 ) 1.7 27.1 % 13.1 % 35.9 % On July 1, 2007, Year ended June 30, 2011 2010 2009 Federal statutory rate 35.0 % 35.0 % 35.0 % State income taxes, net of federal benefit 3.2 % 0.7 % (0.1 )% Effect of foreign operations taxed at various rates (9.0 )% (9.6 )% (1.5 )% Research and development tax credit (1.2 )% (1.2 )% 1.8 % Net change in tax reserves 2.1 % 0.5 % 2.2 % Domestic manufacturing benefit (1.9 )% (1.7 )% (0.2 )% Change in valuation allowance (0.7 )% (0.1 )% (6.4 )% Non-deductible impairment of goodwill — % — % (16.0 )% Effect of stock-based compensation 1.4 % 4.0 % (0.5 )% Other (0.5 )% (0.5 )% (1.2 )% Effective income tax rate 28.4 % 27.1 % 13.1 % Company adoptedsame activity. A shortfall arises when the authoritative guidance on accountingtax 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 uncertainty in income taxes. The adoption resultedCompany incurred $15.2 million of additional tax expense during the fiscal year ended June 30, 2011 due to shortfalls from employee stock activities. The Company's cumulative windfall balance reset to zero on July 1, 2011, since there was a cumulative shortfall in a reduction of retained earnings of $8.4 million. Year ended June 30, 2010 2009 2008 $ 49,738 $ 64,602 $ 77,119 6,553 231 3,201 (1,897 ) (11,037 ) (25,791 ) 10,912 4,832 25,095 — (968 ) (12,693 ) (11,814 ) (7,922 ) (2,329 ) $ 53,492 $ 49,738 $ 64,602 Year ended June 30, (In thousands) 2011 2010 2009 Unrecognized tax benefits at the beginning of the period $ 53,492 $ 49,738 $ 64,602 Increases for tax positions taken in prior years 5,228 6,553 231 Decreases for tax positions taken in prior years — (1,897 ) (11,037 ) Increases for tax positions taken in current year 32,152 10,912 4,832 Decreases for settlements with taxing authorities (11,786 ) — (968 ) Decreases for lapsing of the statute of limitations (749 ) (11,814 ) (7,922 ) Unrecognized tax benefits at the end of the period $ 78,337 $ 53,492 $ 49,738 KLA-TENCOR CORPORATIONNotes to Consolidated Financial Statements—(Continued)$53.5$78.3 million as of June 30, 2010. The balance of the gross unrecognized tax benefits is expected to be reduced by $3.6 million in the next twelve months due to the lapsing of the statute of limitations.2011. KLA-Tencor’s policy is to include interest and penalties related to unrecognized tax benefits within interest income and other, net. The amount of interest and penalties accrued as of June 30, 20102011 and 20092010 was approximately $5.5$7.2 million and $5.9$5.5 million, respectively.Innormal course of business,fiscal year ended June 30, 2011, the Company is subject tosettled an Israel income tax audits in various jurisdictions, and such jurisdictions may assess additional income or other taxes againstexamination for the Company. Althoughfiscal years ended June 30, 2007 through June 30, 2009. As a result of the settlement, the Company believes thatreduced its unrecognized tax estimates are reasonable,benefits by $10.1 million, of which $8.0 million was a decrease in tax expense.final determination of tax audits and any related litigation could be materially different fromfiscal year ended June 30, 2011, the Company’s historical income tax provisions and accruals. The results of an audit or litigation could haveCompany completed a material adverse effect on the Company’s operating results or cash flows in the period or periods for which that determination is made.The Company is under United States federal income tax examination for the fiscal years ended June 30, 2007 through June 30, 2009 which represents(which remains subject to review by the Joint Committee of Taxation). The Company also received a proposed adjustment from the tax authorities in Japan related to their examination of the fiscal years ended June 30, 2006 through June 30, 2010. The Company believes that adequate amounts have been reserved for any adjustments that may ultimately result from these examinations.for which tax returns have been filed andbeginning from the statute of limitations has not expired.fiscal year ended June 30, 2010. The Company is subject to state income tax examinations for all years beginning from the fiscal year ended June 30, 2006.2007. The Company is also subject to examinations in other major foreign jurisdictions, including Japan, Israel and Singapore, for all years beginning from the fiscal year ended June 30, 2006 and is currently under tax2007. The Company believes that adequate amounts have been reserved for any adjustments that may ultimately result from any future examinations in various other foreign tax jurisdictions. of these years.the Companyit may recognize up to $3.6$39.2 million of its existing unrecognized tax benefits within the next twelve months as a result of the lapse of statutes of limitations, and the resolution of agreementsexaminations with various foreign tax authorities.13—13 — COMMITMENTS AND CONTINGENCIESFactoring. KLA-Tencor has agreements with financial institutions to sell certain of its trade receivables and promissory notes from customers without recourse. KLA-TencorThe Company does not believe it is at risk for any material losses as a result of these agreements. In addition, from time to time KLA-Tencorthe Company will discount, without recourse, letters of credit (“LCs”) received from customers in payment for goods. and proceeds from sales of LCs and related discounting fees paid for the fiscal years ended June 30, 20102011 and 2009: Year ended June 30, 2010 2009 $ 107,666 $ 262,998 $ 37,226 $ 27,799 $ 189 $ 145 Year ended June 30, (In thousands) 2011 2010 Receivables sold under factoring agreements $ 313,578 $ 107,666 Proceeds from sales of LCs $ 140,534 $ 37,226 Discounting fees paid on sales of LCs(1) $ 213 $ 189 (1) Discounting fees were equivalent toinclude bank fees and interest expense and were recorded in interest income and other, net.approximately $11.1$8.5 million $12.3, $11.1 million and $11.5$12.3 million for the fiscal years ended June 30, 2011, 2010 2009 and 2008,2009, respectively.KLA-TENCOR CORPORATIONNotes to Consolidated Financial Statements—(Continued)payments (in thousands): Amount $ 8,779 5,848 3,970 2,876 1,849 5,183 $ 28,505 Year ending June 30, 2012 $ 7,992 2013 6,001 2014 3,889 2015 2,106 2016 1,869 2017 and thereafter 3,130 Total minimum lease payments $ 24,987 KLA-Tencor’sThe Company's liability under these purchase commitments is generally restricted to a forecasted time-horizon as mutually agreed upon between the parties. This forecasted time-horizon can vary among different suppliers. The Company’s open inventory purchase commitments were approximately $338.1$352 million as of June 30, 20102011 and are primarily due within the next 12 months. Actual expenditures will vary based upon the volume of the transactions and length of contractual service provided. In addition, the amounts paid under these arrangements may be less in the event that the arrangements are renegotiated or canceled. Certain agreements provide for potential cancellation penalties.KLA-TencorThe Company accounts for the estimated warranty cost as a charge to costs of revenues when revenue is recognized. The estimated warranty cost is based on historical product performance and field expenses. Utilizing actual service records, KLA-Tencorthe Company calculates the average service hours and parts expense per system and applies the actual labor and overhead rates to determine the estimated warranty charge. KLA-TencorThe Company updates these estimated charges on a quarterly basis. The actual product performance and/or field expense profiles may differ, and in those cases KLA-Tencorthe Company adjusts its warranty accruals accordingly.20102011 and 2009 (in thousands)2010: Year ended June 30, 2010 2009 $ 18,213 $ 38,700 24,164 17,320 (2,401 ) (2,537 ) (18,867 ) (35,270 ) $ 21,109 $ 18,213 Subject Year ended June 30, (In thousands) 2011 2010 Beginning balance $ 21,109 $ 18,213 Accruals for warranties issued during the period 46,565 24,164 Changes in liability related to pre-existing warranties (928 ) (2,401 ) Settlements made during the period (25,218 ) (18,867 ) Ending balance $ 41,528 $ 21,109 certain limitations, KLA-Tencor indemnifies its current$20.4 million, of which $17.9 million had been issued as of June 30, 2011 primarily to fund guarantees to customs authorities for VAT and former officersother operating requirements of the Company's subsidiaries in Europe and directors for certain events or occurrences. Although the maximum potential amount of future payments