10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

x	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the Fiscal Year Ended June 30, 2012

OR

o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the Transition Period from                      to

Commission File Number 000-09992

KLA-TENCOR CORPORATION

(Exact name of registrant as specified in its charter)

Delaware	04-2564110
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification Number)
One Technology Drive, Milpitas, California	95035
(Address of Principal Executive Offices)	(Zip Code)

Registrant’s Telephone Number, Including Area Code: (408) 875-3000

Securities Registered Pursuant to Section 12(b) of the Act:

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)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  x    No  o

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes  o    No  x

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer  x	Accelerated filer  o
Non-accelerated filer  o (Do not check if a smaller reporting  company)	Smaller reporting company  o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  o    No  x

The aggregate market value of the voting and non-voting common stock held by non-affiliates of the registrant based upon the closing price of the registrant’s stock, as of December 31, 2011, was approximately $8.0 billion.

The registrant had 166,516,316 shares of common stock outstanding as of July 19, 2012.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Proxy Statement for the 2012 Annual Meeting of Stockholders to be held on November 7, 2012 (“Proxy Statement”), and to be filed pursuant to Regulation 14A within 120 days after the registrant’s fiscal year ended June 30, 2012, are incorporated by reference into Part III of this report.

INDEX

	Special Note Regarding Forward-Looking Statements	ii
PART I
Item 1.	Business	1
Item 1A.	Risk Factors	15
Item 1B.	Unresolved Staff Comments	29
Item 2.	Properties	29
Item 3.	Legal Proceedings	30
Item 4.	Mine Safety Disclosures	30
PART II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	31
Item 6.	Selected Financial Data	33
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	34
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	49
Item 8.	Financial Statements and Supplementary Data	50
	Consolidated Balance Sheets as of June 30, 2012 and June 30, 2011	51
	Consolidated Statements of Operations for each of the three years in the period ended June 30, 2012	52
	Consolidated Statements of Stockholders’ Equity for each of the three years in the period ended June 30, 2012	53
	Consolidated Statements of Cash Flows for each of the three years in the period ended June 30, 2012	54
	Notes to Consolidated Financial Statements	55
	Report of Independent Registered Public Accounting Firm	90
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	91
Item 9A.	Controls and Procedures	91
Item 9B.	Other Information	92
PART III
Item 10.	Directors, Executive Officers and Corporate Governance	93
Item 11.	Executive Compensation	93
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	93
Item 13.	Certain Relationships and Related Transactions, and Director Independence	93
Item 14.	Principal Accounting Fees and Services	93
PART IV
Item 15.	Exhibits, Financial Statement Schedules	94
	Signatures	98
	Schedule II Valuation and Qualifying Accounts	100
	Exhibit Index	101

i

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This report contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All statements other than statements of historical fact may be forward-looking statements. You can identify these and other forward-looking statements by the use of words such as “may,” “will,” “could,” “would,” “should,” “expects,” “plans,” “anticipates,” “relies,” “believes,” “estimates,” “predicts,” “intends,” “potential,” “continue,” “thinks,” “seeks,” or the negative of such terms, or other comparable terminology. Forward-looking statements also include the assumptions underlying or relating to any of the foregoing statements. Such forward-looking statements include, among others, forecasts of the future results of our operations; orders for our products and capital equipment generally; sales of semiconductors; the allocation of capital spending by our customers (and, in particular, the percentage of spending that our customers allocate to process control); growth of revenue in the semiconductor industry, the semiconductor capital equipment industry and our business; technological trends in the semiconductor industry; future developments or trends in the global capital and financial markets; 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; our ability to successfully maintain cost 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; 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.

Our actual results may differ significantly from those projected in the forward-looking statements in this report. Factors that might cause or contribute to such differences include, but are not limited to, those discussed in Item 1A, “Risk Factors” in this Annual Report on Form 10-K, as well as in Item 1, “Business” and Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this report. You should carefully review these risks and also review the risks described in other documents we file from time to time with the Securities and Exchange Commission, including the Quarterly Reports on Form 10-Q that we will file in the fiscal year ending June 30, 2013. 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.

ii

PART I

ITEM 1. BUSINESS

The Company

KLA-Tencor Corporation (“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 high technology industries, including the light emitting diode (“LED”), data storage and photovoltaic industries, as well as general materials research.

Within our primary area of focus, our comprehensive portfolio of products, services, software and expertise helps integrated circuit (“IC” or “chip”) manufacturers manage yield throughout the entire semiconductor fabrication process—from research and development to final volume production. These products and solutions are designed to help customers accelerate their development and production ramp cycles, to achieve higher and more stable semiconductor die yields, and to improve overall profitability.

KLA-Tencor’s products and services are used by the vast majority of bare wafer, IC, lithography reticle (“reticle” or “mask”) and disk manufacturers in the world. These customers turn to us for inline wafer and IC defect monitoring, review and classification; reticle defect inspection and metrology; packaging and interconnect inspection; critical dimension (“CD”) metrology; pattern overlay metrology; film thickness, surface topography and composition measurements; measurement of in-chamber process conditions, wafer shape and stress metrology; computational lithography tools; and overall yield and fab-wide data management and analysis systems. Our advanced products, coupled with our unique yield management services, allow us to deliver the solutions our customers need to accelerate their yield learning rates and significantly reduce their risks and costs.

Certain industry and technical terms used in this section are defined in the subsection entitled “Glossary” found at the end of this Item 1.

KLA-Tencor was formed in April 1997 through the merger of KLA Instruments Corporation and Tencor Instruments, two long-time leaders in the semiconductor equipment industry that originally began operations in 1975 and 1976, respectively.

Additional information about KLA-Tencor is available on our website at www.kla-tencor.com. 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, are available free of charge on our website 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 website 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 website (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 website 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., Mail Stop 2736, Washington, DC 20549, by submitting a request via email to the SEC at foiapa@sec.gov or by sending a fax to the SEC at 1-202-772-9337.

Industry

General Background

The semiconductor industry is KLA-Tencor’s core focus. The semiconductor fabrication process begins with a bare silicon wafer—a round disk that is six, eight or twelve inches in diameter, about as thick as a credit card and gray in color. The process of manufacturing wafers is in itself highly sophisticated, involving the creation of large ingots of silicon by pulling them out of a vat of molten silicon. The ingots are then sliced into wafers. Prime silicon wafers are then polished to a mirror finish. Other, more specialized wafers, such as epitaxial silicon (“epi”) and silicon-on-insulator (“SOI”), are also becoming common in the semiconductor industry.

The manufacturing cycle of an IC is grouped into three phases: design, fabrication and testing. IC design involves the architectural layout of the circuit, as well as design verification and reticle generation. The fabrication of a chip is accomplished by depositing a series of film layers that act as conductors, semiconductors or insulators on bare wafers. The deposition of these film layers is interspersed with numerous other process steps that create circuit patterns, remove portions of the film layers, and perform other functions such as heat treatment, measurement and inspection. Most advanced chip designs require hundreds of individual steps, many of which are performed multiple times. Most chips consist of two main structures: the lower structure, typically consisting of transistors or capacitors which perform the “smart” functions of the chip; and the upper “interconnect”

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structure, typically consisting of circuitry which connects the components in the lower structure. When all of the layers on the wafer have been fabricated, each chip on the wafer is tested for functionality. The wafer is then cut into individual devices, and those chips that passed functional testing are packaged. Final testing is performed on all packaged chips.

Current Trends

The rapid growth of consumer demand for mobile devices, including smartphones, tablets and portable PCs, is currently driving the electronics industry and, as a result, the semiconductor industry as well. Contained within each of these latest consumer devices are advanced semiconductors that are helping enable the features consumers want in device performance, such as battery management and speed, at a lower cost. Alongside this market growth, the industry continues to witness a high rate of change in technology, with the emergence of new techniques and architectures such as three-dimensional (“3-D”) transistors, advanced patterning lithography, and semiconductors with critical dimensions at 28 nanometer and below in production today. KLA-Tencor's inspection and measurement technologies play a key role in enabling the success of our customers' advanced semiconductor manufacturing processes.

Companies that anticipate future market demands by developing and refining new technologies and manufacturing processes are better positioned to lead in the semiconductor market. Accelerating the yield ramp and maximizing production yields of high-performance devices are key goals of modern semiconductor manufacturing. Ramping to high-volume production ahead of competitors can dramatically increase the revenue an IC manufacturer realizes for a given product. During past industry cycles, semiconductor manufacturers generally contended with a few key new technologies or market trends, such as a specific design rule shrink. In today’s market, driven by consumer demand for low-cost electronic goods, the leading semiconductor manufacturers are investing in simultaneous production integration of multiple new process technologies, some requiring new substrate and film materials, new geometries and advanced lithography techniques.

While many of these technologies have been adopted at the development and pilot production stages of chip manufacturing, significant challenges and risks associated with each technology have affected their adoption into full-volume production. For example, as design rules decrease, yields become more sensitive to the size and density of defects, while device performance characteristics (namely speed, capacity or power management) become more sensitive to parameters such as linewidth and film thickness variation. New process materials, such as high-k dielectrics, 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.

The continuing evolution of semiconductor devices to smaller geometries and more complex multi-level circuitry has significantly increased the performance and cost requirements of the capital equipment used to manufacture these devices. Construction of an advanced wafer fabrication facility today can cost over $5 billion, substantially more than previous generation facilities. In addition, chipmakers are demanding increased productivity and higher returns from their manufacturing equipment and are also seeking ways to extend the performance of their existing equipment.

By developing new process control and yield management tools that help chipmakers accelerate the adoption of these new technologies into volume production, we enable our customers to better leverage these increasingly expensive facilities and significantly improve their return on investment (“ROI”). Once customers’ production lines are operating at high volume, our tools help ensure that yields are stable and process excursions are identified for quick resolution. In addition, the move to each new generation’s smaller design rules, coupled with new materials and device innovation, has increased in-process variability, which requires an increase in inspection and metrology sampling.

KLA-Tencor systems not only analyze defectivity and metrology issues at critical points in the wafer, reticle and IC manufacturing processes, but also provide information to our customers so that they can identify and address the underlying process problems. The ability to locate the source of defects and resolve the underlying 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, helping our customers respond to 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.

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Products

KLA-Tencor is engaged primarily in the design, manufacture and marketing of process control and yield management solutions for the semiconductor and related nanoelectronics industries.

KLA-Tencor’s offerings can be broadly categorized into the following groups: Chip Manufacturing, Wafer Manufacturing, Reticle Manufacturing, Complementary Metal-Oxide-Semiconductor (“CMOS”) Image Sensors Manufacturing, Solar Manufacturing, LED Manufacturing, Data Storage Media/Head Manufacturing, Microelectromechanical Systems (“MEMS”) Manufacturing, and General Purpose/Lab Applications. We also provide refurbished KLA-Tencor tools as part of our K-T Certified^TM program for customers manufacturing larger design-rule devices, as well as comprehensive service and support for our products. 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 June 30, 2012 are described below.

Chip Manufacturing

KLA-Tencor’s comprehensive portfolio of defect inspection, review, metrology, in-situ process monitoring and lithography modeling tools help chip manufacturers manage yield throughout the entire fabrication process—from research and development to final volume production. These products and solutions are designed to help fabs accelerate their development and production ramp cycles, to achieve higher and more stable semiconductor die yields, and to improve overall profitability.

Front-End Defect Inspection

KLA-Tencor’s front-end defect inspection tools cover a broad range of yield applications within the IC manufacturing environment, including: research and development; incoming wafer qualification; reticle 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.

During the fiscal year ended June 30, 2012, we launched several front-end defect inspection products that help accelerate yield for next-generation design node devices:

Patterned Wafer Inspection

• The 2900 Series broadband optical wafer defect inspectors feature a second generation laser-pumped plasma light source, high resolution optics, and new apertures and optics modes to capture yield-critical defect types and die areas.

• The Puma^TM 9650 Series narrowband optical wafer defect inspection systems provide improved sensitivity and noise control to capture and monitor excursions in yield-critical die areas.

• The eS800 Series electron-beam wafer defect inspection systems capture physical and electrical defects on a wide range of layers and structures and feature a new electron gun, smaller pixels and patented optics for increased sensitivity.

Macro Inspection

• The CIRCL, a macro defect inspection, metrology and review cluster tool, monitors the front side, back side and edge of the wafer for defects and, in parallel, measures wafer edge profile, edge bead concentricity and macro overlay error.

Unpatterned Wafer/Surface Inspection

• The Surfscan^® SP3 inspection system is designed with deep-ultraviolet illumination to increase sensitivity and a new stage technology for higher throughput.

The products that we launched during the fiscal year ended June 30, 2012 further strengthened our broad range of offerings that support the front-end defect inspection market. In the field of patterned wafer inspection, we offer our 2900 Series, 2830 Series, 2820 Series and 2810 Series systems (for broadband optical defect inspection); our Puma 9650 Series, Puma 9500 Series and Puma 9100 Series systems (for narrowband optical defect inspection); and our eS800 system (for electron-beam defect inspection). In the field of unpatterned wafer and surface inspection, we offer the Surfscan^® SP3 Series and the Surfscan SP2 Series (wafer defect inspection systems for process tool qualification and monitoring using blanket films and bare wafers); and the SURFmonitor^TM (integrated on the Surfscan SP3 Series and an

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optional module for the Surfscan SP2 Series), which enables surface quality measurements and capture of low-contrast defects. For reticle inspection, we offer our TeraFabHT^TM products, which are photomask inspection systems that allow IC fabs to qualify incoming reticles and inspect production reticles for contaminants and other process-related changes. 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.

Back-End Defect Inspection

KLA-Tencor offers 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 3-D coplanarity inspection, measurement of the evenness of the contacts and two-dimensional surface inspection. The ICOS^® CI-T620 offers scalability to a wide range of packages and sizes and increased system throughput.

Defect Review

KLA-Tencor’s defect review systems capture high resolution images of the defects detected by inspection tools. These images enable defect classification, helping chipmakers to identify and resolve yield issues. Our complete line of defect review and classification tools spans optical and electron-beam technologies, from bench-top research systems to production-worthy tools having full factory automation. KLA-Tencor’s suite of defect inspectors, defect review and classification tools and data management systems form a broad solution for finding, identifying and tracking yield-critical defects and process issues. In August 2011, we introduced the eDR^TM-7000, an electron-beam wafer defect review and classification system that utilizes a third generation immersion column and an advanced stage to quickly and accurately re-locate, image and classify yield-critical defects.

Metrology

KLA-Tencor’s array of metrology solutions addresses IC, substrate, photovoltaic solar cell and medical device manufacturing, as well as scientific research and other applications. Precise metrology and control of pattern dimensions, film thicknesses, layer-to-layer alignment, pattern placement, surface topography and electro-optical properties are growing in importance in many industries as critical dimensions narrow, film thicknesses shrink to countable numbers of atomic layers and devices become more complex. The Archer^TM 300 LCM platform includes both imaging- and scatterometry-based measurement modules that enable characterization of overlay error and CD on lithography process layers for advanced patterning technologies. The SpectraShape^TM optical CD and shape metrology systems fully characterize and monitor the critical dimensions and 3-D shapes of geometrically complex features incorporated by some IC manufacturers in their latest generation devices. Finally, the Aleris^TM family of film metrology tools provides reliable and precise measurement of film thickness, refractive index, stress and composition for a broad range of film layers. In addition, we offer a number of other products for the metrology market, as reflected in the product table at the conclusion of this “Products” section.

In-Situ Process Monitoring

KLA-Tencor’s SensArray^® SensorWafers series provides a unique method, not available from conventional equipment monitors, to capture the effect of the process environment on production wafers. In December 2011, we launched a new portfolio of SensArray advanced wireless temperature monitoring wafers that implement time-based, in-situ temperature monitoring of production wafers. SensArray products are used in many semiconductor and flat panel display fabrication processes, including lithography, etch and deposition.

Lithography Modeling

KLA-Tencor’s PROLITH^TM 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.

During the fiscal year ended June 30, 2012, we introduced PROLITH X4.0, which enables large-scale lithography simulations to troubleshoot challenging issues in extreme ultra-violet (“EUV”) and advanced optical lithography technologies.

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Wafer Manufacturing

KLA-Tencor’s portfolio of products focused on the demands of wafer manufacturing companies includes inspection, metrology and data management systems. Specialized inspection tools assess surface quality and detect, count and bin defects during the wafer manufacturing process and as a critical part of outgoing inspection. Wafer geometry tools ensure that the wafer is extremely flat and uniform in thickness, with precisely controlled surface topography. Specifications for wafer defectivity, geometry and surface quality are tightening as the dimensions of transistors become so small that the geometry of the substrate can substantially affect transistor performance.

Our wafer inspection portfolio is anchored by the Surfscan SP3 Series launched in July 2011. The Surfscan SP3 Series and the Surfscan SP2 Series are defect inspection systems designed to enable development and production monitoring of polished wafers, epi wafers and engineered substrates. The SURFmonitor module characterizes wafer surface quality and captures the low-contrast defects. The WaferSight^TM platform offers wafer geometry and nanotopography metrology capabilities. Other products that we offer for the wafer manufacturing market are highlighted in the product table at the conclusion of this “Products” section.

Reticle Manufacturing

Error-free reticles, or masks, are necessary to achieving high semiconductor device yields, since reticle defects can be replicated in every die on production wafers. KLA-Tencor offers high sensitivity reticle inspection and metrology systems for mask shops, designed to help them manufacture reticles that are free of pattern defects that could print on the wafers and meet pattern placement and critical dimension uniformity specifications.

Our reticle inspection portfolio includes the Teron^TM 600 Series for development and manufacturing of advanced optical and EUV masks, the TeraScan^TMXR system for mask shop production of reticles for the 32nm node and above and our TeraFabHT products for reticle defect monitoring capability for IC fabs. These products include the capability for mapping critical dimension uniformity across the reticle. In September 2011, we introduced a new reticle metrology system, the LMS IPRO5, the latest in the LMS IPRO line of tools that measures pattern placement error. If the pattern on the reticle is displaced from its intended location, overlay error can result on the wafer, which can lead to electrical continuity issues affecting yield, performance or reliability of the IC device.

CMOS Image Sensors Manufacturing

Image sensors are devices that convert light into electrical signal, for use primarily in cameras. As yield-limiting defects can occur at any step in the assembly process, inspecting the filter or micro-lens layers can help reduce materials waste and cycle time.

CMOS image sensor manufacturing is supported by our 8900 defect inspection 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.

Solar Manufacturing

Photovoltaic 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 industry, KLA-Tencor offers solar wafer and cell inspection modules, yield management software, and surface profilers 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.

LED Manufacturing

LEDs are becoming more commonly used in solid-state lighting, television and notebook backlighting, and automotive applications. As LED device makers target aggressive cost and performance targets, they place significant emphasis on improved process control and yield during the manufacturing process.

KLA-Tencor offers a portfolio of three systems to help LED manufacturers reduce production costs and increase product output: Candela^® 8620, Klarity^® LED and ICOS WI-2250. The Candela 8620 substrate and epi wafer inspection system provides automated inspection and quality control of LED substrates, detecting defects that can impact device performance,

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yield and field reliability. Klarity LED is an automated defect data management and analysis system for LED yield enhancement. The ICOS WI-2250 is a patterned wafer inspection tool that offers automated optical inspection and metrology of microelectonic devices on a variety of wafer substrates, surface inspection, and two-dimensional bump inspection.

Data Storage Media/Head Manufacturing

Advancements in data storage are being driven by a wave of innovative consumer electronics with small form factors and immense storage capacities, as well as an increasing need for high-volume storage options to back up new methods of remote computing and networking (such as cloud computing). Our process control and yield management solutions are designed to enable customers to rapidly understand and resolve complex manufacturing problems, which can help improve time to market and product yields. In the front-end and back-end of thin-film head wafer manufacturing, we offer the same process control equipment that we serve to the semiconductor industry. In addition, we offer an extensive range of test equipment and surface profilers with particular strength in photolithography. In substrate and media manufacturing, we offer metrology and defect inspection solutions with KLA-Tencor’s optical surface analyzers.

MEMS Manufacturing

The increasing demand for MEMS technology is coming from diverse industries such as automotive, space and consumer electronics. MEMS have the potential to revolutionize nearly every product category by bringing together silicon-based microelectronics with micromachining technology, making possible the realization of complete systems-on-a-chip. KLA-Tencor offers the tools and techniques such as defect inspection and review, optical inspection and surface profiling, first developed for the integrated circuit industry, for this emerging market.

General Purpose/Lab Applications

A range of industries, including general scientific and materials research and optoelectronics, require measurements of surface topography to either control their processes or research new material characteristics. Typical measurement parameters that our tools address include flatness, roughness, curvature, peak-to-valley, asperity, waviness, texture, volume, sphericity, slope, density, stress, bearing ratio and distance (mainly in the micron to nanometer range).

K-T Certified

K-T Certified is our certified refurbished tools program that delivers fully refurbished and tested KLA-Tencor tools to our customers with guaranteed performance. In addition to high-quality pre-owned 300mm and sub-200mm tools for the integrated circuit, reticle, substrate, MEMS and data storage markets, K-T Certified also offers system software and hardware performance upgrades to extend the capabilities of existing equipment. When a customer needs to move to the next manufacturing node, K-T Certified can help maximize the value of the customer's existing assets through K-T Certified's repurchase, trade-in and redeployment services.

K-T Services

Our K-T Services program enables our customers in all business sectors to maintain the high performance and productivity of our products through a flexible portfolio of services. Whether a manufacturing site is producing integrated circuits, wafers or reticles, K-T Services delivers yield management expertise spanning advanced technology nodes, including collaboration with customers to determine the best products and services to meet technology requirements and optimize cost of ownership. Our comprehensive services include: proactive management of tools to identify and improve performance; expertise in optics, image processing and motion control with worldwide service engineers, 24/7 technical support teams and knowledge management systems; and an extensive parts network to ensure worldwide availability of parts.

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Product Table

The following table presents a representative list of the products that we offered during the course of the fiscal year ended June 30, 2012:

MARKETS	APPLICATIONS	PRODUCTS
Chip Manufacturing
Front-End Defect Inspection	Patterned Wafer	2900 Series, 2830 Series, 2820 Series, 2810 Series PumaTM9650, Puma 9500 Series, Puma 9100 Series eS800
	Macro and Edge	CIRCL VisEdge® product family LDS Series 8900
	Unpatterned Wafer/Surface	Surfscan® SP3 Series, Surfscan SP2 Series SURFmonitorTM
	Reticle	TeraFabHTTMSeries
	Data Management	Klarity® product family
Back-End Defect Inspection	Component Inspection	ICOS® CI product family
Defect Review	Electron-beam	eDRTM-7000 Series
	Optical	INS & IRIS product families
Metrology	Overlay and CD	ArcherTMSeries
	Optical CD and Shape	SpectraCDTMSeries SpectraShapeTM product family
	Film Thickness/Index	AlerisTMproduct family SpectraFxTMSeries
	Wafer Geometry and Topography	WaferSightTM SURFmonitor
	Ion Implant and Anneal	Therma-Probe®
	Surface Metrology	HRP® -350 P-Series product family
	Resistivity	RS product family
	Data Management	K-T Analyzer®
In-Situ Process Monitoring	Lithography	SensArray® product family
	Plasma Etch	SensArray product family
	Implant and Wet	SensArray PlasmaSuite
Lithography Modeling	Virtual Lithography Software	PROLITHTMand related product families

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MARKETS AND APPLICATIONS	PRODUCTS
Wafer Manufacturing
Surface and Defect Inspection	SurfscanSP2 Series, Surfscan SP3 Series SURFmonitor
Wafer Geometry and Nanotopography Metrology	WaferSight SURFmonitor
Data Management	FabVisionTM
Reticle Manufacturing
Defect Inspection	TeraScanTMXR TeronTMSeries TeraFabHT Series
Pattern Placement Metrology	LMS IPRO Series
CMOS Image Sensors Manufacturing
Defect Inspection	8900
Solar Manufacturing
Optical Inspection	ICOSPVI-6
Surface Metrology	P-Series product family
Data Management	FabVision Solar
LED Manufacturing
Patterned Wafer Inspection	ICOS WI product family
Defect Inspection (substrates and epi wafers)	Candela® product family
Surface Metrology	P-Series product family
Data Management	Klarity LED
Data Storage Media/Head Manufacturing
Thin-Film Head Metrology and Inspection	Puma 91xx Series Aleris product family HRP-250 SpectraCD 200 Archer Series P-Series product family
Virtual Lithography	PROLITH K-T Analyzer
In-Situ Process Monitoring	SensArray product family
Transparent and Metal Substrate Inspection	Candela product family
Yield Management	Klarity Defect
MEMS Manufacturing
Surface Metrology: Stylus Profiling	P-Series product family
Sealing Inspection	IRIS
Defect Review	IRIS
General Purpose/Lab Applications
Surface Metrology: Stylus Profiling	P-Series product family Alpha-Step® product family
Surface Metrology: Optical Profiling	MicroXAM Series
Process Chamber Conditions	SensArray product family

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Customers

To support our growing global customer base, we maintain a significant presence throughout Asia, the United States and Europe, staffed with local sales and applications engineers, customer and field service engineers and yield management consultants. We count among our largest customers the leading semiconductor manufacturers in each of these regions.

For the fiscal years ended June 30, 2012, 2011 and 2010, the following customers each accounted for more than 10% of total revenues:

Year ended June 30,
2012	2011	2010
Samsung Electronics Co., Ltd.	Intel Corporation	Intel Corporation
Taiwan Semiconductor Manufacturing Company Limited	Samsung Electronics Co., Ltd.	Taiwan Semiconductor Manufacturing Company Limited
	Taiwan Semiconductor Manufacturing Company Limited

Our business depends upon the capital expenditures of semiconductor manufacturers, which in turn is driven by the current and anticipated market demand for ICs and products utilizing ICs. We do not consider our business to be seasonal in nature, but it is cyclical with respect to the capital equipment procurement practices of semiconductor manufacturers, and it is impacted by the investment patterns of such manufacturers in different global markets. Downturns in the semiconductor industry or slowdowns in the worldwide economy could have a material adverse effect on our future business and financial results.

Sales, Service and Marketing

Our sales, service and marketing efforts are aimed at building long-term relationships with our customers. We focus on providing a single and comprehensive resource for the full breadth of process control and yield management products and services. Our customers benefit from the simplified planning and coordination, as well as the increased equipment compatibility, that are realized as a result of dealing with a single supplier for multiple products and services. Our revenues are derived primarily from product sales, mostly through our direct sales force.

We believe that the size and location of our field sales, service and applications engineering, and marketing organizations represent a competitive advantage in our served markets. We have direct sales forces in Asia, the United States and Europe. We maintain an export compliance program that is designed to meet the requirements of the United States Departments of Commerce and State.

As of June 30, 2012, we employed approximately 2,240 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 79% of our total revenues in the fiscal year ended June 30, 2012 and approximately 81% of our total revenues for each of the fiscal years ended June 30, 2011 and 2010. Additional information regarding our revenues from foreign operations for our last three fiscal years can be found in Note 16, “Segment Reporting and Geographic Information” to the Consolidated Financial Statements.

We believe that sales outside the United States will continue to be a significant percentage of our total revenues. Our future performance will depend, in part, on our ability to continue to compete successfully in Asia, one of the largest markets for our equipment. Our ability to compete in this area is dependent upon the continuation of favorable trading relationships between countries in the region and the United States, and our continuing ability to maintain satisfactory relationships with leading semiconductor companies in the region.

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International sales and operations may be adversely affected by the imposition of governmental controls, restrictions on export technology, political instability, trade restrictions, changes in tariffs and the difficulties associated with staffing and managing international operations. In addition, international sales may be adversely affected by the economic conditions in each country. The revenues from our international business may also be affected by fluctuations in currency exchange rates. Although we attempt to manage some of the currency risk inherent in non-U.S. dollar product sales through hedging activities, there can be no assurance that such efforts will be 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.

Backlog

Our shipment backlog for systems and associated warranty totaled $947 million and $988 million as of June 30, 2012 and 2011, respectively, and primarily 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 changes and currency adjustments. Shipment backlog is not subject to 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.

Our revenue backlog, which includes sales orders where physical deliveries have been completed, but for which revenue has not been recognized pursuant to our policy for revenue recognition, totaled $286 million and $382 million as of June 30, 2012 and 2011, respectively. Orders for service contracts are excluded from revenue backlog.

Because customers can potentially change delivery schedules or delay or cancel orders, and because some orders are received and shipped within the same quarter, our shipment backlog at any particular date is not necessarily indicative of business volumes or actual sales for any succeeding periods. The cyclicality of the semiconductor industry combined with the lead times from our suppliers sometimes result in timing disparities between, on the one hand, our ability to manufacture, deliver and install products and, on the other, the requirements of our customers. In our efforts to balance the requirements of our customers with the availability of resources, management of our operating model and other factors, we often must exercise discretion and judgment as to the timing and prioritization of manufacturing, deliveries and installations of products, which may impact the timing of revenue recognition with respect to such products.

Research and Development

The market for yield management and process monitoring systems is characterized by rapid technological development and product innovation. These technical innovations are inherently complex and require long development cycles and appropriate professional staffing. We believe that continued and timely development of new products and enhancements to existing products are necessary to maintain our competitive position. Accordingly, we devote a significant portion of our human and financial resources to research and development programs and seek to maintain close relationships with customers to remain responsive to their needs. In addition, we may enter into certain strategic development and engineering programs whereby certain government agencies or other third parties fund a portion of our research and development costs. As of June 30, 2012, we employed approximately 1,310 research and development personnel.

Our key research and development activities during the fiscal year ended June 30, 2012 involved the development of process control and yield management equipment 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 strength of our competitive positions in many of our existing markets is largely due to our leading technology, which is the result of our continuing significant investments in product research and development. Even during 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 enhance our 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.

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Manufacturing, Raw Materials and Supplies

We perform system design, assembly and testing in-house and utilize an outsourcing strategy for the manufacture of components and major subassemblies. Our in-house manufacturing activities consist primarily of assembling and testing components and subassemblies that are acquired through third-party vendors and integrating those subassemblies into our finished products. Our principal manufacturing activities take place in the United States (Milpitas, California), Singapore, Israel, Belgium, Germany and China. As of June 30, 2012, we employed approximately 990 manufacturing personnel.

Some critical parts, components and subassemblies (collectively, “parts”) that we use are designed by us and manufactured by suppliers in accordance with our specifications, while other parts are standard commercial products. We use numerous vendors to supply parts and raw materials for the manufacture and support of our products. Although we make reasonable efforts to ensure that these parts and raw materials are available from multiple suppliers, this is not always possible, and certain parts and raw materials included in our systems may be obtained only from a single supplier or a limited group of suppliers. Through our business interruption planning, we endeavor to minimize the risk of production interruption by, among other things, monitoring the financial condition of suppliers of key parts and raw materials, identifying (but not necessarily qualifying) possible alternative suppliers of such parts and materials and ensuring adequate inventories of key parts and raw materials are available to maintain manufacturing schedules.

Although we seek to reduce our dependence on sole and limited source suppliers, in some cases the partial or complete loss of certain of these sources, or disruptions within our suppliers' often-complex supply chains, could disrupt scheduled deliveries to customers, damage customer relationships and have a material adverse effect on our results of operations.

Competition

The worldwide market for process control and yield management systems is highly competitive. In each of our product markets, we face competition from established and potential competitors, some of which may have greater financial, research, engineering, manufacturing and marketing resources than we have, such as Applied Materials, Inc. and Hitachi Electronics Engineering Co., Ltd. We may also face future competition from new market entrants from other overseas and domestic sources. We expect our competitors to continue to improve the design and performance of their current products and processes and to introduce new products and processes with improved price and performance characteristics. We believe that, to remain competitive, we will require significant financial resources to offer a broad range of products, to maintain customer service and support centers worldwide, and to invest in product and process research and development.

We believe that, while price and delivery are important competitive factors, the customers’ overriding requirement is for systems that easily and effectively incorporate automated and highly accurate inspection and metrology capabilities into their existing manufacturing processes to enhance productivity. Significant competitive factors in the market for process control and yield management systems include system performance, ease of use, reliability, installed base and technical service and support, as well as overall cost of ownership.

Management believes that we are well positioned in the market with respect to both our products and services. However, any loss of competitive position could negatively impact our prices, customer orders, revenues, gross margins and market share, any of which would negatively impact our operating results and financial condition.

Acquisitions and Alliances

We continuously evaluate strategic acquisitions and alliances to expand our technologies, product offerings and distribution capabilities. Acquisitions involve numerous risks, including management issues and costs in connection with integration of the operations, technologies and products of the acquired companies, and the potential loss of key employees of the acquired companies. The inability to manage these risks effectively could negatively impact our operating results and financial condition.

Patents and Other Proprietary Rights

We protect our proprietary technology through reliance on a variety of intellectual property laws, including patent, copyright and trade secret. We have filed and obtained a number of patents in the United States and abroad and intend to continue pursuing the legal protection of our technology through intellectual property laws. In addition, from time to time we acquire license rights under United States and foreign patents and other proprietary rights of third parties, and 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.

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Although we consider patents and other intellectual property significant to our business, due to the rapid pace of innovation within the process control and yield management systems industry, we believe that our protection through patent and other intellectual property rights is less important than factors such as our technological expertise, continuing development of new systems, market penetration, installed base and the ability to provide comprehensive support and service to customers worldwide.

No assurance can be given that patents will be issued on any of our applications, that license assignments will be made as anticipated, or that our patents, licenses or other proprietary rights will be sufficiently broad to protect our technology. No assurance can be given that any patents issued to or licensed by us will not be challenged, invalidated or circumvented or that the rights granted thereunder will provide us with a competitive advantage. In addition, there can be no assurance that we will be able to protect our technology or that competitors will not be able to independently develop similar or functionally competitive technology.

Environmental Matters

We are subject to a variety of federal, state and local governmental laws and regulations related to the protection of the environment, including without limitation the management of hazardous materials that we use in our business operations. Compliance with these environmental laws and regulations has not had, and is not expected to have, a material effect on our capital expenditures, financial condition, results of operations or competitive position.

However, any failure to comply with environmental laws and regulations may subject us to a range of consequences, including fines, suspension of certain of our business activities, limitations on our ability to sell our products, obligations to remediate environmental contamination, and criminal and civil liabilities or other sanctions. In addition, changes in environmental laws and regulations could require us to invest in potentially costly pollution control equipment, alter our manufacturing processes or use substitute materials. Our failure to comply with these laws and regulations could subject us to future liabilities.

Employees

As of June 30, 2012, we employed approximately 5,710 people. None of our employees are represented by a labor union; however, our employees in the German operations of our MIE business unit are represented by an employee work council. We have not experienced work stoppages and believe that our employee relations are good.

Competition is intense in the recruiting of personnel in the semiconductor and semiconductor equipment industry. We believe that our future success will depend, in part, on our continued ability to hire and retain qualified management, marketing and technical employees.

Glossary

This section provides definitions for certain industry and technical terms commonly used in our business, which are used elsewhere in this Item 1:

back-end	Process steps that make up the second half of the semiconductor manufacturing process, from contact through completion of the wafer prior to electrical test.
broadband	An illumination source with a wide spectral bandwidth.
critical dimension (CD)	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.
design rules	Rules that set forth the allowable dimensions of particular features used in the design and layout of integrated circuits.
die	The term for a single semiconductor chip on a wafer.
electron-beam	An illumination source comprised of a stream of electrons emitted by a single source.

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epitaxial silicon (epi)	A substrate technology based on growing a crystalline silicon layer on top of a silicon wafer. The added layer, where the structure and orientation are matched to those of the silicon wafer, includes dopants (impurities) to imbue the substrate with special electronic properties.
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.
front-end	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.”
interconnect	A highly conductive material, usually aluminum or polysilicon, that carries electrical signals to different parts of a die.
lithography	A process in which a masked pattern is projected onto a photosensitive coating that covers a substrate.
mask shop	A manufacturer that produces the reticles used by semiconductor manufacturers.
metrology	The science of measurement to determine dimensions, quantity or capacity. In the semiconductor industry, typical measurements include critical dimension, overlay and film thickness.
microelectromechanical systems (MEMS)	Micron-sized mechanical devices powered by electricity, created using processes similar to those used to manufacture IC devices.
micron	A metric unit of linear measure that equals 1/1,000,000 meter (10-6m), or 10,000 angstroms (the diameter of a human hair is approximately 75 microns).
nanometer (nm)	One billionth (10-9) of a meter.
narrowband	An illumination source with a narrow spectral bandwidth, such as a laser.
patterned	For semiconductor manufacturing and industries using similar processing technologies, refers to substrates that have electronic circuits (transistors, interconnects, etc.) fabricated on the surface.
photoresist	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.
process control	The ability to maintain specifications of product and equipment during manufacturing operations.
reticle	A very flat glass plate that contains the patterns to be reproduced on a wafer.
silicon-on-insulator (SOI)	A substrate technology 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.
unpatterned	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.

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yield management 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.

__________________ 

The definitions above are from internal sources, as well as the SEMATECH Dictionary of Semiconductor Terms.

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ITEM 1A. RISK FACTORS

A description of factors that could materially affect our business, financial condition or operating results is provided below.

Risks Associated with Our Industry

The semiconductor equipment industry is highly cyclical. The purchasing decisions of our customers are highly dependent on the economies of both the local markets in which they are located and the semiconductor industry worldwide. If we fail to respond to industry cycles, our business could be seriously harmed.

The timing, length and severity of the up-and-down cycles in the semiconductor equipment industry are difficult to predict. The cyclical nature of the primary industry in which we operate is largely a function of our customers’ capital spending patterns and need for expanded manufacturing capacity, which in turn are affected by factors such as capacity utilization, consumer demand for products, inventory levels and our customers’ access to capital. This cyclicality affects our ability to accurately predict future revenue and, in some cases, future expense levels. 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. Our ability to recognize revenue from a particular customer may also be negatively impacted by the customer's funding status, which could be weakened not only by adverse business conditions or inaccessibility to capital markets for any number of macroeconomic or company-specific reasons, but also by funding limitations imposed by the customer's unique corporate structure. Any of these factors could negatively impact our business, operating results and financial condition.

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.

In addition, our management typically provides quarterly forecasts for certain financial metrics, which, when made, are based on business and operational forecasts that are believed to be reasonable at the time. However, largely due to the cyclicality of our business and the industries in which we operate, and the fact that business conditions in our industries can change very rapidly as part of these cycles, our actual results may vary (and have varied in the past) from forecasted results. These variations can occur for any number of reasons, including, but not limited to, unexpected changes in the volume or timing of customer orders, product shipments or product acceptances; an inability to adjust our operations rapidly enough to adapt to changing business conditions; or a different than anticipated effective tax rate. The impact on our business of delays or cancellations of customer orders may be exacerbated by the short lead times that our customers expect between order placement and product shipment. This is because order delays and cancellations may lead not only to lower revenues, but also, due to the advance work we must do in anticipation of receiving a product order in order to meet the expected lead times, to significant inventory write-offs and manufacturing inefficiencies that decrease our gross margin. Any of these factors could materially and adversely affect our financial results for a particular quarter and could cause those results to differ materially from financial forecasts we have previously provided. We provide these forecasts with the intent of giving investors and analysts a better understanding of management's expectations for the future, but parties reviewing such forecasts must recognize that such forecasts are comprised of, and are themselves, forward-looking statements subject to the risks and uncertainties described in this Item 1A and elsewhere in this report and in our other public filings and public statements. If our operating or financial results for a particular period differ from our forecasts or the expectations of investment analysts, or if we revise our forecasts, the market price of our common stock could decline.

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Ongoing changes in the technology industry, as well as the semiconductor industry in particular, could expose our business to significant risks.

The semiconductor equipment industry and other industries that we serve are constantly developing and changing over time. Many 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 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 technological advances, if we do not timely develop new technologies and products that successfully anticipate and address these changes, we could experience a material adverse effect on our business, financial condition and operating results.

In addition, we face a number of risks specific to ongoing changes in the semiconductor industry, as the significant majority of our sales are made to semiconductor manufacturers. Some of the trends that our management monitors in operating our business include the following:

• the increasing cost of building and operating fabrication facilities and the impact of such increases on our customers’ investment decisions;

• differing market growth rates and capital requirements for different applications, such as memory, logic and foundry;

• the emergence of disruptive technologies that change the prevailing semiconductor manufacturing processes (or the economics associated with semiconductor manufacturing) and, as a result, also impact the inspection and metrology requirements associated with such processes;

• the possible introduction of integrated products by our larger competitors that offer inspection and metrology functionality in addition to managing other semiconductor manufacturing processes;

• changes in semiconductor manufacturing processes that are extremely costly for our customers to implement and, accordingly, impact the amount of their budgets that are available for process control equipment;

• the bifurcation of the semiconductor manufacturing industry into (a) leading edge manufacturers driving continued research and development into next-generation products and technologies and (b) other manufacturers that are content with existing (including previous generation) products and technologies;

• the ever escalating cost of next-generation product development, which may result in joint development programs between us and our customers to help fund such programs that could restrict our control of, ownership of and profitability from the products and technologies developed through those programs;

• the potential industry transition from 300mm to 450mm wafers; and

• the entry by some semiconductor manufacturers into collaboration or sharing arrangements for capacity, cost or risk with other manufacturers, as 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 other market pressures.

Any of the changes described above may 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.

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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. This increasing concentration exposes our business, financial condition and operating results to a number of risks, including the following:

• The mix and type of customers, and sales to any single customer, may vary significantly from quarter to quarter and from year to year, which exposes our business and operating results to increased volatility tied to individual customers.

• New orders from our foundry customers in the past several years constituted a significant portion of our total orders. This concentration increases the impact that future business or technology changes within the foundry industry may have on our business, financial condition and operating results.