KLA-Tencor could be required to make under these agreements is theoretically unlimited, the Company believes the fair value of this liability, to the extent estimable, is appropriately considered within the reserve it has established for currently pending legal proceedings.KLA-TENCOR CORPORATIONAsia.Notes to Consolidated Financial Statements—(Continued)Company’sCompany's products, non-compliance with the Company’sCompany's product performance specifications, infringement by the Company’sCompany's products of third-party intellectual property rights and a breach of warranties, representations and covenants related to such matters as title to assets sold, validity of certain intellectual property rights, non-infringement of third-party rights, and certain income tax-related matters. In each of these circumstances, payment by the Company is typically subject to the other party making a claim to and cooperating with the Company pursuant to the procedures specified in the particular contract. This usually allows the Company to challenge the other party’s claims or, in case of breach of intellectual property representations or covenants, to control the defense or settlement of any third-party claims brought against the other party. Further, the Company’sCompany's obligationsCompany’sCompany's option to replace or correct the products or terminate the agreement with a refund to the other party), and duration. In some instances, the Company may have recourse against third parties and/or insurance covering certain payments made by the Company.It is not possible to predict the maximum potential amount of future payments under these or similar agreements due to the conditional nature of the Company’s obligations and the unique facts and circumstances involved in each particular agreement. Historically, payments made by the Company under these agreements have not had a material effect on its business, financial condition, results of operations or cash flows.The Company maintains guarantee arrangements of $16.7 million in various locations to fund customs guarantees for VAT and LC needs of its subsidiaries in Europe and Asia. Approximately $14.4 million was outstanding under these arrangements as of June 30, 2010.NOTE 14—LITIGATION AND OTHER LEGAL MATTERSGovernment Inquiries and SEC Settlement Relating to Historical Stock Option Practices.Several government agencies previously conducted investigations beginning in May 2006 concerning the Company’s past stock options grants and related accounting matters, including investigations by the SEC and United States Attorney’s Office (“USAO”), an examination of the Company’s 401(k) Savings Plan (“Plan”) by the U.S. Department of Labor (“DOL”), and an audit covering calendar year 2006 by the Internal Revenue Service. As previously reported, the SEC investigation was resolved with respect to the Company by a non-monetary settlement in July 2007, the USAO advised the Company that it had closed its investigation and determined not to take any action against the Company in July 2008, the IRS concluded its audit with a payment by the Company of $0.1 million in July 2008, and the DOL closed its examination on the basis of the Plan’s election to participate in its previously announced shareholder class action settlement, at no additional cost to the Company, and its separate settlement with the Plan’s independent fiduciary under which it paid the Plan $25,000 and denied all liability. These matters are now closed.Litigation Relating to Historical Stock Option Practices.Beginning on May 22, 2006, several shareholder derivative actions were filed on behalf of and in the name of the Company against several of its current and former directors and officers relating to its historical stock options and related accounting from 1994 to 2006, consisting of a consolidated action in the U.S. District Court for the Northern District of California (the “Federal Derivative Action”); an action in the California Superior Court for Santa Clara County (“California Action”); and one in the Delaware Chancery Court (“Delaware Action”).As previously reported, on March 15, 2010, the Company entered into a Stipulation of Settlement (the “Stipulation”) with all parties to the Federal Derivative Action to resolve the Federal Derivative Action in itsKLA-TENCOR CORPORATIONNotes to Consolidated Financial Statements—(Continued)entirety, subject to approval by the Federal District Court (the “Settlement”). By Addendum to the Stipulation filed on May 17, 2010, the plaintiffs in the California Action and in the Delaware Action joined in the Settlement. The Federal District Court approved the Settlement and entered its final judgment and order dismissing the Federal Derivative Action with prejudice on May 26, 2010. Thereafter, the California Action was dismissed with prejudice on June 1, 2010, and the Delaware Action was dismissed with prejudice on June 2, 2010. The Settlement became final and effective by its terms on June 28, 2010.As set forth more fully in the Stipulation, under the Settlement, among other things, (i) the Company received cash payments totaling $24 million from insurers; (ii) the Company received additional cash payments of approximately $9.2 million from certain of the settling defendants; (iii) certain of the settling defendants relinquished compensation and other benefits of approximately $9.4 million; (iv) the Company paid attorneys’ fees to plaintiffs’ counsel in the amount of $8 million in cash, in addition to $8 million in shares of Company common stock; (v) the Federal Derivative Action was dismissed with prejudice; (vi) the Company, settling defendants, related parties, and plaintiffs and their counsel have been released from claims related to the Federal Derivative Action and the matters that were or could have been alleged therein, and further litigation on such claims is barred; and (vii) the Company committed to maintain certain corporate governance enhancements, including certain previously implemented policies, procedures and guidelines relating to the Company’s board of directors composition, stock option granting practices and procedures, and internal controls and procedures. Under the Addendum to the Stipulation, the California Action and Delaware Action were also dismissed with prejudice. During the year ended June 30, 2010, the Company recorded a charge of $1.3 million to selling, general and administrative expenses, reflecting the anticipated net amount to be paid by the Company in connection with the Settlement and the Company’s settlements during such period of separate matters with Kenneth Schroeder and Kenneth Levy, as also previously reported and further described below. As a result of the Settlement, the shareholder derivative litigation arising from our historical stock options grants and related practices is now concluded.The Company was also previously named as a defendant along with various of its current and former officers in putative securities class actions arising from its historical stock options grants and related matters in state and federal court beginning in June 2006. Those actions were resolved by settlement or dismissal, as previously reported.Finally, the Company entered into settlements of litigation and arbitration claims filed by the Company’s former CEO Kenneth Schroeder in connection with the termination of his employment and cancellation of certain of his stock options and restricted stock units in 2006, and also settled claims asserted by the Company’s former CEO and Chairman of the Board Kenneth Levy relating to the Company’s alleged refusal to permit the exercise of certain stock options in 2007 and 2008. The Company recorded the expenses associated with these settlements in its selling, general and administrative expenses during the three months ended March 31, 2010. The settlements have been performed and are now final.As a result of the foregoing, all litigation matters to which the Company was a party arising from the Company’s historical stock option grants and related practices are now closed.Indemnification Obligations. Thepaidunder these agreements have not had a material effect on its business, financial condition, results of operations or reimbursed legal expenses incurredcash flows.investigation of its historical stock optionKLA-TENCOR CORPORATIONNotes to Consolidated Financial Statements—(Continued)practices and the related litigation and government inquiries by a number of its current and former