• In a highly concentrated business environment, if a particular customer does not place an order, or if 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.

• In recent years, our customer base has become increasingly consolidated due to corporate acquisitions and business closures. As a result of this consolidation, the customers that survive the 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.

• 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.

• The highly concentrated business environment also increases our exposure to risks related to the financial condition of each of our customers. For example, 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 customers. To the extent our customers experience liquidity issues in the future, 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 Business Model and Capital Structure

If 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.

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In addition, the complexity of our products exposes us to other risks. We regularly recognize revenue from a sale upon shipment of the applicable product to the customer (even before receiving the customer's formal acceptance of that product) in certain situations, including sales of products for which installation is considered perfunctory, transactions in which the product is sold to an independent distributor and we have no installation obligations, and sales of products where we have previously delivered the same product to the same customer location and that prior delivery has been accepted. However, our products are very technologically complex and rely on the interconnection of numerous subcomponents (all of which must perform to their respective specifications), so it is conceivable that a product for which we recognize revenue upon shipment may ultimately fail to meet the overall product's required specifications. In such a situation, the customer may be entitled to certain remedies, which could materially and adversely affect our operating results for various periods and, as a result, our stock price.

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.

Our future performance depends, in part, upon our ability to continue to compete successfully worldwide.

Our industry includes large manufacturers with substantial resources to support customers worldwide. Some of our competitors are diversified companies with greater financial resources and more extensive research, engineering, manufacturing, marketing, and customer service and support capabilities than we possess. We face competition from companies whose strategy is to provide a broad array of products and services, some of which compete with the products and services that we offer. These competitors may bundle their products in a manner that may discourage customers from purchasing our products, including pricing such competitive tools significantly below our product offerings. In addition, we face competition from smaller emerging semiconductor equipment companies whose strategy is to provide a portion of the products and services that we offer, using innovative technology to sell products into specialized markets. The strength of our competitive positions in many of our existing markets is largely due to our leading technology, which is the result of continuing significant investments in product research and development. However, we may enter new markets, whether through acquisitions or new internal product development, in which competition is based primarily on product pricing, not technological superiority. Further, some new growth markets that emerge may not require leading technologies. Loss of competitive position in any of the markets we serve, or an inability to sell our products on favorable commercial terms in new markets we may enter, could negatively affect our prices, customer orders, revenues, gross margins and market share, any of which would negatively affect our operating results and financial condition.

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Our business would be harmed if we do not receive parts sufficient in number and performance to meet our production requirements and product specifications in a timely and cost-effective manner.

We use a wide range of materials in the production of our products, including custom electronic and mechanical components, and we use numerous suppliers to supply these materials. We generally do not have guaranteed supply arrangements with our suppliers. Because of the variability and uniqueness of customers’ orders, we do not maintain an extensive inventory of materials for manufacturing. Through our business interruption planning, we seek to minimize the risk of production and service interruptions and/or shortages of key parts by, 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. Similarly, especially with respect to suppliers of high-technology components, our suppliers themselves have increasingly complex supply chains, and delays or disruptions at any stage of their supply chains may prevent us from obtaining parts in a timely manner and 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. Furthermore, a supplier may discontinue production of a particular part for any number of reasons, including the supplier's financial condition or business operational decisions, which would require us to purchase, in a single transaction, a large number of such discontinued parts in order to ensure that a continuous supply of such parts remains available to our customers. Such “end-of-life” parts purchases could result in significant expenditures by us in a particular period, and ultimately any unused parts may result in a significant inventory write-off in a future period, either of which could have a material and adverse impact on our financial condition and results of operations for the applicable periods.

If we fail to operate our business in accordance with our business plan, our operating results, business and stock price may be significantly and adversely impacted.

We attempt to operate our business in accordance with a business plan that is established annually, revised frequently (generally quarterly), and reviewed by management even more frequently (at least monthly). Our business plan is developed based on a number of factors, many of which require estimates and assumptions, such as our expectations of the economic environment, future business levels, our customers’ willingness and ability to place orders, lead-times, and future revenue and cash flow. Our budgeted operating expenses, for example, are based in part on our future revenue expectations. However, our ability to achieve our anticipated revenue levels is a function of numerous factors, including the volatile and cyclical nature of our primary industry, customer order cancellations, macroeconomic changes, operational matters regarding particular agreements, our ability to manage customer deliveries and resources for the installation and acceptance of our products (for products where customer acceptance is required before we can recognize revenue from such sales), our ability to manage delays or accelerations by customers in taking deliveries and the acceptance of our products (for products where customer acceptance is required before we can recognize revenue from such sales), our ability to operate our business and sales processes effectively, and a number of the other risk factors set forth in this Item 1A.

Because our expenses are in most cases relatively fixed in the short term, any revenue shortfall below expectations could have an immediate and significant adverse effect on our operating results. Similarly, if we fail to manage our expenses effectively or otherwise fail to maintain rigorous cost controls, we could experience greater than anticipated expenses during an operating period, which would also negatively affect our results of operations. If we fail to operate our business consistent with our business plan, our operating results in any period may be significantly and adversely impacted. Such an outcome could cause customers, suppliers or investors to view us as less stable, or could cause us to fail to meet financial analysts’ revenue or earnings estimates, any of which could have a material adverse impact on our business, financial condition or stock price.

In addition, our management is constantly striving to balance the requirements and demands of our customers with the availability of resources, the need to manage our operating model and other factors. In furtherance of those efforts, we often must exercise discretion and judgment as to the timing and prioritization of manufacturing, deliveries, installations and payment scheduling. Any such decisions may impact our ability to recognize revenue, including the fiscal period during which such revenue may be recognized, with respect to such products, which could have a material adverse effect on our business, financial condition or stock price.

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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 several 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.

There are risks associated with our outstanding indebtedness.

As of June 30, 2012, 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.

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.

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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 we may be 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 counterparties 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 and 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.

Furthermore, we occasionally enter into volume purchase agreements with our larger customers, and these agreements may provide for certain volume purchase incentives, such as credits toward future purchases. We believe that these arrangements are beneficial to our long-term business, as they are designed to encourage our customers to purchase higher volumes of our products. However, these arrangements could require us to recognize a reduced level of revenue for the products that are initially purchased, to account for the potential future credits or other volume purchase incentives. As a result, these volume purchase arrangements, while expected to be beneficial to our business over time, could materially and adversely affect our results of operations in near-term periods, including the revenue we can recognize on product sales and therefore our gross margins.

There are risks associated with our receipt of government funding for research and development.

We are 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 ability to operate our business.

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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, including revenue 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 previously used to calculate the value of our goodwill or intangible assets (and, as applicable, the amount of any previous 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 financial arrangements with respect to receivables factoring and banking arrangements.

We enter into factoring arrangements with financial institutions to sell certain of our trade receivables and promissory notes from customers without recourse. In addition, we maintain bank accounts with several domestic and foreign financial institutions, any of which may prove not to be financially viable. If we were to stop entering into these factoring arrangements, our operating results, financial condition and cash flows could be adversely impacted by delays or failures in collecting trade receivables. However, by entering into these arrangements, and by engaging these financial institutions for banking services, we are exposed to additional risks. If any of these financial institutions experiences financial difficulties or is otherwise unable to honor the terms of our factoring or deposit arrangements, we may experience material financial losses due to the failure of such arrangements or a lack of access to our funds, any of which could have an adverse impact upon our operating results, financial condition and cash flows.

We are subject to the risks of additional government actions in the event we were to breach the terms of any settlement arrangement into which we have entered.

In connection with the settlement of certain government actions and other legal proceedings related to our historical stock option practices, we have explicitly agreed as a condition to such settlements that we will comply with certain laws, such as the books and records provisions of the federal securities laws. If we were to violate any such law, we might not only be subject to the significant penalties applicable to such violation, but our past settlements may also be impacted by such violation, which could give rise to additional government actions or other legal proceedings. Any such additional actions or proceedings may require us to expend significant management time and incur significant accounting, legal and other expenses, and may divert attention and resources from the operation of our business. These expenditures and diversions, as well as an adverse resolution of any such action or proceeding, could have a material adverse effect on our business, financial condition and results of operations.

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General Commercial, Operational, Financial and Regulatory Risks

We are exposed to risks associated with a weakening in the condition of the financial markets 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 caused our customers to decrease, cancel or delay their equipment and service orders from us in the economic slowdown during fiscal year 2009. In addition, the tightening of credit markets and concerns regarding the availability of credit that accompanied that slowdown made it more difficult 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 delays in our customers’ ability to obtain financing (or the unavailability of such financing), has at times in the past several years adversely affected our product and service sales and revenues and therefore has harmed our business and operating results, and our operating results and financial condition may again be adversely impacted if economic conditions decline from their current levels.

In addition, a decline 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, 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 value 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, we may be required to recognize an impairment charge on such investments or a loss on such sales, either of which could have an adverse effect on our financial condition and operating results.

If we are unable to timely and appropriately adapt to changes resulting from difficult macroeconomic conditions, our business, financial condition or results of operations may be materially and adversely affected.

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 a number of challenges, including but not limited to:

• managing cultural diversity and organizational alignment;

• exposure to the unique characteristics of each region in the global semiconductor market, which can cause capital equipment investment patterns to vary significantly from period to period;

• periodic local or international economic downturns;

• potential adverse tax consequences, including withholding tax rules that may limit the repatriation of our earnings, and higher effective income tax rates in foreign countries where we do business;

• government controls, either by the United States or other countries, that restrict our business overseas or the import or export of semiconductor products or increase the cost of our operations;

• tariffs or other trade barriers (including those applied to our products or to parts and supplies that we purchase);

• political instability, natural disasters, legal or regulatory changes, acts of war or terrorism in regions where we have operations or where we do business;

• fluctuations in interest and currency exchange rates (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);

• longer payment cycles and difficulties in collecting accounts receivable outside of the United States;

• difficulties in managing foreign distributors (including monitoring and ensuring our distributors' compliance with all applicable United States and local laws); and

• inadequate protection or enforcement of our intellectual property and other legal rights in foreign jurisdictions.

Any of the factors above could have a significant negative impact on our business and results of operations.

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We might be involved in claims or disputes related to intellectual property or other confidential information 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. With respect to intellectual property infringement disputes, 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 terms or that costly litigation or other administrative proceedings will not occur. The inability to obtain necessary licenses or other rights on reasonable terms could seriously harm our results of operations and financial condition. Furthermore, we may potentially be subject to claims by customers, suppliers or other business partners, or by governmental law enforcement agencies, related to our receipt, distribution and/or use of third-party intellectual property or confidential information. Legal proceedings and claims, regardless of their merit, and associated internal investigations with respect to intellectual property or confidential information disputes are often expensive to prosecute, defend or conduct; may divert management's attention and other company resources; and/or may result in restrictions on our ability to sell our products, settlements on significantly adverse terms or adverse judgments for damages, injunctive relief, penalties and fines, any of which could have a significant negative effect on our business, results of operations and financial condition. There can be no assurance regarding the outcome of future legal proceedings, claims or investigations. The instigation of legal proceedings or claims, our inability to favorably resolve or settle such proceedings or claims, or the determination of any adverse findings against us or any of our employees in connection with such proceedings or claims could materially and adversely affect our business, financial condition and results of operations, as well as our business reputation.

We are exposed to various risks related to the legal (including environmental), 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, anti-corruption/anti-bribery and export control regulations. 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 operating results, financial condition and ability to conduct our business.

Our properties and many aspects of our business operations are subject to various domestic and international environmental laws and regulations, including those that control and restrict the use, transportation, emission, discharge, storage and disposal of certain chemicals, gases and other substances. Any failure to comply with applicable environmental laws, regulations or requirements may subject us to a range of consequences, including fines, suspension of certain of our business activities, limitations on our ability to sell our products, obligations to remediate environmental contamination, and criminal and civil liabilities or other sanctions. In addition, changes in environmental regulations (including regulations relating to climate change and greenhouse gas emissions) could require us to invest in potentially costly pollution control equipment, alter our manufacturing processes or use substitute (potentially more expensive and/or rarer) materials. Further, we use hazardous and other regulated materials that subject us to risks of strict liability for damages caused by any release, regardless of fault. We also face increasing complexity in our manufacturing, product design and procurement operations as we adjust to new and prospective requirements relating to the materials composition of our products, including restrictions on lead and other substances and requirements to track the sources of certain metals and other materials. The cost of complying, or of failing to comply, with these and other regulatory restrictions or contractual obligations could adversely affect our operating results, financial condition and 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 and claims, regardless of their merit, may be time-consuming and expensive to prosecute or defend, divert management’s attention and resources, and/or inhibit 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, financial condition and ability to operate our business.

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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 and retain additional highly qualified employees to meet our needs in the future, our business and operations could be harmed.

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. In addition, many of these outsourced service providers, including certain hosted software applications that we use for confidential data storage, employ “cloud computing” technology for such storage (which refers to an information technology hosting and delivery system in which data is not stored within the user's physical infrastructure but instead are delivered to and consumed by the user as an Internet-based service). These providers' cloud computing systems may be susceptible to “cyber incidents,” such as intentional cyber attacks aimed at theft of sensitive data or inadvertent cyber-security compromises, that are outside of our control. If we do not effectively develop and manage our outsourcing strategies, if required export and other governmental approvals are not timely obtained, if our third-party service providers do not perform as anticipated, or do not adequately protect our data from cyber-related security breaches, or if there are delays or difficulties in enhancing business processes, we may experience operational difficulties (such as limitations on our ability to ship products), increased costs, manufacturing or service interruptions or delays, loss of intellectual property rights or other sensitive data, quality and compliance issues, and challenges in managing our product inventory or recording and reporting financial and management information, any of which could materially and adversely affect our business, financial condition and results of operations.

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. Our enterprise resource planning (“ERP”) system is integral to our ability to accurately and efficiently maintain our books and records, record transactions, provide critical information to our management, and prepare our financial statements. Any disruptions or difficulties that may occur in connection with our ERP system or other systems (whether in connection with the regular operation, periodic enhancements, modifications or upgrades of such systems or 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.

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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. There can be no assurance that we will find suitable acquisition candidates or that acquisitions we complete will be successful. In addition, we may use equity 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 and financial results may suffer. It is possible that the businesses we have acquired, as well as businesses that we may acquire 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. As a result, risks associated with acquisition transactions may give rise to a material adverse effect on our business and financial results for a number of reasons, including:

• we may have to devote unanticipated financial 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 activities of our company and/or the acquired business;

• we may not be able to realize expected operating efficiencies or product integration benefits from 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 goodwill or other intangible assets; and

• we 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 success 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 risks could materially and adversely affect our business, financial condition and operating results.

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.

For example, the earthquakes, tsunamis and related damage in Japan in 2011 have affected the operations of some of our customers and suppliers in that region, and may also have impacted the operations of some of our customers' other suppliers (which could impact our customers' desire to proceed with broad-based facility upgrades and related equipment purchases) or some of our suppliers' suppliers (which could impact our suppliers' ability to deliver their products to us in a timely manner). In the coming quarters, these operational impacts, as they continue to ripple through the Japanese economy, could result in delays in orders and deliveries and the other effects described earlier in this paragraph, any of which could materially and adversely affect our business, financial condition and operating results.

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In addition, 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 above, such as acts of war or terrorism, earthquakes, fires or other natural disasters, if any such event were to impact our Milpitas facility.

We are predominantly uninsured for losses and interruptions caused by terrorist acts and acts of war. If international political instability continues or increases, our business and results of operations could be harmed.

The threat of terrorism targeted at, or acts of war in, the regions of the world in which we do business increases the uncertainty in our markets. Any act of terrorism or war that affects the economy 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. We maintain significant manufacturing and research and development operations in Israel, an area that has historically experienced a high degree of political instability, and we are therefore exposed to risks associated with future instability in that region. Such instability could directly impact our ability to operate our business (or our customers' ability to operate their business) in the affected region, 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 ability to timely deliver their products. If international political instability continues or increases in any region in which we do business, 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.

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 certain 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 counterparty 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.

We are exposed to fluctuations in interest rates and the market values of our portfolio investments; 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 primarily consists of both corporate and government debt securities that have a maximum effective 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 market interest rates and bond 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. However, an impairment of the fair market value of our investments, even if unrealized, must be reflected in our financial statements for the applicable period and may therefore have a material adverse effect on our results of operations for that period.

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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 are exposed to risks in connection with tax audits in various jurisdictions.

We are subject to tax audits in various jurisdictions, and such jurisdictions may assess additional income or other taxes against us. Although we believe our tax estimates are reasonable, 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 litigation could have a material adverse effect on our operating results or cash flows in the period or periods for which that determination is made.

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 United States international tax reform; changes in generally accepted accounting principles; and the repatriation of earnings from outside the United States for which we have not previously provided for United States taxes. A change in our effective tax rate can adversely impact our results from operations.

Compliance with federal securities laws, rules and regulations, as well as NASDAQ requirements, is becoming increasingly complex, and the significant attention and expense we must devote 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 and 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.

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 will continue to occur in the future. Changes to (or revised interpretations or applications 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.

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ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 2. PROPERTIES

Information regarding our principal properties as of June 30, 2012 is set forth below:

Location	Type	Principal Use	Square Footage	Ownership
Milpitas, CA	Office, plant and warehouse	Principal Executive Offices, Research, Engineering, Marketing, Manufacturing, Service and Sales Administration	727,302	Owned
Westwood, MA(1)	Office and plant	Engineering, Marketing, Manufacturing and Service	116,908	Leased
Leuven, Belgium(1)	Office, plant and warehouse	Research, Engineering, Marketing, Manufacturing and Service and Sales Administration	99,315	Owned
Shenzhen, China	Office and plant	Sales, Service and Manufacturing	33,571	Leased
Weilburg, Germany	Office and plant	Research, Engineering, Marketing, Manufacturing, Service and Sales Administration	159,732	Leased
Chennai, India	Office	Engineering	33,366	Owned
Migdal Ha’Emek, Israel	Office and plant	Research, Engineering, Marketing, Manufacturing, Service and Sales Administration	89,996	Owned
Yokohama, Japan	Office and warehouse	Sales and Service	37,418	Leased
Serangoon, Singapore(2)	Office and plant	Sales, Service and Manufacturing	185,809	Owned
Hsinchu, Taiwan	Office	Sales and Service	73,676	Leased

 __________________ 

(1) Portions of this property are sublet, are vacant and marketed to sublease, or are leased to third parties.

(2) We own the building at our location in Serangoon, Singapore, but the land on which this building resides is leased.

As of June 30, 2012, we owned or leased a total of approximately 1.9 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 October 31, 2020, subject to renewal, with some of the leases containing renewal option clauses at the fair market value, for additional periods up to five years. Additional information regarding these leases is incorporated herein by reference from Note 12, “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.

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ITEM 3. LEGAL PROCEEDINGS

The information set forth below under Note 13, “Litigation and Other Legal Matters” to the Consolidated Financial Statements is incorporated herein by reference.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

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PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Our common stock is listed and traded on the NASDAQ Global Select Market under the symbol “KLAC.”

The prices per share reflected in the following table represent the high and low closing prices for our common stock on the NASDAQ Global Select Market for the periods indicated:

	Year ended June 30, 2012				Year ended June 30, 2011
	High		Low		High		Low
First Fiscal Quarter	$	44.11	$	33.67	$	35.23	$	27.16
Second Fiscal Quarter	$	49.15	$	37.23	$	40.16	$	34.24
Third Fiscal Quarter	$	54.44	$	46.91	$	51.21	$	37.69
Fourth Fiscal Quarter	$	55.11	$	44.56	$	46.80	$	38.10

We paid dividends to holders of our common stock during each of the quarters in the fiscal years ended June 30, 2012 and 2011. The total amount of dividends paid during the fiscal years ended June 30, 2012 and 2011 was $233.6 million and $167.4 million, respectively, reflecting an increase during the fiscal year ended June 30, 2012 to the level of our quarterly dividend from $0.25 to $0.35 per share. On July 10, 2012, we announced that our Board of Directors had authorized a further increase in the level of our quarterly dividend from $0.35 to $0.40 per share. Following such announcement, during the first quarter of the fiscal year ending June 30, 2013, our Board of Directors approved a quarterly cash dividend of $0.40 per share, which was declared on August 2, 2012 and will be paid on September 4, 2012 to our stockholders of record on August 13, 2012.

As of July 19, 2012, there were 547 holders of record of our common stock.

Equity Repurchase Plans

The following is a summary of stock repurchases for each month during the fourth quarter of the fiscal year ended June 30, 2012(1):

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, 2012 to April 30, 2012	399,027	$	53.29	4,175,453
May 1, 2012 to May 31, 2012	475,400	$	49.12	3,700,053
June 1, 2012 to June 30, 2012	473,890	$	47.14	3,226,163
Total	1,348,317	$	49.66

  __________________ 

(1) In July 1997, our 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

incentive plans, such as our equity incentive and employee stock purchase plans, and to return excess cash to our stockholders. Our 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), June 2008 (up to 15.0 million shares), and February 2011 (up to 10.0 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 program described in footnote 1 above. Shares are reported based on the settlement date of the applicable repurchase.

(3) The stock repurchase program has no expiration date. Future repurchases of our common stock under our repurchase program may be effected through various different repurchase transaction structures, including isolated open market transactions or systematic repurchase plans.

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Stock Performance Graph and Cumulative Total Return

The following graph compares the cumulative 5-year total return attained by stockholders 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 (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, 2007 to June 30, 2012.

	6/07	6/08	6/09	6/10	6/11	6/12
KLA-Tencor Corporation	100.00	75.01	47.85	53.85	80.23	100.70
S&P 500	100.00	86.88	64.10	73.35	95.87	101.09
PHLX Semiconductor	100.00	89.42	73.06	85.24	111.14	118.18

__________________ 

 * Assumes $100 invested on June 30, 2007 in stock or index, including reinvestment of dividends.

Our fiscal year ends June 30. The comparisons in the graph above are based upon historical data and are not necessarily indicative of, nor intended to forecast, future stock price performance.

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ITEM 6. SELECTED FINANCIAL DATA

The following tables include selected consolidated summary financial data for each of our last five fiscal years. This data should be read in conjunction with Item 8, “Financial Statements and Supplementary Data,” and Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Annual Report on Form 10-K.

	Year ended June 30,
(In thousands, except per share data)	2012		2011		2010		2009			2008
Consolidated Statements of Operations:
Total revenues	$	3,171,944	$	3,175,167	$	1,820,760	$	1,520,216		$	2,521,716
Income (loss) from operations	$	1,016,325	$	1,160,330	$	314,166	$	(577,941	)	$	499,376
Net income (loss)	$	756,015	$	794,488	$	212,300	$	(523,368	)	$	359,083
Cash dividends declared per share	$	1.40	$	1.00	$	0.60	$	0.60		$	0.60
Net income (loss) per share:
Basic	$	4.53	$	4.75	$	1.24	$	(3.07	)	$	1.99
Diluted	$	4.44	$	4.66	$	1.23	$	(3.07	)	$	1.95
	As of June 30,
	2012		2011		2010		2009			2008
Consolidated Balance Sheets:
Cash, cash equivalents and marketable securities	$	2,534,444	$	2,038,535	$	1,534,044	$	1,329,884		$	1,579,383
Working capital	$	3,301,136	$	2,797,149	$	2,063,678	$	1,851,635		$	2,085,432
Total assets	$	5,100,308	$	4,675,521	$	3,907,056	$	3,609,538		$	4,848,390
Long-term debt	$	746,833	$	746,290	$	745,747	$	745,204		$	744,661
Total stockholders’ equity	$	3,315,595	$	2,860,893	$	2,246,611	$	2,184,392		$	2,981,730

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion of our financial condition and results of operations should be read in conjunction with our Consolidated Financial Statements and the related notes included in Item 8, “Financial Statements and Supplementary Data,” in this Annual Report on Form 10-K. This discussion contains forward-looking statements, which involve risks and uncertainties. Our actual results could differ materially from those anticipated in the forward-looking statements as a result of certain factors, including but not limited to those discussed in Item 1A, “Risk Factors” and elsewhere in this Annual Report on Form 10-K. (See “Special Note Regarding Forward-Looking Statements.”)

CRITICAL ACCOUNTING ESTIMATES AND POLICIES

The preparation of our Consolidated Financial Statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions in applying our accounting policies that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We base 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 our related disclosure in this Annual Report on Form 10-K. The items in our financial statements requiring significant estimates, judgments and assumptions are as follows:

Revenue Recognition. We recognize revenue when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the selling price is fixed or determinable, and collectibility is reasonably assured. We derive revenue from three sources—sales of systems, spare parts and services.

We recognize 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, we recognize revenue prior to acceptance from the customer, as follows:

• When the customer fab has previously 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.

• When system sales to independent distributors have no installation requirement, contain no acceptance agreement, and 100% payment is due based 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 withholds acceptance due to issues unrelated to product performance, revenue is recognized when the system is performing as intended and meets all published and agreed-upon specifications.

• 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.

We enter into sales arrangements that may consist of multiple deliverables of our products and services where certain elements of the sales arrangement are not delivered and accepted in one reporting period. Judgment is required to properly identify the accounting units of the multiple deliverable transactions and to determine the manner in which revenue should be allocated among the accounting units. Additionally, judgment is required to interpret various commercial terms and determine when all criteria of revenue recognition have been met in order for revenue recognition to occur in the appropriate accounting period. While changes in the allocation of the estimated selling price between the accounting units will not affect the amount of total revenue recognized for a particular arrangement, any material changes in these allocations could impact the timing of revenue recognition, which could have a material effect on our financial position and results of operations.

Trade-in rights are occasionally granted to customers to trade in tools in connection with subsequent purchases. We estimate the value of the trade-in right and reduce the revenue recognized on the initial sale. This amount is recognized at the earlier of the exercise of the trade-in right or the expiration of the trade-in right.

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.

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Service and maintenance contract revenue is recognized ratably over the term of the maintenance contract. Revenue from services performed in the absence of a maintenance contract, including consulting and training revenue, is recognized when the related services are performed and collectibility is reasonably assured.

We sell stand-alone software that is subject to the software revenue recognition guidance. We periodically review selling prices to determine whether vendor-specific objective evidence (“VSOE”) exists, and in some situations where we are unable to establish VSOE for undelivered elements such as post-contract service, revenue is recognized ratably over the term of the service contract.

We also defer the fair value of non-standard warranty bundled with equipment sales as unearned revenue. Non-standard warranty includes services incremental to the standard 40-hour per week coverage for twelve months. Non-standard warranty is recognized ratably as revenue when the applicable warranty term period commences.

The deferred system profit balance 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 have not met our revenue recognition 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.

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. 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 spoilage are recognized as current period charges. We write down product inventory based on forecasted demand and technological obsolescence and parts inventory based on forecasted usage and customer support requirements. 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.

Warranty. We provide standard warranty coverage on our systems for 40 hours per week for twelve months, providing labor and parts necessary to repair the systems during the warranty period. We account 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, we calculate the average service hours and parts expense per system and apply the actual labor and overhead rates to determine the estimated warranty charge. We update these estimated charges on a quarterly basis. The actual product performance and/or field expense profiles may differ, and in those cases we adjust our warranty accruals accordingly. See Note 12, “Commitments and Contingencies” to the Consolidated Financial Statements for a detailed description.

Allowance for Doubtful Accounts. A majority of our trade receivables are derived from sales to large multinational semiconductor manufacturers throughout the world. In order to monitor potential credit losses, we perform ongoing credit evaluations of our customers’ financial condition. An allowance for doubtful accounts is maintained for probable credit losses based upon our assessment of the expected collectibility of the 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 record additional allowances, which would result in a reduction of our net income.

Stock-Based Compensation. We account for stock-based awards granted to employees for services based on the fair value of those awards. The fair value of stock-based awards is measured at the grant date and is recognized as expense over the employee’s requisite service period. The fair value is determined using a Black-Scholes valuation model for 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 option-pricing model requires the input of assumptions, including the option’s expected term 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.

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Contingencies and Litigation. We are subject to the possibility of losses from various contingencies. Considerable judgment is necessary to estimate the probability and amount of any loss from such contingencies. An accrual is made when it is probable that a liability has been incurred or an asset has been impaired and the amount of loss can be reasonably estimated. We accrue a liability and recognize as expense the estimated costs expected to be incurred over the next twelve months to defend or settle asserted and unasserted claims existing as of the balance sheet date. See Item 3, “Legal Proceedings” and Note 12, “Commitments and Contingencies” to the Consolidated Financial Statements for a detailed description.

Goodwill and Intangible Assets. We assess goodwill for impairment annually as well as whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Long-lived intangible assets are tested for recoverability whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable. See Note 5, “Goodwill and Purchased Intangible Assets” to the Consolidated Financial Statements for a detailed description. Goodwill represents the excess of the purchase price over the fair value of the net tangible and identifiable intangible assets acquired in each business combination. We performed a qualitative assessment of the goodwill by reporting unit as of November 30, 2011 during the three months ended December 31, 2011 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 three months ended December 31, 2011. The next annual evaluation of the goodwill by reporting unit will be performed in the three months ending December 31, 2012.

If we were to encounter challenging economic conditions, such as a decline in our operating results, an unfavorable industry or macroeconomic environment, a substantial decline in our stock price, or any other adverse change in market conditions, we may be required to perform the two-step quantitative goodwill impairment analysis. In addition, if such conditions have the effect of changing one of the critical assumptions or estimates we use to calculate the value of our goodwill or intangible assets, we may be required to record goodwill and/or intangible asset impairment charges in future periods, whether in connection with our next annual impairment assessment in the second quarter of fiscal year 2013 or prior to that, if any triggering event occurs outside of the quarter during which the annual goodwill impairment assessment is performed. It is not possible at this time to determine if any such future impairment charge would result or, if it does, whether such charge would be material to our results of operations.

Income Taxes. We account for income taxes in accordance with the authoritative guidance, which 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 we anticipate that 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 determine that the recovery is not probable.

On a quarterly basis, we provide for income taxes based upon an estimated annual effective income tax rate. The effective tax rate is highly dependent upon the geographic composition of worldwide earnings, tax regulations governing each region, availability of tax credits and the effectiveness of our tax planning strategies. We carefully monitor the changes in many factors and adjust our effective income tax rate on a timely basis. If actual results differ from these estimates, this could have a material effect on our financial condition and results of operations.

In addition, the calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax regulations. In accordance with the authoritative guidance on accounting for uncertainty in income taxes, we recognize liabilities for uncertain tax positions based on the two-step process prescribed within the interpretation. 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 in 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.

Valuation of Marketable Securities. Our investments in available-for-sale securities are reported at fair value. Unrealized gains related to increases in the fair value of investments and unrealized losses related to decreases in the fair value are included in accumulated other comprehensive income (loss), net of tax, as reported on our Consolidated Statements of Stockholders’ Equity. However, changes in the fair value of investments impact our net income only when such investments are sold or impairment is recognized. Realized gains and losses on the sale of securities are determined by specific identification of the security’s cost basis. We periodically review our investment portfolio to determine if any investment is other-than-temporarily impaired due to changes in credit risk or other potential valuation concerns, which would require us to record an

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impairment charge in the period any such determination is made. In making this judgment, we evaluate, among other things, the duration of the investment, the extent to which the fair value of an investment is less than its cost, the credit rating and any changes in credit rating for the investment, default and loss rates of the underlying collateral, structure and credit enhancements to 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.

Effects of Recent Accounting Pronouncements

In December 2011, the Financial Accounting Standards Board (“FASB”) issued an accounting standard update requiring enhanced disclosure about certain financial instruments and derivative instruments that are offset in the balance sheet or subject to an enforceable master netting arrangement or similar agreement. The disclosure requirement becomes effective retrospectively in the first quarter of our fiscal year ending June 30, 2014. We do not expect that the requirement will have an impact on our financial position, results of operations or cash flows as it is disclosure-only in nature.

In September 2011, the FASB issued an accounting standard update intended to simplify testing goodwill for impairment. The amendment allows an entity to first assess qualitative factors to determine whether it is necessary to perform the two-step quantitative goodwill impairment test. An entity will no longer be required to calculate the fair value of a reporting unit unless the entity determines, based on a qualitative assessment, that it is more likely than not that the fair value of the reporting unit is less than its carrying amount. The amendment becomes effective for annual and interim goodwill impairment tests performed for our fiscal year ending June 30, 2013, and early adoption is permitted. We elected to early adopt this accounting guidance at the beginning of the three months ended December 31, 2011 (see Note 5, “Goodwill and Purchased Intangible Assets,” to the Condensed Consolidated Financial Statements for a detailed description).

In June 2011, the FASB issued an accounting standard update requiring an increase in the prominence of items reported in other comprehensive income. The amendment eliminates the option to present components of other comprehensive income as part of the statement of changes in stockholders' equity and requires that the total of comprehensive income, the components of net income, and the components of other comprehensive income be presented in a single continuous statement of comprehensive income or in two separate but consecutive statements. The amendment also required presentation of adjustments for items that are reclassified from other comprehensive income in the statement where the components of net income and the components of other comprehensive income are presented, which was indefinitely deferred by the FASB in December 2011. The amendment (other than the portion regarding the presentation of reclassification adjustments which, as noted above, has been deferred indefinitely) becomes effective during the first quarter of our fiscal year ending June 30, 2013. Early adoption is permitted. The amendment will impact the presentation of the financial statements but will not have an impact on our financial position, results of operations or cash flows.

In May 2011, the FASB issued an accounting standard update providing guidance on achieving a consistent definition of and common requirements for measurement of fair value between U.S. GAAP and International Financial Reporting Standards (“IFRS”). This amendment was effective prospectively for our interim reporting period ended March 31, 2012. Early application is not permitted. The amendment did not have an impact on our financial position, results of operations or cash flows.

In April 2010, the 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 it otherwise qualifies as equity. This amendment was effective for our interim reporting period ended September 30, 2011. The amendment did not have an impact on our financial position, results of operations or cash flows.

In January 2010, the FASB issued authoritative guidance for fair value measurements. This guidance now requires a reporting entity to disclose separately the amounts of significant transfers in and out of Level 1 and Level 2 fair value measurements and also to describe the reasons for these transfers. This authoritative guidance 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 our interim reporting period ended March 31, 2010. The implementation did not have an impact on our financial position, results of operations or cash flows as it is disclosure-only in nature. The guidance for Level 3 fair value measurements disclosures was effective for our interim reporting period ended September 30, 2011, and the implementation of that guidance did not have an impact on our financial position, results of operations or cash flows as it is disclosure-only in nature.

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EXECUTIVE SUMMARY

KLA-Tencor Corporation is a leading supplier of process control and yield management solutions for the semiconductor and related nanoelectronics industries. Our broad portfolio of products and services primarily supports integrated circuit (“IC” or “chip”) manufacturers 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 and manage significant advanced technology manufacturing process challenges and obtain higher finished product yields at lower overall cost. In addition to serving the semiconductor industry, we also provide a range of technology solutions to a number of other high technology industries, including the light emitting diode (“LED”), data storage and photovoltaic industries, as well as general materials research.

Our products and services are used by the vast majority of bare wafer, IC, lithography reticle (“reticle” or “mask”) and disk manufacturers in the world. Our products, services and expertise are used by our customers to measure and control nanometric-level manufacturing processes, and to detect, analyze and resolve critical product defects that arise in that environment. Our revenues are driven largely by our customers' spending on capital equipment 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 generally operate in one or more of the three major semiconductor markets -- memory, foundry and logic. All three of these markets are characterized by rapid technological changes and sudden shifts in end-user demand, which influence the level and pattern of our customers' spending on our products and services. Although capital spending in all three semiconductor markets has historically been very cyclical, the demand for more advanced and lower cost chips used in a growing number of consumer electronics, communications, data processing, and industrial and automotive products has resulted in favorable long-term revenue growth rates for our process control and yield management solutions.

As a supplier to the global semiconductor and semiconductor-related industries, we are subject to the cyclical capital spending that characterizes these industries. The timing, length, intensity and volatility of capacity-oriented capital spending cycles of our customers are unpredictable. In addition, our customer base continues to become more highly concentrated over time, thereby increasing the potential impact of a sudden change in capital spending by a major customer on our revenues and profitability.

The growing use of increasingly sophisticated semiconductor devices has caused many of our customers to invest in additional semiconductor manufacturing capabilities and capacity. These investments have included process control and yield management equipment and services and have had a significant favorable impact on our revenues.

During the fiscal years ended June 30, 2012 and 2011, our revenues and earnings remained robust compared to the prior several fiscal years as we responded to meet the high level of customer demand for our products, driven by the strong growth in the consumer mobile device markets. Our revenue levels in the next fiscal year will depend upon whether our customers maintain these elevated levels of investment in process control equipment. In addition to our revenue levels, our earnings for the next fiscal year will also depend on the amount of research and development spending that we embark upon in meeting our customers' technology roadmaps. We cannot predict the duration and sustainability of these favorable business conditions. We have increased our production volumes and capacity to meet anticipated customer requirements and remain at risk of incurring significant inventory-related and other restructuring charges, if business conditions deteriorate. 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 to reduce cost. We expect that this in turn will drive long-term increased adoption of process control equipment and services that reduce semiconductor defectivity and improve manufacturing yields, reinforcing the longer-term growth drivers in our industry.

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The following table sets forth some of our key consolidated financial information for each of our last three fiscal years:

	Year ended June 30,
(Dollar amounts in thousands)	2012			2011			2010
Total revenues	$	3,171,944		$	3,175,167		$	1,820,760
Costs of revenues	$	1,330,016		$	1,259,243		$	815,662
Gross margin percentage	58		%	60		%	55		%
Net income	$	756,015		$	794,488		$	212,300
Diluted income per share	$	4.44		$	4.66		$	1.23

The results for the fiscal year ended June 30, 2012 reflected favorable conditions we encountered as our customers, particularly the foundries, invested heavily in process control equipment to meet the strong demand driven by the mobile device markets.

The results for the fiscal year ended June 30, 2011 reflected improved fundamentals in the semiconductor industry as compared to the prior fiscal year, driven by reduced uncertainty over the global economic environment and continued economic growth in much of Asia. As we increased our business activity levels and shipped more products to our customers during the fiscal year ended June 30, 2011, we continued to maintain cost discipline, which resulted in improved gross margins as well as net income.

Revenues and Gross Margin

	Year ended June 30,
(Dollar amounts in thousands)	2012			2011			2010			FY12 vs. FY11					FY11 vs. FY10
Revenues:
Product	$	2,597,755		$	2,613,438		$	1,324,270		$	(15,683	)	(1	)%	$	1,289,168		97	%
Service	574,189			561,729			496,490			12,460			2	%	65,239			13	%
Total revenues	$	3,171,944		$	3,175,167		$	1,820,760		$	(3,223	)			$	1,354,407
Costs of revenues	$	1,330,016		$	1,259,243		$	815,662		$	70,773		6	%	$	443,581		54	%
Gross margin percentage	58		%	60		%	55		%	(2		)%			5		%

Product revenues

Product revenues were substantially flat (decreasing by 1%) in the fiscal year ended June 30, 2012 compared to the fiscal year ended June 30, 2011. Revenues from sales of our metrology products increased year over year, primarily driven by the adoption of our latest generation products to support advanced patterning lithography and the introduction of 3-D structures in leading edge designs, but that increase was offset by a decrease in defect inspection product revenues due to the timing of customer purchases and reduction in the sale of product upgrades as we transitioned to our next-generation platforms. Each of these twelve-month periods was similarly highlighted by increased volumes of shipment and installation of our products to satisfy customer demand for process control equipment, particularly among foundries, as our customers encountered high levels of demand for semiconductors from electronics end-markets.

Product revenues increased in the fiscal year ended June 30, 2011 compared to the fiscal year ended June 30, 2010 primarily as a result of increased shipment and acceptance of our products within the year. Many of our customers continued to maintain high levels of capital spending for advanced technology development as well as capacity related investments, resulting in an increase in the number of tools that we sold and revenues that we recognized across each of the three major semiconductor markets (memory, foundry and logic), compared to the fiscal year ended June 30, 2010. An increase in the sales of both our defect inspection and metrology equipment contributed to the increase in the number of tools that we sold during the fiscal year ended June 30, 2011, compared to the fiscal year ended June 30, 2010.

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Service revenues

Service revenues are generated from maintenance contracts, as well as billable time and material service calls made to our customers after the expiration of the warranty period. The amount of service revenues 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 during the fiscal year ended June 30, 2012 compared to the fiscal years ended June 30, 2011 and 2010 as a result of an increase in the number of post-warranty systems installed at our customers' sites, as well as service work completed in the three months ended September 30, 2011 to assist our customers in Japan as their operations recovered from the effects of the 2011 Tohoku earthquake and tsunami.

The following customers each accounted for more than 10% of total revenues for the indicated periods:

Year ended June 30,
2012	2011	2010
Samsung Electronics Co., Ltd.	Intel Corporation	Intel Corporation
Taiwan Semiconductor Manufacturing Company Limited	Samsung Electronics Co., Ltd.	Taiwan Semiconductor Manufacturing Company Limited
	Taiwan Semiconductor Manufacturing Company Limited

Revenues by region

Revenues by region for the periods indicated were as follows:

	Year ended June 30,
(Dollar amounts in thousands)	2012				2011				2010
United States	$	675,034	21	%	$	610,955	19	%	$	341,079	19	%
Taiwan	872,583		28	%	864,378		27	%	688,089		38	%
Japan	415,475		13	%	413,208		13	%	239,393		13	%
Europe & Israel	323,902		10	%	340,249		11	%	111,497		6	%
Korea	611,462		19	%	480,488		15	%	151,198		8	%
Rest of Asia	273,488		9	%	465,889		15	%	289,504		16	%
Total	$	3,171,944	100	%	$	3,175,167	100	%	$	1,820,760	100	%

A significant portion of our revenues continues to be generated in Asia, where a substantial portion of the world’s semiconductor manufacturing capacity is located, and we expect that trend to continue.