directors, officers and employees. Therelated to the Company's historical stock option practices, the Company is alsocurrently paying defense costs to twoone former officersofficer and employeesemployee facing an SEC civil actionsaction to which itthe Company is not a party.party, and the Company is also obligated to pay the attorneys' fees and expenses incurred by former employees in connection with discovery undertaken in that case. The Company is further incurring costs associated with retaining counsel to respond to discovery requests and otherwise representing the Company in that litigation. Although the maximum potential amount of future payments the Company could be required to make under these agreementsarrangements is theoretically unlimited, itthe Company believes the fair value of this liability, to the extent estimable, is appropriately considered within the reserve it has established for currently pending legal proceedings.itsthe Company's consolidated financial statements are adequate in light of the probable and estimated liabilities. However, because such matters are subject to many uncertainties, the ultimate outcomes are not predictable, and there can be no assurances that the actual amounts required to satisfy alleged liabilities from the matters described above will not exceed the amounts reflected in itsthe Company's consolidated financial statements or will not have a material adverse effect on its results of operations, financial condition or cash flows.15—15 — RESTRUCTURING CHARGESIn March 2009, the Company announced a plan to further reduce its global workforce by approximately 10%, which followed the Company’s announcement in November 2008 of a global workforce reduction of approximately 15%. The Company has in recent years undertaken a number of cost reduction activities, including these workforce reductions, in an effort to lower its quarterly operating expense run rate. The program in the United States is accounted for in accordance with the authoritative guidance related to compensation for non-retirement post-employment benefits,whereas the programs in the international locations are accounted for in accordance with the authoritative guidance for contingencies. During the fiscal year ended June 30, 2010,2011, the Company recorded a $4.5$4.1 million net restructuring charge, of which $2.2$1.4 million was recorded to costs of revenues, $0.4$0.4 million was recorded to engineering, research and development expense and $1.9$2.3 million was recorded to selling, general and administrative expense. These charges represent the estimated minimum liability associated with expected termination benefits to be provided to employees after employment.20102011 and 2009: Year ended
June 30, 2010 Year ended
June 30, 2009 $ 8,086 $ 1,333 5,580 40,596 (1,045 ) (1,912 ) (12,174 ) (31,931 ) $ 447 $ 8,086 Year ended June 30, (In thousands) 2011 2010 Beginning balance $ 1,221 $ 8,086 Restructuring costs 4,420 5,143 Adjustments (325 ) (906 ) Cash payments (3,455 ) (11,102 ) Ending balance $ 1,861 $ 1,221 2010.KLA-TENCOR CORPORATION2011Notes to Consolidated Financial Statements—(Continued).16—16 — DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIEScounter-partycounterparty to any of the Company’s hedging arrangements experiences financial difficulties or is otherwise unable to honor the terms of the foreign currency hedge, the Company may experience material losses.KLA-TENCOR CORPORATIONNotes to Consolidated Financial Statements—(Continued)20102011 and 2009 are2010 were as follows: Location in Financial Statements Year ended June 30, 2010 Year ended June 30, 2009 Accumulated
OCI Revenues Costs of
revenues Interest
income
and
other,
net Total Accumulated
OCI Revenues Costs of
revenues Interest
income
and
other,
net Total $ (2,274 ) $ (2,274 ) $ (5,410 ) $ (5,410 ) $ (1,399 ) $ (493 ) $ (1,892 ) $ (9,925 ) $ (589 ) $ (10,514 ) $ (398 ) $ (398 ) $ (597 ) $ (597 ) $ (15,182 ) $ (15,182 ) $ (31,929 ) $ (31,929 ) (In thousands) Location in Financial Statements As of
June 30, 2011 As of
June 30, 2010Derivatives Designated as Hedging Instruments Gain (loss) in accumulated OCI on derivatives (effective portion) Accumulated OCI $ 47 $ (2,274 ) Loss reclassified from accumulated OCI into income (effective portion): Revenues $ (2,491 ) $ (1,399 ) Costs of revenues 531 (493 ) Total loss reclassified from accumulated OCI into income (effective portion) $ (1,960 ) $ (1,892 ) Gain (loss) recognized in income on derivatives (ineffectiveness portion and amount excluded from effectiveness testing) Interest income and other, net $ 468 $ (398 ) Derivatives Not Designated as Hedging Instruments Loss recognized in income Interest income and other, net $ (2,024 ) $ (15,182 ) anddollar equivalent of all outstanding notional amounts of hedge contracts, with maximum maturity of 1813 months, wereas of June 30, 2011 and 2010 was as follows: As of
June 30, 2010 As of
June 30, 2009 $ 15,835 $ — (32,853 ) (36,938 ) 82,535 73,914 (104,414 ) (106,080 ) $ (38,897 ) $ (69,104 ) (In thousands) As of
June 30, 2011 As of
June 30, 2010Cash flow hedge contracts Purchase $ 3,381 $ 15,835 Sell $ 30,133 $ 32,853 Other foreign currency hedge contracts Purchase $ 174,499 $ 82,535 Sell $ 216,738 $ 104,414 KLA-TENCOR CORPORATIONNotes to Consolidated Financial Statements—(Continued)SheetSheets as of June 30, 2011 and 2010 were as follows: Asset Derivatives Liability Derivatives June 30, 2010 June 30, 2010 Balance Sheet Location Fair Value Balance Sheet Location Fair Value Other current assets $ 125 Other current liabilities $ 2,033 $ 125 $ 2,033 Other current assets $ 171 Other current liabilities $ 3,791 $ 171 $ 3,791 $ 296 $ 5,824 Asset Derivatives Liability Derivatives Balance Sheet Location June 30,
2011 June 30,
2010 Balance Sheet Location June 30,
2011 June 30,
2010(In thousands) Fair Value Fair Value Derivatives designated as hedging instruments Foreign exchange contracts Other current assets $ 145 $ 125 Other current liabilities $ 475 $ 2,033 Total derivatives designated as hedging instruments $ 145 $ 125 $ 475 $ 2,033 Derivatives not designated as hedging instruments Foreign exchange contracts Other current assets $ 1,825 $ 171 Other current liabilities $ 1,652 $ 3,791 Total derivatives not designated as hedging instruments $ 1,825 $ 171 $ 1,652 $ 3,791 Total derivatives $ 1,970 $ 296 $ 2,127 $ 5,824 2010: Year ended
June 30, 2010 $ (1,613 ) 1,892 (2,274 ) $ (1,995 ) (In thousands) Year ended
June 30, 2011Beginning balance $ (1,995 ) Amount reclassified to income 1,960 Net change 47 Ending balance $ 12 17—17 — SEGMENT REPORTING AND GEOGRAPHIC INFORMATIONCompany’s Chief Executive Officer.KLA-TencorKLA-Tencorthe Company operates in one segment, all financial segment information required by the authoritative guidance can be found in the consolidated financial statements.KLA-Tencor’sAsia.the Asia Pacific regions. For geographical revenueKLA-TENCOR CORPORATIONNotes to Consolidated Financial Statements—(Continued) 2009 and 2008: Year ended June 30, 2010 2009 2008 $ 341,079 19 % $ 372,887 24 % $ 518,851 21 % 688,089 38 % 181,411 12 % 570,904 23 % 239,393 13 % 437,081 29 % 617,214 24 % 111,497 6 % 162,665 11 % 305,350 12 % 151,198 8 % 187,624 12 % 225,119 9 % 289,504 16 % 178,548 12 % 284,278 11 % $ 1,820,760 100 % $ 1,520,216 100 % $ 2,521,716 100 % (Dollar amounts in thousands) Year ended June 30, 2011 2010 2009 Revenues: United States $ 610,955 19 % $ 341,079 19 % $ 372,887 24 % Taiwan 864,378 27 % 688,089 38 % 181,411 12 % Japan 413,208 13 % 239,393 13 % 437,081 29 % Europe & Israel 340,249 11 % 111,497 6 % 162,665 11 % Korea 480,488 15 % 151,198 8 % 187,624 12 % Rest of Asia 465,889 15 % 289,504 16 % 178,548 12 % Total $ 3,175,167 100 % $ 1,820,760 100 % $ 1,520,216 100 % 2009 and 20082009 (as a percentage of total revenues): Year ended June 30, 2010 2009 2008 $ 1,016,411 56 % $ 792,160 52 % $ 1,434,282 57 % 262,718 14 % 232,838 15 % 525,109 21 % 489,789 27 % 442,476 29 % 486,486 19 % 51,842 3 % 52,742 4 % 75,839 3 % $ 1,820,760 100 % $ 1,520,216 100 % $ 2,521,716 100 % (Dollar amounts in thousands) Year ended June 30, 2011 2010 2009 Revenues: Defect inspection $ 2,039,856 64 % $ 1,011,027 56 % $ 779,914 51 % Metrology 498,904 16 % 261,105 14 % 228,501 15 % Service 561,729 18 % 496,490 27 % 458,090 30 % Other 74,678 2 % 52,138 3 % 53,711 4 % Total $ 3,175,167 100 % $ 1,820,760 100 % $ 1,520,216 100 % 2009 and 20082009 were as follows: As of June 30, 2010 2009 2008 $ 174,033 $ 239,863 $ 383,492 127,474 143,410 203,802 3,985 4,308 5,576 714 1,021 1,701 3,482 3,764 6,012 56,141 64,868 70,465 $ 365,829 $ 457,234 $ 671,048 For the fiscal year ended June 30, 2010, two customers, Taiwan Semiconductor Manufacturing Company Limited and Intel Corporation, each accounted for more than 10% of total revenues. For the fiscal year ended June 30, 2009, two customers, Intel Corporation and Samsung Electronics Co., Ltd., each accounted for more than 10% of total revenues. For the fiscal year ended June 30, 2008, no customer accounted for more than 10% of total revenues. As of June 30, 2010, two customers, Samsung Electronics Co., Ltd. and Taiwan SemiconductorKLA-TENCOR CORPORATIONNotes to Consolidated Financial Statements—(Continued)Manufacturing Company Limited, each accounted for more than 10% of net accounts receivable. As of June 30, 2009, two customers, Taiwan Semiconductor Manufacturing Company Limited and Intel Corporation, each accounted for more than 10% of net accounts receivable. As of June 30, (In thousands) 2011 2010 2009 Long-lived assets: United States $ 167,381 $ 174,033 $ 239,863 Europe & Israel 125,302 127,474 143,410 Japan 4,256 3,985 4,308 Taiwan 803 714 714 802.767 1,021 Korea 2,804 3,482 3,764 Rest of Asia 53,106 56,141 64,868 Total $ 353,652 $ 365,829 $ 457,234 18—18 — SALE AND IMPAIRMENT OF REAL ESTATE ASSETSDuring the fiscal year ended June 30, 2008, the Company completed the sale of real estate properties in Livermore, California and recognized a gain of $9.0 million as an offset to selling, general and administrative expenses. ongoingCompany's cost reduction efforts, the Company decided to sell the remaining real estate properties owned by the Company in San Jose, California and a portion of the real estate property in Chennai, India. Based on the valuation of these assets using relevant market indicators such as range of estimated selling prices, the Company recorded asset impairment charges of approximately $2.4$2.4 million, which were included in selling, general and administrative expenses. During the fiscal year ended June 30, 2010, the Company recorded an asset impairment charge of approximately $15.1$15.1 million based on the valuation of these assets using relevant market indicators including a range of estimated selling prices. The real estate properties are non-financial assets consistent with Level 3 fair value measurement. This impairment charge was included in selling, general and administrative expenses.In addition, during During the fiscal year ended June 30, 2008,2011, the Company entered into an agreement forcompleted the sale and leaseback of certain buildings locatedits remaining real estate properties in San Jose, California. The sale transaction, which closed on March 26, 2008,December 9, 2010, resulted in proceeds to the Company of $28.8$13.2 million. Under the agreement, the Company leases back the buildings for periods ranging from 3 months to 39 months (which includes the optional one year extension period). Under the authoritative guidance for leases, the Company immediately recognized $8.5$1.4 million of the gain, which represents the portion of the gain in excess of the present value of the minimum lease payments, and deferred the remaining gain of $4.7 million, which will be amortized ratably in proportion to rent expense over the 39-month term of the lease. Total amount of gain recognized during the fiscal year ended June 30, 2009 and 2008 were $1.4 million and $9.1 million, respectively. The Company was recognizing the rent expense related to rental payments on a straight line basis over the term of the lease. As part of the ongoing cost reduction efforts, during the three months ended June 30, 2009, the Company vacated these buildings in an effort to consolidate the facilities and is in the process of negotiating with the landlord for an early lease termination. As a result, the Company accrued $1.6 million during the three months ended June 30, 2009 for the estimated remaining lease payments. Total rent expense recorded during the fiscal years ended June 30, 2009 and 2008 related to these buildings were $3.1 million and $0.4 million, respectively.In addition, during the fourth quarter of the fiscal year ended June 30, 2008, the Company completed the sale of certain real estate located in Chennai, India and recognized a gain of $2.0 million as an offset to selling, general and administrative expenses.19—19 — RELATED PARTY TRANSACTIONS and/or 2008,, the Company purchased from, or sold to, several entities, where one or more executive officers of the Company or members of the Company’s Board of Directors, or their immediate family members, also serves as an executive officer or board member, including JDS Uniphase Corporation, Freescale Semiconductor, Inc., Cisco Systems, Inc. and National Semiconductor Corp. For the fiscal years ended June 30, 2011, 2010 2009 and 2008,2009, the following table provides the transactions with these parties (for the portion of such period that they were considered related): 2010 2009 2008 $ 8,242 $ 8,039 $ 39,730 $ 2,950 $ 5,330 $ 7,967 Year ended June 30, (In thousands) 2011 2010 2009 Total revenues 379 8,242 8,039 Total purchases 7,171 2,950 5,330 KLA-TENCOR CORPORATIONNotes to Consolidated Financial Statements—(Continued)approximately $2$0.2 million and $1$2.0 million at as of June 30, 20102011 and 2009,2010, respectively. Management believes that such transactions are at armsarm's length and on similar terms as would have been obtained from unaffiliated third parties.20—20 — SUBSEQUENT EVENTS5, 2010,4, 2011, the Company declared a quarterly cash dividend of $0.25$0.35 per share on the outstanding shares of the Company’s common stock, to be paid on September 1, 20102011 to stockholders of record on August 16, 2010.21—21 — QUARTERLY CONSOLIDATED RESULTS OF OPERATIONS (UNAUDITED)20102011 and 2009. First quarter
ended
September 30, 2009 Second quarter
ended
December 31, 2009 Third quarter
ended
March 31, 2010 Fourth quarter
ended
June 30, 2010 $ 342,687 $ 440,355 $ 478,299 $ 559,419 $ 327,737 $ 393,260 $ 387,020 $ 398,577 $ 170,795 $ 233,069 $ 269,734 $ 331,500 $ 14,950 $ 47,095 $ 91,279 $ 160,842 $ 20,405 $ 21,794 $ 57,016 $ 113,085 $ 0.12 $ 0.13 $ 0.33 $ 0.67 $ 0.12 $ 0.13 $ 0.33 $ 0.66 First quarter
ended
September 30, 2008 Second quarter
ended
December 31, 2008 Third quarter
ended
March 31, 2009 Fourth quarter
ended
June 30, 2009 $ 532,513 $ 396,589 $ 309,612 $ 281,502 $ 497,575 $ 902,220 $ 381,893 $ 316,469 $ 279,700 $ 158,422 $ 100,389 $ 116,881 $ 34,938 $ (505,631 ) $ (72,281 ) $ (34,967 ) $ 19,289 $ (434,254 ) $ (82,827 ) $ (25,576 ) $ 0.11 $ (2.57 ) $ (0.49 ) $ (0.15 ) $ 0.11 $ (2.57 ) $ (0.49 ) $ (0.15 ) (In thousands, except per share data) Total revenues $ 682,342 $ 766,327 $ 834,059 $ 892,439 Total costs and operating expenses $ 446,726 $ 497,461 $ 522,280 $ 548,370 Gross margin $ 418,373 $ 454,929 $ 506,363 $ 536,259 Income from operations $ 235,616 $ 268,866 $ 311,779 $ 344,069 Net income $ 154,196 $ 185,492 $ 209,783 $ 245,017 Net income per share: Basic(1) $ 0.92 $ 1.11 $ 1.25 $ 1.46 Diluted(1) $ 0.91 $ 1.09 $ 1.22 $ 1.43 (In thousands, except per share data) Total revenues $ 342,687 $ 440,355 $ 478,299 $ 559,419 Total costs and operating expenses $ 327,737 $ 393,260 $ 387,020 $ 398,577 Gross margin $ 170,795 $ 233,069 $ 269,734 $ 331,500 Income from operations $ 14,950 $ 47,095 $ 91,279 $ 160,842 Net income $ 20,405 $ 21,794 $ 57,016 $ 113,085 Net income per share: Basic(1) $ 0.12 $ 0.13 $ 0.33 $ 0.67 Diluted(1) $ 0.12 $ 0.13 $ 0.33 $ 0.66 (1) Basic and diluted earnings per share are computed independently for each of the quarters presented based on the weighted average basic and fully diluted shares outstanding for each quarter. Therefore, the sum of quarterly basic and diluted per share information may not equal annual basic and diluted earnings per share.