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Gross margin

Our gross margin fluctuates with revenue levels and product mix and is affected by variations in costs related to manufacturing and servicing our products, including our ability to scale our operations efficiently and effectively in response to prevailing business conditions. Over the past several years, we have embarked on various advanced product development, customer satisfaction improvement and globalization initiatives to improve our competitiveness and gross margins. Over the past eight quarters, our gross margin has generally benefited from the operating efficiencies associated with elevated levels of revenues over that period.

The following table summarizes the major factors that contributed to the changes in gross margin percentage:

	Gross Margin Percentage
Fiscal year ended 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	)%
Fiscal year ended June 30, 2011	60.3	%
Revenue volume of products and service	(0.3	)%
Mix of products and services sold	(0.7	)%
Manufacturing labor, overhead and efficiencies	0.2	%
Other service and manufacturing costs	(1.4	)%
Fiscal year ended June 30, 2012	58.1	%

Changes in gross margin percentage driven by revenue volume reflect our ability to leverage existing infrastructure to generate higher revenues. It also includes the effect of fluctuations in foreign exchange rates, average customer pricing and customer revenue deferrals associated with volume purchase agreements. Changes in gross margin percentage from mix of products and services sold reflect the impact of changes in the composition within product and service offerings. Changes in gross margin percentage from manufacturing labor, overhead and efficiencies reflect our ability to manage costs and drive productivity as we scale our manufacturing activity to respond to customer requirements; this includes the impact of capacity utilization, use of overtime and variability of cost structure. Changes in gross margin percentage from other service and manufacturing costs include the impact of customer support costs, including the efficiencies with which we deliver services to our customers, and the effectiveness with which we manage our production plans and inventory risk.

Our gross margin decreased to 58.1% during the fiscal year ended June 30, 2012 from 60.3% during the fiscal year ended June 30, 2011 primarily due to less favorable mix of products and services sold, an increase in revenue deferrals associated with volume purchase agreements and an increase in inventory reserves related to product transitions.

Our gross margin percentage increased to 60.3% during the fiscal year ended June 30, 2011 from 55.2% during the fiscal year ended June 30, 2010 primarily due to increased demand and revenue from the sale of advanced technology defect inspection and metrology products.

Engineering, Research and Development (“R&D”)

	Year ended June 30,
(Dollar amounts in thousands)	2012			2011			2010			FY12 vs. FY11					FY11 vs. FY10
R&D expenses	$	452,937		$	386,163		$	329,560		$	66,774		17	%	$	56,603		17	%
R&D expenses as a percentage of total revenues	14		%	12		%	18		%	2		%			(6		)%

R&D expenses during the fiscal year ended June 30, 2012 increased compared to the fiscal year ended June 30, 2011, primarily due to an increase in employee-related expenses of $24.8 million as a result of annual compensation adjustments and additional engineering headcount, an increase in engineering material costs of $20.3 million for program development related to our next-generation defect inspection products, a decrease in external R&D funding of $11.9 million and an increase in depreciation expense of $5.3 million.

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R&D expenses during the fiscal year ended June 30, 2011 increased compared to the fiscal year ended June 30, 2010, primarily due to an increase in employee-related expenses of $27.8 million as a result of additional engineering headcount and higher variable compensation, an increase in engineering material costs of $24.2 million for program development related to our next-generation defect inspection products and an increase in external services of $9.7 million to support expanded R&D activities, partially offset by an increase of $5.1 million in benefit to R&D expense from external funding.

R&D expenses include the benefit of $6.9 million, $18.8 million and $13.7 million of external funding received during the fiscal years ended June 30, 2012, 2011 and 2010, respectively, for certain strategic development programs, primarily from government grants. We expect our R&D expenses to increase with higher levels of business activity as we accelerate our investments in critical programs focusing on new technologies and enhancements to existing products.

Our future operating results will depend significantly on our ability to produce products and provide services that have a competitive advantage in our marketplace. To do this, we believe that we must continue to make substantial investments in our research and development. We remain committed to product development in new and emerging technologies as we address the yield challenges our customers face at future technology nodes.

Selling, General and Administrative (“SG&A”)

	Year ended June 30,
(Dollar amounts in thousands)	2012			2011			2010			FY12 vs. FY11					FY11 vs. FY10
SG&A expenses	$	372,666		$	369,431		$	361,372		$	3,235		1	%	$	8,059		2	%
SG&A expenses as a percentage of total revenues	12		%	12		%	20		%	—		%			(8		)%

SG&A expenses during the fiscal year ended June 30, 2012 were higher compared to the fiscal year ended June 30, 2011, primarily due to a decrease in bad debt recovery of $10.7 million, an increase in expenses related to infrastructure of $5.8 million to support current and anticipated business activities and an increase in consulting expenses of $3.3 million, partially offset by a decrease in legal expenses of $8.8 million, reflecting the resolution of certain litigation matters during the three months ended March 31, 2012, and a decrease in employee-related expenses of $8.2 million as a result of lower variable compensation.

SG&A expenses during the fiscal year ended June 30, 2011 were higher compared to the fiscal year ended June 30, 2010, primarily due to increases in employee-related expenses of $37.0 million as a result of additional headcount to support higher sales volume and higher variable compensation, partially offset by a decrease in asset impairment charges of $13.4 million, a decrease in legal expenses of $9.1 million related to our historical stock option practices and certain indemnification obligations, and an increase in bad debt recovery of $6.7 million.

Interest Income and Other, Net and Interest Expense

	Year ended June 30,
(Dollar amounts in thousands)	2012			2011			2010
Interest income and other, net	$	11,966		$	4,064		$	31,532
Interest expense	$	54,197		$	54,328		$	54,517
Interest income and other, net as a percentage of total revenues	—		%	—		%	2		%
Interest expense as a percentage of total revenues	2		%	2		%	3		%

Interest income and other, net is comprised primarily of interest income earned on our investment and cash portfolio, realized gains or losses on sales of marketable securities, gains or losses from revaluation of certain foreign currency denominated assets and liabilities as well as foreign currency contracts, impairments associated with equity investments in privately-held companies, and interest related accruals (such as interest and penalty accruals related to our tax obligations). The increase in interest income and other, net during the fiscal year ended June 30, 2012 compared to the fiscal year ended June 30, 2011 was primarily attributable to a decrease in impairment charges of $6.9 million for equity investments in privately-held companies and a decrease of $4.1 million in interest and penalty accruals related to uncertain tax positions.

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The decrease in interest income and other, net during the fiscal year ended June 30, 2011 compared to the fiscal year ended June 30, 2010 was primarily attributable to an increase in impairment charges of $6.8 million for equity investments in privately-held companies and an international tax reserve benefit of $15.9 million due to the expiration of a statute of limitations relating to an uncertainty in our position with respect to a foreign transaction-based tax during the fiscal year ended June 30, 2010 compared to no tax reserve benefit during the fiscal year ended June 30, 2011.

Interest expense is primarily attributable to the $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.

Provision for Income Taxes

The following table provides details of income taxes:

(Dollar amounts in thousands)	Year ended June 30,
	2012			2011			2010
Income before income taxes	$	974,094		$	1,110,066		$	291,181
Provision for income taxes	$	218,079		$	315,578		$	78,881
Effective tax rate	22.4		%	28.4		%	27.1		%

The provision for income taxes differs from the statutory U.S. federal rate primarily due to foreign income with lower tax rates and tax credits, offset by state taxes, the tax effects of employee stock activity and other factors.

Tax expense as a percentage of income during the fiscal year ended June 30, 2012 was 22.4% compared to 28.4% for the fiscal year ended June 30, 2011. Tax expense decreased primarily from a decrease in state tax expense, a decrease in tax reserves, and an increase in the percentage of our revenues that were earned outside the U.S. in jurisdictions with lower tax rates.

Tax expense as 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 percentage of our revenues that were earned outside the U.S. in jurisdictions with lower tax rates, and an increase in tax reserves, offset by a decrease in the effect of shortfalls from employee stock activity.

Our future effective income tax rate depends on various factors, such as tax legislation, the geographic composition of our pre-tax income, the amount of our pre-tax income as business activities fluctuate, non-deductible expenses incurred in connection with acquisitions, research and development credits as a percentage of aggregate pre-tax income, the domestic manufacturing deduction, non-taxable or non-deductible increases or decreases in the assets held within our Executive Deferred Savings Plan, the tax effects of employee stock activity and the effectiveness of our tax planning strategies.

We incurred $11.9 million and $15.2 million in additional tax expense during the fiscal years ended June 30, 2012 and 2011, respectively, 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.

For the fiscal year ending June 30, 2013, 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 ending June 30, 2013, we cannot currently estimate this impact on our tax rate for the next fiscal year.

In the normal course of business, we are subject to tax audits in various jurisdictions, and such jurisdictions may assess additional income or other taxes against us. Although we believe our tax estimates are reasonable, 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 litigation could have a material adverse effect on our results of operations or cash flows in the period or periods for which that determination is made.

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Liquidity and Capital Resources

	As of June 30,
(Dollar amounts in thousands)	2012			2011			2010
Cash and cash equivalents	$	751,294		$	711,329		$	529,918
Marketable securities	1,783,150			1,327,206			1,004,126
Total cash, cash equivalents and marketable securities	$	2,534,444		$	2,038,535		$	1,534,044
Percentage of total assets	50		%	44		%	39		%
	Year ended June 30,
(In thousands)	2012			2011			2010
Net cash provided by operating activities	$	941,617		$	823,166		$	447,800
Net cash used in investing activities	(528,891		)	(359,510		)	(227,964		)
Net cash used in financing activities	(364,103		)	(300,155		)	(216,331		)
Effect of exchange rate changes on cash and cash equivalents	(8,658		)	17,910			1,446
Net increase in cash and cash equivalents	$	39,965		$	181,411		$	4,951

As of June 30, 2012, our cash, cash equivalents and marketable securities totaled $2.5 billion, which is an increase of $496 million from June 30, 2011. As of June 30, 2012, $888 million of our $2.5 billion of cash, cash equivalents, and marketable securities were held by our foreign subsidiaries and branch offices. We currently intend to permanently reinvest approximately $673 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 $215 million of the $888 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.

The total amount of dividends paid during the fiscal years ended June 30, 2012, 2011 and 2010 was $234 million, $167 million and $102 million, respectively. The increase in the total amount of dividends paid during the fiscal year ended June 30, 2012 compared to the preceding fiscal years reflected an increase during the quarter ended September 30, 2011 to the level of our quarterly dividend from $0.25 to $0.35 per share. On July 10, 2012, we announced that our Board of Directors had authorized a further increase in the level of our quarterly dividend from $0.35 to $0.40 per share.

The shares repurchased under our stock 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 the vesting of employee restricted stock units 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.

We have historically financed our liquidity requirements through cash generated from operations.

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Fiscal Year 2012 Compared to Fiscal Year 2011

Net cash provided by operating activities during the fiscal year ended June 30, 2012 increased compared to the fiscal year ended June 30, 2011 from $823 million to $942 million primarily as a result of the following key factors:

• A decrease in tax payments of approximately $240 million, which includes a tax refund of $40 million and a change in the timing of when revenue is recognized for federal income tax purposes, resulting in lower tax payments during the fiscal year ended June 30, 2012 compared to the fiscal year ended June 30, 2011. We expect that tax payments in future periods will increase to normal amounts relative to our profit before taxes. This decrease in tax payments was partially offset by

• A decrease in cash collections of approximately $65 million during the fiscal year ended June 30, 2012 compared to the fiscal year ended June 30, 2011 and

• An increase in payroll expenses of approximately $95 million during the fiscal year ended June 30, 2012 compared to the fiscal year ended June 30, 2011, mainly due to increases in employee headcount.

Net cash used in investing activities during the fiscal year ended June 30, 2012 increased compared to the fiscal year ended June 30, 2011 from $360 million to $529 million, primarily as a result of an increase in the use of cash for purchases of available-for-sale and trading securities, net of sales and maturities, of approximately $147 million during the fiscal year ended June 30, 2012 compared to the fiscal year ended June 30, 2011.

Net cash used in financing activities during the fiscal year ended June 30, 2012 increased compared to the fiscal year ended June 30, 2011 from $300 million to $364 million, primarily as a result of the following key factors:

• An increase in dividend payments of $66 million during the fiscal year ended June 30, 2012 compared to the fiscal year ended June 30, 2011, mainly due to an increase in the quarterly dividend payout amount that we announced in July 2011, and

• An increase in common stock repurchases of $29 million during the fiscal year ended June 30, 2012 compared to the fiscal year ended June 30, 2011, partially offset by

• An increase in proceeds from the exercise of stock options of $39 million during the fiscal year ended June 30, 2012 compared to the fiscal year ended June 30, 2011.

Fiscal Year 2011 Compared to Fiscal Year 2010

Net cash provided by operating activities during the fiscal year 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:

• An increase in cash collections of approximately $1.4 billion during the fiscal year ended June 30, 2011 compared to the fiscal year ended June 30, 2010, due to higher sales volume, partially offset by

• An increase in vendor payments of approximately $580 million during the fiscal year ended June 30, 2011 compared to the fiscal year ended June 30, 2010, to support a higher level of business activities,

• An increase in payroll expenses of approximately $170 million during the fiscal year ended June 30, 2011 compared to the fiscal year ended June 30, 2010, mainly due to bonus payments for fiscal year 2010 (which were paid during fiscal year 2011) and higher headcount, and

• An increase in tax payments of approximately $270 million during the fiscal year ended June 30, 2011 compared to the fiscal year ended June 30, 2010, due to higher profitability.

Net cash used in investing activities during the fiscal year ended June 30, 2011 increased compared to the fiscal year ended June 30, 2010 from $228 million to $360 million, primarily as a result of an increase in the use of cash for purchases of available-for-sale and trading securities, net of sales and maturities, of approximately $124 million during the fiscal year ended June 30, 2011 compared to the fiscal year ended June 30, 2010.

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Net cash used in financing activities during the fiscal year ended June 30, 2011 increased compared to the fiscal year ended June 30, 2010 from $216 million to $300 million, primarily as a result of the following key factors:

• An increase in dividend payments of $65 million during the fiscal year ended June 30, 2011 compared to the fiscal year ended June 30, 2010, mainly due to an increase in the quarterly dividend payout amount that we announced in July 2010, and

• An increase in common stock repurchases of $99 million during the fiscal year ended June 30, 2011 compared to the fiscal year ended June 30, 2010, mainly due to the temporary suspension of our stock repurchase program from October 2008 to February 2010 due to market conditions, partially offset by

• An increase in proceeds from the exercise of stock options of $89 million during the fiscal year ended June 30, 2011 compared to the fiscal year ended June 30, 2010.

Contractual Obligations

The following is a schedule summarizing our significant obligations to make future payments under contractual obligations as of June 30, 2012:

	Fiscal year ending June 30,
(In thousands)	Total		2013		2014		2015		2016		2017		2018 and thereafter		Other
Long-term debt obligations(1)	$	750,000	$	—	$	—	$	—	$	—	$	—	$	750,000	$	—
Interest expense associated with long-term debt obligations	301,875		51,750		51,750		51,750		51,750		51,750		43,125		—
Purchase commitments	308,209		296,455		7,777		3,970		7		—		—		—
Non-current income tax payable(2)	55,430		—		—		—		—		—		—		55,430
Operating leases	24,400		8,537		5,618		2,998		2,748		2,314		2,185		—
Pension obligations	31,126		2,473		2,014		3,040		2,466		2,736		18,397		—
Total contractual cash obligations	$	1,471,040	$	359,215	$	67,159	$	61,758	$	56,971	$	56,800	$	813,707	$	55,430

 __________________ 

(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 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.

We have agreements with financial institutions to sell certain of our trade receivables and promissory notes from customers without recourse. In addition, from time to time we will discount, without recourse, letters of credit (“LCs”) received from customers in payment for goods.

The following table shows total receivables sold under factoring agreements and proceeds from sales of LCs for the indicated periods:

	Year ended June 30,
(In thousands)	2012		2011		2010
Receivables sold under factoring agreements	$	368,894	$	313,578	$	107,666
Proceeds from sales of LCs	$	30,142	$	140,534	$	37,226

 Factoring and LC fees for the sale of certain trade receivables were recorded in interest income and other, net and were not material for the periods presented.

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We maintain guarantee arrangements available through various financial institutions for up to $20.2 million, of which $18.2 million had been issued as of June 30, 2012, primarily to fund guarantees to customs authorities for value-added tax (“VAT”) and other operating requirements of our subsidiaries in Europe and Asia.

We maintain certain open inventory purchase commitments with our suppliers to ensure a smooth and continuous supply 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 forecasted time-horizon can vary among different suppliers. Our open inventory purchase commitments were approximately $308 million as of June 30, 2012 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.

We provide standard warranty coverage on our systems for 40 hours per week for twelve months, providing labor and parts necessary to repair the systems during the warranty period. We account 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. The actual product performance and/or field expense profiles may differ, and in those cases we adjust our warranty accruals 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 12, “Commitments and Contingencies” to the Consolidated Financial Statements for a detailed description.

Working capital increased to $3.3 billion as of June 30, 2012, compared to $2.8 billion as of June 30, 2011. This increase is primarily due to higher levels of cash and marketable securities as we generated significant cash flow from operations during the fiscal year ended June 30, 2012, as well as higher levels of accounts receivable and inventory that resulted from supporting elevated levels of business activities, which was partially offset by cash payments relating to our stock repurchases and dividend programs. As of June 30, 2012, our principal sources of liquidity consisted of $2.5 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 credit ratings and outlooks as of July 9, 2012 are summarized below:

Rating Agency	Rating	Outlook
Fitch	BBB	Stable
Moody’s	Baa1	Stable
Standard & Poor’s	BBB	Stable

Factors that can affect our credit ratings 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.

47

Off-Balance Sheet Arrangements

Under our foreign currency risk management strategy, we utilize derivative instruments to protect our interests from unanticipated fluctuations in earnings and cash flows caused by volatility in currency exchange rates. This financial exposure is monitored and managed as an integral part of our overall risk management 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 15, “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:

	As of June 30,
(In thousands)	2012		2011
Cash flow hedge contracts
Purchase	$	14,689	$	3,381
Sell	$	29,362	$	30,133
Other foreign currency hedge contracts
Purchase	$	121,965	$	174,499
Sell	$	126,827	$	216,738

Indemnification Obligations. Subject 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. For example, we have 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. Although the maximum potential amount of future payments we could be required to make under these indemnification obligations 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.

We are a party to a variety of agreements pursuant to which we may be obligated to indemnify the other party with respect to certain matters. Typically, these obligations arise in connection with contracts and license agreements or the sale of assets, under which we customarily agree to hold the other party harmless against losses arising from, or provide customers with other remedies to protect against, bodily injury or damage to personal property caused by our products, non-compliance with our product performance specifications, infringement by our 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 us is typically subject to the other party making a claim to and cooperating with us pursuant to the procedures specified in the particular contract. This usually allows us 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, our obligations under these agreements may be limited in terms of amounts, activity (typically at our option to replace or correct the products or terminate the agreement with a refund to the other party), and duration. In some instances, we may have recourse against third parties and/or insurance covering certain payments made by us.

It is not possible to predict the maximum potential amount of future payments under these or similar agreements due to the conditional nature of our obligations and the unique facts and circumstances involved in each particular agreement. Historically, payments made by us under these agreements have not had a material effect on our business, financial condition, results of operations or cash flows.

48

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to financial market risks, including changes in interest rates, foreign currency exchange rates and marketable equity security prices. To mitigate these risks, we utilize derivative financial instruments, such as foreign currency hedges. We do not use derivative financial instruments for speculative or trading purposes. All of the potential changes noted below are based on sensitivity analyses performed on our financial position as of June 30, 2012. Actual results may differ materially.

As of June 30, 2012, we had an investment portfolio of fixed income securities of $1.8 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, 2012, the fair value of the portfolio would decline by $1.5 million.

As of June 30, 2012, we had net forward and option contracts to sell $19.5 million in foreign currency in order to hedge certain currency exposures (detail of these contracts and hedging activities is included in Note 15, “Derivative Instruments and Hedging Activities” to the Consolidated Financial Statements). If we had entered into these contracts on June 30, 2012, the U.S. dollar equivalent would have been $20.0 million. A 10% adverse move in all currency exchange rates affecting the contracts would decrease the fair value of the contracts by $18.4 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.

In April 2008, we issued $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. As of June 30, 2012, the book value and the fair value of our fixed rate debt were $746.8 million and $902.2 million, respectively. As of June 30, 2011, the book value and the fair value of our fixed rate debt were $746.3 million and $863.5 million, respectively.

49

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Consolidated Balance Sheets as of June 30, 2012 and 2011	51
Consolidated Statements of Operations for each of the three years in the period ended June 30, 2012	52
Consolidated Statements of Stockholders’ Equity for each of the three years in the period ended June 30, 2012	53
Consolidated Statements of Cash Flows for each of the three years in the period ended June 30, 2012	54
Notes to Consolidated Financial Statements	55
Report of Independent Registered Public Accounting Firm	90

50

KLA-TENCOR CORPORATION

Consolidated Balance Sheets

	As of June 30,
(In thousands)	2012			2011
ASSETS
Current assets:
Cash and cash equivalents	$	751,294		$	711,329
Marketable securities	1,783,150			1,327,206
Accounts receivable, net	701,280			583,270
Inventories	650,802			575,730
Deferred income taxes	184,670			331,397
Other current assets	92,847			147,078
Total current assets	4,164,043			3,676,010
Land, property and equipment, net	277,686			257,358
Goodwill	327,716			328,156
Purchased intangibles, net	55,636			85,902
Other non-current assets	275,227			328,095
Total assets	$	5,100,308		$	4,675,521
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	139,183		$	142,945
Deferred system profit	147,218			192,338
Unearned revenue	63,095			44,264
Other current liabilities	513,411			499,314
Total current liabilities	862,907			878,861
Non-current liabilities:
Long-term debt	746,833			746,290
Income tax payable	50,839			78,337
Unearned revenue	34,899			34,905
Other non-current liabilities	89,235			76,235
Total liabilities	1,784,713			1,814,628
Commitments and contingencies (Notes 12 and 13)
Stockholders’ equity:
Preferred stock, $0.001 par value, 1,000 shares authorized, none outstanding	—			—
Common stock, $0.001 par value, 500,000 shares authorized, 249,520 and 244,281 shares issued, 166,710 and 167,118 shares outstanding, as of June 30, 2012 and June 30, 2011, respectively	167			167
Capital in excess of par value	1,089,313			1,010,492
Retained earnings	2,247,258			1,852,633
Accumulated other comprehensive income (loss)	(21,143		)	(2,399		)
Total stockholders’ equity	3,315,595			2,860,893
Total liabilities and stockholders’ equity	$	5,100,308		$	4,675,521

See accompanying notes to consolidated financial statements.

51

KLA-TENCOR CORPORATION

Consolidated Statements of Operations

	Year ended June 30,
(In thousands, except per share data)	2012		2011		2010
Revenues:
Product	$	2,597,755	$	2,613,438	$	1,324,270
Service	574,189		561,729		496,490
Total revenues	3,171,944		3,175,167		1,820,760
Costs and operating expenses:
Costs of revenues	1,330,016		1,259,243		815,662
Engineering, research and development	452,937		386,163		329,560
Selling, general and administrative	372,666		369,431		361,372
Total costs and operating expenses	2,155,619		2,014,837		1,506,594
Income from operations	1,016,325		1,160,330		314,166
Interest income and other, net	11,966		4,064		31,532
Interest expense	54,197		54,328		54,517
Income before income taxes	974,094		1,110,066		291,181
Provision for income taxes	218,079		315,578		78,881
Net income	$	756,015	$	794,488	$	212,300
Net income per share:
Basic	$	4.53	$	4.75	$	1.24
Diluted	$	4.44	$	4.66	$	1.23
Cash dividends declared per share	$	1.40	$	1.00	$	0.60
Weighted-average number of shares:
Basic	166,795		167,261		170,652
Diluted	170,147		170,352		173,034

See accompanying notes to consolidated financial statements.

52

KLA-TENCOR CORPORATION

Consolidated Statements of Stockholders’ Equity

	Common Stock and Capital in Excess of Par Value					Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total Stockholders’ Equity
(In thousands)	Shares		Amount
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
Components of comprehensive income:
Net income	—		—			756,015			—			756,015
Change in unrealized loss on defined benefit plan assets, net of tax	—		—			—			(6,350		)	(6,350		)
Change in unrealized loss on investments, net of tax	—		—			—			(1,098		)	(1,098		)
Currency translation adjustments	—		—			—			(10,669		)	(10,669		)
Deferred losses on cash flow hedging instruments, net of tax	—		—			—			(627		)	(627		)
Total comprehensive income												737,271
Net issuance under employee stock plans	5,382		133,307			—			—			133,307
Repurchase of common stock	(5,790	)	(133,321		)	(127,829		)	—			(261,150		)
Cash dividends declared ($1.40 per share)	—		—			(233,561		)	—			(233,561		)
Stock-based compensation expense	—		78,835			—			—			78,835
Balances as of June 30, 2012	166,710		$	1,089,480		$	2,247,258		$	(21,143	)	$	3,315,595

See accompanying notes to consolidated financial statements.

53

KLA-TENCOR CORPORATION

Consolidated Statements of Cash Flows

	Year Ended June 30,
(In thousands)	2012			2011			2010
Cash flows from operating activities:
Net income	$	756,015		$	794,488		$	212,300
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	92,133			86,044			87,348
Asset impairment charges	2,878			10,568			15,149
Net gain on sale of real estate assets	—			(1,372		)	(2,984		)
Non-cash stock-based compensation expense	78,835			81,430			85,982
Provision for doubtful accounts	—			—			(2,888		)
Net gain on sale of marketable securities and other investments	(637		)	(2,479		)	(5,077		)
Deferred income taxes	193,412			64,736			(19,865		)
Tax charge from equity awards	—			—			(5,133		)
Excess tax benefit from equity awards	—			(71		)	—
Changes in assets and liabilities, net of assets acquired and liabilities assumed in business combinations:
Increase in accounts receivable, net	(113,922		)	(128,219		)	(220,857		)
Increase in inventories	(93,145		)	(170,141		)	(27,715		)
Decrease (increase) in other assets	58,041			(56,743		)	102,033
Increase (decrease) in accounts payable	(3,732		)	34,259			44,381
Increase (decrease) in deferred system profit	(45,121		)	(12,425		)	108,943
Increase in other liabilities	16,860			123,091			76,183
Net cash provided by operating activities	941,617			823,166			447,800
Cash flows from investing activities:
Acquisitions of businesses, net of cash received	—			—			(1,500		)
Capital expenditures, net	(57,596		)	(51,151		)	(30,202		)
Proceeds from sale of assets	2,228			18,185			5,878
Purchase of available-for-sale securities	(1,522,424		)	(1,142,491		)	(1,080,412		)
Proceeds from sale and maturity of available-for-sale securities	1,046,665			795,762			854,970
Purchase of trading securities	(55,906		)	(63,005		)	(77,295		)
Proceeds from sale of trading securities	58,142			83,190			100,597
Net cash used in investing activities	(528,891		)	(359,510		)	(227,964		)
Cash flows from financing activities:
Issuance of common stock	163,569			124,573			35,867
Tax withholding payments related to vested and released restricted stock units	(30,247		)	(22,557		)	(13,514		)
Common stock repurchases	(263,864		)	(234,844		)	(136,275		)
Excess tax benefit from equity awards	—			71			—
Payment of dividends to stockholders	(233,561		)	(167,398		)	(102,409		)
Net cash used in financing activities	(364,103		)	(300,155		)	(216,331		)
Effect of exchange rate changes on cash and cash equivalents	(8,658		)	17,910			1,446
Net increase in cash and cash equivalents	39,965			181,411			4,951
Cash and cash equivalents at beginning of period	711,329			529,918			524,967
Cash and cash equivalents at end of period	$	751,294		$	711,329		$	529,918
Supplemental cash flow disclosures:
Income taxes paid (refunds received), net	$	20,018		$	262,086		$	(13,989	)
Interest paid	$	54,523		$	52,819		$	52,438

See accompanying notes to consolidated financial statements.

54

KLA-TENCOR CORPORATION

Notes to Consolidated Financial Statements

NOTE 1— SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Description of Operations and Principles of Consolidation. KLA-Tencor Corporation (“KLA-Tencor” or the “Company”) is a leading supplier of process control and yield management solutions for the semiconductor and related nanoelectronics industries. Headquartered in Milpitas, California, KLA-Tencor has subsidiaries both in the United States and in key markets throughout the world.

The Consolidated Financial Statements include the accounts of KLA-Tencor and its majority-owned subsidiaries. All significant intercompany balances and transactions have been eliminated.

Management Estimates. The preparation of the Consolidated Financial Statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the Consolidated Financial Statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.

Fair Value of Financial Instruments. KLA-Tencor has evaluated the estimated fair value of financial instruments using available market information and valuations as provided by third-party sources. The use of different market assumptions and/or estimation methodologies could have a significant effect on the estimated fair value amounts. The fair value of the 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.

Cash Equivalents and Marketable Securities. All highly liquid debt instruments with original or remaining maturities of less than three months at the date of purchase are considered to be cash equivalents. Marketable securities are generally classified as available-for-sale for use in current operations, if required, and are reported at fair value, with unrealized gains and losses, net of tax, presented as a separate component of stockholders’ equity under the caption “Accumulated other comprehensive income (loss).” All realized gains and losses and unrealized losses resulting from declines in fair value that are other than temporary are recorded in earnings in the period of occurrence. The specific identification method is used to determine the realized gains and losses on investments. For all investments in debt and equity securities, the Company assesses whether the impairment is other than temporary. If the fair value of a debt security is less than its amortized cost basis, an impairment is considered other than temporary if (i) the Company has the intent to sell the security or it is more likely than not that the Company will be required to sell the security before recovery of its entire amortized cost basis, or (ii) the Company does not expect to recover the entire amortized cost of the security. If an impairment is considered other than temporary based on condition (i), the entire difference between the amortized cost and the fair value of the security is recognized in earnings. If an impairment is considered other than temporary based on condition (ii), the amount representing credit losses, defined as the difference between the present value of the cash flows expected to be collected and the amortized cost basis of the debt security, will be recognized in earnings, and the amount relating to all other factors will be recognized in other comprehensive income. The Company evaluates both qualitative and quantitative factors such as duration and severity of the unrealized losses, credit ratings, default and loss rates of the underlying collateral, structure and credit enhancements to determine if a credit loss may exist.

Non-Marketable Equity Securities and Other Investments. KLA-Tencor acquires certain equity investments for the promotion of business and strategic objectives, and, to the extent these investments continue to have strategic value, the 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 the Company or others.

Variable Interest Entities. The Financial Accounting Standards Board (“FASB”) requires that if the Company is the primary beneficiary of a variable interest entity, the assets, liabilities and results of operations of the variable interest entity should be included in the Company’s consolidated financial statements. KLA-Tencor has concluded that none of the Company’s equity investments are material to the Company’s financial position and do not require consolidation as they are either not variable interest entities or, of the equity investments that are variable interest entities, the Company is not considered to be the primary beneficiary based on an assessment performed by management.

55

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. 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 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 forecasted usage and customer support requirements. 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.

Allowance for Doubtful Accounts. A majority of the Company’s trade receivables are derived from sales to large multinational semiconductor manufacturers throughout the world. In order to monitor potential credit losses, the Company performs ongoing credit evaluations of its customers’ financial condition. An allowance for doubtful accounts is maintained for probable credit losses based upon the Company’s assessment of the expected collectibility of the accounts receivable. The allowance for doubtful accounts is reviewed on a quarterly basis to assess the adequacy of the allowance.

Property and Equipment. Property and equipment are recorded at cost, net of accumulated depreciation. Depreciation of property and equipment is based on the straight-line method over the estimated useful lives of the assets, which are generally thirty to thirty-five years for buildings, ten to fifteen years for leasehold improvements, five to seven years for furniture and fixtures, and two to five years for machinery and equipment. Leasehold improvements are amortized by the straight-line method over the shorter of the life of the related asset or the term of the underlying lease. Construction in process assets are not depreciated until the assets are placed in service. Depreciation expense for the fiscal years ended June 30, 2012, 2011 and 2010 was $45.8 million, $39.3 million and $43.5 million, respectively.

Goodwill and Intangible Assets. The Company assesses goodwill for impairment annually as well as whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Long-lived intangible assets are tested for recoverability whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable. See Note 5, “Goodwill and Purchased Intangible Assets” for a detailed description. Goodwill represents the excess of the purchase price over the fair value of the net tangible and identifiable intangible assets acquired in each business combination. The Company performed a qualitative assessment of the goodwill by reporting unit as of November 30, 2011 during the three months ended December 31, 2011 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 three months ended December 31, 2011. The next annual evaluation of the goodwill by reporting unit will be performed in the three months ending December 31, 2012.

Impairment of Long-Lived Assets. KLA-Tencor evaluates the carrying value of its long-lived assets whenever events or changes in circumstances indicate that the carrying value of the asset may be impaired. An impairment loss is recognized when estimated future cash flows expected to result from the use of the asset, including disposition, is less than the carrying value of the asset. Such an impairment charge would be measured as the excess of the carrying value of the asset over its fair value.

Software Development Costs. KLA-Tencor capitalizes certain internal and external costs incurred to acquire and create internal use software. Capitalized software is included in property and equipment when development is complete and is depreciated over three to five years when placed in service.

Concentration of Credit Risk. Financial instruments that potentially subject KLA-Tencor to significant concentrations of credit risk consist primarily of cash equivalents, short-term and non-current marketable securities, trade accounts receivable and derivative financial instruments used in hedging activities. The Company invests in a variety of financial instruments, such as, but not limited to, certificates of deposit, corporate debt and municipal 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. The Company has not experienced any material credit losses on its investments.

A majority of the Company's trade receivables are derived from sales to large multinational semiconductor manufacturers located throughout the world, with a majority located in Asia. In recent years, the Company's customer base has become increasingly consolidated due to corporate acquisitions and business closures, and to the extent that these customers experience liquidity issues in the future, the Company may be required to incur additional bad debt expense with respect to trade receivables. The Company performs ongoing credit evaluations of its customers’ financial condition and generally requires no collateral to secure accounts receivable. The Company maintains an allowance for potential credit losses based upon expected collectibility of all accounts receivable. In addition, the Company may utilize letters of credit or non-recourse factoring to mitigate credit risk when considered appropriate.

56

The Company is exposed to credit loss in the event of non-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 to the Company under such contracts.

The following customers each accounted for more than 10% of total revenues for the indicated periods:

Year ended June 30,
2012	2011	2010
Samsung Electronics Co., Ltd.	Intel Corporation	Intel Corporation
Taiwan Semiconductor Manufacturing Company Limited	Samsung Electronics Co., Ltd.	Taiwan Semiconductor Manufacturing Company Limited
	Taiwan Semiconductor Manufacturing Company Limited

The following customers each accounted for more than 10% of net accounts receivable as of the dates indicated below:

As of June 30,
2012	2011
Samsung Electronics Co., Ltd.	GlobalFoundries Inc.
Taiwan Semiconductor Manufacturing Company Limited	Taiwan Semiconductor Manufacturing Company Limited

Foreign Currency. The functional currencies of KLA-Tencor’s foreign subsidiaries are the local currencies, except as described below. Accordingly, all assets and liabilities of these foreign operations are translated to U.S. dollars at current period end exchange rates, and revenues and expenses are translated to U.S. dollars using average exchange rates in effect during the period. The gains and losses from foreign currency translation of these subsidiaries’ financial statements are recorded directly into a separate component of stockholders’ equity under the caption “Accumulated other comprehensive income (loss).”

The Company's manufacturing subsidiaries in Germany, Israel, Belgium, Hong Kong and Singapore use the U.S. dollar as their functional currency. Accordingly, monetary assets and liabilities in non-functional currency of these subsidiaries are remeasured using exchange rates in effect at the end of the period. Revenues and costs in local currency are remeasured using average exchange rates for the period, except for costs related to those balance sheet items that are remeasured using historical exchange rates. The resulting remeasurement gains and losses are included in the Consolidated Statements of Operations as incurred.

Derivative Financial Instruments. KLA-Tencor uses financial instruments, such as forward exchange contracts and currency options, to hedge a portion of, but not all, existing and forecasted foreign currency denominated transactions. The purpose of the 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. The Company believes these financial instruments do not subject the Company to speculative risk that would otherwise result from changes in currency exchange rates. The Company does not use derivative financial instruments for speculative or trading purposes.

All of the 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 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 the associated financial instrument is recorded immediately in earnings. For derivative instruments used to hedge existing foreign currency denominated assets or liabilities, the gains or losses on these hedges are recorded immediately in earnings to offset the changes in the fair value of the assets or liabilities being hedged.

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Warranty. KLA-Tencor provides standard warranty coverage on its systems for 40 hours per week for twelve months, providing labor and parts necessary to repair the systems during the warranty period. The 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, the 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. The Company updates these estimated charges on a quarterly basis. The actual product performance and/or field expense profiles may differ, and in those cases the Company adjusts its warranty accruals accordingly (see Note 12, “Commitments and Contingencies”).

Revenue Recognition. KLA-Tencor recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the selling price is fixed or determinable, and collectibility is reasonably assured. The Company derives revenue from three sources—sales of systems, spare parts and services. The Company 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, the Company recognizes revenue prior to acceptance from the customer, as follows:

• When the customer fab has previously 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.

• When system sales to independent distributors have no installation requirement, contain no acceptance agreement, and 100% payment is due based 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 withholds acceptance due to issues unrelated to product performance, revenue is recognized when the system is performing as intended and meets all published and agreed-upon specifications.

• 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.

In many instances, products are sold in stand-alone arrangements. Services are sold separately through renewals of annual maintenance contracts. The Company also allows for multiple element revenue arrangements in cases where certain elements of a sales arrangement are not delivered and accepted in one reporting period. To determine the relative fair value of each element in a revenue arrangement, the Company allocates arrangement consideration based on the selling price hierarchy. For substantially all of the arrangements with multiple deliverables pertaining to products and services, the Company uses vendor-specific objective evidence (“VSOE”) or third-party evidence (“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 estimated selling price (“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.

In a multiple element revenue arrangement, the Company defers revenue recognition associated with the relative fair value of the undelivered elements 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, which means that such product or service must fulfill the following criteria: (a) the delivered item(s) has value to the customer on a stand-alone basis; and (b) 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.

Trade-in rights are occasionally granted to customers to trade in tools in connection with subsequent purchases. The Company estimates the value of the trade-in right and reduces the revenue recognized on the initial sale. This amount is recognized at the earlier of the exercise of the trade-in right or the expiration of the trade-in right.

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.

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Service and maintenance contract revenue is recognized ratably over the term of the maintenance contract. Revenue from services performed in the absence of a maintenance contract, including consulting and training revenue, is recognized when the related services are performed and collectibility is reasonably assured.

The Company sells stand-alone software that is subject to the software revenue recognition guidance. The Company periodically reviews selling prices to determine whether VSOE exists, and in some situations where the Company is unable to establish VSOE for undelivered elements such as post-contract service, revenue is recognized ratably over the term of the service contract.

The Company also defers the fair value of non-standard warranty bundled with equipment sales as unearned revenue. Non-standard warranty includes services incremental to the standard 40-hour per week coverage for twelve months. Non-standard warranty is recognized ratably as revenue when the applicable warranty term period commences.

The deferred system profit balance 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 have not met the Company's revenue recognition 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.

Research and Development Costs. Research and development costs are expensed as incurred.

Strategic Development Agreements. Gross engineering, research and development expenses were partially offset by $6.9 million, $18.8 million and $13.7 million in external funding received under certain strategic development programs primarily from government grants in the fiscal years ended June 30, 2012, 2011 and 2010, respectively.

Shipping and Handling Costs. Shipping and handling costs are included as a component of cost of sales.

Accounting for Stock-Based Compensation Plans. The fair value of stock-based awards is measured at the grant date and is recognized as expense over the employee’s requisite service period. The fair value is determined using a Black-Scholes valuation model 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.

Advertising Expenses. Advertising costs are expensed as incurred. Advertising expenses for the fiscal years ended June 30, 2012, 2011 and 2010 were $2.4 million, $2.2 million and $1.6 million, respectively.

Income Taxes. KLA-Tencor accounts for income taxes in accordance with the authoritative guidance, which 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. The Company has determined that a valuation allowance was necessary against a portion of the deferred tax assets, but it anticipates 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 determines that the recovery is not probable.

The Company applies 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 in 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.

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Earnings Per Share. Basic earnings per share (“EPS”) is calculated by dividing net income available to common stockholders by the weighted-average number of common shares outstanding during the period. Diluted earnings per share is calculated by using the weighted-average number of common shares outstanding during the period increased to include the number of additional shares of common stock that would have been outstanding if the dilutive potential shares of common stock 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. The dilutive securities are excluded from the computation of diluted net loss per share when a net loss is recorded for the period as their effect would be anti-dilutive.

Contingencies and Litigation. The Company is subject to the possibility of losses from various contingencies. Considerable judgment is necessary to estimate the probability and amount of any loss from such contingencies. An accrual is made when it is probable that a liability has been incurred or an asset has been impaired and the amount of loss can be reasonably estimated. The Company accrues a liability and recognizes as expense the estimated costs expected to be incurred over the next twelve months to defend or settle asserted and unasserted claims existing as of the balance sheet date. See Note 12, “Commitments and Contingencies” and Note 13, “Litigation and Other Legal Matters” for a detailed description.

Reclassifications. Certain reclassifications have been made to prior year financial statements to conform to the current year presentation. The reclassifications had no effect on the Consolidated Statements of Operations or Cash Flows.

Recent Accounting Pronouncements. In December 2011, the FASB issued an accounting standard update requiring enhanced disclosure about certain financial instruments and derivative instruments that are offset in the balance sheet or subject to an enforceable master netting arrangement or similar agreement. The disclosure requirement becomes effective retrospectively in the first quarter of the Company's fiscal year ending June 30, 2014. The Company does not expect that the requirement will have an impact on its financial position, results of operations or cash flows as it is disclosure-only in nature.

In September 2011, the FASB issued an accounting standard update intended to simplify testing goodwill for impairment. The amendment allows an entity to first assess qualitative factors to determine whether it is necessary to perform the two-step quantitative goodwill impairment test. An entity will no longer be required to calculate the fair value of a reporting unit unless the entity determines, based on a qualitative assessment, that it is more likely than not that the fair value of the reporting unit is less than its carrying amount. The amendment becomes effective for annual and interim goodwill impairment tests performed for the Company's fiscal year ending June 30, 2013, and early adoption is permitted. The Company elected to early adopt this accounting guidance at the beginning of the three months ended December 31, 2011 (see Note 5, “Goodwill and Purchased Intangible Assets” for a detailed description).

In June 2011, the FASB issued an accounting standard update requiring an increase in the prominence of items reported in other comprehensive income. The amendment eliminates the option to present components of other comprehensive income as part of the statement of changes in stockholders' equity and requires that the total of comprehensive income, the components of net income, and the components of other comprehensive income be presented in a single continuous statement of comprehensive income or in two separate but consecutive statements. The amendment also required presentation of adjustments for items that are reclassified from other comprehensive income in the statement where the components of net income and the components of other comprehensive income are presented, which was indefinitely deferred by the FASB in December 2011. The amendment (other than the portion regarding the presentation of reclassification adjustments which, as noted above, has been deferred indefinitely) becomes effective during the first quarter of the Company's fiscal year ending June 30, 2013. Early adoption is permitted. The amendment will impact the presentation of the financial statements but will not have an impact on the Company's financial position, results of operations or cash flows.

In May 2011, the FASB issued an accounting standard update providing guidanceon achieving a consistent definition of and common requirements for measurement of fair value between U.S. GAAP and International Financial Reporting Standards (“IFRS”). This amendment was effective prospectively for the Company's interim reporting period ended March 31, 2012. Early application is not permitted. The amendment did not have an impact on the Company's financial position, results of operations or cash flows.

In April 2010, the 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 it otherwise qualifies as equity. This amendment was effective for the Company’s interim reporting period ended September 30, 2011. The amendment did not have an impact on the Company's financial position, results of operations or cash flows.

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In January 2010, the FASB issued authoritative guidance for fair value measurements. This guidance now requires a reporting entity to disclose separately the amounts of significant transfers in and out of Level 1 and Level 2 fair value measurements and also to describe the reasons for these transfers. This authoritative guidance 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 financial position, results of operations or cash flows as it is disclosure-only in nature. The guidance for Level 3 fair value measurements disclosures was effective for the Company’s interim reporting period ended September 30, 2011, and the implementation of that guidance did not have an impact on the Company's financial position, results of operations or cash flows as it is disclosure-only in nature.

NOTE 2 — FAIR VALUE MEASUREMENTS

The Company’s financial assets and liabilities 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 land, property 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.

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:

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.

A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.

All of the Company’s financial instruments were classified within Level 1 or Level 2 of the fair value hierarchy as of June 30, 2012, because they were valued using quoted market prices, broker/dealer quotes, 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 certain U.S. Treasury securities and sovereign securities. Such instruments are generally classified within Level 1 of the fair value hierarchy.

The types of instruments valued based on other observable inputs include commercial paper, corporate debt securities, municipal securities and certain U.S. Treasury securities and 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.

The principal market in which the 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. The 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.

The types of instruments valued based on unobservable inputs included the auction rate securities that were held by the Company as of and prior to June 30, 2010. Such instruments were 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 included estimates for interest rates, timing and amount of cash flows, and expected holding periods of the auction rate securities.

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Financial assets (excluding cash held in operating accounts and time deposits) and liabilities measured at fair value on a recurring basis as of the date indicated below were presented on the Company's Consolidated Balance Sheet as follows:

As of June 30, 2012 (In thousands)	Total			Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)
Assets
Cash equivalents:
Money market and other	$	607,038		$	607,038	$	—
Marketable securities:
U.S. Treasury securities	91,438			88,014		3,424
U.S. Government agency securities	634,492			634,492		—
Municipal securities	66,543			—		66,543
Corporate debt securities	917,392			—		917,392
Sovereign securities	29,145			10,129		19,016
Equity securities	10			10		—
Total cash equivalents and marketable securities(1)	2,346,058			1,339,683		1,006,375
Other current assets:
Derivative assets	1,407			—		1,407
Other non-current assets:
Executive Deferred Savings Plan:
Money market and other	732			732		—
Mutual funds	124,622			94,572		30,050
Executive Deferred Savings Plan total	125,354			95,304		30,050
Total financial assets(1)	$	2,472,819		$	1,434,987	$	1,037,832
Other current liabilities:
Derivative liabilities	$	(1,909	)	$	—	$	(1,909	)
Total financial liabilities	$	(1,909	)	$	—	$	(1,909	)

__________________ 

(1) Excludes cash of $126.0 million held in operating accounts and time deposits of $62.4 million as of June 30, 2012.

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Financial assets (excluding cash held in operating accounts and time deposits) and liabilities measured at fair value on a recurring basis as of the date indicated below were presented on the Company's Consolidated Balance Sheet as follows:

As of June 30, 2011 (In thousands)	Total			Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)
Assets
Cash equivalents:
U.S. Treasury securities	$	4,400		$	—	$	4,400
U.S. Government agency securities	6,010			6,010		—
Corporate debt securities	21,982			—		21,982
Money market and other	481,770			481,770		—
Marketable securities:
U.S. Treasury securities	54,496			52,396		2,100
U.S. Government agency securities	314,173			314,173		—
Municipal securities	38,957			—		38,957
Corporate debt securities	853,403			—		853,403
Sovereign securities	32,086			14,696		17,390
Total cash equivalents and marketable securities(1)	1,807,277			869,045		938,232
Other current assets:
Derivative assets	1,970			—		1,970
Other non-current assets:
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
Total financial assets(1)	$	1,937,280		$	966,822	$	970,458
Other current liabilities:
Derivative liabilities	$	(2,127	)	$	—	$	(2,127	)
Total financial liabilities	$	(2,127	)	$	—	$	(2,127	)

__________________ 

(1) Excludes cash of $165.9 million held in operating accounts and time deposits of $65.4 million as of June 30, 2011.

There were no transfers in and out of Level 1 and Level 2 fair value measurements during the fiscal years ended June 30, 2012 and 2011. The Company did not have any assets or liabilities measured at fair value on a recurring basis within Level 3 fair value measurements as of June 30, 2012 or 2011.

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Changes in the Company's Level 3 securities for the indicated periods were as follows:

	Year ended June 30,
(In thousands)	2012		2011
Beginning aggregate estimated fair value of Level 3 securities	$	—	$	16,825
Net settlements	—		(16,825		)
Ending aggregate estimated fair value of Level 3 securities	$	—	$	—

During the fiscal year ended June 30, 2010 (and in prior fiscal years), the Company’s investment portfolio included auction rate securities, which were investments with contractual maturities generally between 20 to 30 years. In February 2008, because sell orders exceeded buy orders, auctions failed for approximately $48.2 million in par value of municipal auction rate securities that were then held by the Company. 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 with UBS on November 11, 2008. On June 30, 2010, UBS repurchased the Company's $16.8 million of then-remaining auction rate securities at par value, and the repurchase was subsequently settled in July 2010.

NOTE 3 — FINANCIAL STATEMENT COMPONENTS

Consolidated Balance Sheets

	As of June 30,
(In thousands)	2012			2011
Accounts receivable, net:
Accounts receivable, gross	$	723,607		$	605,376
Allowance for doubtful accounts	(22,327		)	(22,106		)
	$	701,280		$	583,270
Inventories:
Customer service parts	$	197,013		$	148,466
Raw materials	234,549			235,605
Work-in-process	170,254			131,804
Finished goods	48,986			59,855
	$	650,802		$	575,730
Other current assets:
Prepaid expenses	$	53,472		$	61,796
Income tax related receivables	22,943			59,774
Other current assets	16,432			25,508
	$	92,847		$	147,078
Land, property and equipment, net(1):
Land	$	41,397		$	41,956
Buildings and leasehold improvements	244,807			234,173
Machinery and equipment	443,668			447,772
Office furniture and fixtures	19,493			19,645
Construction in process	11,765			6,979
	761,130			750,525
Less: accumulated depreciation and amortization	(483,444		)	(493,167		)
	$	277,686		$	257,358
Other non-current assets:
Executive Deferred Savings Plan(2)	$	125,354		$	128,033
Deferred tax assets—long-term	128,738			173,788
Other	21,135			26,274

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	$	275,227		$	328,095
Other current liabilities:
Warranty	$	46,496		$	41,528
Executive Deferred Savings Plan(2)	125,329			128,088
Compensation and benefits	175,007			186,761
Income taxes payable	11,251			16,364
Interest payable	8,769			8,769
Accrued litigation costs	1,080			4,824
Other accrued expenses	145,479			112,980
	$	513,411		$	499,314
Accumulated other comprehensive income (loss):
Currency translation adjustments	$	(10,419	)	$	251
Gains (losses) on cash flow hedging instruments, net of taxes (benefits) of $(343) in 2012 and $5 in 2011	(619		)	8
Unrealized gains on investments, net of taxes of $1,498 in 2012 and $2,258 in 2011	2,811			3,909
Unrealized losses of defined benefit pension plan, net of tax benefits of $(6,486) in 2012 and $(4,637) in 2011	(12,916		)	(6,567		)
	$	(21,143	)	$	(2,399	)

 __________________ 

(1)  As of June 30, 2011, the net book value of property and equipment includes assets held for sale of $2.3 million. There were no assets held for sale as of June 30, 2012.

(2) KLA-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. The Company 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, except in cases where such distributions are required to be delayed in order to avoid a prohibited distribution under Internal Revenue Code Section 409A. As of June 30, 2012, the Company had a deferred compensation plan related asset and liability included as a component of other non-current assets and other current liabilities on the Consolidated Balance Sheet.

Consolidated Statements of Operations

	Year ended June 30,
(In thousands)	2012			2011				2010
Interest income and other, net:
Interest income	$	15,321		$	15,513			$	17,512
Foreign exchange losses, net	(2,864		)	(2,108		)		(5,009		)
Realized gains on sale of investments	637			2,479				4,021
Other	(1,128		)	(11,820		)	(1)	15,008			(2)
	$	11,966		$	4,064			$	31,532

 __________________ 

(1) Includes impairment charges of $9.9 million recorded during the fiscal year ended June 30, 2011 for equity investments in privately-held companies.

(2) Includes a benefit of $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.

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NOTE 4 — MARKETABLE SECURITIES

The amortized cost and fair value of marketable securities as of the dates indicated below were as follows:

As of June 30, 2012 (In thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
U.S. Treasury securities	$	91,387	$	67	$	(16	)	$	91,438
U.S. Government agency securities	633,587		981		(76		)	634,492
Municipal securities	66,538		107		(102		)	66,543
Corporate debt securities	914,134		3,826		(568		)	917,392
Money market and other	607,038		—		—			607,038
Sovereign securities	29,056		89		—			29,145
Equity securities	10		—		—			10
Subtotal	2,341,750		5,070		(762		)	2,346,058
Add: Time deposits(1)	62,431		—		—			62,431
Less: Cash equivalents	625,339		—		—			625,339
Marketable securities	$	1,778,842	$	5,070	$	(762	)	$	1,783,150
As of June 30, 2011 (In thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			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

__________________ 

(1) Time deposits excluded from fair value measurements.

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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 market interest rates, bond yields and/or credit ratings. 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 the Company's investments that were in an unrealized loss position as of the date indicated below:

As of June 30, 2012 (In thousands)	Fair Value		Gross Unrealized Losses(1)
U.S. Treasury securities	$	47,093	$	(16	)
U.S. Government agency securities	115,894		(76		)
Municipal securities	38,399		(102		)
Corporate debt securities	225,186		(568		)
Total	$	426,572	$	(762	)

 __________________ 

(1) Of the total gross unrealized losses, there were no amounts that, as of June 30, 2012, had been in a continuous loss position for 12 months or more.

The contractual maturities of securities classified as available-for-sale, regardless of their classification on the Company's Consolidated Balance Sheet, as of the date indicated below were as follows:

As of June 30, 2012 (In thousands)	Amortized Cost		Fair Value
Due within one year	$	464,939	$	466,044
Due after one year through three years	1,313,903		1,317,106
	$	1,778,842	$	1,783,150

Actual maturities may differ from contractual maturities, because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Net realized gains for the fiscal years ended June 30, 2012, 2011 and 2010 were $0.6 million, $2.5 million and $4.0 million, respectively.

NOTE 5 — GOODWILL AND PURCHASED INTANGIBLE ASSETS

Goodwill

The following table presents goodwill balances as of the dates indicated below:

(In thousands)	As of June 30, 2012			As of June 30, 2011
Gross goodwill balance	$	604,302		$	604,742
Accumulated impairment losses	(276,586		)	(276,586		)
Net goodwill balance	$	327,716		$	328,156

The changes in the gross goodwill balance during the fiscal years ended June 30, 2012 and 2011 resulted from foreign currency translation adjustments.

Goodwill represents the excess of the purchase price over the fair value of the net tangible and identifiable intangible assets acquired in each business combination. In September 2011, the FASB amended its guidance to simplify testing goodwill for impairment, allowing an entity to first assess qualitative factors to determine whether it is necessary to perform the two-step quantitative goodwill impairment test. If an entity determines as a result of the qualitative assessment that it is more likely than not (> 50% likelihood) that the fair value of a reporting unit is less than its carrying amount, then the quantitative test is required. Otherwise, no further testing is required. The Company elected to early adopt this accounting guidance during the three months ended December 31, 2011.

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The Company has four reporting units: Defect Inspection, Metrology, Service and Other. As of December 31, 2011, the entire goodwill balance resided in the Defect Inspection reporting unit.

The fair value of each of the Company's reporting units was substantially in excess of its estimated carrying amount as of the most recent quantitative analysis of goodwill impairment performed in the three months ended December 31, 2010. There have been no triggering events or changes in circumstances since that quantitative analysis to indicate that the fair value of any of the Company's reporting units would be less than its carrying amount.

The Company performed a qualitative assessment of the goodwill by reporting unit as of November 30, 2011 during the three months ended December 31, 2011 and concluded that it was more likely than not that the fair value of each of the reporting units exceeded its carrying amount. In assessing the qualitative factors, the Company considered the impact of these key factors: change in industry and competitive environment, market capitalization, stock price, earnings multiples, budgeted-to-actual revenue performance from prior year, gross margin and cash flow from operating activities. As such, it was not necessary to perform the two-step goodwill impairment test at that time.

Based on the Company's assessment, goodwill in the reporting units was not impaired as of December 31, 2011 or 2010.

Purchased Intangible Assets

The components of purchased intangible assets as of the dates indicated below were as follows:

(In thousands)		As of June 30, 2012						As of June 30, 2011
Category	Range of Useful Lives	Gross Carrying Amount		Accumulated Amortization and Impairment		Net Amount		Gross Carrying Amount		Accumulated Amortization and Impairment		Net Amount
Existing technology	4-7 years	$	134,561	$	110,370	$	24,191	$	134,561	$	94,172	$	40,389
Patents	6-13 years	57,648		46,966		10,682		57,648		40,591		17,057
Trade name/Trademark	4-10 years	19,893		14,428		5,465		19,893		12,907		6,986
Customer relationships	6-7 years	54,823		39,525		15,298		54,823		33,565		21,258
Other	0-1 year	16,200		16,200		—		16,200		15,988		212
Total		$	283,125	$	227,489	$	55,636	$	283,125	$	197,223	$	85,902

Intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable.

For the fiscal years ended June 30, 2012, 2011 and 2010, amortization expense for other intangible assets was $30.3 million, $32.9 million and $33.8 million, respectively. Based on the intangible assets recorded as of June 30, 2012, and assuming no subsequent additions to or impairment of the underlying assets, the remaining estimated annual amortization expense is expected to be as follows:

Year ending June 30:	Amortization (In thousands)
2013	$	20,914
2014	15,537
2015	12,771
2016	5,582
2017	806
Thereafter	26
Total	$	55,636

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NOTE 6 — LONG-TERM DEBT

In April 2008, the Company 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 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 of June 30, 2012.

In certain circumstances involving a change of control followed by a downgrade of the rating of the Company’s senior notes, the Company 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, 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.

Based on the trading prices of the debt on the applicable dates, the fair value of the debt as of June 30, 2012 and 2011 was $902.2 million and $863.5 million, respectively.

NOTE 7 — STOCK-BASED COMPENSATION

Equity Incentive Program

Under the Company’s current equity incentive program, the Company issues equity awards from its 2004 Equity Incentive Plan (the “2004 Plan”), which provides for the grant of options to purchase shares of its common stock, stock appreciation rights, restricted stock units, performance shares, performance units and deferred stock units to its employees, consultants and members of its Board of Directors. The 2004 Plan permits the issuance of up to 32.0 million shares of common 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 number of shares issuable under the 2004 Plan as 1.8 shares for every one share subject thereto.

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The following table summarizes the combined activity under the equity incentive plans for the indicated periods:

(In thousands)	Available For Grant
Balances as of June 30, 2009(1)	7,702
Shares added to 2004 Plan	11,000
Restricted stock units granted(2)	(5,213	)
Restricted stock units canceled (2)	1,140
Restricted stock units withheld for taxes(2)(3)	244
Options canceled/expired/forfeited	1,161
Plan shares expired(4)	(872	)
Balances as of June 30, 2010(1)	15,162
Restricted stock units granted(2)(5)	(4,062	)
Restricted stock units canceled(2)	367
Options canceled/expired/forfeited	1,141
Plan shares expired(4)	(1,054	)
Balances as of June 30, 2011(1)	11,554
Restricted stock units granted(2)(6)	(4,145	)
Restricted stock units canceled(2)	508
Options canceled/expired/forfeited	788
Plan shares expired(4)	(736	)
Balances as of June 30, 2012(1)	7,969

__________________  

(1) Includes shares available for issuance under the 2004 Plan, as well as under the Company’s 1998 Outside Director Option Plan (the “Outside Director Plan”), which only permits the issuance of stock options to the Company’s non-employee members of the Board of Directors. As of June 30, 2012, 1.7 million shares were available for grant under the Outside Director Plan.

(2) The number of restricted stock units provided in this row reflects the application of the 1.8x 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 are no longer 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 plans do not result in additional shares being available to the Company for future grant.

(5) Includes 0.3 million restricted stock units granted to senior management during the fiscal year ended June 30, 2011 with performance-based vesting criteria (in addition to service-based vesting criteria for any of such restricted stock units that are deemed to have been earned). As of June 30, 2012, it had not yet been determined the extent to which (if at all) the performance-based vesting criteria of such restricted stock units had been satisfied. Therefore, this line item includes all such performance-based restricted stock units granted during such fiscal year, reported at the maximum possible number of shares that may ultimately be issuable under such restricted stock units if all applicable performance-based and service-based criteria are fully satisfied.

(6) Includes 0.2 million restricted stock units granted to senior management during the fiscal year ended June 30, 2012 with performance-based vesting criteria (in addition to service-based vesting criteria for any of such restricted stock units that are deemed to have been earned). As of June 30, 2012, it had not yet been determined the extent to which (if at all) the performance-based vesting criteria of such restricted stock units had been satisfied. Therefore, this line item includes all such performance-based restricted stock units granted during such fiscal year, reported at the maximum possible number of shares that may ultimately be issuable under such restricted stock units if all applicable performance-based and service-based criteria are fully satisfied.

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Except for stock options granted to non-employee Board 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 September 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.

The fair value of stock-based awards is measured at the grant date and is recognized as an expense over the employee’s requisite service period. The fair value is determined using a Black-Scholes valuation model 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 following table shows pre-tax stock-based compensation expense for the indicated periods:

	Year ended June 30,
(In thousands)	2012		2011		2010
Stock-based compensation expense by:
Costs of revenues	$	13,710	$	13,935	$	14,275
Engineering, research and development	21,505		24,539		27,289
Selling, general and administrative	43,620		42,956		44,418
Total stock-based compensation expense	$	78,835	$	81,430	$	85,982

The following table shows stock-based compensation capitalized as inventory as of the dates indicated below:

(In thousands)	As of June 30,
	2012		2011
Inventory	$	7,692	$	6,701

Stock Options

The following table summarizes the activity and weighted-average exercise price for stock options under all plans during the fiscal year ended June 30, 2012:

Stock Options	Shares (In thousands)		Weighted-Average Exercise Price
Outstanding stock options as of June 30, 2011	7,675		$	45.38
Granted	—		$	—
Exercised	(3,043	)	$	42.50
Canceled/expired/forfeited	(788	)	$	46.85
Outstanding stock options as of June 30, 2012	3,844		$	47.36
Vested and exercisable as of June 30, 2012	3,843		$	47.36

The Company has not issued any stock options since November 1, 2007. The weighted-average remaining contractual terms for total options outstanding under all plans and for total options vested and exercisable under all plans as of June 30, 2012 were each 1.5 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, 2012 were each $15.6 million.

The authoritative guidance on stock-based compensation permits companies to select the option-pricing model used to estimate the fair value of their stock-based compensation awards. The Black-Scholes option-pricing model requires the input of assumptions, including the option’s expected term and the expected price volatility of the underlying stock. For purposes of the fair value estimates presented in this report, the Company has based its expected stock price volatility assumption on the market-based implied volatility from traded options of the Company’s common stock. As of June 30, 2012, the unrecognized stock-based compensation balance related to stock options was immaterial.

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The following table shows the total intrinsic value of options exercised, total cash received from employees and non-employee Board members as a result of stock option exercises and tax benefits realized by the Company in connection with these stock option exercises for the indicated periods:

(In thousands)	Year ended June 30,
	2012		2011		2010
Total intrinsic value of options exercised	$	23,395	$	19,408	$	1,217
Total cash received from employees and non-employee Board members as a result of stock option exercises	$	129,306	$	94,488	$	15,154
Tax benefits realized by the Company in connection with these exercises	$	7,867	$	6,653	$	447

The Company generally settles employee stock option exercises with newly issued common shares, except in certain tax jurisdictions where settling such exercises with treasury shares provides the Company or one of its subsidiaries with a tax benefit.

Restricted Stock Units

The following table shows the applicable number of restricted stock units and weighted-average grant date fair value for restricted stock units granted, vested and released, withheld for taxes, and forfeited during the fiscal year ended June 30, 2012 and restricted stock units outstanding as of June 30, 2012 and 2011:

Restricted Stock Units	Shares (In thousands) (1)		Weighted-Average Grant Date Fair Value
Outstanding restricted stock units as of June 30, 2011	6,540		$	33.56
Granted(2)	2,303		$	36.63
Vested and released	(1,421	)	$	39.69
Withheld for taxes	(722	)	$	39.71
Forfeited	(282	)	$	32.54
Outstanding restricted stock units as of June 30, 2012(2)	6,418		$	32.66

 __________________ 

(1) Share numbers reflect actual shares subject to awarded restricted stock units. Under the terms of the 2004 Plan, each of the share numbers presented in this column is multiplied by 1.8 to calculate the impact on the share reserve under the 2004 Plan.

(2) Includes 0.2 million restricted stock units granted to senior management during the fiscal year ended June 30, 2012 with performance-based vesting criteria (in addition to service-based vesting criteria for any of such restricted stock units that are deemed to have been earned). As of June 30, 2012, it had not yet been determined the extent to which (if at all) the performance-based vesting criteria of such restricted stock units had been satisfied. Therefore, this line item includes all such performance-based restricted stock units, reported at the maximum possible number of shares that may ultimately be issuable under such restricted stock units if all applicable performance-based and service-based criteria are fully satisfied.

The restricted stock units granted by the Company from the beginning of the fiscal year ended June 30, 2007 through the fiscal year ended June 30, 2012 generally vest in two equal installments on the second and fourth anniversaries of the date of grant. Prior to the fiscal year ended June 30, 2007, the restricted stock units granted by the Company generally vested in two equal installments over four or five years from the 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.

The following table shows the grant date fair value after estimated forfeitures and weighted-average grant date fair value per unit for the restricted stock units granted and tax benefits realized by the Company in connection with vested and released restricted stock units for the indicated periods:

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(In thousands, except for weighted-average grant date fair value)	Year ended June 30,
	2012		2011		2010
Grant date fair value after estimated forfeitures	$	60,102	$	45,915	$	64,230
Weighted-average grant date fair value per unit	$	36.63	$	31.24	$	34.36
Tax benefits realized by the Company in connection with vested and released restricted stock units	$	28,914	$	23,302	$	14,181

As of June 30, 2012, the unrecognized stock-based compensation expense balance, net of estimated forfeitures, related to restricted stock units was $103.5 million and will be recognized over an estimated weighted-average amortization period of 2.1 years.

Employee Stock Purchase Plan

KLA-Tencor’s Employee Stock Purchase Plan (“ESPP”) provides that eligible employees may contribute up to 10% of their eligible earnings toward the semi-annual purchase of KLA-Tencor’s common stock. The ESPP is qualified under Section 423 of the Internal Revenue Code. The employee’s purchase price is derived from a formula based on the closing price of the common stock on the first day of the offering period versus the closing price on the date of purchase (or, if not a trading day, on the immediately preceding trading day).

Effective January 1, 2010, the offering period (or length of the look-back period) under the ESPP has a duration of six months, and the purchase price with respect to each offering period beginning on or after such date is, until otherwise amended, equal to 85% of the lesser of (i) the fair market value of the Company’s common stock at the commencement of the applicable six-month offering period or (ii) the fair market value of the Company’s common stock on the purchase date.

The Company estimates the fair value of purchase rights under the ESPP using a Black-Scholes valuation model. The fair value of each purchase right under the ESPP was estimated on the date of grant using the Black-Scholes option valuation model and the straight-line attribution approach with the following weighted-average assumptions:

	Year ended June 30,
	2012		2011		2010
Stock purchase plan:
Expected stock price volatility	36.0	%	38.0	%	35.0	%
Risk free interest rate	0.1	%	0.2	%	0.2	%
Dividend yield	3.2	%	3.1	%	1.6	%
Expected life of options (in years)	0.50		0.50		0.50

The following table shows total cash received from employees for the issuance of shares under the ESPP, the number of shares purchased by employees through the ESPP, the tax benefits realized by the Company in connection with the disqualifying dispositions of shares purchased under the ESPP and the weighted-average fair value per share for the indicated periods:

(In thousands, except for weighted-average fair value per share)	Year ended June 30,
	2012		2011		2010
Total cash received from employees for the issuance of shares under the ESPP	$	34,263	$	30,085	$	20,714
Number of shares purchased by employees through the ESPP	918		1,123		758
Tax benefits realized by the Company in connection with the disqualifying dispositions of shares purchased under the ESPP	$	2,206	$	2,194	$	994
Weighted-average fair value per share based on Black-Scholes model	$	10.02	$	7.41	$	8.51

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 will be required to be issued under the ESPP during the forthcoming fiscal year. During each of the fiscal years ended June 30, 2011 and 2010, a total of 2.0 million additional shares were reserved under the ESPP. No additional shares were reserved under the ESPP with respect to the fiscal year ended June 30, 2012. As of June 30, 2012, a total of 2.6 million shares were reserved and available for issuance under the ESPP, and, as of the date of this report, no additional shares have been added to the ESPP with respect to the fiscal year ending June 30, 2013.

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NOTE 8 — STOCK REPURCHASE PROGRAM

Since July 1997, the Board of Directors has authorized the Company to systematically repurchase in the open market up to 72.8 million shares of its common stock under a repurchase 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 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. As of June 30, 2012, 3.2 million shares were available for repurchase under the Company’s repurchase program.

Share repurchases for the indicated periods (based on the settlement date of the applicable repurchase) were as follows:

(In thousands)	Year ended June 30,
	2012		2011
Number of shares of common stock repurchased	5,790		6,190
Total cost of repurchases	$	261,150	$	232,924

The Company had shares issued and outstanding of 249.5 million and 166.7 million, respectively, as of June 30, 2012. As of June 30, 2011, shares issued and outstanding were 244.3 million and 167.1 million, respectively. The difference between shares issued and outstanding is related to shares repurchased under various repurchase programs.

NOTE 9 — NET INCOME PER SHARE

Basic net income per share is calculated by dividing net income available to common stockholders by the weighted-average number of common shares outstanding during the period. Diluted net income per share is calculated by using the weighted-average number of common shares outstanding 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 net income 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 is to 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 per share:

(In thousands, except per share amounts)	Year ended June 30,
	2012		2011		2010
Numerator:
Net income	$	756,015	$	794,488	$	212,300
Denominator:
Weighted-average shares-basic, excluding unvested restricted stock units	166,795		167,261		170,652
Effect of dilutive options and restricted stock units	3,352		3,091		2,382
Weighted-average shares-diluted	170,147		170,352		173,034
Basic net income per share	$	4.53	$	4.75	$	1.24
Diluted net income per share	$	4.44	$	4.66	$	1.23
Anti-dilutive securities excluded from the computation of diluted net income per share	3,123		8,003		11,109

The total amount of dividends paid during the fiscal years ended June 30, 2012, 2011 and 2010 was $233.6 million, $167.4 million and $102.4 million, respectively. The increase in the amount of dividends paid during the fiscal year ended June 30, 2012 reflects an increase during the first quarter of that year to the level of the Company's quarterly dividend from $0.25 to $0.35 per share.

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As discussed in Note 19, “Subsequent Events,” on July 10, 2012, the Company announced that its Board of Directors had authorized a further increase in the level of the Company's quarterly dividend from $0.35 to $0.40 per share. Accordingly, on August 2, 2012, the Company declared a quarterly cash dividend of $0.40 per share on the outstanding shares of the Company’s common stock, to be paid on September 4, 2012 to stockholders of record on August 13, 2012.

NOTE 10 — EMPLOYEE BENEFIT PLANS

KLA-Tencor has a profit sharing program for eligible employees, which distributes, on a quarterly basis, a percentage of the Company’s pre-tax profits. In addition, the Company has an employee savings plan that qualifies as a deferred salary arrangement under Section 401(k) of the Internal Revenue Code. Through March 31, 2011, the Company matched a portion of each participating eligible employee's 401(k) contribution equal to 50% of the first $6,000 of the employee’s contribution (i.e., a maximum of $3,000) during each fiscal year. The Company's Board of Directors approved an amendment to the Company's 401(k) plan effective April 1, 2011 to increase the employer match amount to 50% of the first $8,000 of an eligible employee's contribution (i.e., a maximum of $4,000) during each fiscal year.

The total expenses under the profit sharing and 401(k) programs aggregated $12.6 million, $11.6 million and $6.4 million in the fiscal years ended June 30, 2012, 2011 and 2010, respectively. The Company has no defined benefit plans in the United States. In addition to the profit sharing plan and the United States 401(k), several of the 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, 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.

The Company applies authoritative guidance that requires an employer to recognize the funded status of each of its defined pension and post-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, 2012 and 2011.

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Summary data relating to the Company's foreign defined benefit pension plans, including key weighted-average assumptions used, is provided in the following tables:

	Year ended June 30,
(In thousands)	2012			2011
Change in projected benefit obligation
Projected benefit obligation as of the beginning of the fiscal year	$	56,810		$	46,344
Service cost, including plan participant contributions	3,355			3,184
Interest cost	1,406			1,270
Contributions by plan participants	132			126
Adjustment	148			9
Actuarial loss	6,582			1,363
Benefit payments	(789		)	(1,357		)
Foreign currency exchange rate changes	(2,218		)	5,871
Projected benefit obligation as of the end of the fiscal year	$	65,426		$	56,810
	Year ended June 30,
(In thousands)	2012			2011
Change in fair value of plan assets
Fair value of plan assets as of the beginning of the fiscal year	$	11,035		$	8,692
Actual return on plan assets	68			78
Employer contributions	1,926			2,024
Benefit and expense payments	(541		)	(1,010		)
Foreign currency exchange rate changes	(779		)	1,251
Fair value of plan assets as of the end of the fiscal year	$	11,709		$	11,035

	As of June 30,
(In thousands)	2012			2011
Funded status
Ending funded status	$	(53,717	)	$	(45,775	)
Net amount recognized	$	(53,717	)	$	(45,775	)
	As of June 30,
(In thousands)	2012			2011
Plans with accumulated benefit obligations in excess of plan assets
Accumulated benefit obligation	$	28,844		$	39,748
Projected benefit obligation	$	65,426		$	56,810
Plan assets at fair value	$	11,709		$	11,035

	Year ended June 30,
	2012	2011	2010
Weighted-average assumptions
Discount rate	1.3%-5.5%	1.8%-5.5%	1.8%-4.9%
Expected return on assets	1.8%-4.5%	1.8%-4.5%	1.8%-4.5%
Rate of compensation increases	3.0%-4.5%	3.0%-4.0%	3.0%-4.0%

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The assumptions for expected rate of return on assets were developed by considering the historical returns and expectations of future returns relevant to the country in which each plan is in effect and the investments applicable to the corresponding plan. The discount rate for each plan was derived by reference to appropriate benchmark yields on high quality corporate bonds, allowing for the approximate duration of both plan obligations and the relevant benchmark index.

Amounts recognized in accumulated other comprehensive income (loss) consist of:

	Year ended June 30,
(In thousands)	2012		2011
Unrecognized transition obligation	$	1,868	$	2,318
Unrecognized prior service cost	392		450
Unrealized net loss	15,408		9,288
Amount recognized	$	17,668	$	12,056

Amounts in accumulated other comprehensive income (loss) expected to be recognized as components of net periodic benefit cost over the fiscal year ending June 30, 2013 are as follows:

(In thousands)	Year ending June 30, 2013
Unrecognized transition obligation	$	374
Unrecognized prior service cost	65
Unrealized net loss	580
Amount expected to be recognized	$	1,019

The components of the Company's net periodic cost relating to its foreign subsidiaries' defined pension plans are as follows:

	Year ended June 30,
(In thousands)	2012			2011			2010
Components of net periodic pension cost
Service cost, net of plan participant contributions	$	3,355		$	3,184		$	2,249
Interest cost	1,406			1,270			1,020
Return on plan assets	(309		)	(289		)	(215		)
Amortization of transitional obligation	380			366			28
Amortization of prior service cost	64			61			44
Amortization of net loss	292			178			98
Acquisitions	—			—			313
Adjustment	—			—			3,154
Net periodic pension cost	$	5,188		$	4,770		$	6,691

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Fair Value of Plan Assets

Fair value is the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The three levels of inputs that may be used to measure fair value of plan assets are as follows:

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.

The foreign plans’ investments are managed by third-party trustees consistent with the regulations or market practice of the country where the assets are invested. The 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, 2012, 2011 and 2010.

Expected employer contribution for the foreign plans during the fiscal year ending June 30, 2013 is $1.4 million.

The total benefits to be paid from the foreign pension plans are not expected to exceed $3.7 million in any year through 2022.

Foreign plan assets measured at fair value on a recurring basis consisted of the following investment categories as of June 30, 2012:

(In thousands)	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)
Cash and cash equivalents	$	8,405	$	8,405	$	—
Government, municipal securities, and other	3,304		—		3,304
Total assets measured at fair value	$	11,709	$	8,405	$	3,304

Concentration of Risk

The Company manages a variety of risks, including market, credit and liquidity risks, across its plan assets through its 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 the Company's exposure to such risks across a variety of instruments, markets and counterparties. As of June 30, 2012, the Company did not have concentrations of risk in any single entity, manager, counterparty, sector, industry or country.

NOTE 11 — INCOME TAXES

The components of income before income taxes are as follows:

	Year ended June 30,
(In thousands)	2012		2011		2010
Domestic income before income taxes	$	607,146	$	752,163	$	122,219
Foreign income before income taxes	366,948		357,903		168,962
Total income before income taxes	$	974,094	$	1,110,066	$	291,181

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The provision for income taxes is comprised of the following:

(In thousands)	Year ended June 30,
	2012			2011			2010
Current:
Federal	$	(699	)	$	225,192		$	63,687
State	51			2,095			8,799
Foreign	24,383			31,578			30,225
	$	23,735		$	258,865		$	102,711
Deferred:
Federal	$	188,882		$	40,908		$	(9,258	)
State	3,721			26,458			(3,689		)
Foreign	1,741			(10,653		)	(10,883		)
	194,344			56,713			(23,830		)
Provision for income taxes	$	218,079		$	315,578		$	78,881

The Company made a change in the timing of when revenue is recognized for U.S. federal income tax purposes during the fiscal year ended June 30, 2012, resulting in a lower current provision for federal income taxes, which was partially offset by a higher deferred current provision for federal income taxes. The Company expects the current and deferred provisions for federal income taxes to normalize (i.e., return closer to historical levels) relative to profit before taxes in future periods.

For the fiscal years ended June 30, 2012 and 2011, the Company did not recognize any benefits from employee stock activity deductions, and therefore the Company did not reduce actual current tax liabilities, or record any increases to capital in excess of par value, for those years in connection with such benefits.

The significant components of deferred income tax assets and liabilities are as follows:

(In thousands)	As of June 30,
	2012			2011
Deferred tax assets:
Tax credits and net operating losses	$	66,392		$	62,020
Employee benefits accrual	78,112			83,328
Stock-based compensation	37,300			63,625
Capitalized R&D expenses	57,192			79,815
Inventory reserves	57,736			53,217
Non-deductible reserves	45,682			45,154
Deferred profit	—			91,302
Unearned revenue	9,991			26,632
Other	57,464			59,275
Gross deferred tax assets	409,869			564,368
Valuation allowance	(40,479		)	(30,722		)
Net deferred tax assets	$	369,390		$	533,646
Deferred tax liabilities:
Unremitted earnings of foreign subsidiaries not permanently reinvested	$	(22,746	)	$	(25,131	)
Depreciation and amortization	(10,202		)	(20,254		)
Deferred profit	(37,906		)	—
Unrealized gain on investments	(1,070		)	(2,215		)
Total deferred tax liabilities	(71,924		)	(47,600		)
Total net deferred tax assets	$	297,466		$	486,046

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As of June 30, 2012, the Company had U.S. federal, state and foreign net operating loss (“NOL”) carry-forwards of approximately $37.5 million, $117.6 million and $35.9 million, respectively. The U.S. federal net operating loss and tax credit carry-forwards will expire at various dates beginning in 2023 through 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. State credits of $58.5 million will be carried over indefinitely. The foreign net operating loss carry-forwards will begin to expire in 2013.

The net deferred tax asset valuation allowance was $40.5 million as of June 30, 2012 and $30.7 million as of June 30, 2011. The change was primarily due to an increase in the valuation allowance related to state credit carry-forwards generated in the fiscal year ended June 30, 2012. 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, 2012, $36.4 million relates to state credit carry-forwards. The remainder of the valuation allowance relates primarily to foreign net operating loss carry-forwards.

As of June 30, 2012, U.S. income taxes were not provided for on a cumulative total of approximately $912.7 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 $302.7 million.

KLA-Tencor benefits from several tax holidays in Israel and Singapore where it manufactures certain of its products. These tax holidays are on approved investments and are scheduled to expire at varying times within the next two to nine years. However, of the tax holidays, whose expiration will have an impact on the Company's tax obligations, the soonest that any such tax holiday is scheduled to expire is during the fiscal year ending June 30, 2020. The Company was in compliance with all the terms and conditions of the tax holidays as of June 30, 2012. The net impact of these tax holidays was to decrease the Company’s tax expense by approximately $53.3 million, $30.4 million and $12.7 million in the fiscal years ended June 30, 2012, 2011 and 2010, respectively. The benefits of the tax holidays on diluted net income per share were $0.31, $0.18 and $0.07 for the fiscal years ended June 30, 2012, 2011, 2010, respectively.

The reconciliation of the United States federal statutory income tax rate to KLA-Tencor’s effective income tax rate is as follows:

	Year ended June 30,
	2012		2011		2010
Federal statutory rate	35.0	%	35.0	%	35.0	%
State income taxes, net of federal benefit	0.4	%	2.5	%	0.6	%
Effect of foreign operations taxed at various rates	(9.9	)%	(9.0	)%	(9.6	)%
Research and development tax credit	(1.1	)%	(1.2	)%	(1.2	)%
Net change in tax reserves	(2.8	)%	2.1	%	0.5	%
Domestic manufacturing benefit	(0.7	)%	(1.9	)%	(1.7	)%
Effect of stock-based compensation	1.3	%	1.4	%	4.0	%
Other	0.2	%	(0.5	)%	(0.5	)%
Effective income tax rate	22.4	%	28.4	%	27.1	%

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. The Company incurred $11.9 million of additional tax expense during the fiscal year ended June 30, 2012 due to shortfalls from employee stock activities. The Company's cumulative windfall balance reset to zero on July 1, 2012, since there was a cumulative shortfall in the fiscal year ended June 30, 2012.

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A reconciliation of the gross unrecognized tax benefit is as follows:

	Year ended June 30,
(In thousands)	2012			2011			2010
Unrecognized tax benefits at the beginning of the period	$	78,337		$	53,492		$	49,738
Increases for tax positions taken in prior years	4,172			5,228			6,553
Decreases for tax positions taken in prior years	(1,002		)	—			(1,897		)
Increases for tax positions taken in current year	15,663			32,152			10,912
Decreases for settlements with taxing authorities	(43,464		)	(11,786		)	—
Decreases for lapsing of the statute of limitations	(2,867		)	(749		)	(11,814		)
Unrecognized tax benefits at the end of the period	$	50,839		$	78,337		$	53,492

The amount of unrecognized tax benefits that would impact the effective tax rate was $50.8 million as of June 30, 2012. 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, 2012 and 2011 was approximately $4.6 million and $7.2 million, respectively.