2011 . Exhibit Exhibit Description Exhibit Exhibit Description Exhibit Exhibit Description Exhibit Exhibit Description20102011 and June 30, 2009,2010, and the results of itstheir operations and itstheir cash flows for each of the three years in the period ended June 30, 20102011 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the indexappearing under Item 15(a)(2) presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of June 30, 2010,2011, based on criteria established inInternal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for these financial statements and financial statement schedule, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Report on Internal Control over Financial Reporting.Reporting under Item 9A. Our responsibility is to express opinions on these financial statements, on the financial statement schedule, and on the Company’s internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.As discussed in Note 12 to the consolidated financial statements, effective July 1, 2007, the Company changed the manner in which it accounts for uncertain income tax positions.2010ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE ITEM 9A. CONTROLS AND PROCEDURES U.S.United States. To the extent that components of the Company’s internal control over financial reporting are included within its Disclosure Controls, they are included in the scope of the Company’s annual controls evaluation.2010.201120102011 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which appears in Item 8, “Financial Statements and Supplementary Data” in this Annual Report on Form 10-K.most recent fiscal quarterperiod covered by this report that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.ITEM 9B. OTHER INFORMATION ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE Officers”,Officers,” “Security Ownership of Certain Beneficial Owners and Management—Section 16(a) Beneficial Ownership Reporting Compliance”,Compliance,” “Our Corporate Governance Practices—Standards of Business Conduct; Confidential Whistleblower Hotline and Website”, “Proposal One: Election of Directors” and “About“Information About the Board of Directors and Its Committees—Audit Committee” in the Proxy Statement, which is incorporated herein by reference.ITEM 11. EXECUTIVE COMPENSATION Matters”Matters,” “Director Compensation” and “Director Compensation”"Information About the Board of Directors and Its Committees—Compensation Committee—Risk Considerations in Our Compensation Programs" in the Proxy Statement, which is incorporated herein by reference.ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE “About“Information About the Board of Directors and Its Committees”Committees —The Board of Directors” in the Proxy Statement, which is incorporated herein by reference.ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES 2011”2012” in the Proxy Statement, which is incorporated herein by reference.ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULE 5859606162109 Incorporated by Reference
Number Form File No. Exhibit
Number Filing Date 2.1 Amended and Restated Agreement and Plan of Merger relating to the acquisition of ADE Corporation 8-K No. 000-09992 2.1 May 26, 2006 2.2 Agreement Relating to a Friendly Take-Over Bid to be Brought for ICOS Vision Systems Corporation NV, entered into between the Company and ICOS Vision Systems Corporation NV, dated February 20, 2008 8-K No. 000-09992 2.1 February 21, 2008 3.1 Amended and Restated Certificate of Incorporation 10-Q No. 000-09992 3.1 May 14, 1997 3.2 Certificate of Amendment of Amended and Restated Certificate of Incorporation 10-Q No. 000-09992 3.1 February 14, 2001 3.3 Amended and Restated Bylaws 8-K No. 000-09992 3.1 February 19, 2009 Incorporated by Reference
Number Form File No. Exhibit
Number Filing Date 4.1 Amended and Restated Rights Agreement dated as of April 25, 1996 between the Company and The First National Bank of Boston, as Rights Agent. This agreement includes the Form of Right Certificate as Exhibit A and the Summary of Terms of Rights as Exhibit B 8-A/A,
Amendment
No. 2 No. 000-09992 1 September 24, 1996 4.2 Indenture dated as of May 2, 2008 between the Company and Wells Fargo Bank, N.A., as trustee 8-K No. 000-09992 4.1 May 6, 2008 4.3 Form of 6.900% Senior Notes Due 2018 (included in Exhibit 4.2) 8-K No. 000-09992 4.2 May 6, 2008 10.1 1998 Outside Director Option Plan* S-8 No. 333-68423 10.1 December 4, 1998 10.2 Form of Option Agreement under 1998 Outside Director Option Plan* 8-K No. 000-09992 10.1 October 18, 2004 10.3 2000 Nonstatutory Stock Option Plan (as amended August 2, 2002)* S-8 No. 333-100166 10.3 September 27, 2002 10.4 2004 Equity Incentive Plan (as amended and restated)* 8-K No. 000-09992 10.46 October 8, 2009 10.5 Rules of the Company’s 2004 Equity Incentive Plan for the Grant of Restricted Stock Units to Participants in France* 10-Q No. 000-09992 10.50 January 30, 2009 10.6 Notice of Grant of Restricted Stock Units* 10-Q No. 000-09992 10.18 May 4, 2006 10.7 Option Grant Notification* 8-K No. 000-09992 10.1 September 29, 2005 10.8 Form of Restricted Stock Unit Award Notification (Performance-Vesting)* 8-K No. 000-09992 10.19 September 20, 2006 10.9 Form of Restricted Stock Unit Award Notification (Service-Vesting)* 10-K No. 000-09992 10.17 August 7, 2008 10.10 Form of Restricted Stock Unit Agreement* 8-K No. 000-09992 10.20 September 20, 2006 10.11 Form of Restricted Stock Unit Agreement for U.S. Employees (approved December 2008)* 10-Q No. 000-09992 10.44 January 30, 2009 10.12 Form of Restricted Stock Unit Agreement for French Participants (approved December 2008)* 10-Q No. 000-09992 10.45 January 30, 2009 10.13 Form of Restricted Stock Unit Agreement for Non-U.S. Employees (approved December 2008)* 10-Q No. 000-09992 10.46 January 30, 2009 10.14 Form of Stock Option Amendment and Special Bonus Agreement (with Chief Executive Officer)* 8-K No. 000-09992 99.1 January 5, 2007 Incorporated by Reference
Number Form File No. Exhibit
Number Filing Date 10.15 Form of Stock Option Amendment and Special Bonus Agreement* 8-K No. 000-09992 99.1 November 13, 2007 10.16 Amended and Restated 1997 Employee Stock Purchase Plan (as amended November 17, 1998)* S-8 No. 333-75944 10.1 December 26, 2001 10.17 Amended and Restated 1997 Employee Stock Purchase Plan (as amended December 2008, effective January 1, 2009)* 10-Q No. 000-09992 10.47 January 30, 2009 10.18 Amended and Restated 1997 Employee Stock Purchase Plan (as amended March 2009, effective July 1, 2009)* 8-K No. 000-09992 10.52 March 30, 2009 10.19 Amended and Restated 1997 Employee Stock Purchase Plan (as amended December 2009, effective January 1, 2010)* 10-Q No. 000-09992 10.49 January 29, 2010 10.20 KLA Instruments Corporation Restated 1982 Stock Option Plan (as amended November 18, 1996)* S-8 No. 333-22941 10.74 March 7, 1997 10.21 Therma-Wave, Inc.’s 2000 Equity Incentive Plan* (1) (1) (1) (1) 10.22 Amendment No. 1 to Therma-Wave, Inc.’s 2000 Equity Incentive Plan* (2) (2) (2) (2) 10.23 Amendment No. 2 to Therma-Wave, Inc.’s 2000 Equity Incentive Plan* (3) (3) (3) (3) 10.24 Amendment No. 3 to Therma-Wave, Inc.’s 2000 Equity Incentive Plan* (4) (4) (4) (4) 10.25 Amendment No. 4 to Therma-Wave, Inc.’s 2000 Equity Incentive Plan* (5) (5) (5) (5) 10.26 ADE Corporation’s 1995 Stock Option Plan* (6) (6) (6) (6) 10.27 ADE Corporation 1997 Employee Stock Option Plan* (7) (7) (7) (7) 10.28 Amendment to ADE Corporation’s 1997 Employee Stock Option Plan dated April 7, 1999* (8) (8) (8) (8) 10.29 ADE Corporation’s 2000 Employee Stock Option Plan (as amended)* (9) (9) (9) (9) 10.30 Form of Indemnification Agreement for Directors and Executive Officers* 10-K No. 000-09992 10.3 September 29, 1997 10.31 Performance Bonus Plan* Proxy No. 000-09992 Appendix B September 24, 2009 10.32 Fiscal Year 2010 Performance Bonus Plan*+ 10-Q No. 000-09992 10.46 October 30, 2009 10.33 Fiscal Year 2009 Performance Bonus Plan*+ 10-Q No. 000-09992 10.41 October 31, 2008 Incorporated by Reference
Number Form File No. Exhibit