The Company is subject to federal income tax examinations for all years beginning from the 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, 2008. The Company is also subject to examinations in other major foreign jurisdictions, including Singapore, for all years beginning from the fiscal year ended June 30, 2008. The Company believes that adequate amounts have been reserved for any adjustments that may ultimately result from any future examinations of these years.

It is possible that certain examinations may be concluded in the next twelve months. The Company believes it is possible that it may recognize up to $2.2 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 examinations with various tax authorities.

NOTE 12 — COMMITMENTS AND CONTINGENCIES

Factoring. KLA-Tencor has agreements (referred to as “factoring agreements”) with financial institutions to sell certain of its trade receivables and promissory notes from customers without recourse. The Company does not believe it is at risk for any material losses as a result of these agreements. In addition, the Company periodically sells certain letters of credit (“LCs”), without recourse, received from customers in payment for goods.

The following table shows total receivables sold under factoring agreements and proceeds from sales of LCs for the indicated periods:

	Year ended June 30,
(In thousands)	2012		2011
Receivables sold under factoring agreements	$	368,894	$	313,578
Proceeds from sales of LCs	$	30,142	$	140,534

Factoring and LC fees for the sale of certain trade receivables were recorded in interest income and other, net and were not material for the periods presented.

Facilities. KLA-Tencor leases certain of its facilities under arrangements that are accounted for as operating leases. Rent expense was $9.0 million, $8.5 million and $11.1 million for the fiscal years ended June 30, 2012, 2011 and 2010, respectively.

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The following is a schedule of expected operating lease payments:

Fiscal year ending June 30,	Amount (In thousands)
2013	$	8,537
2014	5,618
2015	2,998
2016	2,748
2017	2,314
2018 and thereafter	2,185
Total minimum lease payments	$	24,400

Purchase Commitments. KLA-Tencor maintains certain open inventory purchase commitments with its suppliers to ensure a smooth and continuous supply for key components. The 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 $308 million as of June 30, 2012 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.

Guarantees. KLA-Tencor provides standard warranty coverage on its systems for 40 hours per week for twelve months, providing labor and parts necessary to repair the systems during the warranty period. The 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, the 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. The Company updates these estimated charges on a quarterly basis. The actual product performance and/or field expense profiles may differ, and in those cases the Company adjusts its warranty accruals accordingly.

The following table provides the changes in the product warranty accrual for the indicated periods:

	Year ended June 30,
(In thousands)	2012			2011
Beginning balance	$	41,528		$	21,109
Accruals for warranties issued during the period	48,537			46,565
Changes in liability related to pre-existing warranties	3,971			(928		)
Settlements made during the period	(47,540		)	(25,218		)
Ending balance	$	46,496		$	41,528

The Company maintains guarantee arrangements available through various financial institutions for up to $20.2 million, of which $18.2 million had been issued as of June 30, 2012, primarily to fund guarantees to customs authorities for value-added tax (“VAT”) and other operating requirements of the Company's subsidiaries in Europe and Asia.

82

KLA-Tencor is a party to a variety of agreements pursuant to which it may be obligated to indemnify the other party with respect to certain matters. Typically, these obligations arise in connection with contracts and license agreements or the sale of assets, under which the Company customarily agrees to hold the other party harmless against losses arising from, or provides customers with other remedies to protect against, bodily injury or damage to personal property caused by the Company's products, non-compliance with the Company's product performance specifications, infringement by the Company'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's obligations under these agreements may be limited in terms of amounts, activity (typically at the Company'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.

Subject to certain limitations, the Company is obligated to indemnify its current and former directors, officers and employees with respect to certain litigation matters and investigations that arise in connection with their service to the Company. These obligations arise under the terms of the Company's certificate of incorporation, its bylaws, applicable contracts, and Delaware and California law. The obligation to indemnify generally means that the Company is required to pay or reimburse the individuals’ reasonable legal expenses and possibly damages and other liabilities incurred in connection with these matters.

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.

NOTE 13 — LITIGATION AND OTHER LEGAL MATTERS

Indemnification Obligations. As a result of the Company's indemnification obligations in connection with the litigation and government inquiries related to the Company's historical stock option practices, the Company has been paying defense costs for one former officer and employee facing an SEC civil action to which the Company is not a party. That former officer and the SEC have settled the civil action. As a result, during the three months ended December 31, 2011, the Company and the former officer entered into an agreement that released each other from liabilities stemming from the former officer's employment with the Company and materially concluded the Company's indemnification obligations to the former officer. The terms of that release agreement have been appropriately considered within the accrual the Company has established for currently pending legal proceedings.

Other Legal Matters. The Company is named from time to time as a party to lawsuits and other types of legal proceedings and claims in the normal course of its business. Actions filed against the Company 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. In general, legal proceedings and claims, regardless of their merit, and associated internal investigations (especially those relating to intellectual property or confidential information disputes) are often expensive to prosecute, defend or conduct and may divert management's attention and other company resources. Moreover, the results of legal proceedings are difficult to predict, and the costs incurred in litigation can be substantial, regardless of outcome. The Company believes the amounts provided in its 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 the Company's consolidated financial statements or will not have a material adverse effect on its results of operations, financial condition or cash flows.

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NOTE 14 — RESTRUCTURING CHARGES

The Company has in recent years undertaken a number of cost reduction activities, including 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, 2012, the Company recorded a $6.1 million net restructuring charge, of which $1.9 million was recorded to costs of revenues, $2.2 million was recorded to engineering, research and development expense and $2.0 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.

The following table shows the activity primarily related to severance and benefits expense for the fiscal years ended June 30, 2012 and 2011:

	Year ended June 30,
(In thousands)	2012			2011
Beginning balance	$	1,861		$	1,221
Restructuring costs	6,712			4,420
Adjustments	(651		)	(325		)
Cash payments	(5,127		)	(3,455		)
Ending balance	$	2,795		$	1,861

Substantially all of the remaining accrued restructuring balance related to the Company’s workforce reductions is expected to be paid out by the end of calendar year 2012.

NOTE 15 — DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

The authoritative guidance requires companies to recognize all derivative instruments and hedging activities, including foreign currency exchange contracts, as either assets or liabilities at fair value on the balance sheet. Changes in the fair value of derivatives that do not qualify for hedge treatment, as well as the ineffective portion of any hedges, are reflected in the Consolidated Statement of Operations. In accordance with the guidance, the Company designates foreign currency forward exchange and option contracts as cash flow hedges of certain forecasted foreign currency denominated sales and purchase transactions.

KLA-Tencor’s foreign subsidiaries operate and sell KLA-Tencor’s products in various global markets. As a result, KLA-Tencor is exposed to risks relating to changes in foreign currency exchange rates. KLA-Tencor utilizes foreign currency forward exchange contracts and option contracts to hedge against future movements in foreign exchange rates that affect certain existing and forecasted foreign currency denominated sales and purchase transactions, such as the Japanese yen, the euro and the Israeli new shekel. KLA-Tencor does not use derivative financial instruments for speculative or trading purposes. The Company routinely hedges its exposures to certain foreign currencies with various financial institutions in an effort to minimize the impact of certain currency exchange rate fluctuations. These currency forward exchange contracts and options, designated as cash flow hedges, generally have maturities of less than 18 months. Cash flow hedges are evaluated for effectiveness monthly, based on changes in total fair value of the derivatives. If a financial counterparty 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.

For derivative instruments that are designated and qualify as cash flow hedges, the effective portion of the gains or losses on the derivative is reported as a component of accumulated other comprehensive income (loss) (“OCI”) and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. Changes in the fair value of currency forward exchange and option contracts due to changes in time value are excluded from the assessment of effectiveness. Gains and losses on the derivative representing either hedge ineffectiveness or hedge components excluded from the assessment of effectiveness are recognized in current earnings.

For derivative instruments that are not designated as accounting hedges, gains and losses are recognized in interest income and other, net. The Company uses foreign currency forward contracts to hedge certain foreign currency denominated assets or liabilities. The gains and losses on these derivatives are largely offset by the changes in the fair value of the assets or liabilities being hedged.

84

Derivatives in Cash Flow Hedging Relationships: Foreign Exchange Contracts

The locations and amounts of designated and non-designated derivative instruments’ gains and losses reported in the consolidated financial statements for the indicated periods were as follows:

(In thousands)	Location in Financial Statements	Year ended June 30,
		2012			2011
Derivatives Designated as Hedging Instruments
Gains (losses) in accumulated OCI on derivatives (effective portion)	Accumulated OCI	$	(1,184	)	$	47
Losses reclassified from accumulated OCI into income (effective portion):	Revenues	$	(185	)	$	(2,491	)
	Costs of revenues	(25		)	531
	Total losses reclassified from accumulated OCI into income (effective portion)	$	(210	)	$	(1,960	)
Gains recognized in income on derivatives (ineffectiveness portion and amount excluded from effectiveness testing)	Interest income and other, net	$	120		$	468
Derivatives Not Designated as Hedging Instruments
Losses recognized in income	Interest income and other, net	$	(11,596	)	$	(2,024	)

The U.S. dollar equivalent of all outstanding notional amounts of hedge contracts, with maximum maturity of 13 months, as of the dates indicated below was as follows:

(In thousands)	As of June 30, 2012		As of June 30, 2011
Cash flow hedge contracts
Purchase	$	14,689	$	3,381
Sell	$	29,362	$	30,133
Other foreign currency hedge contracts
Purchase	$	121,965	$	174,499
Sell	$	126,827	$	216,738

85

The locations and fair value amounts of the Company’s derivative instruments reported in its Consolidated Balance Sheets as of the dates indicated below were as follows:

	Asset Derivatives					Liability Derivatives
	Balance Sheet Location	June 30, 2012		June 30, 2011		Balance Sheet Location	June 30, 2012		June 30, 2011
(In thousands)		Fair Value					Fair Value
Derivatives designated as hedging instruments
Foreign exchange contracts	Other current assets	$	128	$	145	Other current liabilities	$	736	$	475
Total derivatives designated as hedging instruments		$	128	$	145		$	736	$	475
Derivatives not designated as hedging instruments
Foreign exchange contracts	Other current assets	$	1,279	$	1,825	Other current liabilities	$	1,173	$	1,652
Total derivatives not designated as hedging instruments		$	1,279	$	1,825		$	1,173	$	1,652
Total derivatives		$	1,407	$	1,970		$	1,909	$	2,127

The following table provides the balances and changes in accumulated other comprehensive income (loss) related to derivative instruments for the indicated periods:

(In thousands)	Year ended June 30, 2012
Beginning balance	$	12
Amount reclassified to income	210
Net change	(1,184		)
Ending balance	$	(962	)

NOTE 16 — SEGMENT REPORTING AND GEOGRAPHIC INFORMATION

KLA-Tencor reports one reportable segment in accordance with the provisions of the authoritative guidance for segment reporting. Operating segments are defined as components of an enterprise about which separate financial information is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. KLA-Tencor’s chief operating decision maker is the Chief Executive Officer.

The Company is engaged primarily in designing, manufacturing and marketing process control and yield management solutions for the semiconductor and related nanoelectronics industries. All operating segments have been aggregated due to their inter-dependencies, commonality of long-term economic characteristics, products and services, the production processes, class of customer and distribution processes. The Company’s service products are an extension of the system product portfolio and provide customers with spare parts and fab management services (including system preventive maintenance and optimization services) to improve yield, increase production uptime and throughput, and lower the cost of ownership. Since the Company operates in one segment, all financial segment information required by the authoritative guidance can be found in the consolidated financial statements.

The Company's significant operations outside the United States include manufacturing facilities in Israel and Singapore, and sales, marketing and service offices in Western Europe, Japan and the Asia Pacific regions. For geographical revenue 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.

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The following is a summary of revenues by geographic region, based on ship-to location, for the indicated periods (as a percentage of total revenues):

(Dollar amounts in thousands)	Year ended June 30,
	2012				2011				2010
Revenues:
United States	$	675,034	21	%	$	610,955	19	%	$	341,079	19	%
Taiwan	872,583		28	%	864,378		27	%	688,089		38	%
Japan	415,475		13	%	413,208		13	%	239,393		13	%
Europe & Israel	323,902		10	%	340,249		11	%	111,497		6	%
Korea	611,462		19	%	480,488		15	%	151,198		8	%
Rest of Asia	273,488		9	%	465,889		15	%	289,504		16	%
Total	$	3,171,944	100	%	$	3,175,167	100	%	$	1,820,760	100	%

The following is a summary of revenues by major products for the indicated periods (as a percentage of total revenues):

(Dollar amounts in thousands)	Year ended June 30,
	2012				2011				2010
Revenues:
Defect inspection	$	1,830,935	58	%	$	2,039,856	64	%	$	1,011,027	56	%
Metrology	671,597		21	%	498,904		16	%	261,105		14	%
Service	574,189		18	%	561,729		18	%	496,490		27	%
Other	95,223		3	%	74,678		2	%	52,138		3	%
Total	$	3,171,944	100	%	$	3,175,167	100	%	$	1,820,760	100	%

Long-lived assets by geographic region as of the dates indicated below were as follows:

	As of June 30,
(In thousands)	2012		2011		2010
Long-lived assets:
United States	$	211,315	$	202,520	$	174,033
Taiwan	696		803		714
Japan	3,570		4,256		3,985
Europe & Israel	77,292		90,163		127,474
Korea	2,773		2,804		3,482
Rest of Asia	46,719		53,106		56,141
Total	$	342,365	$	353,652	$	365,829

87

NOTE 17 — SALE OF REAL ESTATE ASSETS

During the fiscal year ended June 30, 2011, the Company completed the sale of its remaining real estate properties in San Jose, California. The sale transaction, which closed on December 9, 2010, resulted in proceeds to the Company of $18.2 million and a gain on sale of $1.4 million recorded as an offset to selling, general and administrative expenses.

NOTE 18 — RELATED PARTY TRANSACTIONS

During the fiscal years ended June 30, 2012, 2011 and 2010, 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, Cisco Systems, Inc., Freescale Semiconductor, Inc. and Avago Technologies Ltd. The following table provides the transactions with these parties for the indicated periods (for the portion of such period that they were considered related):

	Year ended June 30,
(In thousands)	2012		2011		2010
Total revenues	$	5,684	$	379	$	8,242
Total purchases	$	7,555	$	7,171	$	2,950

The Company had a receivable balance from these parties of $1.9 million and $0.2 million as of June 30, 2012 and 2011, respectively. Management believes that such transactions are at arm's length and on similar terms as would have been obtained from unaffiliated third parties.

NOTE 19 — SUBSEQUENT EVENTS

On July 10, 2012, the Company announced that its Board of Directors had authorized an increase in the level of the Company's quarterly dividend from $0.35 to $0.40 per share. On August 2, 2012, the Company declared a quarterly cash dividend of $0.40 per share on the outstanding shares of the Company’s common stock, to be paid on September 4, 2012 to stockholders of record on August 13, 2012.

NOTE 20 — QUARTERLY CONSOLIDATED RESULTS OF OPERATIONS (UNAUDITED)

The following is a summary of the Company’s quarterly consolidated results of operations (unaudited) for the fiscal years ended June 30, 2012 and 2011.

(In thousands, except per share data)	First quarter ended September 30, 2011		Second quarter ended December 31, 2011		Third quarter ended March 31, 2012		Fourth quarter ended June 30, 2012
Total revenues	$	796,476	$	642,482	$	840,521	$	892,465
Total costs and operating expenses	$	542,187	$	483,019	$	556,247	$	574,166
Gross margin	$	456,127	$	369,627	$	485,372	$	530,802
Income from operations	$	254,289	$	159,463	$	284,274	$	318,299
Net income	$	191,995	$	110,797	$	205,346	$	247,877
Net income per share:
Basic(1)	$	1.15	$	0.67	$	1.23	$	1.48
Diluted(1)	$	1.13	$	0.66	$	1.21	$	1.46

88

(In thousands, except per share data)	First quarter ended September 30, 2010		Second quarter ended December 31, 2010		Third quarter ended March 31, 2011		Fourth quarter ended June 30, 2011
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

 __________________ 

(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.

89

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To The Board of Directors and Stockholders of KLA-Tencor Corporation

In our opinion, the consolidated financial statements listed in the index appearing under Item 15(a)(1) present fairly, in all material respects, the financial position of KLA-Tencor Corporation and its subsidiaries at June 30, 2012 and June 30, 2011, and the results of their operations and their cash flows for each of the three years in the period ended June 30, 2012 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 index appearing 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, 2012, based on criteria established in Internal 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 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.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ PricewaterhouseCoopers LLP

San Jose, California

August 6, 2012

90

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

The Company conducted an evaluation of the effectiveness of the design and operation of its disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) (“Disclosure Controls”) as of the end of the period covered by this Annual Report on Form 10-K (this “Report”) required by Exchange Act Rules 13a-15(b) or 15d-15(b). The controls evaluation was conducted under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”). Based on this evaluation, the CEO and CFO have concluded that as of the end of the period covered by this Report the Company’s Disclosure Controls were effective at a reasonable assurance level.

Attached as exhibits to this Report are certifications of the CEO and CFO, which are required in accordance with Rule 13a-14 of the Exchange Act. This Controls and Procedures section includes the information concerning the controls evaluation referred to in the certifications, and it should be read in conjunction with the certifications for a more complete understanding of the topics presented.

Definition of Disclosure Controls

Disclosure Controls are controls and procedures designed to reasonably assure that information required to be disclosed in the Company’s reports filed under the Exchange Act, such as this Report, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure Controls are also designed to reasonably assure that such information is accumulated and communicated to the Company’s management, including the CEO and CFO, as appropriate to allow timely decisions regarding required disclosure. The Company’s Disclosure Controls include components of its internal control over financial reporting, which consists of control processes designed to provide reasonable assurance regarding the reliability of its financial reporting and the preparation of financial statements in accordance with generally accepted accounting principles in the 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.

Management’s Report on Internal Control over Financial Reporting

The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Under the supervision and with the participation of the Company’s management, including the CEO and CFO, the Company conducted an evaluation of the effectiveness of its internal control over financial reporting based on criteria established in the framework in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, the Company’s management concluded that the Company’s internal control over financial reporting was effective as of June 30, 2012.

The effectiveness of the Company’s internal control over financial reporting as of June 30, 2012 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.

Limitations on the Effectiveness of Controls

The Company’s management, including the CEO and CFO, does not expect that the Company’s Disclosure Controls or internal control over financial reporting will prevent all error and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision making can be faulty and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of

91

two or more people, or by management override of the controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

Changes in Internal Control over Financial Reporting

There were no changes in the Company’s internal control over financial reporting that occurred during the period 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

None.

92

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

For the information required by this Item, see “Information About the Directors and the Nominees,” “Information About Executive Officers,” “Security Ownership of Certain Beneficial Owners and Management—Section 16(a) Beneficial Ownership Reporting Compliance,” “Our Corporate Governance Practices—Standards of Business Conduct; Whistleblower Hotline and Website” and “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

For the information required by this Item, see “Executive Compensation and Other Matters,” “Director Compensation” and “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

For the information required by this Item, see “Security Ownership of Certain Beneficial Owners and Management” and “Equity Compensation Plan Information” in the Proxy Statement, which is incorporated herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

For the information required by this Item, see “Certain Relationships and Related Transactions” and “Information About the Board of Directors and Its Committees —The Board of Directors” in the Proxy Statement, which is incorporated herein by reference.

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

For the information required by this Item, see “Proposal Two: Ratification of Appointment of PricewaterhouseCoopers LLP as Our Independent Registered Public Accounting Firm for the Fiscal Year Ending June 30, 2013” in the Proxy Statement, which is incorporated herein by reference.

93

PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES

(a) The following documents are filed as part of this Annual Report on Form 10-K:

1. Financial Statements:

The following financial statements and schedules of the Registrant are contained in Item 8, “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K:

Consolidated Balance Sheets as of June 30, 2012 and 2011	51
Consolidated Statements of Operations for each of the three years in the period ended June 30, 2012	52
Consolidated Statements of Stockholders’ Equity for each of the three years in the period ended June 30, 2012	53
Consolidated Statements of Cash Flows for each of the three years in the period ended June 30, 2012	54
Notes to Consolidated Financial Statements	55
Report of Independent Registered Public Accounting Firm	90

2. Financial Statement Schedule:

The following financial statement schedule of the Registrant is filed as part of this Annual Report on Form 10-K and should be read in conjunction with the financial statements:

Schedule II—Valuation and Qualifying Accounts 100

All other schedules are omitted because they are either not applicable or the required information is shown in the Consolidated Financial Statements or notes thereto.

3. Exhibits

		Incorporated by Reference
Exhibit Number	Exhibit Description	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, 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 By-Laws	8-K	No. 000-09992	3.1	February 19, 2009
4.1	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
4.2	Form of 6.900% Senior Notes Due 2018 (included in Exhibit 4.1)	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

94

		Incorporated by Reference
Exhibit Number	Exhibit Description	Form	File No.	Exhibit Number	Filing Date
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 Form*	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 December 2009, effective January 1, 2010)*	10-Q	No. 000-09992	10.49	January 29, 2010
10.17	Amended and Restated 1997 Employee Stock Purchase Plan (as amended February 11, 2011)*	10-Q	No. 000-09992	10.47	April 29, 2011
10.18	KLA Instruments Corporation Restated 1982 Stock Option Plan (as amended November 18, 1996)*	S-8	No. 333-22941	10.74	March 7, 1997
10.19	Therma-Wave, Inc.’s 2000 Equity Incentive Plan*	(1)	(1)	(1)	(1)
10.20	Amendment No. 1 to Therma-Wave, Inc.’s 2000 Equity Incentive Plan*	(2)	(2)	(2)	(2)
10.21	Amendment No. 2 to Therma-Wave, Inc.’s 2000 Equity Incentive Plan*	(3)	(3)	(3)	(3)
10.22	Amendment No. 3 to Therma-Wave, Inc.’s 2000 Equity Incentive Plan*	(4)	(4)	(4)	(4)

95

		Incorporated by Reference
Exhibit Number	Exhibit Description	Form	File No.	Exhibit Number	Filing Date
10.23	Amendment No. 4 to Therma-Wave, Inc.’s 2000 Equity Incentive Plan*	(5)	(5)	(5)	(5)
10.24	ADE Corporation’s 1995 Stock Option Plan*	(6)	(6)	(6)	(6)
10.25	ADE Corporation 1997 Employee Stock Option Plan*	(7)	(7)	(7)	(7)
10.26	Amendment to ADE Corporation’s 1997 Employee Stock Option Plan dated April 7, 1999*	(8)	(8)	(8)	(8)
10.27	ADE Corporation’s 2000 Employee Stock Option Plan (as amended)*	(9)	(9)	(9)	(9)
10.28	Form of Indemnification Agreement for Directors and Executive Officers*	10-K	No. 000-09992	10.3	September 29, 1997
10.29	KLA-Tencor Corporation Performance Bonus Plan*	DEF 14A	No. 000-09992	App. B	September 24, 2009
10.30	Fiscal Year 2010 Performance Bonus Plan *+	10-Q	No. 000-09992	10.46	October 30, 2009
10.31	Fiscal Year 2011 Performance Bonus Plan*+	10-Q	No. 000-09992	10.45	October 28, 2010
10.32	Fiscal Year 2012 Executive Incentive Plan*+	10-Q	No. 000-09992	10.43	October 27, 2011
10.33	Executive Deferred Savings Plan (as amended and restated January 1, 2009)*	10-Q	No. 000-09992	10.49	January 30, 2009
10.34	Executive Deferred Savings Plan (as amended and restated effective November 2, 2011)*	10-Q	No. 000-09992	10.44	January 27, 2012
10.35	Executive Deferred Savings Plan (as amended and restated effective February 8, 2012)*	10-Q	No. 000-09992	10.45	April 27, 2012
10.36	Executive Severance Plan (as amended and restated February 19, 2009)*	8-K	No. 000-09992	10.51	February 19, 2009
10.37	2010 Executive Severance Plan*	10-Q	No. 000-09992	10.46	January 28, 2011
10.38	Agreement by and between the Company and Ben Tsai (as amended and restated)*	10-K	No. 000-09992	10.26	January 29, 2007
10.39	Letter Agreement by and between the Company and Brian M. Martin*	10-Q	No. 000-09992	10.28	May 7, 2007
10.40	Letter Agreement by and 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

96

		Incorporated by Reference
Exhibit Number	Exhibit Description	Form	File No.	Exhibit Number	Filing Date
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	XBRL Taxonomy Extension Label Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

* 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).

97

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

		KLA-Tencor Corporation
August 6, 2012	By:	/S/    RICHARD P. WALLACE
(Date)		Richard P. Wallace
		President and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature	Title	Date
/s/    RICHARD P. WALLACE	President, Chief Executive Officer and Director (principal executive officer)	August 6, 2012
Richard P. Wallace
/s/     MARK P. DENTINGER	Executive Vice President and Chief Financial Officer (principal financial officer)	August 6, 2012
Mark P. Dentinger
/s/    VIRENDRA A. KIRLOSKAR	Senior Vice President and Chief Accounting Officer (principal accounting officer)	August 6, 2012
Virendra A. Kirloskar
/s/    EDWARD W. BARNHOLT	Chairman of the Board and Director	August 6, 2012
Edward W. Barnholt
/s/    ROBERT P. AKINS	Director	August 6, 2012
Robert P. Akins
/s/    ROBERT T. BOND	Director	August 6, 2012
Robert T. Bond
/s/    ROBERT M. CALDERONI	Director	August 6, 2012
Robert M. Calderoni
/s/    JOHN T. DICKSON	Director	August 6, 2012
John T. Dickson
/s/    EMIKO HIGASHI	Director	August 6, 2012
Emiko Higashi

98

/s/    STEPHEN P. KAUFMAN	Director	August 6, 2012
Stephen P. Kaufman
/s/    KEVIN J. KENNEDY	Director	August 6, 2012
Kevin J. Kennedy
/s/    KIRAN M. PATEL	Director	August 6, 2012
Kiran M. Patel
/s/    DAVID C. WANG	Director	August 6, 2012
David C. Wang

99

SCHEDULE II

Valuation and Qualifying Accounts

(In thousands)	Balance at Beginning of Period		Charged to Expense		Deductions/ Adjustments			Balance at End of Period
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
Fiscal Year Ended June 30, 2012:
Allowance for Doubtful Accounts	$	22,106	$	300	$	(79	)	$	22,327
Allowance for Deferred Tax Assets	$	30,722	$	—	$	9,757		$	40,479

100

KLA-TENCOR CORPORATION

EXHIBIT INDEX

Exhibit Number	Exhibit Description	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, 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 By-Laws	8-K	No. 000-09992	3.1	February 19, 2009
4.1	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
4.2	Form of 6.900% Senior Notes Due 2018 (included in Exhibit 4.1)	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 Form*	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

101

Exhibit Number	Exhibit Description	Incorporated by Reference
		Form	File No.	Exhibit Number	Filing Date
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 December 2009, effective January 1, 2010)*	10-Q	No. 000-09992	10.49	January 29, 2010
10.17	Amended and Restated 1997 Employee Stock Purchase Plan (as amended February 11, 2011)*	10-Q	No. 000-09992	10.47	April 29, 2011
10.18	KLA Instruments Corporation’s Restated 1982 Stock Option Plan (as amended November 18, 1996)*	S-8	No. 333-22941	10.74	March 7, 1997
10.19	Therma-Wave, Inc.’s 2000 Equity Incentive Plan*	(1)	(1)	(1)	(1)
10.20	Amendment No. 1 to Therma-Wave, Inc.’s 2000 Equity Incentive Plan*	(2)	(2)	(2)	(2)
10.21	Amendment No. 2 to Therma-Wave, Inc.’s 2000 Equity Incentive Plan*	(3)	(3)	(3)	(3)
10.22	Amendment No. 3 to Therma-Wave, Inc.’s 2000 Equity Incentive Plan*	(4)	(4)	(4)	(4)
10.23	Amendment No. 4 to Therma-Wave, Inc.’s 2000 Equity Incentive Plan*	(5)	(5)	(5)	(5)
10.24	ADE Corporation’s 1995 Stock Option Plan*	(6)	(6)	(6)	(6)
10.25	ADE Corporation’s 1997 Employee Stock Option Plan*	(7)	(7)	(7)	(7)
10.26	Amendment to ADE Corporation’s 1997 Employee Stock Option Plan dated April 7, 1999*	(8)	(8)	(8)	(8)
10.27	ADE Corporation’s 2000 Employee Stock Option Plan (as amended)*	(9)	(9)	(9)	(9)
10.28	Form of Indemnification Agreement for Directors and Executive Officers*	10-K	No. 000-09992	10.3	September 29, 1997
10.29	KLA-Tencor Corporation Performance Bonus Plan*	DEF 14A	No. 000-09992	App. B	September 24, 2009
10.30	Fiscal Year 2010 Performance Bonus Plan *+	10-Q	No. 000-09992	10.46	October 30, 2009
10.31	Fiscal Year 2011 Performance Bonus Plan*+	10-Q	No. 000-09992	10.45	October 29, 2010
10.32	Fiscal Year 2012 Executive Incentive Plan*+	10-Q	No. 000-09992	10.43	October 28, 2011

102

Exhibit Number	Exhibit Description	Incorporated by Reference
		Form	File No.	Exhibit Number	Filing Date
10.33	Executive Deferred Savings Plan (as amended and restated January 1, 2009)*	10-Q	No. 000-09992	10.49	January 30, 2009
10.34	Executive Deferred Savings Plan (as amended and restated effective November 2, 2011)*	10-Q	No. 000-09992	10.44	January 27, 2012
10.35	Executive Deferred Savings Plan (as amended and restated effective February 8, 2012)*	10-Q	No. 000-09992	10.45	April 27, 2012
10.36	Executive Severance Plan (as amended and restated February 19, 2009)*	8-K	No. 000-09992	10.51	February 19, 2009
10.37	2010 Executive Severance Plan*	10-Q	No. 000-09992	10.46	January 28, 2011
10.38	Agreement by and between the Company and Ben Tsai (as amended and restated)*	10-K	No. 000-09992	10.26	January 29, 2007
10.39	Letter Agreement by and between the Company and Brian M. Martin*	10-Q	No. 000-09992	10.28	May 7, 2007
10.40	Letter Agreement by and 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
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	XBRL Taxonomy Extension Label Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

103

* 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).

104

EX-12.1

Exhibit 12.1

KLA-Tencor Corporation

Computation of Ratio of Earnings to Fixed Charges

	Fiscal year ended June 30,
(In thousands, except ratios)	2012		2011		2010		2009			2008
Earnings (losses):
Income (loss) before income taxes	$	974,094	$	1,110,066	$	291,181	$	(602,531	)	$	560,234
Add back fixed charges:
Interest expense	54,197		54,328		54,517		55,339			10,767
Amortization of bond issuance costs	735		735		735		735			123
Interest portion of rental expense	3,008		2,834		3,687		4,114			3,824
Total adjusted earnings (losses)	$	1,032,034	$	1,167,963	$	350,120	$	(542,343	)	$	574,948
Fixed charges:
Interest expense	$	54,197	$	54,328	$	54,517	$	55,339		$	10,767
Amortization of bond issuance costs	735		735		735		735			123
Interest portion of rental expense	3,008		2,834		3,687		4,114			3,824
Total fixed charges	$	57,940	$	57,897	$	58,939	$	60,188		$	14,714
Ratio of earnings to fixed charges	17.8		20.2		5.9		(a)			39.1

__________________ 

(a) Earnings were inadequate to cover the fixed charges by $602.5 million in the fiscal year ended June 30, 2009.

For purposes of calculating the ratio of earnings to fixed charges, earnings is the amount resulting from adding earnings before income taxes, plus fixed charges. Fixed charges for these purposes include interest expense, amortization of bond issuance costs, and one-third of rental expense, which KLA-Tencor considers to be a reasonable approximation of the interest factor included in rental expense.

EX-21.1

Exhibit 21.1

KLA-Tencor Corporation

List of Subsidiaries as of June 30, 2012

Name	State or Other Jurisdiction of Incorporation / Organization
DOMESTIC SUBSIDIARIES
International Sales & Business, Inc.	California
KLA-Tencor China Corporation	California
KLA-Tencor International Corporation	California
VLSI Standards, Inc.	California
ADE International Corporation	Delaware
Belize Holdings, LLC	Delaware
KLA-Tencor Asia-Pac Distribution Corporation	Delaware
KT Venture Group, L.L.C.	Delaware
KT Venture Group II, L.L.C.	Delaware
INTERNATIONAL SUBSIDIARIES
ICOS Vision Systems Corporation NV	Belgium
ICOS Vision Systems NV	Belgium
Lee Ta Technologies (BVI), Inc.	British Virgin Islands
KLA-Tencor Corporation (Cayman) Limited, I	Cayman Islands
KLA-Tencor Corporation (Cayman) Limited, II	Cayman Islands
KLA-Tencor Corporation (Cayman) Limited, III	Cayman Islands
KLA-Tencor Corporation (Cayman) Limited, IV	Cayman Islands
ICOS Vision Systems (Shenzhen) Co. Ltd.	China
KLA-Tencor International Trading (Shanghai) Co., Ltd.	China
KLA-Tencor Semiconductor Equipment Technology (Shanghai) Co., Ltd.	China
Vistec Semiconductor Systems (Shanghai) Co., Ltd.	China
KLA-Tencor France SARL	France
KLA-Tencor GmbH	Germany
KLA-Tencor MIE GmbH	Germany
KLA-Tencor MIE Holdings GmbH & Co. KG	Germany
KLA-Tencor MIE Holdings Verwaltungs GmbH	Germany
KLA-Tencor MIE Jena GmbH	Germany
ICOS Vision Systems Ltd.	Hong Kong
KLA-Tencor Software India Private Limited	India
KLA-Tencor Ireland Ltd.	Ireland
Optical Metrology Patents Limited	Ireland
KLA-Tencor Corporation (Israel)	Israel
KLA-Tencor Corporation Holding (1987) Ltd.	Israel
KLA-Tencor Corporation (1992) Ltd.	Israel
KLA-Tencor Integrated Metrology (Israel) (2002) Ltd.	Israel
KLA-Tencor Italy S.R.L.	Italy
KLA-Tencor Japan, Ltd.	Japan
KLA-Tencor Korea, Inc.	Korea
KLA-Tencor MIE Holdings S.à r.l.	Luxembourg
KLA-Tencor (Malaysia) Sdn Bhd	Malaysia

Name	State or Other Jurisdiction of Incorporation / Organization
KLA-Tencor (Singapore) Pte. Ltd.	Singapore
KLA-Tencor Singapore Holding Co. Pte. Ltd.	Singapore
KLA Instruments S.A.	Switzerland
KLA-Tencor Yield Management Software Taiwan Corporation	Taiwan
KLA-Tencor (Thailand) Limited	Thailand
KLA-Tencor Limited	United Kingdom
KLA-Tencor (Service) Limited	United Kingdom

EX-23.1

Exhibit 23.1

Consent of Independent Registered Public Accounting Firm

We hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (No. 333-150473) and Form S-8 (No. 33-26002, No. 33-42973, No. 33-42975, No. 33-88662, No. 333-03003, No. 333-22939, No. 333-22941, No. 333-26681, No. 333-32537, No. 333-45271, No. 333-60883, No. 333-60887, No. 333-68415, No. 333-68423, No. 333-85121, No. 333-85123, No. 333-49828, No. 333-60864, No. 333-75944, No. 333-100166, No. 333-113358, No. 333-120218, No. 333-121637, No. 333-129868, No. 333-140743, No. 333-144003, No. 333-147434, No. 333-147437, No. 333-152864, No. 333-159017, No. 333-162887 and No. 333-168618) of KLA-Tencor Corporation of our report dated August 6, 2012, relating to the consolidated financial statements, financial statement schedule and the effectiveness of internal control over financial reporting, which appears in this Form 10-K.

/s/    PricewaterhouseCoopers LLP

San Jose, California

August 6, 2012

EX-31.1

EXHIBIT 31.1

Certification of Chief Executive Officer

Pursuant to Exchange Act Rule 13a-14(a)/15d-14(a) As Adopted

Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Richard P. Wallace, certify that:

1. I have reviewed this Annual Report on Form 10-K of KLA-Tencor Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

August 6, 2012	/s/    RICHARD P. WALLACE
(Date)	Richard P. Wallace
	President and Chief Executive Officer
	(Principal Executive Officer)

EX-31.2

EXHIBIT 31.2

Certification of Chief Financial Officer

Pursuant to Exchange Act Rule 13a-14(a)/15d-14(a) As Adopted

Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Mark P. Dentinger, certify that:

1. I have reviewed this Annual Report on Form 10-K of KLA-Tencor Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

August 6, 2012	/s/    MARK P. DENTINGER
(Date)	Mark P. Dentinger
	Executive Vice President and Chief Financial Officer
	(Principal Financial Officer)

EX-32

Exhibit 32

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, Richard P. Wallace, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Annual Report of KLA-Tencor Corporation on Form 10-K for the fiscal year ended June 30, 2012 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Annual Report on Form 10-K fairly presents in all material respects the financial condition and results of operations of KLA-Tencor Corporation.

August 6, 2012	By:	/s/    RICHARD P. WALLACE
(Date)	Name:	Richard P. Wallace
	Title:	President and Chief Executive Officer

CERTIFICATION OF CHIEF FINANCIAL OFFICER

PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, Mark P. Dentinger, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Annual Report of KLA-Tencor Corporation on Form 10-K for the fiscal year ended June 30, 2012 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Annual Report on Form 10-K fairly presents in all material respects the financial condition and results of operations of KLA-Tencor Corporation.

August 6, 2012	By:	/s/    MARK P. DENTINGER
(Date)	Name:	Mark P. Dentinger
	Title:	Executive Vice President and Chief Financial Officer

XML

Restructuring Charges (Tables)

12 Months Ended

Jun. 30, 2012

Restructuring Charges [Abstract]

Changes in Liability Related to Restructuring Activities

The following table shows the activity primarily related to severance and benefits expense for the fiscal years ended June 30, 2012 and 2011:

	Year ended June 30,
(In thousands)	2012			2011
Beginning balance	$	1,861		$	1,221
Restructuring costs	6,712			4,420
Adjustments	(651		)	(325		)
Cash payments	(5,127		)	(3,455		)
Ending balance	$	2,795		$	1,861

XML

Goodwill and Purchased Intangible Assets Goodwill (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2012	Jun. 30, 2011
Goodwill
Gross goodwill balance	$ 604,302	$ 604,742
Accumulated impairment losses	(276,586)	(276,586)
Net goodwill balance	$ 327,716	$ 328,156

XML

Financial Statement Components Consolidated Balance Sheets (Details) (USD $)	Jun. 30, 2012		Jun. 30, 2011
Accounts receivable, net:
Accounts receivable, gross	$ 723,607,000		$ 605,376,000
Allowance for doubtful accounts	(22,327,000)		(22,106,000)
Accounts receivable, net	701,280,000		583,270,000
Inventories:
Customer service parts	197,013,000		148,466,000
Raw materials	234,549,000		235,605,000
Work-in-process	170,254,000		131,804,000
Finished goods	48,986,000		59,855,000
Inventories	650,802,000		575,730,000
Other current assets:
Prepaid expenses	53,472,000		61,796,000
Income tax related receivables	22,943,000		59,774,000
Other current assets	16,432,000		25,508,000
Other current assets	92,847,000		147,078,000
Land, property and equipment, net (1):
Land	41,397,000		41,956,000
Buildings and leasehold improvements	244,807,000		234,173,000
Machinery and equipment	443,668,000		447,772,000
Office furniture and fixtures	19,493,000		19,645,000
Construction in process	11,765,000		6,979,000
Land, property and equipment, gross	761,130,000		750,525,000
Less: accumulated depreciation and amortization	(483,444,000)		(493,167,000)
Land, property and equipment, net	277,686,000	[1]	257,358,000	[1]
Other non-current assets:
Executive Deferred Savings Plan(2)	125,354,000	[2]	128,033,000	[2]
Deferred tax assets—long-term	128,738,000		173,788,000
Other	21,135,000		26,274,000
Other non-current assets	275,227,000		328,095,000
Other current liabilities:
Warranty	46,496,000		41,528,000
Executive Deferred Savings Plan(2)	125,329,000	[2]	128,088,000	[2]
Compensation and benefits	175,007,000		186,761,000
Income taxes payable	11,251,000		16,364,000
Interest payable	8,769,000		8,769,000
Accrued litigation costs	1,080,000		4,824,000
Other accrued expenses	145,479,000		112,980,000
Other liabilities, current	513,411,000		499,314,000
Accumulated other comprehensive income (loss):
Currency translation adjustments	(10,419,000)		251,000
Gains (losses) on cash flow hedging instruments, net of taxes (benefits) of $(343) in 2012 and $5 in 2011	(619,000)		8,000
Unrealized gains on investments, net of taxes of $1,498 in 2012 and $2,258 in 2011	2,811,000		3,909,000
Unrealized losses of defined benefit pension plan, net of tax benefits of $(6,486) in 2012 and $(4,637) in 2011	(12,916,000)		(6,567,000)
Accumulated other comprehensive income (loss)	(21,143,000)		(2,399,000)
Property and equipment assets held-for-sale, at net book value			$ 2,300,000

[1] As of June 30, 2011, the net book value of property and equipment includes assets held for sale of $2.3 million. There were no assets held for sale as of June 30, 2012.

[2] KLA-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. The Company 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, except in cases where such distributions are required to be delayed in order to avoid a prohibited distribution under Internal Revenue Code Section 409A. As of June 30, 2012, the Company had a deferred compensation plan related asset and liability included as a component of other non-current assets and other current liabilities on the Consolidated Balance Sheet.

XML

Income Taxes Income Tax Uncertainties (Details) (USD $)	12 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2010
Income Tax Contingency [Line Items]
Unrecognized tax benefits, income tax penalties and interest accrued	$ 4,600,000	$ 7,200,000
Unrecognized tax benefits possible to be recognized, amount of unrecorded benefit	2,200,000
Tax expense increased due to shortfalls from employee stock activity	11,900,000
Reconciliation of Unrecognized Tax Benefits, Excluding Amounts Pertaining to Examined Tax Returns [Roll Forward]
Unrecognized tax benefits at the beginning of the period	78,337,000	53,492,000	49,738,000
Increases for tax positions taken in prior years	4,172,000	5,228,000	6,553,000
Decreases for tax positions taken in prior years	(1,002,000)	0	(1,897,000)
Increases for tax positions taken in current year	15,663,000	32,152,000	10,912,000
Decreases for settlements with taxing authorities	(43,464,000)	(11,786,000)	0
Decreases for lapsing of the statute of limitations	(2,867,000)	(749,000)	(11,814,000)
Unrecognized tax benefits at the end of the period	50,839,000	78,337,000	53,492,000
Foreign [Member]
Reconciliation of Unrecognized Tax Benefits, Excluding Amounts Pertaining to Examined Tax Returns [Roll Forward]
Decreases for lapsing of the statute of limitations			$ 15,900,000

XML

Long-Term Debt (Details) (USD $) In Millions, unless otherwise specified	1 Months Ended	12 Months Ended
	Apr. 30, 2008	Jun. 30, 2012	Jun. 30, 2011
Long-term Debt
Principal amount	$ 750
Stated interest rate	6.90%
Debt instrument maturity date	2018
Effective interest rate	7.00%
Discount on debt	5.4
Debt Instrument, Frequency of Periodic Payment	semi-annually
Offer to repurchase senior note, percent of principal amount		101.00%
Fair value		$ 902.2	$ 863.5

XML

Subsequent Events (Details) (USD $)	1 Months Ended	12 Months Ended
	Aug. 02, 2012	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2010	Jul. 10, 2012
Subsequent Events
Common stock, dividends per share, authorized, quarterly levels		$ 0.35	$ 0.25		$ 0.40
Common stock, dividends, per share, declared	$ 0.40	$ 1.40	$ 1.00	$ 0.60
Dividends payable, date declared		Aug. 02, 2012
Dividends payable, date to be paid		Sep. 04, 2012
Dividends payable, date of record		Aug. 13, 2012

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Fair Value Measurements Change in Level 3 Securities (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Jun. 30, 2012	Jun. 30, 2011
Change in Level 3 Securities
Beginning aggregate estimated fair value of Level 3 securities	$ 0	$ 16,825
Net settlements	0	(16,825)
Ending aggregate estimated fair value of Level 3 securities	$ 0	$ 0

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Stock-Based Compensation (Tables)

12 Months Ended

Jun. 30, 2012

Share-based Compensation [Abstract]

Schedule of Combined Activity Under Equity Incentive Plan

The following table summarizes the combined activity under the equity incentive plans for the indicated periods:

(In thousands)	Available For Grant
Balances as of June 30, 2009(1)	7,702
Shares added to 2004 Plan	11,000
Restricted stock units granted(2)	(5,213	)
Restricted stock units canceled (2)	1,140
Restricted stock units withheld for taxes(2)(3)	244
Options canceled/expired/forfeited	1,161
Plan shares expired(4)	(872	)
Balances as of June 30, 2010(1)	15,162
Restricted stock units granted(2)(5)	(4,062	)
Restricted stock units canceled(2)	367
Options canceled/expired/forfeited	1,141
Plan shares expired(4)	(1,054	)
Balances as of June 30, 2011(1)	11,554
Restricted stock units granted(2)(6)	(4,145	)
Restricted stock units canceled(2)	508
Options canceled/expired/forfeited	788
Plan shares expired(4)	(736	)
Balances as of June 30, 2012(1)	7,969

__________________  

(1) Includes shares available for issuance under the 2004 Plan, as well as under the Company’s 1998 Outside Director Option Plan (the “Outside Director Plan”), which only permits the issuance of stock options to the Company’s non-employee members of the Board of Directors. As of June 30, 2012, 1.7 million shares were available for grant under the Outside Director Plan.

(2) The number of restricted stock units provided in this row reflects the application of the 1.8x 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 are no longer 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 plans do not result in additional shares being available to the Company for future grant.

(5) Includes 0.3 million restricted stock units granted to senior management during the fiscal year ended June 30, 2011 with performance-based vesting criteria (in addition to service-based vesting criteria for any of such restricted stock units that are deemed to have been earned). As of June 30, 2012, it had not yet been determined the extent to which (if at all) the performance-based vesting criteria of such restricted stock units had been satisfied. Therefore, this line item includes all such performance-based restricted stock units granted during such fiscal year, reported at the maximum possible number of shares that may ultimately be issuable under such restricted stock units if all applicable performance-based and service-based criteria are fully satisfied.

(6) Includes 0.2 million restricted stock units granted to senior management during the fiscal year ended June 30, 2012 with performance-based vesting criteria (in addition to service-based vesting criteria for any of such restricted stock units that are deemed to have been earned). As of June 30, 2012, it had not yet been determined the extent to which (if at all) the performance-based vesting criteria of such restricted stock units had been satisfied. Therefore, this line item includes all such performance-based restricted stock units granted during such fiscal year, reported at the maximum possible number of shares that may ultimately be issuable under such restricted stock units if all applicable

Schedule of Stock-Based Compensation Expense

The following table shows pre-tax stock-based compensation expense for the indicated periods:

	Year ended June 30,
(In thousands)	2012		2011		2010
Stock-based compensation expense by:
Costs of revenues	$	13,710	$	13,935	$	14,275
Engineering, research and development	21,505		24,539		27,289
Selling, general and administrative	43,620		42,956		44,418
Total stock-based compensation expense	$	78,835	$	81,430	$	85,982

Schedule of Stock Option Activity

The following table summarizes the activity and weighted-average exercise price for stock options under all plans during the fiscal year ended June 30, 2012:

Stock Options	Shares (In thousands)		Weighted-Average Exercise Price
Outstanding stock options as of June 30, 2011	7,675		$	45.38
Granted	—		$	—
Exercised	(3,043	)	$	42.50
Canceled/expired/forfeited	(788	)	$	46.85
Outstanding stock options as of June 30, 2012	3,844		$	47.36
Vested and exercisable as of June 30, 2012	3,843		$	47.36

Schedule of Intrinsic Value, Cash Received and Tax Benefits for Stock Option Exercises

The following table shows the total intrinsic value of options exercised, total cash received from employees and non-employee Board members as a result of stock option exercises and tax benefits realized by the Company in connection with these stock option exercises for the indicated periods:

(In thousands)	Year ended June 30,
	2012		2011		2010
Total intrinsic value of options exercised	$	23,395	$	19,408	$	1,217
Total cash received from employees and non-employee Board members as a result of stock option exercises	$	129,306	$	94,488	$	15,154
Tax benefits realized by the Company in connection with these exercises	$	7,867	$	6,653	$	447

Schedule of Stock-Based Compensation Capitalized as Inventory

The following table shows stock-based compensation capitalized as inventory as of the dates indicated below:

(In thousands)	As of June 30,
	2012		2011
Inventory	$	7,692	$	6,701

Schedule of Restricted Stock Activity

The following table shows the applicable number of restricted stock units and weighted-average grant date fair value for restricted stock units granted, vested and released, withheld for taxes, and forfeited during the fiscal year ended June 30, 2012 and restricted stock units outstanding as of June 30, 2012 and 2011:

Restricted Stock Units	Shares (In thousands) (1)		Weighted-Average Grant Date Fair Value
Outstanding restricted stock units as of June 30, 2011	6,540		$	33.56
Granted(2)	2,303		$	36.63
Vested and released	(1,421	)	$	39.69
Withheld for taxes	(722	)	$	39.71
Forfeited	(282	)	$	32.54
Outstanding restricted stock units as of June 30, 2012(2)	6,418		$	32.66

 __________________ 

(1) Share numbers reflect actual shares subject to awarded restricted stock units. Under the terms of the 2004 Plan, each of the share numbers presented in this column is multiplied by 1.8 to calculate the impact on the share reserve under the 2004 Plan.

(2) Includes 0.2 million restricted stock units granted to senior management during the fiscal year ended June 30, 2012 with performance-based vesting criteria (in addition to service-based vesting criteria for any of such restricted stock units that are deemed to have been earned). As of June 30, 2012, it had not yet been determined the extent to which (if at all) the performance-based vesting criteria of such restricted stock units had been satisfied. Therefore, this line item includes all such performance-based restricted stock units, reported at the maximum possible number of shares that may ultimately be issuable under such restricted stock units if all applicable performance-based and service-based criteria are fully satisfied.

Schedule of Grant Date Fair Value, Weighted-Average Grant Date Fair Value, and Tax Benefits for Restricted Stock Units

The following table shows the grant date fair value after estimated forfeitures and weighted-average grant date fair value per unit for the restricted stock units granted and tax benefits realized by the Company in connection with vested and released restricted stock units for the indicated periods:

(In thousands, except for weighted-average grant date fair value)	Year ended June 30,
	2012		2011		2010
Grant date fair value after estimated forfeitures	$	60,102	$	45,915	$	64,230
Weighted-average grant date fair value per unit	$	36.63	$	31.24	$	34.36
Tax benefits realized by the Company in connection with vested and released restricted stock units	$	28,914	$	23,302	$	14,181

Schedule of Employee Stock Purchase Rights Valuation

The fair value of each purchase right under the ESPP was estimated on the date of grant using the Black-Scholes option valuation model and the straight-line attribution approach with the following weighted-average assumptions:

	Year ended June 30,
	2012		2011		2010
Stock purchase plan:
Expected stock price volatility	36.0	%	38.0	%	35.0	%
Risk free interest rate	0.1	%	0.2	%	0.2	%
Dividend yield	3.2	%	3.1	%	1.6	%
Expected life of options (in years)	0.50		0.50		0.50

Schedule of Cash Received, Number of Shares Purchased, Tax Benefits and Weighted-Average Fair Value for the ESPP

The following table shows total cash received from employees for the issuance of shares under the ESPP, the number of shares purchased by employees through the ESPP, the tax benefits realized by the Company in connection with the disqualifying dispositions of shares purchased under the ESPP and the weighted-average fair value per share for the indicated periods:

(In thousands, except for weighted-average fair value per share)	Year ended June 30,
	2012		2011		2010
Total cash received from employees for the issuance of shares under the ESPP	$	34,263	$	30,085	$	20,714
Number of shares purchased by employees through the ESPP	918		1,123		758
Tax benefits realized by the Company in connection with the disqualifying dispositions of shares purchased under the ESPP	$	2,206	$	2,194	$	994
Weighted-average fair value per share based on Black-Scholes model	$	10.02	$	7.41	$	8.51

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Quarterly Consolidated Results of Operations (Unaudited) (Details) (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended																12 Months Ended
	Jun. 30, 2012		Mar. 31, 2012		Dec. 31, 2011		Sep. 30, 2011		Jun. 30, 2011		Mar. 31, 2011		Dec. 31, 2010		Sep. 30, 2010		Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2010
Total revenues	$ 892,465		$ 840,521		$ 642,482		$ 796,476		$ 892,439		$ 834,059		$ 766,327		$ 682,342		$ 3,171,944	$ 3,175,167	$ 1,820,760
Total costs and operating expenses	574,166		556,247		483,019		542,187		548,370		522,280		497,461		446,726		2,155,619	2,014,837	1,506,594
Gross margin	530,802		485,372		369,627		456,127		536,259		506,363		454,929		418,373
Income from operations	318,299		284,274		159,463		254,289		344,069		311,779		268,866		235,616		1,016,325	1,160,330	314,166
Net income	$ 247,877		$ 205,346		$ 110,797		$ 191,995		$ 245,017		$ 209,783		$ 185,492		$ 154,196		$ 756,015	$ 794,488	$ 212,300
Net income per share:
Basic	$ 1.48	[1]	$ 1.23	[1]	$ 0.67	[1]	$ 1.15	[1]	$ 1.46	[1]	$ 1.25	[1]	$ 1.11	[1]	$ 0.92	[1]	$ 4.53	$ 4.75	$ 1.24
Diluted	$ 1.46	[1]	$ 1.21	[1]	$ 0.66	[1]	$ 1.13	[1]	$ 1.43	[1]	$ 1.22	[1]	$ 1.09	[1]	$ 0.91	[1]	$ 4.44	$ 4.66	$ 1.23

[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.

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Derivative Instruments and Hedging Activities (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Jun. 30, 2012	Jun. 30, 2011
Derivative Instruments, Gain (Loss) [Line Items]
Hedge contracts maximum maturity, in months	13 months
Derivative maximum maturity, in months	18 months
Location in Financial Statements [Abstract]
Gains (losses) in accumulated OCI on derivatives (effective portion)	$ (1,184)
Losses reclassified from accumulated OCI into income (effective portion):	210
Outstanding Notional Amounts of Hedge Contracts
Cash flow hedge contracts, purchase	14,689	3,381
Cash flow hedge contracts, sell	29,362	30,133
Other foreign currency hedge contracts, purchase	121,965	174,499
Other foreign currency hedge contracts, sell	126,827	216,738
Other Current Liabilities
Derivative Assets (Liabilities), at Fair Value, Net, by Balance Sheet Classification [Abstract]
Derivative liability fair value	1,909	2,127
Other Current Assets
Derivative Assets (Liabilities), at Fair Value, Net, by Balance Sheet Classification [Abstract]
Derivative asset fair value	1,407	1,970
Designated as Hedging Instrument
Location in Financial Statements [Abstract]
Losses reclassified from accumulated OCI into income (effective portion):	(210)	(1,960)
Designated as Hedging Instrument | Other Current Liabilities
Derivative Assets (Liabilities), at Fair Value, Net, by Balance Sheet Classification [Abstract]
Foreign exchange contract, other current liabilities	736	475
Derivative liability fair value	736	475
Designated as Hedging Instrument | Other Current Assets
Derivative Assets (Liabilities), at Fair Value, Net, by Balance Sheet Classification [Abstract]
Foreign exchange contract, other current assets	128	145
Derivative asset fair value	128	145
Nondesignated | Other Current Liabilities
Derivative Assets (Liabilities), at Fair Value, Net, by Balance Sheet Classification [Abstract]
Foreign exchange contract, other current liabilities	1,173	1,652
Derivative liability fair value	1,173	1,652
Nondesignated | Other Current Assets
Derivative Assets (Liabilities), at Fair Value, Net, by Balance Sheet Classification [Abstract]
Foreign exchange contract, other current assets	1,279	1,825
Derivative asset fair value	1,279	1,825
Revenues | Designated as Hedging Instrument
Location in Financial Statements [Abstract]
Losses reclassified from accumulated OCI into income (effective portion):	(185)	(2,491)
Costs of revenues | Designated as Hedging Instrument
Location in Financial Statements [Abstract]
Losses reclassified from accumulated OCI into income (effective portion):	(25)	531
Accumulated OCI | Designated as Hedging Instrument
Location in Financial Statements [Abstract]
Gains (losses) in accumulated OCI on derivatives (effective portion)	(1,184)	47
Interest income and other, net | Designated as Hedging Instrument
Location in Financial Statements [Abstract]
Gains recognized in income on derivatives (ineffectiveness portion and amount excluded from effectiveness testing)	120	468
Interest income and other, net | Nondesignated
Location in Financial Statements [Abstract]
Losses recognized in income	$ (11,596)	$ (2,024)

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Share-based Compensation Expense (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2010
Stock-based Compensation
Stock-based compensation capitalized as inventory	$ 7,692	$ 6,701
Stock-based compensation expense	78,835	81,430	85,982
Costs of revenues
Stock-based Compensation
Stock-based compensation expense	13,710	13,935	14,275
Engineering, research and development
Stock-based Compensation
Stock-based compensation expense	21,505	24,539	27,289
Selling, general and administrative
Stock-based Compensation
Stock-based compensation expense	$ 43,620	$ 42,956	$ 44,418

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Sale of Real Estate Assets (Details) (USD $) In Millions, unless otherwise specified	12 Months Ended
	Jun. 30, 2012
Proceeds from sale of real estate	$ 18.2
Gain on sale of properties	$ 1.4

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Related Party Transactions (Details) (USD $)	12 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2010
Related Party Transactions
Receivable balance from related parties	$ 1,900,000	$ 200,000
Total revenues	5,684,000	379,000	8,242,000
Total purchases	$ 7,555,000	$ 7,171,000	$ 2,950,000

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Commitments and Contingencies (Details) (USD $)	12 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2010
Receivables Sold Under Factoring Agreements
Receivables sold under factoring agreements	$ 368,894,000	$ 313,578,000
Proceeds from sales of LCs	30,142,000	140,534,000
Operating Leases, Future Minimum Payments Due, Fiscal Year Maturity [Abstract]
2013	8,537,000
2014	5,618,000
2015	2,998,000
2016	2,748,000
2017	2,314,000
2018 and thereafter	2,185,000
Total minimum lease payments	24,400,000
Change in Product Warranty Liability
Beginning balance	41,528,000	21,109,000
Accruals for warranties issued during the period	48,537,000	46,565,000
Changes in liability related to pre-existing warranties	3,971,000	(928,000)
Settlements made during the period	(47,540,000)	(25,218,000)
Ending balance	46,496,000	41,528,000	21,109,000
Operating leases, rent expense	9,000,000	8,500,000	11,100,000
Open inventory purchase commitments	308,000,000
Outstanding inventory purchase commitment, months	12
Standard warranty coverage, hours per week	40
Guarantee arrangments to fund customs guarantees for VAT and other foreign subsidiary requirements	20,200,000
Outstanding guarantee arrangements to fund customs guarantees for VAT and other foreign subsidiary requirements	$ 18,200,000

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Related Party Transactions

12 Months Ended

Jun. 30, 2012

Related Party Transaction, Due from (to) Related Party [Abstract]

Related Party Transactions

RELATED PARTY TRANSACTIONS

During the fiscal years ended June 30, 2012, 2011 and 2010, 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, Cisco Systems, Inc., Freescale Semiconductor, Inc. and Avago Technologies Ltd. The following table provides the transactions with these parties for the indicated periods (for the portion of such period that they were considered related):

	Year ended June 30,
(In thousands)	2012		2011		2010
Total revenues	$	5,684	$	379	$	8,242
Total purchases	$	7,555	$	7,171	$	2,950

The Company had a receivable balance from these parties of $1.9 million and $0.2 million as of June 30, 2012 and 2011, respectively. Management believes that such transactions are at arm's length and on similar terms as would have been obtained from unaffiliated third parties.

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Financial Statement Components (Parentheticals) (Details) (USD $)	12 Months Ended
	Jun. 30, 2012	Jun. 30, 2011
Taxes (benefits) related to gains (losses) on cash flow hedging instruments	$ (343,000)	$ 5,000
Taxes related unrealized gains on investments	1,498,000	2,258,000
Tax benefits related to unrealized losses of defined benefit pension plan	$ (6,486,000)	$ (4,637,000)

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Related Party Transactions (Tables)

12 Months Ended

Jun. 30, 2012

Related Party Transaction, Due from (to) Related Party [Abstract]

Related Party Transactions

The following table provides the transactions with these parties for the indicated periods (for the portion of such period that they were considered related):

	Year ended June 30,
(In thousands)	2012		2011		2010
Total revenues	$	5,684	$	379	$	8,242
Total purchases	$	7,555	$	7,171	$	2,950

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Segment Reporting and Geographic Information (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended								12 Months Ended
	Jun. 30, 2012	Mar. 31, 2012	Dec. 31, 2011	Sep. 30, 2011	Jun. 30, 2011	Mar. 31, 2011	Dec. 31, 2010	Sep. 30, 2010	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2010
Segment Reporting and Geographic Information
Long-lived assets	$ 342,365				$ 353,652				$ 342,365	$ 353,652	$ 365,829
Revenues	892,465	840,521	642,482	796,476	892,439	834,059	766,327	682,342	3,171,944	3,175,167	1,820,760
Percent of total revenues									100.00%	100.00%	100.00%
United States
Segment Reporting and Geographic Information
Long-lived assets	211,315				202,520				211,315	202,520	174,033
Revenues									675,034	610,955	341,079
Percent of total revenues									21.00%	19.00%	19.00%
Taiwan
Segment Reporting and Geographic Information
Long-lived assets	696				803				696	803	714
Revenues									872,583	864,378	688,089
Percent of total revenues									28.00%	27.00%	38.00%
Japan
Segment Reporting and Geographic Information
Long-lived assets	3,570				4,256				3,570	4,256	3,985
Revenues									415,475	413,208	239,393
Percent of total revenues									13.00%	13.00%	13.00%
Europe & Israel
Segment Reporting and Geographic Information
Long-lived assets	77,292				90,163				77,292	90,163	127,474
Revenues									323,902	340,249	111,497
Percent of total revenues									10.00%	11.00%	6.00%
Korea
Segment Reporting and Geographic Information
Long-lived assets	2,773				2,804				2,773	2,804	3,482
Revenues									611,462	480,488	151,198
Percent of total revenues									19.00%	15.00%	8.00%
Rest of Asia
Segment Reporting and Geographic Information
Long-lived assets	46,719				53,106				46,719	53,106	56,141
Revenues									273,488	465,889	289,504
Percent of total revenues									9.00%	15.00%	16.00%
Defect Inspection
Segment Reporting and Geographic Information
Revenues									1,830,935	2,039,856	1,011,027
Percent of total revenues									58.00%	64.00%	56.00%
Metrology
Segment Reporting and Geographic Information
Revenues									671,597	498,904	261,105
Percent of total revenues									21.00%	16.00%	14.00%
Service
Segment Reporting and Geographic Information
Revenues									574,189	561,729	496,490
Percent of total revenues									18.00%	18.00%	27.00%
Other
Segment Reporting and Geographic Information
Revenues									$ 95,223	$ 74,678	$ 52,138
Percent of total revenues									3.00%	2.00%	3.00%

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Income Taxes (Tables)

12 Months Ended

Jun. 30, 2012

Income Tax Disclosure [Abstract]

Schedule of Income before Income Taxes, Domestic and Foreign

The components of income before income taxes are as follows:

	Year ended June 30,
(In thousands)	2012		2011		2010
Domestic income before income taxes	$	607,146	$	752,163	$	122,219
Foreign income before income taxes	366,948		357,903		168,962
Total income before income taxes	$	974,094	$	1,110,066	$	291,181

Schedule of Components of Income Tax Expense (Benefit)

The provision for income taxes is comprised of the following:

(In thousands)	Year ended June 30,
	2012			2011			2010
Current:
Federal	$	(699	)	$	225,192		$	63,687
State	51			2,095			8,799
Foreign	24,383			31,578			30,225
	$	23,735		$	258,865		$	102,711
Deferred:
Federal	$	188,882		$	40,908		$	(9,258	)
State	3,721			26,458			(3,689		)
Foreign	1,741			(10,653		)	(10,883		)
	194,344			56,713			(23,830		)
Provision for income taxes	$	218,079		$	315,578		$	78,881

Schedule of Deferred Tax Assets and Liabilities

The significant components of deferred income tax assets and liabilities are as follows:

(In thousands)	As of June 30,
	2012			2011
Deferred tax assets:
Tax credits and net operating losses	$	66,392		$	62,020
Employee benefits accrual	78,112			83,328
Stock-based compensation	37,300			63,625
Capitalized R&D expenses	57,192			79,815
Inventory reserves	57,736			53,217
Non-deductible reserves	45,682			45,154
Deferred profit	—			91,302
Unearned revenue	9,991			26,632
Other	57,464			59,275
Gross deferred tax assets	409,869			564,368
Valuation allowance	(40,479		)	(30,722		)
Net deferred tax assets	$	369,390		$	533,646
Deferred tax liabilities:
Unremitted earnings of foreign subsidiaries not permanently reinvested	$	(22,746	)	$	(25,131	)
Depreciation and amortization	(10,202		)	(20,254		)
Deferred profit	(37,906		)	—
Unrealized gain on investments	(1,070		)	(2,215		)
Total deferred tax liabilities	(71,924		)	(47,600		)
Total net deferred tax assets	$	297,466		$	486,046

Schedule of Effective Income Tax Rate Reconciliation

The reconciliation of the United States federal statutory income tax rate to KLA-Tencor’s effective income tax rate is as follows:

	Year ended June 30,
	2012		2011		2010
Federal statutory rate	35.0	%	35.0	%	35.0	%
State income taxes, net of federal benefit	0.4	%	2.5	%	0.6	%
Effect of foreign operations taxed at various rates	(9.9	)%	(9.0	)%	(9.6	)%
Research and development tax credit	(1.1	)%	(1.2	)%	(1.2	)%
Net change in tax reserves	(2.8	)%	2.1	%	0.5	%
Domestic manufacturing benefit	(0.7	)%	(1.9	)%	(1.7	)%
Effect of stock-based compensation	1.3	%	1.4	%	4.0	%
Other	0.2	%	(0.5	)%	(0.5	)%
Effective income tax rate	22.4	%	28.4	%	27.1	%

Summary of Income Tax Contingencies

A reconciliation of the gross unrecognized tax benefit is as follows:

	Year ended June 30,
(In thousands)	2012			2011			2010
Unrecognized tax benefits at the beginning of the period	$	78,337		$	53,492		$	49,738
Increases for tax positions taken in prior years	4,172			5,228			6,553
Decreases for tax positions taken in prior years	(1,002		)	—			(1,897		)
Increases for tax positions taken in current year	15,663			32,152			10,912
Decreases for settlements with taxing authorities	(43,464		)	(11,786		)	—
Decreases for lapsing of the statute of limitations	(2,867		)	(749		)	(11,814		)
Unrecognized tax benefits at the end of the period	$	50,839		$	78,337		$	53,492

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Marketable Securities Continuous Unrealized Loss Position (Details) (USD $)	12 Months Ended
	Jun. 30, 2012		Jun. 30, 2011	Jun. 30, 2010
Investments, Fair Value and Gross Unrealized Losses
Net realized investment gains	$ 600,000		$ 2,500,000	$ 4,000,000
Months in loss position not exceeding this period	12
Fair value	426,572,000
Gross unrealized losses, less than 12 months	(762,000)	[1]
Gross unrealized losses, 12 months or longer	0
US Treasury securities
Investments, Fair Value and Gross Unrealized Losses
Fair value	47,093,000
Gross unrealized losses, less than 12 months	(16,000)	[1]
U.S. Government agency securities
Investments, Fair Value and Gross Unrealized Losses
Fair value	115,894,000
Gross unrealized losses, less than 12 months	(76,000)	[1]
Municipal securities
Investments, Fair Value and Gross Unrealized Losses
Fair value	38,399,000
Gross unrealized losses, less than 12 months	(102,000)	[1]
Corporate debt securities
Investments, Fair Value and Gross Unrealized Losses
Fair value	225,186,000
Gross unrealized losses, less than 12 months	$ (568,000)	[1]

[1] Of the total gross unrealized losses, there were no amounts that, as of June 30, 2012, had been in a continuous loss position for 12 months or more.

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Employee Benefit Plans Fair Value of Plan Assets (Details) (USD $)	12 Months Ended			12 Months Ended
	Jun. 30, 2011	Jun. 30, 2010	Jun. 30, 2012	Jun. 30, 2012 Foreign Pension Plans, Defined Benefit	Jun. 30, 2012 Total		Jun. 30, 2011 Total		Jun. 30, 2012 Total Foreign Pension Plans, Defined Benefit	Jun. 30, 2012 Level 1		Jun. 30, 2011 Level 1		Jun. 30, 2012 Level 1 Foreign Pension Plans, Defined Benefit	Jun. 30, 2012 Level 2		Jun. 30, 2011 Level 2		Jun. 30, 2012 Level 2 Foreign Pension Plans, Defined Benefit
Defined Benefit Plan Disclosure
Defined benefit plan, target plan asset allocations	100.00%	100.00%		100.00%
Defined benefit plan, estimated future employer contributions in next fiscal year				$ 1,400,000
Defined benefit plan maximum yearly expected future benefit payments				3,700,000
Fair Value Measurements [Abstract]
Cash equivalents									8,405,000					8,405,000					0
Government, municipal securities, and other	1,327,206,000		1,783,150,000						3,304,000					0					3,304,000
Total financial assets					$ 2,472,819,000	[1]	$ 1,937,280,000	[2]	$ 11,709,000	$ 1,434,987,000	[1]	$ 966,822,000	[2]	$ 8,405,000	$ 1,037,832,000	[1]	$ 970,458,000	[2]	$ 3,304,000

[1] Excludes cash of $126.0 million held in operating accounts and time deposits of $62.4 million as of June 30, 2012.

[2] Excludes cash of $165.9 million held in operating accounts and time deposits of $65.4 million as of June 30, 2011.

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Stock Repurchase Program (Details) (USD $) In Thousands, except Share data, unless otherwise specified	12 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2010
Stock Repurchase Program
Authorized shares to be repurchased	72,800,000
Shares available for repurchase	3,200,000
Common stock, shares, issued	249,520,000	244,281,000
Common stock, shares, outstanding	166,710,000	167,118,000
Number of shares of common stock repurchased	5,790,000	6,190,000
Total cost of repurchases	$ 261,150	$ 232,924	$ 140,910
Common Stock and Capital in Excess of Par Value, Amount
Stock Repurchase Program
Total cost of repurchases	133,321	102,013	17,341
Retained Earnings
Stock Repurchase Program
Total cost of repurchases	127,829	130,911	123,569
Accumulated Other Comprehensive Income (Loss)
Stock Repurchase Program
Total cost of repurchases	$ 0	$ 0	$ 0
February 2011 Shares Authorized [Member]
Stock Repurchase Program
Authorized shares to be repurchased	10,000,000

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Fair Value Measurements Textual (Details) (USD $) In Millions, unless otherwise specified	1 Months Ended	12 Months Ended
	Feb. 29, 2008	Jun. 30, 2010	Jun. 30, 2011 Minimum	Jun. 30, 2010 Minimum	Jun. 30, 2011 Maximum	Jun. 30, 2010 Maximum
Fair Value Measurements
Securities, contractual maturity			20 years	20 years	30 years	30 years
Auction failure in par value	$ 48.2
Available-for-sale securities, sold at par		$ 16.8

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Fair Value Measurements

12 Months Ended

Jun. 30, 2012

Fair Value Measurements [Abstract]

Fair Value Measurements

FAIR VALUE MEASUREMENTS

The Company’s financial assets and liabilities 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 land, property 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.

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:

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.

A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.

All of the Company’s financial instruments were classified within Level 1 or Level 2 of the fair value hierarchy as of June 30, 2012, because they were valued using quoted market prices, broker/dealer quotes, 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 certain U.S. Treasury securities and sovereign securities. Such instruments are generally classified within Level 1 of the fair value hierarchy.

The types of instruments valued based on other observable inputs include commercial paper, corporate debt securities, municipal securities and certain U.S. Treasury securities and 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.

The principal market in which the 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. The 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.

The types of instruments valued based on unobservable inputs included the auction rate securities that were held by the Company as of and prior to June 30, 2010. Such instruments were 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 included estimates for interest rates, timing and amount of cash flows, and expected holding periods of the auction rate securities.

Financial assets (excluding cash held in operating accounts and time deposits) and liabilities measured at fair value on a recurring basis as of the date indicated below were presented on the Company's Consolidated Balance Sheet as follows:

As of June 30, 2012 (In thousands)	Total			Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)
Assets
Cash equivalents:
Money market and other	$	607,038		$	607,038	$	—
Marketable securities:
U.S. Treasury securities	91,438			88,014		3,424
U.S. Government agency securities	634,492			634,492		—
Municipal securities	66,543			—		66,543
Corporate debt securities	917,392			—		917,392
Sovereign securities	29,145			10,129		19,016
Equity securities	10			10		—
Total cash equivalents and marketable securities(1)	2,346,058			1,339,683		1,006,375
Other current assets:
Derivative assets	1,407			—		1,407
Other non-current assets:
Executive Deferred Savings Plan:
Money market and other	732			732		—
Mutual funds	124,622			94,572		30,050
Executive Deferred Savings Plan total	125,354			95,304		30,050
Total financial assets(1)	$	2,472,819		$	1,434,987	$	1,037,832
Other current liabilities:
Derivative liabilities	$	(1,909	)	$	—	$	(1,909	)
Total financial liabilities	$	(1,909	)	$	—	$	(1,909	)

__________________ 

(1) Excludes cash of $126.0 million held in operating accounts and time deposits of $62.4 million as of June 30, 2012.

Financial assets (excluding cash held in operating accounts and time deposits) and liabilities measured at fair value on a recurring basis as of the date indicated below were presented on the Company's Consolidated Balance Sheet as follows:

As of June 30, 2011 (In thousands)	Total			Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)
Assets
Cash equivalents:
U.S. Treasury securities	$	4,400		$	—	$	4,400
U.S. Government agency securities	6,010			6,010		—
Corporate debt securities	21,982			—		21,982
Money market and other	481,770			481,770		—
Marketable securities:
U.S. Treasury securities	54,496			52,396		2,100
U.S. Government agency securities	314,173			314,173		—
Municipal securities	38,957			—		38,957
Corporate debt securities	853,403			—		853,403
Sovereign securities	32,086			14,696		17,390
Total cash equivalents and marketable securities(1)	1,807,277			869,045		938,232
Other current assets:
Derivative assets	1,970			—		1,970
Other non-current assets:
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
Total financial assets(1)	$	1,937,280		$	966,822	$	970,458
Other current liabilities:
Derivative liabilities	$	(2,127	)	$	—	$	(2,127	)
Total financial liabilities	$	(2,127	)	$	—	$	(2,127	)

__________________ 

(1) Excludes cash of $165.9 million held in operating accounts and time deposits of $65.4 million as of June 30, 2011.

There were no transfers in and out of Level 1 and Level 2 fair value measurements during the fiscal years ended June 30, 2012 and 2011. The Company did not have any assets or liabilities measured at fair value on a recurring basis within Level 3 fair value measurements as of June 30, 2012 or 2011.

Changes in the Company's Level 3 securities for the indicated periods were as follows:

	Year ended June 30,
(In thousands)	2012		2011
Beginning aggregate estimated fair value of Level 3 securities	$	—	$	16,825
Net settlements	—		(16,825		)
Ending aggregate estimated fair value of Level 3 securities	$	—	$	—

During the fiscal year ended June 30, 2010 (and in prior fiscal years), the Company’s investment portfolio included auction rate securities, which were investments with contractual maturities generally between 20 to 30 years. In February 2008, because sell orders exceeded buy orders, auctions failed for approximately $48.2 million in par value of municipal auction rate securities that were then held by the Company. 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 with UBS on November 11, 2008. On June 30, 2010, UBS repurchased the Company's $16.8 million of then-remaining auction rate securities at par value, and the repurchase was subsequently settled in July 2010.

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Net Income Per Share (Details) (USD $) In Thousands, except Per Share data, unless otherwise specified	1 Months Ended	3 Months Ended																12 Months Ended
	Aug. 02, 2012	Jun. 30, 2012		Mar. 31, 2012		Dec. 31, 2011		Sep. 30, 2011		Jun. 30, 2011		Mar. 31, 2011		Dec. 31, 2010		Sep. 30, 2010		Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2010	Jul. 10, 2012
Net Income Per Share
Net income		$ 247,877		$ 205,346		$ 110,797		$ 191,995		$ 245,017		$ 209,783		$ 185,492		$ 154,196		$ 756,015	$ 794,488	$ 212,300
Weighted-average shares-basic, excluding unvested restricted stock units																		166,795	167,261	170,652
Effect of dilutive options and restricted stock units																		3,352	3,091	2,382
Weighted-average shares-diluted																		170,147	170,352	173,034
Basic net income per share		$ 1.48	[1]	$ 1.23	[1]	$ 0.67	[1]	$ 1.15	[1]	$ 1.46	[1]	$ 1.25	[1]	$ 1.11	[1]	$ 0.92	[1]	$ 4.53	$ 4.75	$ 1.24
Diluted net income per share		$ 1.46	[1]	$ 1.21	[1]	$ 0.66	[1]	$ 1.13	[1]	$ 1.43	[1]	$ 1.22	[1]	$ 1.09	[1]	$ 0.91	[1]	$ 4.44	$ 4.66	$ 1.23
Anti-dilutive securities excluded from the computation of diluted net income per share																		3,123	8,003	11,109
Payments of dividends																		$ 233,561	$ 167,398	$ 102,409
Common stock, dividends per share, authorized, quarterly levels		$ 0.35								$ 0.25								$ 0.35	$ 0.25		$ 0.40
Common stock, dividends, per share, declared	$ 0.40																	$ 1.40	$ 1.00	$ 0.60
Dividends payable, date declared																		Aug. 02, 2012
Dividends payable, date to be paid																		Sep. 04, 2012
Dividends payable, date of record																		Aug. 13, 2012

[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.

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Quarterly Consolidated Results of Operations (Unaudited) (Tables)

12 Months Ended

Jun. 30, 2012

QUARTERLY CONSOLIDATED RESULTS OF OPERATIONS (UNAUDITED) [Abstract]

Schedule of Quarterly Financial Information

The following is a summary of the Company’s quarterly consolidated results of operations (unaudited) for the fiscal years ended June 30, 2012 and 2011.

(In thousands, except per share data)	First quarter ended September 30, 2011		Second quarter ended December 31, 2011		Third quarter ended March 31, 2012		Fourth quarter ended June 30, 2012
Total revenues	$	796,476	$	642,482	$	840,521	$	892,465
Total costs and operating expenses	$	542,187	$	483,019	$	556,247	$	574,166
Gross margin	$	456,127	$	369,627	$	485,372	$	530,802
Income from operations	$	254,289	$	159,463	$	284,274	$	318,299
Net income	$	191,995	$	110,797	$	205,346	$	247,877
Net income per share:
Basic(1)	$	1.15	$	0.67	$	1.23	$	1.48
Diluted(1)	$	1.13	$	0.66	$	1.21	$	1.46

(In thousands, except per share data)	First quarter ended September 30, 2010		Second quarter ended December 31, 2010		Third quarter ended March 31, 2011		Fourth quarter ended June 30, 2011
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

 __________________ 

(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.

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Fair Value Measurements (Tables)

12 Months Ended

Jun. 30, 2012

Fair Value, Assets and Liabilities Measured on Recurring Basis [Abstract]

Changes in Level 3 Securities

Changes in the Company's Level 3 securities for the indicated periods were as follows:

	Year ended June 30,
(In thousands)	2012		2011
Beginning aggregate estimated fair value of Level 3 securities	$	—	$	16,825
Net settlements	—		(16,825		)
Ending aggregate estimated fair value of Level 3 securities	$	—	$	—

Financial Assets and Liabilities Measured at Fair Value on a Recurring Basis

Financial assets (excluding cash held in operating accounts and time deposits) and liabilities measured at fair value on a recurring basis as of the date indicated below were presented on the Company's Consolidated Balance Sheet as follows:

As of June 30, 2012 (In thousands)	Total			Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)
Assets
Cash equivalents:
Money market and other	$	607,038		$	607,038	$	—
Marketable securities:
U.S. Treasury securities	91,438			88,014		3,424
U.S. Government agency securities	634,492			634,492		—
Municipal securities	66,543			—		66,543
Corporate debt securities	917,392			—		917,392
Sovereign securities	29,145			10,129		19,016
Equity securities	10			10		—
Total cash equivalents and marketable securities(1)	2,346,058			1,339,683		1,006,375
Other current assets:
Derivative assets	1,407			—		1,407
Other non-current assets:
Executive Deferred Savings Plan:
Money market and other	732			732		—
Mutual funds	124,622			94,572		30,050
Executive Deferred Savings Plan total	125,354			95,304		30,050
Total financial assets(1)	$	2,472,819		$	1,434,987	$	1,037,832
Other current liabilities:
Derivative liabilities	$	(1,909	)	$	—	$	(1,909	)
Total financial liabilities	$	(1,909	)	$	—	$	(1,909	)

__________________ 

(1) Excludes cash of $126.0 million held in operating accounts and time deposits of $62.4 million as of June 30, 2012.

Financial assets (excluding cash held in operating accounts and time deposits) and liabilities measured at fair value on a recurring basis as of the date indicated below were presented on the Company's Consolidated Balance Sheet as follows:

As of June 30, 2011 (In thousands)	Total			Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)
Assets
Cash equivalents:
U.S. Treasury securities	$	4,400		$	—	$	4,400
U.S. Government agency securities	6,010			6,010		—
Corporate debt securities	21,982			—		21,982
Money market and other	481,770			481,770		—
Marketable securities:
U.S. Treasury securities	54,496			52,396		2,100
U.S. Government agency securities	314,173			314,173		—
Municipal securities	38,957			—		38,957
Corporate debt securities	853,403			—		853,403
Sovereign securities	32,086			14,696		17,390
Total cash equivalents and marketable securities(1)	1,807,277			869,045		938,232
Other current assets:
Derivative assets	1,970			—		1,970
Other non-current assets:
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
Total financial assets(1)	$	1,937,280		$	966,822	$	970,458
Other current liabilities:
Derivative liabilities	$	(2,127	)	$	—	$	(2,127	)
Total financial liabilities	$	(2,127	)	$	—	$	(2,127	)

__________________ 

(1) Excludes cash of $165.9 million held in operating accounts and time deposits of $65.4 million as of June 30, 2011.