Number Filing Date 10.34 Fiscal Year 2008 Performance Bonus Plan*+ 10-Q No. 000-09992 10.38 October 31, 2007 10.35 Executive Deferred Savings Plan (as amended January 1, 2009)* 10-Q No. 000-09992 10.49 January 30, 2009 10.36 Executive Severance Plan (as amended February 19, 2009)* 8-K No. 000-09992 10.51 February 19, 2009 10.37 Severance Agreement and General Release between the Company and Gary E. Dickerson* 10-K No. 000-09992 10.9 August 30, 2004 10.38 Amended and Restated Agreement between the Company and Kenneth L. Schroeder* 10-Q No. 000-09992 10.14 February 2, 2006 10.39 Separation Agreement and General Release between the Company and Kenneth Levy* 8-K No. 000-09992 99.1 October 30, 2006 10.40 Amendment No. 1 to Separation Agreement and General Release between the Company and Kenneth Levy* 8-K No. 000-09992 99.2 October 30, 2006 10.41 Agreement between the Company and Ben Tsai (as amended and restated)* 10-K No. 000-09992 10.26 January 29, 2007 10.42 Letter Agreement between the Company and Brian M. Martin* 10-Q No. 000-09992 10.28 May 7, 2007 10.43 Severance and Consulting Agreement between the Company and John Kispert* 10-Q No. 000-09992 10.42 October 31, 2008 10.44 Letter Agreement between the Company and Mark Dentinger* 10-Q No. 000-09992 10.43 October 31, 2008 12.1 Computation of Ratio of Earnings to Fixed Charges 21.1 List of Subsidiaries 23.1 Consent of Independent Registered Public Accounting Firm 31.1 Certification of Chief Executive Officer under Rule 13a-14(a) of the Securities Exchange Act of 1934 31.2 Certification of Chief Financial Officer under Rule 13a-14(a) of the Securities Exchange Act of 1934 32 Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 Incorporated by Reference Exhibit Description Form File No. Filing Date 2.1 Amended and Restated Agreement and Plan of Merger relating to the acquisition of ADE Corporation 8-K No. 000-09992 2.1 May 26, 2006 2.2 Agreement Relating to a Friendly Take-Over Bid to be Brought for ICOS Vision Systems Corporation NV, entered into between the Company and ICOS Vision Systems Corporation NV, dated February 20, 2008 8-K No. 000-09992 2.1 February 21, 2008 3.1 Amended and Restated Certificate of Incorporation 10-Q No. 000-09992 3.1 May 14, 1997 3.2 Certificate of Amendment of Amended and Restated Certificate of Incorporation 10-Q No. 000-09992 3.1 February 14, 2001 3.3 Amended and Restated Bylaws 8-K No. 000-09992 3.1 February 19, 2009 4.1 Amended and Restated Rights Agreement dated as of April 25, 1996 between the Company and The First National Bank of Boston, as Rights Agent. This agreement includes the Form of Right Certificate as Exhibit A and the Summary of Terms of Rights as Exhibit B No. 000-09992 1.0 September 24, 1996 4.2 Indenture dated as of May 2, 2008 between the Company and Wells Fargo Bank, N.A., as trustee 8-K No. 000-09992 4.1 May 6, 2008 Incorporated by Reference Exhibit Description Form File No. Filing Date 4.3 Form of 6.900% Senior Notes Due 2018 (included in Exhibit 4.2) 8-K No. 000-09992 4.2 May 6, 2008 10.1 1998 Outside Director Option Plan* S-8 No. 333-68423 10.1 December 4, 1998 10.2 Form of Option Agreement under 1998 Outside Director Option Plan* 8-K No. 000-09992 10.1 October 18, 2004 10.3 2000 Nonstatutory Stock Option Plan (as amended August 2, 2002)* S-8 No. 333-100166 10.3 September 27, 2002 10.4 2004 Equity Incentive Plan (as amended and restated)* 8-K No. 000-09992 10.46 October 8, 2009 10.5 Rules of the Company’s 2004 Equity Incentive Plan for the Grant of Restricted Stock Units to Participants in France* 10-Q No. 000-09992 10.50 January 30, 2009 10.6 Notice of Grant of Restricted Stock Units* 10-Q No. 000-09992 10.18 May 4, 2006 10.7 Option Grant Notification* 8-K No. 000-09992 10.1 September 29, 2005 10.8 Form of Restricted Stock Unit Award Notification (Performance-Vesting)* 8-K No. 000-09992 10.19 September 20, 2006 10.9 Form of Restricted Stock Unit Award Notification (Service-Vesting)* 10-K No. 000-09992 10.17 August 7, 2008 10.10 Form of Restricted Stock Unit Agreement* 8-K No. 000-09992 10.20 September 20, 2006 10.11 Form of Restricted Stock Unit Agreement for U.S. Employees (approved December 2008)* 10-Q No. 000-09992 10.44 January 30, 2009 10.12 Form of Restricted Stock Unit Agreement for French Participants (approved December 2008)* 10-Q No. 000-09992 10.45 January 30, 2009 10.13 Form of Restricted Stock Unit Agreement for Non-U.S. Employees (approved December 2008)* 10-Q No. 000-09992 10.46 January 30, 2009 10.14 Form of Stock Option Amendment and Special Bonus Agreement (with Chief Executive Officer)* 8-K No. 000-09992 99.1 January 5, 2007 10.15 Form of Stock Option Amendment and Special Bonus Agreement* 8-K No. 000-09992 99.10 November 13, 2007 10.16 Amended and Restated 1997 Employee Stock Purchase Plan (as amended November 17, 1998)* S-8 No. 333-75944 10.10 December 26, 2001 10.17 Amended and Restated 1997 Employee Stock Purchase Plan (as amended December 2008, effective January 1, 2009)* 10-Q No. 000-09992 10.47 January 30, 2009 10.18 Amended and Restated 1997 Employee Stock Purchase Plan (as amended March 2009, effective July 1, 2009)* 8-K No. 000-09992 10.52 March 30, 2009 10.19 Amended and Restated 1997 Employee Stock Purchase Plan (as amended December 2009, effective January 1, 2010)* 10-Q No. 000-09992 10.49 January 29, 2010 10.20 Amended and Restated 1997 Employee Stock Purchase Plan (as amended February 11, 2011)* 10-Q No. 000-09992 10.47 April 29, 2011 10.21 KLA Instruments Corporation Restated 1982 Stock Option Plan (as amended November 18, 1996)* S-8 No. 333-22941 10.74 March 7, 1997 Incorporated by Reference Exhibit Description Form File No. Filing Date 10.22 Therma-Wave, Inc.’s 2000 Equity Incentive Plan* (1) (1) (1) (1) 10.23 Amendment No. 1 to Therma-Wave, Inc.’s 2000 Equity Incentive Plan* (2) (2) (2) (2) 10.24 Amendment No. 2 to Therma-Wave, Inc.’s 2000 Equity Incentive Plan* (3) (3) (3) (3) 10.25 Amendment No. 3 to Therma-Wave, Inc.’s 2000 Equity Incentive Plan* (4) (4) (4) (4) 10.26 Amendment No. 4 to Therma-Wave, Inc.’s 2000 Equity Incentive Plan* (5) (5) (5) (5) 10.27 ADE Corporation’s 1995 Stock Option Plan* (6) (6) (6) (6) 10.28 ADE Corporation 1997 Employee Stock Option Plan* (7) (7) (7) (7) 10.29 Amendment to ADE Corporation’s 1997 Employee Stock Option Plan dated April 7, 1999* (8) (8) (8) (8) 10.30 ADE Corporation’s 2000 Employee Stock Option Plan (as amended)* (9) (9) (9) (9) 10.31 Form of Indemnification Agreement for Directors and Executive Officers* 10-K No. 000-09992 10.3 September 29, 1997 10.32 Performance Bonus Plan* Proxy No. 000-09992 App. B September 24, 2009 10.33 Fiscal Year 2011 Performance Bonus Plan*+ 10-Q No. 000-09992 10.45 October 29, 2010 10.34 Fiscal Year 2010 Performance Bonus Plan*+ 10-Q No. 000-09992 10.46 October 30, 2009 10.35 Fiscal Year 2009 Performance Bonus Plan*+ 10-Q No. 000-09992 10.41 October 31, 2008 10.36 Executive Deferred Savings Plan (as amended January 1, 2009)* 10-Q No. 000-09992 10.49 January 30, 2009 10.37 Executive Severance Plan (as amended February 19, 2009)* 8-K No. 000-09992 10.51 February 19, 2009 10.38 2010 Executive Severance Plan* 10-Q No. 000-09992 10.46 January 28, 2011 10.39 Agreement between the Company and Ben Tsai (as amended and restated)* 10-K No. 000-09992 10.26 January 29, 2007 10.40 Letter Agreement between the Company and Brian M. Martin* 10-Q No. 000-09992 10.28 May 7, 2007 10.41 Severance and Consulting Agreement between the Company and John Kispert* 10-Q No. 000-09992 10.42 October 31, 2008 10.42 Letter Agreement between the Company and Mark Dentinger* 10-Q No. 000-09992 10.43 October 31, 2008 12.10 Computation of Ratio of Earnings to Fixed Charges 21.1 List of Subsidiaries 23.1 Consent of Independent Registered Public Accounting Firm 31.1 Certification of Chief Executive Officer under Rule 13a-14(a) of the Securities Exchange Act of 1934 Incorporated by Reference Exhibit Description Form File No. Filing Date 31.2 Certification of Chief Financial Officer under Rule 13a-14(a) of the Securities Exchange Act of 1934 32 Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 * Denotes a management contract, plan or arrangement + Confidential treatment has been requested as to a portion of this exhibit. (1) Incorporated by reference to Exhibit 10.22 to Therma-Wave, Inc.’s Annual Report on Form 10-K for the fiscal year ended March 31, 2000 (Commission File No. 000-26911). (2) Incorporated by reference to Exhibit 99.2 to Therma-Wave, Inc.’s Registration Statement on Form S-8, filed February 22, 2002 (Commission File No. 333-83282). (3) Incorporated by reference to Exhibit 99.1 to Therma-Wave, Inc.’s Current Report on Form 8-K, filed August 27, 2004 (Commission File No. 000-26911). (4) Incorporated by reference to Exhibit 99.2 to Therma-Wave, Inc.’s Current Report on Form 8-K, filed August 27, 2004 (Commission File No. 000-26911). (5) Incorporated by reference to Exhibit 10.21 to Therma-Wave, Inc.’s Annual Report on Form 10-K for the fiscal year ended April 3, 2005 (Commission File No. 000-26911). (6) Incorporated by reference to Exhibit 10.2 to ADE Corporation’s Annual Report on Form 10-K for the fiscal year ended April 30, 2006 (Commission File No. 000-26714). (7) Incorporated by reference to Exhibit 10.3 to ADE Corporation’s Annual Report on Form 10-K for the fiscal year ended April 30, 1999 (Commission File No. 000-26714). (8) Incorporated by reference to Exhibit 4.3 to ADE Corporation’s Registration Statement on Form S-8, filed February 18, 1998 (Commission File No. 333-46505). (9) Incorporated by reference to Exhibit 10.4 to ADE Corporation’s Registration Statement on Form S-1 (Commission File No. 33-96408).