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Summary of Significant Accounting Policies (Policies)

12 Months Ended

Jun. 30, 2012

Accounting Policies [Abstract]

Principles of Consolidation

Description of Operations and Principles of Consolidation. KLA-Tencor Corporation (“KLA-Tencor” or the “Company”) is a leading supplier of process control and yield management solutions for the semiconductor and related nanoelectronics industries. Headquartered in Milpitas, California, KLA-Tencor has subsidiaries both in the United States and in key markets throughout the world.

The Consolidated Financial Statements include the accounts of KLA-Tencor and its majority-owned subsidiaries. All significant intercompany balances and transactions have been eliminated.

Management Estimates

Management Estimates. The preparation of the Consolidated Financial Statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the Consolidated Financial Statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.

Fair Value of Financial Instruments

Fair Value of Financial Instruments. KLA-Tencor has evaluated the estimated fair value of financial instruments using available market information and valuations as provided by third-party sources. The use of different market assumptions and/or estimation methodologies could have a significant effect on the estimated fair value amounts. The fair value of the 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.

Cash Equivalent and Marketable Securities

Cash Equivalents and Marketable Securities. All highly liquid debt instruments with original or remaining maturities of less than three months at the date of purchase are considered to be cash equivalents. Marketable securities are generally classified as available-for-sale for use in current operations, if required, and are reported at fair value, with unrealized gains and losses, net of tax, presented as a separate component of stockholders’ equity under the caption “Accumulated other comprehensive income (loss).” All realized gains and losses and unrealized losses resulting from declines in fair value that are other than temporary are recorded in earnings in the period of occurrence. The specific identification method is used to determine the realized gains and losses on investments. For all investments in debt and equity securities, the Company assesses whether the impairment is other than temporary. If the fair value of a debt security is less than its amortized cost basis, an impairment is considered other than temporary if (i) the Company has the intent to sell the security or it is more likely than not that the Company will be required to sell the security before recovery of its entire amortized cost basis, or (ii) the Company does not expect to recover the entire amortized cost of the security. If an impairment is considered other than temporary based on condition (i), the entire difference between the amortized cost and the fair value of the security is recognized in earnings. If an impairment is considered other than temporary based on condition (ii), the amount representing credit losses, defined as the difference between the present value of the cash flows expected to be collected and the amortized cost basis of the debt security, will be recognized in earnings, and the amount relating to all other factors will be recognized in other comprehensive income. The Company evaluates both qualitative and quantitative factors such as duration and severity of the unrealized losses, credit ratings, default and loss rates of the underlying collateral, structure and credit enhancements to determine if a credit loss may exist.

Non-Marketable Equity Securities and Other Investments

Non-Marketable Equity Securities and Other Investments. KLA-Tencor acquires certain equity investments for the promotion of business and strategic objectives, and, to the extent these investments continue to have strategic value, the 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 the Company or others.

Variable Interest Entities

Variable Interest Entities. The Financial Accounting Standards Board (“FASB”) requires that if the Company is the primary beneficiary of a variable interest entity, the assets, liabilities and results of operations of the variable interest entity should be included in the Company’s consolidated financial statements. KLA-Tencor has concluded that none of the Company’s equity investments are material to the Company’s financial position and do not require consolidation as they are either not variable interest entities or, of the equity investments that are variable interest entities, the Company is not considered to be the primary beneficiary based on an assessment performed by management.

Inventories

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. 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 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 forecasted usage and customer support requirements. 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.

Allowance for Doubtful Accounts

Allowance for Doubtful Accounts. A majority of the Company’s trade receivables are derived from sales to large multinational semiconductor manufacturers throughout the world. In order to monitor potential credit losses, the Company performs ongoing credit evaluations of its customers’ financial condition. An allowance for doubtful accounts is maintained for probable credit losses based upon the Company’s assessment of the expected collectibility of the accounts receivable. The allowance for doubtful accounts is reviewed on a quarterly basis to assess the adequacy of the allowance.

Property and Equipment

Property and Equipment. Property and equipment are recorded at cost, net of accumulated depreciation. Depreciation of property and equipment is based on the straight-line method over the estimated useful lives of the assets, which are generally thirty to thirty-five years for buildings, ten to fifteen years for leasehold improvements, five to seven years for furniture and fixtures, and two to five years for machinery and equipment. Leasehold improvements are amortized by the straight-line method over the shorter of the life of the related asset or the term of the underlying lease. Construction in process assets are not depreciated until the assets are placed in service. Depreciation expense for the fiscal years ended June 30, 2012, 2011 and 2010 was $45.8 million, $39.3 million and $43.5 million, respectively.

Goodwill and Intangible Assets

Goodwill and Intangible Assets. The Company assesses goodwill for impairment annually as well as whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Long-lived intangible assets are tested for recoverability whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable. See Note 5, “Goodwill and Purchased Intangible Assets” for a detailed description. Goodwill represents the excess of the purchase price over the fair value of the net tangible and identifiable intangible assets acquired in each business combination. The Company performed a qualitative assessment of the goodwill by reporting unit as of November 30, 2011 during the three months ended December 31, 2011 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 three months ended December 31, 2011. The next annual evaluation of the goodwill by reporting unit will be performed in the three months ending December 31, 2012.

Impairment of Long-Lived Assets

Impairment of Long-Lived Assets. KLA-Tencor evaluates the carrying value of its long-lived assets whenever events or changes in circumstances indicate that the carrying value of the asset may be impaired. An impairment loss is recognized when estimated future cash flows expected to result from the use of the asset, including disposition, is less than the carrying value of the asset. Such an impairment charge would be measured as the excess of the carrying value of the asset over its fair value.

Software Development Costs

Software Development Costs. KLA-Tencor capitalizes certain internal and external costs incurred to acquire and create internal use software. Capitalized software is included in property and equipment when development is complete and is depreciated over three to five years when placed in service.

Concentration of Credit Risk

Concentration of Credit Risk. Financial instruments that potentially subject KLA-Tencor to significant concentrations of credit risk consist primarily of cash equivalents, short-term and non-current marketable securities, trade accounts receivable and derivative financial instruments used in hedging activities. The Company invests in a variety of financial instruments, such as, but not limited to, certificates of deposit, corporate debt and municipal 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. The Company has not experienced any material credit losses on its investments.

A majority of the Company's trade receivables are derived from sales to large multinational semiconductor manufacturers located throughout the world, with a majority located in Asia. In recent years, the Company's customer base has become increasingly consolidated due to corporate acquisitions and business closures, and to the extent that these customers experience liquidity issues in the future, the Company may be required to incur additional bad debt expense with respect to trade receivables. The Company performs ongoing credit evaluations of its customers’ financial condition and generally requires no collateral to secure accounts receivable. The Company maintains an allowance for potential credit losses based upon expected collectibility of all accounts receivable. In addition, the Company may utilize letters of credit or non-recourse factoring to mitigate credit risk when considered appropriate.

The Company is exposed to credit loss in the event of non-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 to the Company under such contracts.

The following customers each accounted for more than 10% of total revenues for the indicated periods:

Year ended June 30,
2012	2011	2010
Samsung Electronics Co., Ltd.	Intel Corporation	Intel Corporation
Taiwan Semiconductor Manufacturing Company Limited	Samsung Electronics Co., Ltd.	Taiwan Semiconductor Manufacturing Company Limited
	Taiwan Semiconductor Manufacturing Company Limited

The following customers each accounted for more than 10% of net accounts receivable as of the dates indicated below:

As of June 30,
2012	2011
Samsung Electronics Co., Ltd.	GlobalFoundries Inc.
Taiwan Semiconductor Manufacturing Company Limited	Taiwan Semiconductor Manufacturing Company Limited

Foreign Currency

Foreign Currency. The functional currencies of KLA-Tencor’s foreign subsidiaries are the local currencies, except as described below. Accordingly, all assets and liabilities of these foreign operations are translated to U.S. dollars at current period end exchange rates, and revenues and expenses are translated to U.S. dollars using average exchange rates in effect during the period. The gains and losses from foreign currency translation of these subsidiaries’ financial statements are recorded directly into a separate component of stockholders’ equity under the caption “Accumulated other comprehensive income (loss).”

The Company's manufacturing subsidiaries in Germany, Israel, Belgium, Hong Kong and Singapore use the U.S. dollar as their functional currency. Accordingly, monetary assets and liabilities in non-functional currency of these subsidiaries are remeasured using exchange rates in effect at the end of the period. Revenues and costs in local currency are remeasured using average exchange rates for the period, except for costs related to those balance sheet items that are remeasured using historical exchange rates. The resulting remeasurement gains and losses are included in the Consolidated Statements of Operations as incurred.

Derivative Financial Instruments

Derivative Financial Instruments. KLA-Tencor uses financial instruments, such as forward exchange contracts and currency options, to hedge a portion of, but not all, existing and forecasted foreign currency denominated transactions. The purpose of the 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. The Company believes these financial instruments do not subject the Company to speculative risk that would otherwise result from changes in currency exchange rates. The Company does not use derivative financial instruments for speculative or trading purposes.

All of the 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 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 the associated financial instrument is recorded immediately in earnings. For derivative instruments used to hedge existing foreign currency denominated assets or liabilities, the gains or losses on these hedges are recorded immediately in earnings to offset the changes in the fair value of the assets or liabilities being hedged.

Warranty

Warranty. KLA-Tencor provides standard warranty coverage on its systems for 40 hours per week for twelve months, providing labor and parts necessary to repair the systems during the warranty period. The 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, the 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. The Company updates these estimated charges on a quarterly basis. The actual product performance and/or field expense profiles may differ, and in those cases the Company adjusts its warranty accruals accordingly (see Note 12, “Commitments and Contingencies”).

Revenue Recognition

Revenue Recognition. KLA-Tencor recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the selling price is fixed or determinable, and collectibility is reasonably assured. The Company derives revenue from three sources—sales of systems, spare parts and services. The Company 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, the Company recognizes revenue prior to acceptance from the customer, as follows:

• When the customer fab has previously 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.

• When system sales to independent distributors have no installation requirement, contain no acceptance agreement, and 100% payment is due based 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 withholds acceptance due to issues unrelated to product performance, revenue is recognized when the system is performing as intended and meets all published and agreed-upon specifications.

• 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.

In many instances, products are sold in stand-alone arrangements. Services are sold separately through renewals of annual maintenance contracts. The Company also allows for multiple element revenue arrangements in cases where certain elements of a sales arrangement are not delivered and accepted in one reporting period. To determine the relative fair value of each element in a revenue arrangement, the Company allocates arrangement consideration based on the selling price hierarchy. For substantially all of the arrangements with multiple deliverables pertaining to products and services, the Company uses vendor-specific objective evidence (“VSOE”) or third-party evidence (“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 estimated selling price (“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.

In a multiple element revenue arrangement, the Company defers revenue recognition associated with the relative fair value of the undelivered elements 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, which means that such product or service must fulfill the following criteria: (a) the delivered item(s) has value to the customer on a stand-alone basis; and (b) 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.

Trade-in rights are occasionally granted to customers to trade in tools in connection with subsequent purchases. The Company estimates the value of the trade-in right and reduces the revenue recognized on the initial sale. This amount is recognized at the earlier of the exercise of the trade-in right or the expiration of the trade-in right.

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.

Service and maintenance contract revenue is recognized ratably over the term of the maintenance contract. Revenue from services performed in the absence of a maintenance contract, including consulting and training revenue, is recognized when the related services are performed and collectibility is reasonably assured.

The Company sells stand-alone software that is subject to the software revenue recognition guidance. The Company periodically reviews selling prices to determine whether VSOE exists, and in some situations where the Company is unable to establish VSOE for undelivered elements such as post-contract service, revenue is recognized ratably over the term of the service contract.

The Company also defers the fair value of non-standard warranty bundled with equipment sales as unearned revenue. Non-standard warranty includes services incremental to the standard 40-hour per week coverage for twelve months. Non-standard warranty is recognized ratably as revenue when the applicable warranty term period commences.

The deferred system profit balance 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 have not met the Company's revenue recognition 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.

Research and Development Costs

Research and Development Costs. Research and development costs are expensed as incurred.

Strategic Development Agreements

Strategic Development Agreements. Gross engineering, research and development expenses were partially offset by $6.9 million, $18.8 million and $13.7 million in external funding received under certain strategic development programs primarily from government grants in the fiscal years ended June 30, 2012, 2011 and 2010, respectively.

Shipping and Handling Costs

Shipping and Handling Costs. Shipping and handling costs are included as a component of cost of sales.

Accounting for Stock-Based Compensation Plans

Accounting for Stock-Based Compensation Plans. The fair value of stock-based awards is measured at the grant date and is recognized as expense over the employee’s requisite service period. The fair value is determined using a Black-Scholes valuation model 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.

Advertising Expenses

Advertising Expenses. Advertising costs are expensed as incurred. Advertising expenses for the fiscal years ended June 30, 2012, 2011 and 2010 were $2.4 million, $2.2 million and $1.6 million, respectively.

Income Taxes

Income Taxes. KLA-Tencor accounts for income taxes in accordance with the authoritative guidance, which 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. The Company has determined that a valuation allowance was necessary against a portion of the deferred tax assets, but it anticipates 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 determines that the recovery is not probable.

The Company applies 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 in 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.

Earnings Per Share

Earnings Per Share. Basic earnings per share (“EPS”) is calculated by dividing net income available to common stockholders by the weighted-average number of common shares outstanding during the period. Diluted earnings per share is calculated by using the weighted-average number of common shares outstanding during the period increased to include the number of additional shares of common stock that would have been outstanding if the dilutive potential shares of common stock 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. The dilutive securities are excluded from the computation of diluted net loss per share when a net loss is recorded for the period as their effect would be anti-dilutive.

Contingencies and Litigation

Contingencies and Litigation. The Company is subject to the possibility of losses from various contingencies. Considerable judgment is necessary to estimate the probability and amount of any loss from such contingencies. An accrual is made when it is probable that a liability has been incurred or an asset has been impaired and the amount of loss can be reasonably estimated. The Company accrues a liability and recognizes as expense the estimated costs expected to be incurred over the next twelve months to defend or settle asserted and unasserted claims existing as of the balance sheet date. See Note 12, “Commitments and Contingencies” and Note 13, “Litigation and Other Legal Matters” for a detailed description.

Reclassifications

Reclassifications. Certain reclassifications have been made to prior year financial statements to conform to the current year presentation. The reclassifications had no effect on the Consolidated Statements of Operations or Cash Flows.

Recent Accounting Pronouncements

Recent Accounting Pronouncements. In December 2011, the FASB issued an accounting standard update requiring enhanced disclosure about certain financial instruments and derivative instruments that are offset in the balance sheet or subject to an enforceable master netting arrangement or similar agreement. The disclosure requirement becomes effective retrospectively in the first quarter of the Company's fiscal year ending June 30, 2014. The Company does not expect that the requirement will have an impact on its financial position, results of operations or cash flows as it is disclosure-only in nature.

In September 2011, the FASB issued an accounting standard update intended to simplify testing goodwill for impairment. The amendment allows an entity to first assess qualitative factors to determine whether it is necessary to perform the two-step quantitative goodwill impairment test. An entity will no longer be required to calculate the fair value of a reporting unit unless the entity determines, based on a qualitative assessment, that it is more likely than not that the fair value of the reporting unit is less than its carrying amount. The amendment becomes effective for annual and interim goodwill impairment tests performed for the Company's fiscal year ending June 30, 2013, and early adoption is permitted. The Company elected to early adopt this accounting guidance at the beginning of the three months ended December 31, 2011 (see Note 5, “Goodwill and Purchased Intangible Assets” for a detailed description).

In June 2011, the FASB issued an accounting standard update requiring an increase in the prominence of items reported in other comprehensive income. The amendment eliminates the option to present components of other comprehensive income as part of the statement of changes in stockholders' equity and requires that the total of comprehensive income, the components of net income, and the components of other comprehensive income be presented in a single continuous statement of comprehensive income or in two separate but consecutive statements. The amendment also required presentation of adjustments for items that are reclassified from other comprehensive income in the statement where the components of net income and the components of other comprehensive income are presented, which was indefinitely deferred by the FASB in December 2011. The amendment (other than the portion regarding the presentation of reclassification adjustments which, as noted above, has been deferred indefinitely) becomes effective during the first quarter of the Company's fiscal year ending June 30, 2013. Early adoption is permitted. The amendment will impact the presentation of the financial statements but will not have an impact on the Company's financial position, results of operations or cash flows.

In May 2011, the FASB issued an accounting standard update providing guidanceon achieving a consistent definition of and common requirements for measurement of fair value between U.S. GAAP and International Financial Reporting Standards (“IFRS”). This amendment was effective prospectively for the Company's interim reporting period ended March 31, 2012. Early application is not permitted. The amendment did not have an impact on the Company's financial position, results of operations or cash flows.

In April 2010, the 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 it otherwise qualifies as equity. This amendment was effective for the Company’s interim reporting period ended September 30, 2011. The amendment did not have an impact on the Company's financial position, results of operations or cash flows.

In January 2010, the FASB issued authoritative guidance for fair value measurements. This guidance now requires a reporting entity to disclose separately the amounts of significant transfers in and out of Level 1 and Level 2 fair value measurements and also to describe the reasons for these transfers. This authoritative guidance 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 financial position, results of operations or cash flows as it is disclosure-only in nature. The guidance for Level 3 fair value measurements disclosures was effective for the Company’s interim reporting period ended September 30, 2011, and the implementation of that guidance did not have an impact on the Company's financial position, results of operations or cash flows as it is disclosure-only in nature.

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Stock-Based Compensation Equity Incentive Program (Details)	12 Months Ended
	Jun. 30, 2012		Jun. 30, 2011		Jun. 30, 2010
Percent of fair market value on grant date	100.00%
Prior to September 30, 2006, options vesting period	5 years
Schedule of Combined Activity Under Equity Incentive Plan [Roll Forward]
Number of shares available for grant, beginning of period	11,554,000	[1]	15,162,000	[1]	7,702,000	[1]
Shares added to 2004 Plan					11,000,000
Restricted stock units withheld for taxes					244,000	[2],[3]
Options canceled/expired/forfeited, shares	788,000		1,141,000		1,161,000
Plan shares expired	(736,000)	[4]	(1,054,000)	[4]	(872,000)	[4]
Number of shares available for grant, end of period	7,969,000	[1]	11,554,000	[1]	15,162,000	[1]
Two Thousand Four Plan
Equity incentive plan, number of shares authorized	32,000,000
Impact on share reserve multiplier	1.8
Share Reserve Multiplier
Schedule of Combined Activity Under Equity Incentive Plan [Roll Forward]
Restricted stock units granted	(4,145,000)	[2],[5]	(4,062,000)	[2],[6]	(5,213,000)	[2]
Restricted stock units canceled	508,000	[2]	367,000	[2]	1,140,000	[2]
Senior Management
Schedule of Combined Activity Under Equity Incentive Plan [Roll Forward]
Restricted stock units granted	(200,000)		(300,000)
Outside Director Option Plan
Schedule of Combined Activity Under Equity Incentive Plan [Roll Forward]
Number of shares available for grant, end of period	1,700,000
Options Granted Prior To July 1 2005
Schedule of Combined Activity Under Equity Incentive Plan [Roll Forward]
Maximum options exercise period	10 years
Options Granted After July 1 2005
Schedule of Combined Activity Under Equity Incentive Plan [Roll Forward]
Maximum options exercise period	7 years

[1] Includes shares available for issuance under the 2004 Plan, as well as under the Company’s 1998 Outside Director Option Plan (the “Outside Director Plan”), which only permits the issuance of stock options to the Company’s non-employee members of the Board of Directors. As of June 30, 2012, 1.7 million shares were available for grant under the Outside Director Plan.

[2] The number of restricted stock units provided in this row reflects the application of the 1.8x 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 are no longer 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 plans do not result in additional shares being available to the Company for future grant.

[5] Includes 0.2 million restricted stock units granted to senior management during the fiscal year ended June 30, 2012 with performance-based vesting criteria (in addition to service-based vesting criteria for any of such restricted stock units that are deemed to have been earned). As of June 30, 2012, it had not yet been determined the extent to which (if at all) the performance-based vesting criteria of such restricted stock units had been satisfied. Therefore, this line item includes all such performance-based restricted stock units granted during such fiscal year, reported at the maximum possible number of shares that may ultimately be issuable under such restricted stock units if all applicable performance-based and service-based criteria are fully satisfied.

[6] Includes 0.3 million restricted stock units granted to senior management during the fiscal year ended June 30, 2011 with performance-based vesting criteria (in addition to service-based vesting criteria for any of such restricted stock units that are deemed to have been earned). As of June 30, 2012, it had not yet been determined the extent to which (if at all) the performance-based vesting criteria of such restricted stock units had been satisfied. Therefore, this line item includes all such performance-based restricted stock units granted during such fiscal year, reported at the maximum possible number of shares that may ultimately be issuable under such restricted stock units if all applicable performance-based and service-based criteria are fully satisfied.

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Summary of Significant Accounting Policies (Details) (USD $) In Millions, unless otherwise specified	12 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2010
Standard warranty coverage, in months	12 months
Concentration risk, percentage	10.00%	10.00%	10.00%
Standard warranty coverage, hours per week	40
R&D external funding received for certain strategic development programs, primarily from government grants, to offset costs incurred	$ 6.9	$ 18.8	$ 13.7
Advertising expense	2.4	2.2	1.6
Depreciation expense	$ 45.8	$ 39.3	$ 43.5
Number of customers with significant accounts receivable balance	2	2
Number of customers with significant revenue	2	3	2
Cash equivalents with original or remaining maturity, range	3 months
Minimum | Building
Property, plant and equipment, useful life	30 years
Minimum | Leasehold Improvements
Property, plant and equipment, useful life	10 years
Minimum | Machinery and Equipment
Property, plant and equipment, useful life	2 years
Minimum | Furniture and Fixtures
Property, plant and equipment, useful life	5 years
Minimum | Software Development
Property, plant and equipment, useful life	3 years
Maximum | Building
Property, plant and equipment, useful life	35 years
Maximum | Leasehold Improvements
Property, plant and equipment, useful life	15 years
Maximum | Machinery and Equipment
Property, plant and equipment, useful life	5 years
Maximum | Furniture and Fixtures
Property, plant and equipment, useful life	7 years
Maximum | Software Development
Property, plant and equipment, useful life	5 years

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Financial Statement Components (Tables)

12 Months Ended

Jun. 30, 2012

Financial Statement Components [Abstract]

Consolidated Balance Sheets

Consolidated Balance Sheets

	As of June 30,
(In thousands)	2012			2011
Accounts receivable, net:
Accounts receivable, gross	$	723,607		$	605,376
Allowance for doubtful accounts	(22,327		)	(22,106		)
	$	701,280		$	583,270
Inventories:
Customer service parts	$	197,013		$	148,466
Raw materials	234,549			235,605
Work-in-process	170,254			131,804
Finished goods	48,986			59,855
	$	650,802		$	575,730
Other current assets:
Prepaid expenses	$	53,472		$	61,796
Income tax related receivables	22,943			59,774
Other current assets	16,432			25,508
	$	92,847		$	147,078
Land, property and equipment, net(1):
Land	$	41,397		$	41,956
Buildings and leasehold improvements	244,807			234,173
Machinery and equipment	443,668			447,772
Office furniture and fixtures	19,493			19,645
Construction in process	11,765			6,979
	761,130			750,525
Less: accumulated depreciation and amortization	(483,444		)	(493,167		)
	$	277,686		$	257,358
Other non-current assets:
Executive Deferred Savings Plan(2)	$	125,354		$	128,033
Deferred tax assets—long-term	128,738			173,788
Other	21,135			26,274

	$	275,227		$	328,095
Other current liabilities:
Warranty	$	46,496		$	41,528
Executive Deferred Savings Plan(2)	125,329			128,088
Compensation and benefits	175,007			186,761
Income taxes payable	11,251			16,364
Interest payable	8,769			8,769
Accrued litigation costs	1,080			4,824
Other accrued expenses	145,479			112,980
	$	513,411		$	499,314
Accumulated other comprehensive income (loss):
Currency translation adjustments	$	(10,419	)	$	251
Gains (losses) on cash flow hedging instruments, net of taxes (benefits) of $(343) in 2012 and $5 in 2011	(619		)	8
Unrealized gains on investments, net of taxes of $1,498 in 2012 and $2,258 in 2011	2,811			3,909
Unrealized losses of defined benefit pension plan, net of tax benefits of $(6,486) in 2012 and $(4,637) in 2011	(12,916		)	(6,567		)
	$	(21,143	)	$	(2,399	)

 __________________ 

(1)  As of June 30, 2011, the net book value of property and equipment includes assets held for sale of $2.3 million. There were no assets held for sale as of June 30, 2012.

(2) KLA-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. The Company 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, except in cases where such distributions are required to be delayed in order to avoid a prohibited distribution under Internal Revenue Code Section 409A. As of June 30, 2012, the Company had a deferred compensation plan related asset and liability included as a component of other non-current assets and other current liabilities on the Consolidated Balance Sheet.

Consolidated Statements of Operations

Consolidated Statements of Operations

	Year ended June 30,
(In thousands)	2012			2011				2010
Interest income and other, net:
Interest income	$	15,321		$	15,513			$	17,512
Foreign exchange losses, net	(2,864		)	(2,108		)		(5,009		)
Realized gains on sale of investments	637			2,479				4,021
Other	(1,128		)	(11,820		)	(1)	15,008			(2)
	$	11,966		$	4,064			$	31,532

 __________________ 

(1) Includes impairment charges of $9.9 million recorded during the fiscal year ended June 30, 2011 for equity investments in privately-held companies.

(2) Includes a benefit of $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.

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Marketable Securities (Tables)

12 Months Ended

Jun. 30, 2012

Marketable Securities [Abstract]

Summary of Marketable Securities

The amortized cost and fair value of marketable securities as of the dates indicated below were as follows:

As of June 30, 2012 (In thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
U.S. Treasury securities	$	91,387	$	67	$	(16	)	$	91,438
U.S. Government agency securities	633,587		981		(76		)	634,492
Municipal securities	66,538		107		(102		)	66,543
Corporate debt securities	914,134		3,826		(568		)	917,392
Money market and other	607,038		—		—			607,038
Sovereign securities	29,056		89		—			29,145
Equity securities	10		—		—			10
Subtotal	2,341,750		5,070		(762		)	2,346,058
Add: Time deposits(1)	62,431		—		—			62,431
Less: Cash equivalents	625,339		—		—			625,339
Marketable securities	$	1,778,842	$	5,070	$	(762	)	$	1,783,150
As of June 30, 2011 (In thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			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

__________________ 

(1) Time deposits excluded from fair value measurements.

Investments with Gross Unrealized Losses

The following table summarizes the fair value and gross unrealized losses of the Company's investments that were in an unrealized loss position as of the date indicated below:

As of June 30, 2012 (In thousands)	Fair Value		Gross Unrealized Losses(1)
U.S. Treasury securities	$	47,093	$	(16	)
U.S. Government agency securities	115,894		(76		)
Municipal securities	38,399		(102		)
Corporate debt securities	225,186		(568		)
Total	$	426,572	$	(762	)

 __________________ 

(1) Of the total gross unrealized losses, there were no amounts that, as of June 30, 2012, had been in a continuous loss position for 12 months or more.

Contractual Maturities of Securities

The contractual maturities of securities classified as available-for-sale, regardless of their classification on the Company's Consolidated Balance Sheet, as of the date indicated below were as follows:

As of June 30, 2012 (In thousands)	Amortized Cost		Fair Value
Due within one year	$	464,939	$	466,044
Due after one year through three years	1,313,903		1,317,106
	$	1,778,842	$	1,783,150

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Summary of Significant Accounting Policies

12 Months Ended

Jun. 30, 2012

Accounting Policies [Abstract]

Summary of Significant Accounting Policies

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Description of Operations and Principles of Consolidation. KLA-Tencor Corporation (“KLA-Tencor” or the “Company”) is a leading supplier of process control and yield management solutions for the semiconductor and related nanoelectronics industries. Headquartered in Milpitas, California, KLA-Tencor has subsidiaries both in the United States and in key markets throughout the world.

The Consolidated Financial Statements include the accounts of KLA-Tencor and its majority-owned subsidiaries. All significant intercompany balances and transactions have been eliminated.

Management Estimates. The preparation of the Consolidated Financial Statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the Consolidated Financial Statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.

Fair Value of Financial Instruments. KLA-Tencor has evaluated the estimated fair value of financial instruments using available market information and valuations as provided by third-party sources. The use of different market assumptions and/or estimation methodologies could have a significant effect on the estimated fair value amounts. The fair value of the 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.

Cash Equivalents and Marketable Securities. All highly liquid debt instruments with original or remaining maturities of less than three months at the date of purchase are considered to be cash equivalents. Marketable securities are generally classified as available-for-sale for use in current operations, if required, and are reported at fair value, with unrealized gains and losses, net of tax, presented as a separate component of stockholders’ equity under the caption “Accumulated other comprehensive income (loss).” All realized gains and losses and unrealized losses resulting from declines in fair value that are other than temporary are recorded in earnings in the period of occurrence. The specific identification method is used to determine the realized gains and losses on investments. For all investments in debt and equity securities, the Company assesses whether the impairment is other than temporary. If the fair value of a debt security is less than its amortized cost basis, an impairment is considered other than temporary if (i) the Company has the intent to sell the security or it is more likely than not that the Company will be required to sell the security before recovery of its entire amortized cost basis, or (ii) the Company does not expect to recover the entire amortized cost of the security. If an impairment is considered other than temporary based on condition (i), the entire difference between the amortized cost and the fair value of the security is recognized in earnings. If an impairment is considered other than temporary based on condition (ii), the amount representing credit losses, defined as the difference between the present value of the cash flows expected to be collected and the amortized cost basis of the debt security, will be recognized in earnings, and the amount relating to all other factors will be recognized in other comprehensive income. The Company evaluates both qualitative and quantitative factors such as duration and severity of the unrealized losses, credit ratings, default and loss rates of the underlying collateral, structure and credit enhancements to determine if a credit loss may exist.

Non-Marketable Equity Securities and Other Investments. KLA-Tencor acquires certain equity investments for the promotion of business and strategic objectives, and, to the extent these investments continue to have strategic value, the 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 the Company or others.

Variable Interest Entities. The Financial Accounting Standards Board (“FASB”) requires that if the Company is the primary beneficiary of a variable interest entity, the assets, liabilities and results of operations of the variable interest entity should be included in the Company’s consolidated financial statements. KLA-Tencor has concluded that none of the Company’s equity investments are material to the Company’s financial position and do not require consolidation as they are either not variable interest entities or, of the equity investments that are variable interest entities, the Company is not considered to be the primary beneficiary based on an assessment performed by management.

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. 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 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 forecasted usage and customer support requirements. 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.

Allowance for Doubtful Accounts. A majority of the Company’s trade receivables are derived from sales to large multinational semiconductor manufacturers throughout the world. In order to monitor potential credit losses, the Company performs ongoing credit evaluations of its customers’ financial condition. An allowance for doubtful accounts is maintained for probable credit losses based upon the Company’s assessment of the expected collectibility of the accounts receivable. The allowance for doubtful accounts is reviewed on a quarterly basis to assess the adequacy of the allowance.

Property and Equipment. Property and equipment are recorded at cost, net of accumulated depreciation. Depreciation of property and equipment is based on the straight-line method over the estimated useful lives of the assets, which are generally thirty to thirty-five years for buildings, ten to fifteen years for leasehold improvements, five to seven years for furniture and fixtures, and two to five years for machinery and equipment. Leasehold improvements are amortized by the straight-line method over the shorter of the life of the related asset or the term of the underlying lease. Construction in process assets are not depreciated until the assets are placed in service. Depreciation expense for the fiscal years ended June 30, 2012, 2011 and 2010 was $45.8 million, $39.3 million and $43.5 million, respectively.

Goodwill and Intangible Assets. The Company assesses goodwill for impairment annually as well as whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Long-lived intangible assets are tested for recoverability whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable. See Note 5, “Goodwill and Purchased Intangible Assets” for a detailed description. Goodwill represents the excess of the purchase price over the fair value of the net tangible and identifiable intangible assets acquired in each business combination. The Company performed a qualitative assessment of the goodwill by reporting unit as of November 30, 2011 during the three months ended December 31, 2011 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 three months ended December 31, 2011. The next annual evaluation of the goodwill by reporting unit will be performed in the three months ending December 31, 2012.

Impairment of Long-Lived Assets. KLA-Tencor evaluates the carrying value of its long-lived assets whenever events or changes in circumstances indicate that the carrying value of the asset may be impaired. An impairment loss is recognized when estimated future cash flows expected to result from the use of the asset, including disposition, is less than the carrying value of the asset. Such an impairment charge would be measured as the excess of the carrying value of the asset over its fair value.

Software Development Costs. KLA-Tencor capitalizes certain internal and external costs incurred to acquire and create internal use software. Capitalized software is included in property and equipment when development is complete and is depreciated over three to five years when placed in service.

Concentration of Credit Risk. Financial instruments that potentially subject KLA-Tencor to significant concentrations of credit risk consist primarily of cash equivalents, short-term and non-current marketable securities, trade accounts receivable and derivative financial instruments used in hedging activities. The Company invests in a variety of financial instruments, such as, but not limited to, certificates of deposit, corporate debt and municipal 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. The Company has not experienced any material credit losses on its investments.

A majority of the Company's trade receivables are derived from sales to large multinational semiconductor manufacturers located throughout the world, with a majority located in Asia. In recent years, the Company's customer base has become increasingly consolidated due to corporate acquisitions and business closures, and to the extent that these customers experience liquidity issues in the future, the Company may be required to incur additional bad debt expense with respect to trade receivables. The Company performs ongoing credit evaluations of its customers’ financial condition and generally requires no collateral to secure accounts receivable. The Company maintains an allowance for potential credit losses based upon expected collectibility of all accounts receivable. In addition, the Company may utilize letters of credit or non-recourse factoring to mitigate credit risk when considered appropriate.

The Company is exposed to credit loss in the event of non-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 to the Company under such contracts.

The following customers each accounted for more than 10% of total revenues for the indicated periods:

Year ended June 30,
2012	2011	2010
Samsung Electronics Co., Ltd.	Intel Corporation	Intel Corporation
Taiwan Semiconductor Manufacturing Company Limited	Samsung Electronics Co., Ltd.	Taiwan Semiconductor Manufacturing Company Limited
	Taiwan Semiconductor Manufacturing Company Limited

The following customers each accounted for more than 10% of net accounts receivable as of the dates indicated below:

As of June 30,
2012	2011
Samsung Electronics Co., Ltd.	GlobalFoundries Inc.
Taiwan Semiconductor Manufacturing Company Limited	Taiwan Semiconductor Manufacturing Company Limited

Foreign Currency. The functional currencies of KLA-Tencor’s foreign subsidiaries are the local currencies, except as described below. Accordingly, all assets and liabilities of these foreign operations are translated to U.S. dollars at current period end exchange rates, and revenues and expenses are translated to U.S. dollars using average exchange rates in effect during the period. The gains and losses from foreign currency translation of these subsidiaries’ financial statements are recorded directly into a separate component of stockholders’ equity under the caption “Accumulated other comprehensive income (loss).”

The Company's manufacturing subsidiaries in Germany, Israel, Belgium, Hong Kong and Singapore use the U.S. dollar as their functional currency. Accordingly, monetary assets and liabilities in non-functional currency of these subsidiaries are remeasured using exchange rates in effect at the end of the period. Revenues and costs in local currency are remeasured using average exchange rates for the period, except for costs related to those balance sheet items that are remeasured using historical exchange rates. The resulting remeasurement gains and losses are included in the Consolidated Statements of Operations as incurred.

Derivative Financial Instruments. KLA-Tencor uses financial instruments, such as forward exchange contracts and currency options, to hedge a portion of, but not all, existing and forecasted foreign currency denominated transactions. The purpose of the 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. The Company believes these financial instruments do not subject the Company to speculative risk that would otherwise result from changes in currency exchange rates. The Company does not use derivative financial instruments for speculative or trading purposes.

All of the 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 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 the associated financial instrument is recorded immediately in earnings. For derivative instruments used to hedge existing foreign currency denominated assets or liabilities, the gains or losses on these hedges are recorded immediately in earnings to offset the changes in the fair value of the assets or liabilities being hedged.

Warranty. KLA-Tencor provides standard warranty coverage on its systems for 40 hours per week for twelve months, providing labor and parts necessary to repair the systems during the warranty period. The 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, the 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. The Company updates these estimated charges on a quarterly basis. The actual product performance and/or field expense profiles may differ, and in those cases the Company adjusts its warranty accruals accordingly (see Note 12, “Commitments and Contingencies”).

Revenue Recognition. KLA-Tencor recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the selling price is fixed or determinable, and collectibility is reasonably assured. The Company derives revenue from three sources—sales of systems, spare parts and services. The Company 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, the Company recognizes revenue prior to acceptance from the customer, as follows:

• When the customer fab has previously 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.

• When system sales to independent distributors have no installation requirement, contain no acceptance agreement, and 100% payment is due based 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 withholds acceptance due to issues unrelated to product performance, revenue is recognized when the system is performing as intended and meets all published and agreed-upon specifications.

• 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.

In many instances, products are sold in stand-alone arrangements. Services are sold separately through renewals of annual maintenance contracts. The Company also allows for multiple element revenue arrangements in cases where certain elements of a sales arrangement are not delivered and accepted in one reporting period. To determine the relative fair value of each element in a revenue arrangement, the Company allocates arrangement consideration based on the selling price hierarchy. For substantially all of the arrangements with multiple deliverables pertaining to products and services, the Company uses vendor-specific objective evidence (“VSOE”) or third-party evidence (“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 estimated selling price (“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.

In a multiple element revenue arrangement, the Company defers revenue recognition associated with the relative fair value of the undelivered elements 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, which means that such product or service must fulfill the following criteria: (a) the delivered item(s) has value to the customer on a stand-alone basis; and (b) 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.

Trade-in rights are occasionally granted to customers to trade in tools in connection with subsequent purchases. The Company estimates the value of the trade-in right and reduces the revenue recognized on the initial sale. This amount is recognized at the earlier of the exercise of the trade-in right or the expiration of the trade-in right.

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.

Service and maintenance contract revenue is recognized ratably over the term of the maintenance contract. Revenue from services performed in the absence of a maintenance contract, including consulting and training revenue, is recognized when the related services are performed and collectibility is reasonably assured.

The Company sells stand-alone software that is subject to the software revenue recognition guidance. The Company periodically reviews selling prices to determine whether VSOE exists, and in some situations where the Company is unable to establish VSOE for undelivered elements such as post-contract service, revenue is recognized ratably over the term of the service contract.

The Company also defers the fair value of non-standard warranty bundled with equipment sales as unearned revenue. Non-standard warranty includes services incremental to the standard 40-hour per week coverage for twelve months. Non-standard warranty is recognized ratably as revenue when the applicable warranty term period commences.

The deferred system profit balance 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 have not met the Company's revenue recognition 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.

Research and Development Costs. Research and development costs are expensed as incurred.

Strategic Development Agreements. Gross engineering, research and development expenses were partially offset by $6.9 million, $18.8 million and $13.7 million in external funding received under certain strategic development programs primarily from government grants in the fiscal years ended June 30, 2012, 2011 and 2010, respectively.

Shipping and Handling Costs. Shipping and handling costs are included as a component of cost of sales.

Accounting for Stock-Based Compensation Plans. The fair value of stock-based awards is measured at the grant date and is recognized as expense over the employee’s requisite service period. The fair value is determined using a Black-Scholes valuation model 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.

Advertising Expenses. Advertising costs are expensed as incurred. Advertising expenses for the fiscal years ended June 30, 2012, 2011 and 2010 were $2.4 million, $2.2 million and $1.6 million, respectively.

Income Taxes. KLA-Tencor accounts for income taxes in accordance with the authoritative guidance, which 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. The Company has determined that a valuation allowance was necessary against a portion of the deferred tax assets, but it anticipates 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 determines that the recovery is not probable.

The Company applies 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 in 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.

Earnings Per Share. Basic earnings per share (“EPS”) is calculated by dividing net income available to common stockholders by the weighted-average number of common shares outstanding during the period. Diluted earnings per share is calculated by using the weighted-average number of common shares outstanding during the period increased to include the number of additional shares of common stock that would have been outstanding if the dilutive potential shares of common stock 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. The dilutive securities are excluded from the computation of diluted net loss per share when a net loss is recorded for the period as their effect would be anti-dilutive.

Contingencies and Litigation. The Company is subject to the possibility of losses from various contingencies. Considerable judgment is necessary to estimate the probability and amount of any loss from such contingencies. An accrual is made when it is probable that a liability has been incurred or an asset has been impaired and the amount of loss can be reasonably estimated. The Company accrues a liability and recognizes as expense the estimated costs expected to be incurred over the next twelve months to defend or settle asserted and unasserted claims existing as of the balance sheet date. See Note 12, “Commitments and Contingencies” and Note 13, “Litigation and Other Legal Matters” for a detailed description.

Reclassifications. Certain reclassifications have been made to prior year financial statements to conform to the current year presentation. The reclassifications had no effect on the Consolidated Statements of Operations or Cash Flows.

Recent Accounting Pronouncements. In December 2011, the FASB issued an accounting standard update requiring enhanced disclosure about certain financial instruments and derivative instruments that are offset in the balance sheet or subject to an enforceable master netting arrangement or similar agreement. The disclosure requirement becomes effective retrospectively in the first quarter of the Company's fiscal year ending June 30, 2014. The Company does not expect that the requirement will have an impact on its financial position, results of operations or cash flows as it is disclosure-only in nature.