Signature Title Date President, Chief Executive Officer and Director (principal executive officer) Executive Vice President and Chief Financial Officer (principal financial officer) Senior Vice President and Chief Accounting Officer (principal accounting officer) Chairman of the Board and Director (In thousands) Fiscal Year Ended June 30, 2008: Allowance for Doubtful Accounts Fiscal Year Ended June 30, 2009: Allowance for Doubtful Accounts Allowance for Deferred Tax Assets Fiscal Year Ended June 30, 2010: Allowance for Doubtful Accounts Allowance for Deferred Tax Assets Exhibit Exhibit Description Amendment Exhibit Exhibit Description Exhibit Exhibit Description Exhibit Exhibit Description KLA-Tencor Corporation August 5, 2010 August 5, 2011 By: (Date) Richard P. Wallace Richard P. Wallace President and Chief Executive Officer Richard P. Wallace August 5, 20102011Richard P. Wallace Mark P. Dentinger August 5, 20102011Mark P. Dentinger Virendra A. Kirloskar August 5, 20102011Virendra A. Kirloskar Edward W. Barnholt August 5, 20102011Edward W. Barnholt Robert P. AkinsDirectorAugust 5, 2010/s/ ROBERT T. BOND Robert T. Bond Director August 5, 20102011Robert P. Akins M. CALDERONIRobert M. Calderoni T. B Director August 5, 20102011Robert T. Bond JOHN T. DICKSON RJohn T. DicksonOBERT Director August 5, 20102011Robert M. Calderoni STEPHEN P. KAUFMAN JStephen P. KaufmanOHN Director August 5, 20102011John T. Dickson KEVIN J. KENNEDY EKevin J. KennedyMIKO Director August 5, 20102011Emiko Higashi IRAN M. PATEL Kiran M. PatelAUFMAN Director August 5, 20102011Stephen P. Kaufman DAVID C. WANG KDavid C. WangEVIN Director August 5, 20102011Kevin J. Kennedy Director August 5, 2011 Kiran M. Patel Director August 5, 2011 David C. Wang Balance at
Beginning
of Period Charged to
Expense Deductions/
Adjustments Balance
At End
of Period $ 11,729 $ 182 $ 346 $ 12,257 $ 12,257 $ 23,279 $ (61 ) $ 35,475 $ — $ 38,791 $ — $ 38,791 $ 35,475 $ 80 $ (3,681 ) $ 31,874 $ 38,791 $ 5,586 $ (193 ) $ 44,184 (In thousands) Fiscal Year Ended June 30, 2009: Allowance for Doubtful Accounts $ 12,257 $ 23,279 $ (61 ) $ 35,475 Allowance for Deferred Tax Assets $ — $ 38,791 $ — $ 38,791 Fiscal Year Ended June 30, 2010: Allowance for Doubtful Accounts $ 35,475 $ 80 $ (3,681 ) $ 31,874 Allowance for Deferred Tax Assets $ 38,791 $ 5,586 $ (193 ) $ 44,184 Fiscal Year Ended June 30, 2011: Allowance for Doubtful Accounts $ 31,874 $ — $ (9,768 ) $ 22,106 Allowance for Deferred Tax Assets $ 44,184 $ — $ (13,462 ) $ 30,722
Number Incorporated by Reference Form File No. Exhibit
Number Filing Date 2.1 Amended and Restated Agreement and Plan of Merger relating to the acquisition of ADE Corporation 8-K No. 000-09992 2.1 May 26, 2006 2.2 Agreement Relating to a Friendly Take-Over Bid to be Brought for ICOS Vision Systems Corporation NV, entered into between the Company and ICOS Vision Systems Corporation NV, dated February 20, 2008 8-K No. 000-09992 2.1 February 21, 2008 3.1 Amended and Restated Certificate of Incorporation 10-Q No. 000-09992 3.1 May 14, 1997 3.2 Certificate of Amendment of Amended and Restated Certificate of Incorporation 10-Q No. 000-09992 3.1 February 14, 2001 3.3 Amended and Restated Bylaws 8-K No. 000-09992 3.1 February 19, 2009 4.1 Amended and Restated Rights Agreement dated as of April 25, 1996 between the Company and The First National Bank of Boston, as Rights Agent. This agreement includes the Form of Right Certificate as Exhibit A and the Summary of Terms of Rights as Exhibit B 8-A/A,
No. 2 No. 000-09992 1 September 24, 1996 4.2 Indenture dated as of May 2, 2008 between the Company and Wells Fargo Bank, N.A., as trustee 8-K No. 000-09992 4.1 May 6, 2008 4.3 Form of 6.900% Senior Notes Due 2018 (included in Exhibit 4.2) 8-K No. 000-09992 4.2 May 6, 2008 10.1 1998 Outside Director Option Plan* S-8 No. 333-68423 10.1 December 4, 1998 10.2 Form of Option Agreement under 1998 Outside Director Option Plan* 8-K No. 000-09992 10.1 October 18, 2004 10.3 2000 Nonstatutory Stock Option Plan (as amended August 2, 2002)* S-8 No. 333-100166 10.3 September 27, 2002 10.4 2004 Equity Incentive Plan (as amended and restated)* 8-K No. 000-09992 10.46 October 8, 2009 10.5 Rules of the Company’s 2004 Equity Incentive Plan for the Grant of Restricted Stock Units to Participants in France* 10-Q No. 000-09992 10.50 January 30, 2009
Number Incorporated by Reference Form File No. Exhibit
Number Filing Date 10.6 Notice of Grant of Restricted Stock Units* 10-Q No. 000-09992 10.18 May 4, 2006 10.7 Option Grant Notification* 8-K No. 000-09992 10.1 September 29, 2005 10.8 Form of Restricted Stock Unit Award Notification (Performance-Vesting)* 8-K No. 000-09992 10.19 September 20, 2006 10.9 Form of Restricted Stock Unit Award Notification (Service-Vesting)* 10-K No. 000-09992 10.17 August 7, 2008 10.10 Form of Restricted Stock Unit Agreement* 8-K No. 000-09992 10.20 September 20, 2006 10.11 Form of Restricted Stock Unit Agreement for U.S. Employees (approved December 2008)* 10-Q No. 000-09992 10.44 January 30, 2009 10.12 Form of Restricted Stock Unit Agreement for French Participants (approved December 2008)* 10-Q No. 000-09992 10.45 January 30, 2009 10.13 Form of Restricted Stock Unit Agreement for Non-U.S. Employees (approved December 2008)* 10-Q No. 000-09992 10.46 January 30, 2009 10.14 Form of Stock Option Amendment and Special Bonus Agreement (with Chief Executive Officer)* 8-K No. 000-09992 99.1 January 5, 2007 10.15 Form of Stock Option Amendment and Special Bonus Agreement* 8-K No. 000-09992 99.1 November 13, 2007 10.16 Amended and Restated 1997 Employee Stock Purchase Plan (as amended November 17, 1998)* S-8 No. 333-75944 10.1 December 26, 2001 10.17 Amended and Restated 1997 Employee Stock Purchase Plan (as amended December 2008, effective January 1, 2009)* 10-Q No. 000-09992 10.47 January 30, 2009 10.18 Amended and Restated 1997 Employee Stock Purchase Plan (as amended March 2009, effective July 1, 2009)* 8-K No. 000-09992 10.52 March 30, 2009 10.19 Amended and Restated 1997 Employee Stock Purchase Plan (as amended December 2009, effective January 1, 2010)* 10-Q No. 000-09992 10.49 January 29, 2010 10.20 KLA Instruments Corporation’s Restated 1982 Stock Option Plan (as amended November 18, 1996)* S-8 No. 333-22941 10.74 March 7, 1997 10.21 Therma-Wave, Inc.’s 2000 Equity Incentive Plan* (1) (1) (1) (1) 10.22 Amendment No. 1 to Therma-Wave, Inc.’s 2000 Equity Incentive Plan* (2) (2) (2) (2)
Number Incorporated by Reference Form File No. Exhibit
Number Filing Date 10.23 Amendment No. 2 to Therma-Wave, Inc.’s 2000 Equity Incentive Plan* (3) (3) (3) (3) 10.24 Amendment No. 3 to Therma-Wave, Inc.’s 2000 Equity Incentive Plan* (4) (4) (4) (4) 10.25 Amendment No. 4 to Therma-Wave, Inc.’s 2000 Equity Incentive Plan* (5) (5) (5) (5) 10.26 ADE Corporation’s 1995 Stock Option Plan* (6) (6) (6) (6) 10.27 ADE Corporation’s 1997 Employee Stock Option Plan* (7) (7) (7) (7) 10.28 Amendment to ADE Corporation’s 1997 Employee Stock Option Plan dated April 7, 1999* (8) (8) (8) (8) 10.29 ADE Corporation’s 2000 Employee Stock Option Plan (as amended)* (9) (9) (9) (9) 10.30 Form of Indemnification Agreement for Directors and Executive Officers* 10-K No. 000-09992 10.3 September 29, 1997 10.31 Performance Bonus Plan* Proxy No. 000-09992 Appendix B September 24, 2009 10.32 Fiscal Year 2010 Performance Bonus Plan*+ 10-Q No. 000-09992 10.46 October 30, 2009 10.33 Fiscal Year 2009 Performance Bonus Plan*+ 10-Q No. 000-09992 10.41 October 31, 2008 10.34 Fiscal Year 2008 Performance Bonus Plan*+ 10-Q No. 000-09992 10.38 October 31, 2007 10.35 Executive Deferred Savings Plan (as amended January 1, 2009)* 10-Q No. 000-09992 10.49 January 30, 2009 10.36 Executive Severance Plan (as amended February 19, 2009)* 8-K No. 000-09992 10.51 February 19, 2009 10.37 Severance Agreement and General Release between the Company and Gary E. Dickerson* 10-K No. 000-09992 10.9 August 30, 2004 10.38 Amended and Restated Agreement between the Company and Kenneth L. Schroeder* 10-Q No. 000-09992 10.14 February 2, 2006 10.39 Separation Agreement and General Release between the Company and Kenneth Levy* 8-K No. 000-09992 99.1 October 30, 2006 10.40 Amendment No. 1 to Separation Agreement and General Release between the Company and Kenneth Levy* 8-K No. 000-09992 99.2 October 30, 2006 10.41 Agreement between the Company and Ben Tsai (as amended and restated)* 10-K No. 000-09992 10.26 January 29, 2007
Number Incorporated by Reference Form File No. Exhibit
Number Filing Date 10.42 Letter Agreement between the Company and Brian M. Martin* 10-Q No. 000-09992 10.28 May 7, 2007 10.43 Severance and Consulting Agreement between the Company and John Kispert* 10-Q No. 000-09992 10.42 October 31, 2008 10.44 Letter Agreement between the Company and Mark Dentinger* 10-Q No. 000-09992 10.43 October 31, 2008 12.1 Computation of Ratio of Earnings to Fixed Charges 21.1 List of Subsidiaries 23.1 Consent of Independent Registered Public Accounting Firm 31.1 Certification of Chief Executive Officer under Rule 13a-14(a) of the Securities Exchange Act of 1934 31.2 Certification of Chief Financial Officer under Rule 13a-14(a) of the Securities Exchange Act of 1934 32 Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 Exhibit Description Incorporated by Reference Form File No. Filing Date 2.1 Amended and Restated Agreement and Plan of Merger relating to the acquisition of ADE Corporation 8-K No. 000-09992 2.1 May 26, 2006 2.2 Agreement Relating to a Friendly Take-Over Bid to be Brought for ICOS Vision Systems Corporation NV, entered into between the Company and ICOS Vision Systems Corporation NV, dated February 20, 2008 8-K No. 000-09992 2.1 February 21, 2008 3.1 Amended and Restated Certificate of Incorporation 10-Q No. 000-09992 3.1 May 14, 1997 3.2 Certificate of Amendment of Amended and Restated Certificate of Incorporation 10-Q No. 000-09992 3.1 February 14, 2001 3.3 Amended and Restated Bylaws 8-K No. 000-09992 3.1 February 19, 2009 4.1 Amended and Restated Rights Agreement dated as of April 25, 1996 between the Company and The First National Bank of Boston, as Rights Agent. This agreement includes the Form of Right Certificate as Exhibit A and the Summary of Terms of Rights as Exhibit B No. 000-09992 1 September 24, 1996 4.2 Indenture dated as of May 2, 2008 between the Company and Wells Fargo Bank, N.A., as trustee 8-K No. 000-09992 4.1 May 6, 2008 4.3 Form of 6.900% Senior Notes Due 2018 (included in Exhibit 4.2) 8-K No. 000-09992 4.2 May 6, 2008 10.1 1998 Outside Director Option Plan* S-8 No. 333-68423 10.1 December 4, 1998 10.2 Form of Option Agreement under 1998 Outside Director Option Plan* 8-K No. 000-09992 10.1 October 18, 2004 10.3 2000 Nonstatutory Stock Option Plan (as amended August 2, 2002)* S-8 No. 333-100166 10.3 September 27, 2002 10.4 2004 Equity Incentive Plan (as amended and restated)* 8-K No. 000-09992 10.46 October 8, 2009 10.5 Rules of the Company’s 2004 Equity Incentive Plan for the Grant of Restricted Stock Units to Participants in France* 10-Q No. 000-09992 10.50 January 30, 2009 10.6 Notice of Grant of Restricted Stock Units* 10-Q No. 000-09992 10.2 May 4, 2006 10.7 Option Grant Notification* 8-K No. 000-09992 10.1 September 29, 2005 10.8 Form of Restricted Stock Unit Award Notification (Performance-Vesting)* 8-K No. 000-09992 10.2 September 20, 2006 10.9 Form of Restricted Stock Unit Award Notification (Service-Vesting)* 10-K No. 000-09992 10.2 August 7, 2008 10.10 Form of Restricted Stock Unit Agreement* 8-K No. 000-09992 10.2 September 20, 2006 Exhibit Description Incorporated by Reference Form File No. Filing Date 10.11 Form of Restricted Stock Unit Agreement for U.S. Employees (approved December 2008)* 10-Q No. 000-09992 10.44 January 30, 2009 10.12 Form of Restricted Stock Unit Agreement for French Participants (approved December 2008)* 10-Q No. 000-09992 10.45 January 30, 2009 10.13 Form of Restricted Stock Unit Agreement for Non-U.S. Employees (approved December 2008)* 10-Q No. 000-09992 10.46 January 30, 2009 10.14 Form of Stock Option Amendment and Special Bonus Agreement (with Chief Executive Officer)* 8-K No. 000-09992 99.1 January 5, 2007 10.15 Form of Stock Option Amendment and Special Bonus Agreement* 8-K No. 000-09992 99.1 November 13, 2007 10.16 Amended and Restated 1997 Employee Stock Purchase Plan (as amended November 17, 1998)* S-8 No. 333-75944 10.1 December 26, 2001 10.17 Amended and Restated 1997 Employee Stock Purchase Plan (as amended December 2008, effective January 1, 2009)* 10-Q No. 000-09992 10.47 January 30, 2009 10.18 Amended and Restated 1997 Employee Stock Purchase Plan (as amended March 2009, effective July 1, 2009)* 8-K No. 000-09992 10.52 March 30, 2009 10.19 Amended and Restated 1997 Employee Stock Purchase Plan (as amended December 2009, effective January 1, 2010)* 10-Q No. 000-09992 10.49 January 29, 2010 10.20 Amended and Restated 1997 Employee Stock Purchase Plan (as amended February 11, 2011)* 10-Q No. 000-09992 10.47 April 29, 2011 10.21 KLA Instruments Corporation’s Restated 1982 Stock Option Plan (as amended November 18, 1996)* S-8 No. 333-22941 10.74 March 7, 1997 10.22 Therma-Wave, Inc.’s 2000 Equity Incentive Plan* (1) (1) (1) (1) 10.23 Amendment No. 1 to Therma-Wave, Inc.’s 2000 Equity Incentive Plan* (2) (2) (2) (2) 10.24 Amendment No. 2 to Therma-Wave, Inc.’s 2000 Equity Incentive Plan* (3) (3) (3) (3) 10.25 Amendment No. 3 to Therma-Wave, Inc.’s 2000 Equity Incentive Plan* (4) (4) (4) (4) 10.26 Amendment No. 4 to Therma-Wave, Inc.’s 2000 Equity Incentive Plan* (5) (5) (5) (5) 10.27 ADE Corporation’s 1995 Stock Option Plan* (6) (6) (6) (6) 10.28 ADE Corporation’s 1997 Employee Stock Option Plan* (7) (7) (7) (7) 10.29 Amendment to ADE Corporation’s 1997 Employee Stock Option Plan dated April 7, 1999* (8) (8) (8) (8) 10.30 ADE Corporation’s 2000 Employee Stock Option Plan (as amended)* (9) (9) (9) (9) 10.31 Form of Indemnification Agreement for Directors and Executive Officers* 10-K No. 000-09992 10.3 September 29, 1997 Exhibit Description Incorporated by Reference Form File No. Filing Date 10.32 Performance Bonus Plan* Proxy No. 000-09992 App. B September 24, 2009 10.33 Fiscal Year 2011 Performance Bonus Plan*+ 10-Q No. 000-09992 10.45 October 29, 2010 10.34 Fiscal Year 2010 Performance Bonus Plan*+ 10-Q No. 000-09992 10.46 October 30, 2009 10.35 Fiscal Year 2009 Performance Bonus Plan*+ 10-Q No. 000-09992 10.41 October 31, 2008 10.36 Executive Deferred Savings Plan (as amended January 1, 2009)* 10-Q No. 000-09992 10.49 January 30, 2009 10.37 Executive Severance Plan (as amended February 19, 2009)* 8-K No. 000-09992 10.51 February 19, 2009 10.38 2010 Executive Severance Plan* 10-Q No. 000-09992 10.46 January 28, 2011 10.39 Agreement between the Company and Ben Tsai (as amended and restated)* 10-K No. 000-09992 10.26 January 29, 2007 10.40 Letter Agreement between the Company and Brian M. Martin* 10-Q No. 000-09992 10.28 May 7, 2007 10.41 Severance and Consulting Agreement between the Company and John Kispert* 10-Q No. 000-09992 10.42 October 31, 2008 10.42 Letter Agreement between the Company and Mark Dentinger* 10-Q No. 000-09992 10.43 October 31, 2008 12.1 Computation of Ratio of Earnings to Fixed Charges 21.1 List of Subsidiaries 23.1 Consent of Independent Registered Public Accounting Firm 31.1 Certification of Chief Executive Officer under Rule 13a-14(a) of the Securities Exchange Act of 1934 31.2 Certification of Chief Financial Officer under Rule 13a-14(a) of the Securities Exchange Act of 1934 32 Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 * Denotes a management contract, plan or arrangement. + Confidential treatment has been requested as to a portion of this exhibit. (1) Incorporated by reference to Exhibit 10.22 to Therma-Wave, Inc.’s Annual Report on Form 10-K for the fiscal year ended March 31, 2000 (Commission File No. 000-26911). (2) Incorporated by reference to Exhibit 99.2 to Therma-Wave, Inc.’s Registration Statement on Form S-8, filed February 22, 2002 (Commission File No. 333-83282). (3) Incorporated by reference to Exhibit 99.1 to Therma-Wave, Inc.’s Current Report on Form 8-K, filed August 27, 2004 (Commission File No. 000-26911). (4) Incorporated by reference to Exhibit 99.2 to Therma-Wave, Inc.’s Current Report on Form 8-K, filed August 27, 2004 (Commission File No. 000-26911). (5) Incorporated by reference to Exhibit 10.21 to Therma-Wave, Inc.’s Annual Report on Form 10-K for the fiscal year ended April 3, 2005 (Commission File No. 000-26911). (6) Incorporated by reference to Exhibit 10.2 to ADE Corporation’s Annual Report on Form 10-K for the fiscal year ended April 30, 2006 (Commission File No. 000-26714). (7) Incorporated by reference to Exhibit 10.3 to ADE Corporation’s Annual Report on Form 10-K for the fiscal year ended April 30, 1999 (Commission File No. 000-26714). (8) Incorporated by reference to Exhibit 4.3 to ADE Corporation’s Registration Statement on Form S-8, filed February 18, 1998 (Commission File No. 333-46505). (9) Incorporated by reference to Exhibit 10.4 to ADE Corporation’s Registration Statement on Form S-1 (Commission File No. 33-96408). 123