In September 2011, the FASB issued an accounting standard update intended to simplify testing goodwill for impairment. The amendment allows an entity to first assess qualitative factors to determine whether it is necessary to perform the two-step quantitative goodwill impairment test. An entity will no longer be required to calculate the fair value of a reporting unit unless the entity determines, based on a qualitative assessment, that it is more likely than not that the fair value of the reporting unit is less than its carrying amount. The amendment becomes effective for annual and interim goodwill impairment tests performed for the Company's fiscal year ending June 30, 2013, and early adoption is permitted. The Company elected to early adopt this accounting guidance at the beginning of the three months ended December 31, 2011 (see Note 5, “Goodwill and Purchased Intangible Assets” for a detailed description).

In June 2011, the FASB issued an accounting standard update requiring an increase in the prominence of items reported in other comprehensive income. The amendment eliminates the option to present components of other comprehensive income as part of the statement of changes in stockholders' equity and requires that the total of comprehensive income, the components of net income, and the components of other comprehensive income be presented in a single continuous statement of comprehensive income or in two separate but consecutive statements. The amendment also required presentation of adjustments for items that are reclassified from other comprehensive income in the statement where the components of net income and the components of other comprehensive income are presented, which was indefinitely deferred by the FASB in December 2011. The amendment (other than the portion regarding the presentation of reclassification adjustments which, as noted above, has been deferred indefinitely) becomes effective during the first quarter of the Company's fiscal year ending June 30, 2013. Early adoption is permitted. The amendment will impact the presentation of the financial statements but will not have an impact on the Company's financial position, results of operations or cash flows.

In May 2011, the FASB issued an accounting standard update providing guidanceon achieving a consistent definition of and common requirements for measurement of fair value between U.S. GAAP and International Financial Reporting Standards (“IFRS”). This amendment was effective prospectively for the Company's interim reporting period ended March 31, 2012. Early application is not permitted. The amendment did not have an impact on the Company's financial position, results of operations or cash flows.

In April 2010, the 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 it otherwise qualifies as equity. This amendment was effective for the Company’s interim reporting period ended September 30, 2011. The amendment did not have an impact on the Company's financial position, results of operations or cash flows.

In January 2010, the FASB issued authoritative guidance for fair value measurements. This guidance now requires a reporting entity to disclose separately the amounts of significant transfers in and out of Level 1 and Level 2 fair value measurements and also to describe the reasons for these transfers. This authoritative guidance 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 financial position, results of operations or cash flows as it is disclosure-only in nature. The guidance for Level 3 fair value measurements disclosures was effective for the Company’s interim reporting period ended September 30, 2011, and the implementation of that guidance did not have an impact on the Company's financial position, results of operations or cash flows as it is disclosure-only in nature.

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Goodwill and Purchased Intangible Assets (Tables)

12 Months Ended

Jun. 30, 2012

Goodwill and Intangible Assets Disclosure [Abstract]

Goodwill Balances

The following table presents goodwill balances as of the dates indicated below:

(In thousands)	As of June 30, 2012			As of June 30, 2011
Gross goodwill balance	$	604,302		$	604,742
Accumulated impairment losses	(276,586		)	(276,586		)
Net goodwill balance	$	327,716		$	328,156

Components of Purchased Intangible Assets

The components of purchased intangible assets as of the dates indicated below were as follows:

(In thousands)		As of June 30, 2012						As of June 30, 2011
Category	Range of Useful Lives	Gross Carrying Amount		Accumulated Amortization and Impairment		Net Amount		Gross Carrying Amount		Accumulated Amortization and Impairment		Net Amount
Existing technology	4-7 years	$	134,561	$	110,370	$	24,191	$	134,561	$	94,172	$	40,389
Patents	6-13 years	57,648		46,966		10,682		57,648		40,591		17,057
Trade name/Trademark	4-10 years	19,893		14,428		5,465		19,893		12,907		6,986
Customer relationships	6-7 years	54,823		39,525		15,298		54,823		33,565		21,258
Other	0-1 year	16,200		16,200		—		16,200		15,988		212
Total		$	283,125	$	227,489	$	55,636	$	283,125	$	197,223	$	85,902

Remaining Estimated Amortization Expense

Based on the intangible assets recorded as of June 30, 2012, and assuming no subsequent additions to or impairment of the underlying assets, the remaining estimated annual amortization expense is expected to be as follows:

Year ending June 30:	Amortization (In thousands)
2013	$	20,914
2014	15,537
2015	12,771
2016	5,582
2017	806
Thereafter	26
Total	$	55,636

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Derivative Instruments and Hedging Activities (Tables)

12 Months Ended

Jun. 30, 2012

General Discussion of Derivative Instruments and Hedging Activities [Abstract]

Schedule of Derivative Instruments, Fair Value

The locations and fair value amounts of the Company’s derivative instruments reported in its Consolidated Balance Sheets as of the dates indicated below were as follows:

	Asset Derivatives					Liability Derivatives
	Balance Sheet Location	June 30, 2012		June 30, 2011		Balance Sheet Location	June 30, 2012		June 30, 2011
(In thousands)		Fair Value					Fair Value
Derivatives designated as hedging instruments
Foreign exchange contracts	Other current assets	$	128	$	145	Other current liabilities	$	736	$	475
Total derivatives designated as hedging instruments		$	128	$	145		$	736	$	475
Derivatives not designated as hedging instruments
Foreign exchange contracts	Other current assets	$	1,279	$	1,825	Other current liabilities	$	1,173	$	1,652
Total derivatives not designated as hedging instruments		$	1,279	$	1,825		$	1,173	$	1,652
Total derivatives		$	1,407	$	1,970		$	1,909	$	2,127

Schedule of Derivative Instruments, Location, Designated and Non-Designated, Gains (Losses)

The locations and amounts of designated and non-designated derivative instruments’ gains and losses reported in the consolidated financial statements for the indicated periods were as follows:

(In thousands)	Location in Financial Statements	Year ended June 30,
		2012			2011
Derivatives Designated as Hedging Instruments
Gains (losses) in accumulated OCI on derivatives (effective portion)	Accumulated OCI	$	(1,184	)	$	47
Losses reclassified from accumulated OCI into income (effective portion):	Revenues	$	(185	)	$	(2,491	)
	Costs of revenues	(25		)	531
	Total losses reclassified from accumulated OCI into income (effective portion)	$	(210	)	$	(1,960	)
Gains recognized in income on derivatives (ineffectiveness portion and amount excluded from effectiveness testing)	Interest income and other, net	$	120		$	468
Derivatives Not Designated as Hedging Instruments
Losses recognized in income	Interest income and other, net	$	(11,596	)	$	(2,024	)

Schedule of Notional Amounts of Derivatives Outstanding

The U.S. dollar equivalent of all outstanding notional amounts of hedge contracts, with maximum maturity of 13 months, as of the dates indicated below was as follows:

(In thousands)	As of June 30, 2012		As of June 30, 2011
Cash flow hedge contracts
Purchase	$	14,689	$	3,381
Sell	$	29,362	$	30,133
Other foreign currency hedge contracts
Purchase	$	121,965	$	174,499
Sell	$	126,827	$	216,738

Balances and Changes in Accumulated Other Comprehensive Income Related to Derivative Instruments

The following table provides the balances and changes in accumulated other comprehensive income (loss) related to derivative instruments for the indicated periods:

(In thousands)	Year ended June 30, 2012
Beginning balance	$	12
Amount reclassified to income	210
Net change	(1,184		)
Ending balance	$	(962	)

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Goodwill and Purchased Intangible Assets Purchased Intangible Assets (Details) (USD $)	12 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2010
Purchased Intangible Assets
Other intangible assets, amortization expense	$ 30,300,000	$ 32,900,000	$ 33,800,000
Gross carrying amount	283,125,000	283,125,000
Accumulated amortization and impairment	227,489,000	197,223,000
Net amount	55,636,000	85,902,000
Remaining Estimated Annual Amortization Expense [Abstract]
2013	20,914,000
2014	15,537,000
2015	12,771,000
2016	5,582,000
2017	806,000
Thereafter	26,000
Net amount	55,636,000	85,902,000
Existing Technology
Purchased Intangible Assets
Gross carrying amount	134,561,000	134,561,000
Accumulated amortization and impairment	110,370,000	94,172,000
Net amount	24,191,000	40,389,000
Remaining Estimated Annual Amortization Expense [Abstract]
Net amount	24,191,000	40,389,000
Patents
Purchased Intangible Assets
Gross carrying amount	57,648,000	57,648,000
Accumulated amortization and impairment	46,966,000	40,591,000
Net amount	10,682,000	17,057,000
Remaining Estimated Annual Amortization Expense [Abstract]
Net amount	10,682,000	17,057,000
Trade Name/Trademark
Purchased Intangible Assets
Gross carrying amount	19,893,000	19,893,000
Accumulated amortization and impairment	14,428,000	12,907,000
Net amount	5,465,000	6,986,000
Remaining Estimated Annual Amortization Expense [Abstract]
Net amount	5,465,000	6,986,000
Customer Relationships
Purchased Intangible Assets
Gross carrying amount	54,823,000	54,823,000
Accumulated amortization and impairment	39,525,000	33,565,000
Net amount	15,298,000	21,258,000
Remaining Estimated Annual Amortization Expense [Abstract]
Net amount	15,298,000	21,258,000
Other
Purchased Intangible Assets
Gross carrying amount	16,200,000	16,200,000
Accumulated amortization and impairment	16,200,000	15,988,000
Net amount	0	212,000
Remaining Estimated Annual Amortization Expense [Abstract]
Net amount	$ 0	$ 212,000
Minimum | Existing Technology
Purchased Intangible Assets
Intangible assets, useful life	4 years
Minimum | Patents
Purchased Intangible Assets
Intangible assets, useful life	6 years
Minimum | Trade Name/Trademark
Purchased Intangible Assets
Intangible assets, useful life	4 years
Minimum | Customer Relationships
Purchased Intangible Assets
Intangible assets, useful life	6 years
Minimum | Other
Purchased Intangible Assets
Intangible assets, useful life	0 years
Maximum | Existing Technology
Purchased Intangible Assets
Intangible assets, useful life	7 years
Maximum | Patents
Purchased Intangible Assets
Intangible assets, useful life	13 years
Maximum | Trade Name/Trademark
Purchased Intangible Assets
Intangible assets, useful life	10 years
Maximum | Customer Relationships
Purchased Intangible Assets
Intangible assets, useful life	7 years
Maximum | Other
Purchased Intangible Assets
Intangible assets, useful life	1 year

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Restructuring Charges (Details) (USD $)	12 Months Ended
	Jun. 30, 2012	Jun. 30, 2011
Restructuring Charges
Restructuring charges, net	$ 6,100,000
Restructuring Charges
Beginning balance	1,861,000	1,221,000
Restructuring costs	6,712,000	4,420,000
Adjustments	(651,000)	(325,000)
Cash payments	(5,127,000)	(3,455,000)
Ending balance	2,795,000	1,861,000
Costs of revenues
Restructuring Charges
Restructuring charges, net	1,900,000
Engineering, research and development
Restructuring Charges
Restructuring charges, net	2,200,000
Selling, general and administrative
Restructuring Charges
Restructuring charges, net	$ 2,000,000

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Consolidated Balance Sheets (USD $) In Thousands, unless otherwise specified	Jun. 30, 2012		Jun. 30, 2011
Current assets: [Abstract]
Cash and cash equivalents	$ 751,294		$ 711,329
Marketable securities	1,783,150		1,327,206
Accounts receivable, net	701,280		583,270
Inventories	650,802		575,730
Deferred income taxes	184,670		331,397
Other current assets	92,847		147,078
Total current assets	4,164,043		3,676,010
Land, property and equipment, net	277,686	[1]	257,358	[1]
Goodwill	327,716		328,156
Purchased intangibles, net	55,636		85,902
Other non-current assets	275,227		328,095
Total assets	5,100,308		4,675,521
Current liabilities: [Abstract]
Accounts payable	139,183		142,945
Deferred system profit	147,218		192,338
Unearned revenue	63,095		44,264
Other current liabilities	513,411		499,314
Total current liabilities	862,907		878,861
Non-current liabilities: [Abstract]
Long-term debt	746,833		746,290
Income tax payable	50,839		78,337
Unearned revenue	34,899		34,905
Other non-current liabilities	89,235		76,235
Total liabilities	1,784,713		1,814,628
Commitments and contingencies (Notes 12 and 13)
Stockholders' equity [Abstract]
Preferred stock, $0.001 par value, 1,000 shares authorized, none outstanding	0		0
Common stock, $0.001 par value, 500,000 shares authorized, 249,520 and 244,281 shares issued, 166,710 and 167,118 shares outstanding, as of June 30, 2012 and June 30, 2011, respectively	167		167
Capital in excess of par value	1,089,313		1,010,492
Retained earnings	2,247,258		1,852,633
Accumulated other comprehensive income (loss)	(21,143)		(2,399)
Total stockholders' equity	3,315,595		2,860,893
Total liabilities and stockholders' equity	$ 5,100,308		$ 4,675,521

[1] As of June 30, 2011, the net book value of property and equipment includes assets held for sale of $2.3 million. There were no assets held for sale as of June 30, 2012.

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Fair Value Measurements Financial Assets and Liabilities (Details) (USD $)	Jun. 30, 2012		Jun. 30, 2011
Fair Value Measurements
Cash excluded from fair value measurement	$ 126,000,000		$ 165,900,000
Time deposits excluded from fair value measurement	62,431,000	[1]	65,402,000	[1]
Total
Fair Value Measurements
Total cash equivalents and marketable securities	2,346,058,000	[2]	1,807,277,000	[3]
Derivative assets	1,407,000		1,970,000
EDSP money market and other	732,000		1,806,000
EDSP mutual funds	124,622,000		126,227,000
Executive Deferred Savings Plan	125,354,000		128,033,000
Total financial assets	2,472,819,000	[2]	1,937,280,000	[3]
Derivative liabilities	(1,909,000)		(2,127,000)
Total financial liabilities	(1,909,000)		(2,127,000)
Total | US Treasury securities
Fair Value Measurements
Cash equivalents			4,400,000
Marketable securities	91,438,000		54,496,000
Total | U.S. Government agency securities
Fair Value Measurements
Cash equivalents			6,010,000
Marketable securities	634,492,000		314,173,000
Total | Municipal securities
Fair Value Measurements
Marketable securities	66,543,000		38,957,000
Total | Corporate debt securities
Fair Value Measurements
Cash equivalents			21,982,000
Marketable securities	917,392,000		853,403,000
Total | Money market and other
Fair Value Measurements
Cash equivalents	607,038,000		481,770,000
Total | Sovereign securities
Fair Value Measurements
Marketable securities	29,145,000		32,086,000
Total | Equity securities
Fair Value Measurements
Marketable securities	10,000
Level 1
Fair Value Measurements
Total cash equivalents and marketable securities	1,339,683,000	[2]	869,045,000	[3]
Derivative assets	0		0
EDSP money market and other	732,000		1,806,000
EDSP mutual funds	94,572,000		95,971,000
Executive Deferred Savings Plan	95,304,000		97,777,000
Total financial assets	1,434,987,000	[2]	966,822,000	[3]
Derivative liabilities	0		0
Total financial liabilities	0		0
Level 1 | US Treasury securities
Fair Value Measurements
Cash equivalents			0
Marketable securities	88,014,000		52,396,000
Level 1 | U.S. Government agency securities
Fair Value Measurements
Cash equivalents			6,010,000
Marketable securities	634,492,000		314,173,000
Level 1 | Municipal securities
Fair Value Measurements
Marketable securities	0		0
Level 1 | Corporate debt securities
Fair Value Measurements
Cash equivalents			0
Marketable securities	0		0
Level 1 | Money market and other
Fair Value Measurements
Cash equivalents	607,038,000		481,770,000
Level 1 | Sovereign securities
Fair Value Measurements
Marketable securities	10,129,000		14,696,000
Level 1 | Equity securities
Fair Value Measurements
Marketable securities	10,000
Level 2
Fair Value Measurements
Total cash equivalents and marketable securities	1,006,375,000	[2]	938,232,000	[3]
Derivative assets	1,407,000		1,970,000
EDSP money market and other	0		0
EDSP mutual funds	30,050,000		30,256,000
Executive Deferred Savings Plan	30,050,000		30,256,000
Total financial assets	1,037,832,000	[2]	970,458,000	[3]
Derivative liabilities	(1,909,000)		(2,127,000)
Total financial liabilities	(1,909,000)		(2,127,000)
Level 2 | US Treasury securities
Fair Value Measurements
Cash equivalents			4,400,000
Marketable securities	3,424,000		2,100,000
Level 2 | U.S. Government agency securities
Fair Value Measurements
Cash equivalents			0
Marketable securities	0		0
Level 2 | Municipal securities
Fair Value Measurements
Marketable securities	66,543,000		38,957,000
Level 2 | Corporate debt securities
Fair Value Measurements
Cash equivalents			21,982,000
Marketable securities	917,392,000		853,403,000
Level 2 | Money market and other
Fair Value Measurements
Cash equivalents	0		0
Level 2 | Sovereign securities
Fair Value Measurements
Marketable securities	19,016,000		17,390,000
Level 2 | Equity securities
Fair Value Measurements
Marketable securities	$ 0

[1] Time deposits excluded from fair value measurements.

[2] Excludes cash of $126.0 million held in operating accounts and time deposits of $62.4 million as of June 30, 2012.

[3] Excludes cash of $165.9 million held in operating accounts and time deposits of $65.4 million as of June 30, 2011.

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Consolidated Statement of Shareholders' Equity (Parentheticals) (USD $)	1 Months Ended	12 Months Ended
	Aug. 02, 2012	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2010
Common stock, dividends, per share, declared	$ 0.40	$ 1.40	$ 1.00	$ 0.60

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Restricted Stock Unit Activities (Details) (USD $) Share data in Thousands, except Per Share data, unless otherwise specified	12 Months Ended
	Jun. 30, 2012		Jun. 30, 2011	Jun. 30, 2010
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Grant date fair value after estimated forfeitures	$ 60,102,000		$ 45,915,000	$ 64,230,000
Weighted-average grant date fair value per unit for restricted stock units granted	$ 36.63		$ 31.24	$ 34.36
Tax benefits realized by the Company in connection with vested and released restricted stock units	28,914,000		23,302,000	14,181,000
Restricted Stock
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Weighted-average grant date fair value per unit for restricted stock units granted	$ 36.63
Unrecognized stock-based compensation expense, net of forfeitures	$ 103,500,000
Estimated weighted-average amortization period	2 years 1 month
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Number of Shares [Roll Forward]
Outstanding restricted stock units as of June 30, 2011, shares	6,540	[1]
Granted, shares	2,303	[1],[2]
Vested and released, shares	(1,421)	[1]
Withheld for taxes, shares	(722)	[1]
Forfeited. shares	(282)	[1]
Outstanding restricted stock units as of June 30, 2012, shares	6,418	[1],[2]
Outstanding restricted stock units as of June 30, 2011, weighted-average grant date fair value	$ 33.56
Vested and released, weighted-average grant date fair value	$ 39.69
Withheld for taxes, weighted-average grant date fair value	$ 39.71
Forfeited, weighted-average grant date fair value	$ 32.54
Outstanding restricted stock units as of June 30, 2012, weighted-average grant date fair value	$ 32.66

[1] Share numbers reflect actual shares subject to awarded restricted stock units. Under the terms of the 2004 Plan, each of the share numbers presented in this column is multiplied by 1.8 to calculate the impact on the share reserve under the 2004 Plan.

[2] Includes 0.2 million restricted stock units granted to senior management during the fiscal year ended June 30, 2012 with performance-based vesting criteria (in addition to service-based vesting criteria for any of such restricted stock units that are deemed to have been earned). As of June 30, 2012, it had not yet been determined the extent to which (if at all) the performance-based vesting criteria of such restricted stock units had been satisfied. Therefore, this line item includes all such performance-based restricted stock units, reported at the maximum possible number of shares that may ultimately be issuable under such restricted stock units if all applicable performance-based and service-based criteria are fully satisfied.

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Net Income Per Share (Tables)

12 Months Ended

Jun. 30, 2012

Earnings Per Share [Abstract]

Computation of Basic and Diluted Net Income Per Share

The following table sets forth the computation of basic and diluted net income per share:

(In thousands, except per share amounts)	Year ended June 30,
	2012		2011		2010
Numerator:
Net income	$	756,015	$	794,488	$	212,300
Denominator:
Weighted-average shares-basic, excluding unvested restricted stock units	166,795		167,261		170,652
Effect of dilutive options and restricted stock units	3,352		3,091		2,382
Weighted-average shares-diluted	170,147		170,352		173,034
Basic net income per share	$	4.53	$	4.75	$	1.24
Diluted net income per share	$	4.44	$	4.66	$	1.23
Anti-dilutive securities excluded from the computation of diluted net income per share	3,123		8,003		11,109

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Employee Benefit Plans Amount Recognized or Expected to be Recognized in Accumulated Other Comprehensive Income (Loss) (Details) (Foreign Pension Plans, Defined Benefit, USD $) In Thousands, unless otherwise specified	12 Months Ended
	Jun. 30, 2012	Jun. 30, 2011
Foreign Pension Plans, Defined Benefit
Amounts Recognized in Accumulated Other Comprehensive Income (Loss)
Unrecognized transition obligation	$ 1,868	$ 2,318
Unrecognized prior service cost	392	450
Unrealized net loss	15,408	9,288
Amount recognized	17,668	12,056
Amounts in Accumulated Other Comprehensive Income (Loss) Expected to be Recognized as Components of Net Periodic Benefit Cost Over Next Fiscal Year
Unrecognized transition obligation	374
Unrecognized prior service cost	65
Unrealized net loss	580
Amount expected to be recognized	$ 1,019

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Derivative Instruments and Hedging Activities

12 Months Ended

Jun. 30, 2012

General Discussion of Derivative Instruments and Hedging Activities [Abstract]

Derivative Instruments and Hedging Activities

DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

The authoritative guidance requires companies to recognize all derivative instruments and hedging activities, including foreign currency exchange contracts, as either assets or liabilities at fair value on the balance sheet. Changes in the fair value of derivatives that do not qualify for hedge treatment, as well as the ineffective portion of any hedges, are reflected in the Consolidated Statement of Operations. In accordance with the guidance, the Company designates foreign currency forward exchange and option contracts as cash flow hedges of certain forecasted foreign currency denominated sales and purchase transactions.

KLA-Tencor’s foreign subsidiaries operate and sell KLA-Tencor’s products in various global markets. As a result, KLA-Tencor is exposed to risks relating to changes in foreign currency exchange rates. KLA-Tencor utilizes foreign currency forward exchange contracts and option contracts to hedge against future movements in foreign exchange rates that affect certain existing and forecasted foreign currency denominated sales and purchase transactions, such as the Japanese yen, the euro and the Israeli new shekel. KLA-Tencor does not use derivative financial instruments for speculative or trading purposes. The Company routinely hedges its exposures to certain foreign currencies with various financial institutions in an effort to minimize the impact of certain currency exchange rate fluctuations. These currency forward exchange contracts and options, designated as cash flow hedges, generally have maturities of less than 18 months. Cash flow hedges are evaluated for effectiveness monthly, based on changes in total fair value of the derivatives. If a financial counterparty 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.

For derivative instruments that are designated and qualify as cash flow hedges, the effective portion of the gains or losses on the derivative is reported as a component of accumulated other comprehensive income (loss) (“OCI”) and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. Changes in the fair value of currency forward exchange and option contracts due to changes in time value are excluded from the assessment of effectiveness. Gains and losses on the derivative representing either hedge ineffectiveness or hedge components excluded from the assessment of effectiveness are recognized in current earnings.

For derivative instruments that are not designated as accounting hedges, gains and losses are recognized in interest income and other, net. The Company uses foreign currency forward contracts to hedge certain foreign currency denominated assets or liabilities. The gains and losses on these derivatives are largely offset by the changes in the fair value of the assets or liabilities being hedged.

Derivatives in Cash Flow Hedging Relationships: Foreign Exchange Contracts

The locations and amounts of designated and non-designated derivative instruments’ gains and losses reported in the consolidated financial statements for the indicated periods were as follows:

(In thousands)	Location in Financial Statements	Year ended June 30,
		2012			2011
Derivatives Designated as Hedging Instruments
Gains (losses) in accumulated OCI on derivatives (effective portion)	Accumulated OCI	$	(1,184	)	$	47
Losses reclassified from accumulated OCI into income (effective portion):	Revenues	$	(185	)	$	(2,491	)
	Costs of revenues	(25		)	531
	Total losses reclassified from accumulated OCI into income (effective portion)	$	(210	)	$	(1,960	)
Gains recognized in income on derivatives (ineffectiveness portion and amount excluded from effectiveness testing)	Interest income and other, net	$	120		$	468
Derivatives Not Designated as Hedging Instruments
Losses recognized in income	Interest income and other, net	$	(11,596	)	$	(2,024	)

The U.S. dollar equivalent of all outstanding notional amounts of hedge contracts, with maximum maturity of 13 months, as of the dates indicated below was as follows:

(In thousands)	As of June 30, 2012		As of June 30, 2011
Cash flow hedge contracts
Purchase	$	14,689	$	3,381
Sell	$	29,362	$	30,133
Other foreign currency hedge contracts
Purchase	$	121,965	$	174,499
Sell	$	126,827	$	216,738

The locations and fair value amounts of the Company’s derivative instruments reported in its Consolidated Balance Sheets as of the dates indicated below were as follows:

	Asset Derivatives					Liability Derivatives
	Balance Sheet Location	June 30, 2012		June 30, 2011		Balance Sheet Location	June 30, 2012		June 30, 2011
(In thousands)		Fair Value					Fair Value
Derivatives designated as hedging instruments
Foreign exchange contracts	Other current assets	$	128	$	145	Other current liabilities	$	736	$	475
Total derivatives designated as hedging instruments		$	128	$	145		$	736	$	475
Derivatives not designated as hedging instruments
Foreign exchange contracts	Other current assets	$	1,279	$	1,825	Other current liabilities	$	1,173	$	1,652
Total derivatives not designated as hedging instruments		$	1,279	$	1,825		$	1,173	$	1,652
Total derivatives		$	1,407	$	1,970		$	1,909	$	2,127

The following table provides the balances and changes in accumulated other comprehensive income (loss) related to derivative instruments for the indicated periods:

(In thousands)	Year ended June 30, 2012
Beginning balance	$	12
Amount reclassified to income	210
Net change	(1,184		)
Ending balance	$	(962	)

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Employee Benefit Plans (Tables)

12 Months Ended

Jun. 30, 2012

Employee Benefit Plans [Abstract]

Summary Data Related to Foreign Defined Benefit Pension Plans

Summary data relating to the Company's foreign defined benefit pension plans, including key weighted-average assumptions used, is provided in the following tables:

	Year ended June 30,
(In thousands)	2012			2011
Change in projected benefit obligation
Projected benefit obligation as of the beginning of the fiscal year	$	56,810		$	46,344
Service cost, including plan participant contributions	3,355			3,184
Interest cost	1,406			1,270
Contributions by plan participants	132			126
Adjustment	148			9
Actuarial loss	6,582			1,363
Benefit payments	(789		)	(1,357		)
Foreign currency exchange rate changes	(2,218		)	5,871
Projected benefit obligation as of the end of the fiscal year	$	65,426		$	56,810
	Year ended June 30,
(In thousands)	2012			2011
Change in fair value of plan assets
Fair value of plan assets as of the beginning of the fiscal year	$	11,035		$	8,692
Actual return on plan assets	68			78
Employer contributions	1,926			2,024
Benefit and expense payments	(541		)	(1,010		)
Foreign currency exchange rate changes	(779		)	1,251
Fair value of plan assets as of the end of the fiscal year	$	11,709		$	11,035

	As of June 30,
(In thousands)	2012			2011
Funded status
Ending funded status	$	(53,717	)	$	(45,775	)
Net amount recognized	$	(53,717	)	$	(45,775	)
	As of June 30,
(In thousands)	2012			2011
Plans with accumulated benefit obligations in excess of plan assets
Accumulated benefit obligation	$	28,844		$	39,748
Projected benefit obligation	$	65,426		$	56,810
Plan assets at fair value	$	11,709		$	11,035

Weighted-Average Assumptions Used in Determining Net Periodic Cost

	Year ended June 30,
	2012	2011	2010
Weighted-average assumptions
Discount rate	1.3%-5.5%	1.8%-5.5%	1.8%-4.9%
Expected return on assets	1.8%-4.5%	1.8%-4.5%	1.8%-4.5%
Rate of compensation increases	3.0%-4.5%	3.0%-4.0%	3.0%-4.0%

Defined Benefit Plan Amounts Recognized in Other Comprehensive Income (Loss)

Amounts recognized in accumulated other comprehensive income (loss) consist of:

	Year ended June 30,
(In thousands)	2012		2011
Unrecognized transition obligation	$	1,868	$	2,318
Unrecognized prior service cost	392		450
Unrealized net loss	15,408		9,288
Amount recognized	$	17,668	$	12,056

Amounts in Other Comprehensive Income (Loss) Expected to be Recognized as Net Periodic Benefit

Amounts in accumulated other comprehensive income (loss) expected to be recognized as components of net periodic benefit cost over the fiscal year ending June 30, 2013 are as follows:

(In thousands)	Year ending June 30, 2013
Unrecognized transition obligation	$	374
Unrecognized prior service cost	65
Unrealized net loss	580
Amount expected to be recognized	$	1,019

Components of Net Periodic Cost

The components of the Company's net periodic cost relating to its foreign subsidiaries' defined pension plans are as follows:

	Year ended June 30,
(In thousands)	2012			2011			2010
Components of net periodic pension cost
Service cost, net of plan participant contributions	$	3,355		$	3,184		$	2,249
Interest cost	1,406			1,270			1,020
Return on plan assets	(309		)	(289		)	(215		)
Amortization of transitional obligation	380			366			28
Amortization of prior service cost	64			61			44
Amortization of net loss	292			178			98
Acquisitions	—			—			313
Adjustment	—			—			3,154
Net periodic pension cost	$	5,188		$	4,770		$	6,691

Foreign Plan Assets Measured at Fair Value on Recurring Basis

Foreign plan assets measured at fair value on a recurring basis consisted of the following investment categories as of June 30, 2012:

(In thousands)	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)
Cash and cash equivalents	$	8,405	$	8,405	$	—
Government, municipal securities, and other	3,304		—		3,304
Total assets measured at fair value	$	11,709	$	8,405	$	3,304

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Sale of Real Estate Assets

12 Months Ended

Jun. 30, 2012

Real Estate Held for Development and Sale [Abstract]

Sale of Real Estate Assets

SALE OF REAL ESTATE ASSETS

During the fiscal year ended June 30, 2011, the Company completed the sale of its remaining real estate properties in San Jose, California. The sale transaction, which closed on December 9, 2010, resulted in proceeds to the Company of $18.2 million and a gain on sale of $1.4 million recorded as an offset to selling, general and administrative expenses.

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Income Taxes (Details) (USD $)	12 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2010
Components of Income, before Income Taxes [Abstract]
Domestic income before income taxes	$ 607,146,000	$ 752,163,000	$ 122,219,000
Foreign income before income taxes	366,948,000	357,903,000	168,962,000
Income before income taxes	974,094,000	1,110,066,000	291,181,000
Current:
Federal	(699,000)	225,192,000	63,687,000
State	51,000	2,095,000	8,799,000
Foreign	24,383,000	31,578,000	30,225,000
Current income tax expense	23,735,000	258,865,000	102,711,000
Deferred:
Federal	188,882,000	40,908,000	(9,258,000)
State	3,721,000	26,458,000	(3,689,000)
Foreign	1,741,000	(10,653,000)	(10,883,000)
Deferred income tax expense (benefit)	194,344,000	56,713,000	(23,830,000)
Provision for income taxes	218,079,000	315,578,000	78,881,000
Deferred tax assets:
Tax credits and net operating losses	66,392,000	62,020,000
Employee benefits accrual	78,112,000	83,328,000
Stock-based compensation	37,300,000	63,625,000
Capitalized R&D expenses	57,192,000	79,815,000
Inventory reserves	57,736,000	53,217,000
Non-deductible reserves	45,682,000	45,154,000
Deferred profit	0	91,302,000
Unearned revenue	9,991,000	26,632,000
Other	57,464,000	59,275,000
Gross deferred tax assets	409,869,000	564,368,000
Valuation allowance	(40,479,000)	(30,722,000)
Net deferred tax assets	369,390,000	533,646,000
Deferred tax liabilities:
Unremitted earnings of foreign subsidiaries not permanently reinvested	(22,746,000)	(25,131,000)
Depreciation and amortization	(10,202,000)	(20,254,000)
Deferred profit	(37,906,000)	0
Unrealized gain on investments	(1,070,000)	(2,215,000)
Total deferred tax liabilities	(71,924,000)	(47,600,000)
Total net deferred tax assets	297,466,000	486,046,000
Deferred tax assets, tax credit carryforwards, state	58,500,000
Deferred tax liability not recognized, cumulative amount of undistributed earnings	912,700,000
Deferred tax liabilities, undistributed foreign earnings	302,700,000
Income tax holiday, termination date (in years)	two to nine
Income tax reconciliation, tax holidays	53,300,000	30,400,000	12,700,000
Income tax holiday, income tax benefits on diluted net income per share	$ 0.31	$ 0.18	$ 0.07
Foreign [Member]
Deferred tax liabilities:
Operating loss carryforwards	35,900,000
Operating loss carryforwards, starting expiration dates	2013
State [Member]
Deferred tax liabilities:
Operating loss carryforwards	117,600,000
Operating loss carryforwards, valuation allowance	36,400,000
Operating loss carryforwards, starting expiration dates	2013
Federal [Member]
Deferred tax liabilities:
Operating loss carryforwards	$ 37,500,000
Net operating loss and tax credit carry-forward expiration date	2023 through 2029

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Consolidated Statements of Cash Flows (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2010
Cash flows from operating activities:
Net income	$ 756,015	$ 794,488	$ 212,300
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	92,133	86,044	87,348
Asset impairment charges	2,878	10,568	15,149
Net gain on sale of real estate assets	0	(1,372)	(2,984)
Non-cash stock-based compensation expense	78,835	81,430	85,982
Provision for doubtful accounts	0	0	(2,888)
Net gain on sale of marketable securities and other investments	(637)	(2,479)	(5,077)
Deferred income taxes	193,412	64,736	(19,865)
Tax charge from equity awards	0	0	(5,133)
Excess tax benefit from equity awards	0	(71)	0
Changes in assets and liabilities, net of assets acquired and liabilities assumed in business combinations:
Increase in accounts receivable, net	(113,922)	(128,219)	(220,857)
Increase in inventories	(93,145)	(170,141)	(27,715)
Decrease (increase) in other assets	58,041	(56,743)	102,033
Increase (decrease) in accounts payable	(3,732)	34,259	44,381
Increase (decrease) in deferred system profit	(45,121)	(12,425)	108,943
Increase in other liabilities	16,860	123,091	76,183
Net cash provided by operating activities	941,617	823,166	447,800
Cash flows from investing activities:
Acquisitions of businesses, net of cash received	0	0	(1,500)
Capital expenditures, net	(57,596)	(51,151)	(30,202)
Proceeds from sale of assets	2,228	18,185	5,878
Purchase of available-for-sale securities	(1,522,424)	(1,142,491)	(1,080,412)
Proceeds from sale and maturity of available-for-sale securities	1,046,665	795,762	854,970
Purchase of trading securities	(55,906)	(63,005)	(77,295)
Proceeds from sale of trading securities	58,142	83,190	100,597
Net cash used in investing activities	(528,891)	(359,510)	(227,964)
Cash flows from financing activities:
Issuance of common stock	163,569	124,573	35,867
Tax withholding payments related to vested and released restricted stock units	(30,247)	(22,557)	(13,514)
Common stock repurchases	(263,864)	(234,844)	(136,275)
Excess tax benefit from equity awards	0	71	0
Payment of dividends to stockholders	(233,561)	(167,398)	(102,409)
Net cash used in financing activities	(364,103)	(300,155)	(216,331)
Effect of exchange rate changes on cash and cash equivalents	(8,658)	17,910	1,446
Net increase in cash and cash equivalents	39,965	181,411	4,951
Cash and cash equivalents at beginning of period	711,329	529,918	524,967
Cash and cash equivalents at end of period	751,294	711,329	529,918
Supplemental cash flow disclosures:
Income taxes paid (refunds received), net	20,018	262,086	(13,989)
Interest paid	$ 54,523	$ 52,819	$ 52,438

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Consolidated Balance Sheets (Parentheticals) (USD $)	Jun. 30, 2012	Jun. 30, 2011
Preferred stock, par or stated value per share	$ 0.001	$ 0.001
Preferred stock, shares authorized	1,000,000	1,000,000
Preferred stock, shares issued	0	0
Preferred stock, shares outstanding	0	0
Common stock, par or stated value per share	$ 0.001	$ 0.001
Common stock, shares authorized	500,000,000	500,000,000
Common stock, shares, issued	249,520,000	244,281,000
Common stock, shares, outstanding	166,710,000	167,118,000

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Employee Benefit Plans

12 Months Ended

Jun. 30, 2012

Employee Benefit Plans [Abstract]

Employee Benefit Plans

EMPLOYEE BENEFIT PLANS

KLA-Tencor has a profit sharing program for eligible employees, which distributes, on a quarterly basis, a percentage of the Company’s pre-tax profits. In addition, the Company has an employee savings plan that qualifies as a deferred salary arrangement under Section 401(k) of the Internal Revenue Code. Through March 31, 2011, the Company matched a portion of each participating eligible employee's 401(k) contribution equal to 50% of the first $6,000 of the employee’s contribution (i.e., a maximum of $3,000) during each fiscal year. The Company's Board of Directors approved an amendment to the Company's 401(k) plan effective April 1, 2011 to increase the employer match amount to 50% of the first $8,000 of an eligible employee's contribution (i.e., a maximum of $4,000) during each fiscal year.

The total expenses under the profit sharing and 401(k) programs aggregated $12.6 million, $11.6 million and $6.4 million in the fiscal years ended June 30, 2012, 2011 and 2010, respectively. The Company has no defined benefit plans in the United States. In addition to the profit sharing plan and the United States 401(k), several of the 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, 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.

The Company applies authoritative guidance that requires an employer to recognize the funded status of each of its defined pension and post-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, 2012 and 2011.

Summary data relating to the Company's foreign defined benefit pension plans, including key weighted-average assumptions used, is provided in the following tables:

	Year ended June 30,
(In thousands)	2012			2011
Change in projected benefit obligation
Projected benefit obligation as of the beginning of the fiscal year	$	56,810		$	46,344
Service cost, including plan participant contributions	3,355			3,184
Interest cost	1,406			1,270
Contributions by plan participants	132			126
Adjustment	148			9
Actuarial loss	6,582			1,363
Benefit payments	(789		)	(1,357		)
Foreign currency exchange rate changes	(2,218		)	5,871
Projected benefit obligation as of the end of the fiscal year	$	65,426		$	56,810
	Year ended June 30,
(In thousands)	2012			2011
Change in fair value of plan assets
Fair value of plan assets as of the beginning of the fiscal year	$	11,035		$	8,692
Actual return on plan assets	68			78
Employer contributions	1,926			2,024
Benefit and expense payments	(541		)	(1,010		)
Foreign currency exchange rate changes	(779		)	1,251
Fair value of plan assets as of the end of the fiscal year	$	11,709		$	11,035

	As of June 30,
(In thousands)	2012			2011
Funded status
Ending funded status	$	(53,717	)	$	(45,775	)
Net amount recognized	$	(53,717	)	$	(45,775	)
	As of June 30,
(In thousands)	2012			2011
Plans with accumulated benefit obligations in excess of plan assets
Accumulated benefit obligation	$	28,844		$	39,748
Projected benefit obligation	$	65,426		$	56,810
Plan assets at fair value	$	11,709		$	11,035

	Year ended June 30,
	2012	2011	2010
Weighted-average assumptions
Discount rate	1.3%-5.5%	1.8%-5.5%	1.8%-4.9%
Expected return on assets	1.8%-4.5%	1.8%-4.5%	1.8%-4.5%
Rate of compensation increases	3.0%-4.5%	3.0%-4.0%	3.0%-4.0%

The assumptions for expected rate of return on assets were developed by considering the historical returns and expectations of future returns relevant to the country in which each plan is in effect and the investments applicable to the corresponding plan. The discount rate for each plan was derived by reference to appropriate benchmark yields on high quality corporate bonds, allowing for the approximate duration of both plan obligations and the relevant benchmark index.

Amounts recognized in accumulated other comprehensive income (loss) consist of:

	Year ended June 30,
(In thousands)	2012		2011
Unrecognized transition obligation	$	1,868	$	2,318
Unrecognized prior service cost	392		450
Unrealized net loss	15,408		9,288
Amount recognized	$	17,668	$	12,056

Amounts in accumulated other comprehensive income (loss) expected to be recognized as components of net periodic benefit cost over the fiscal year ending June 30, 2013 are as follows:

(In thousands)	Year ending June 30, 2013
Unrecognized transition obligation	$	374
Unrecognized prior service cost	65
Unrealized net loss	580
Amount expected to be recognized	$	1,019

The components of the Company's net periodic cost relating to its foreign subsidiaries' defined pension plans are as follows:

	Year ended June 30,
(In thousands)	2012			2011			2010
Components of net periodic pension cost
Service cost, net of plan participant contributions	$	3,355		$	3,184		$	2,249
Interest cost	1,406			1,270			1,020
Return on plan assets	(309		)	(289		)	(215		)
Amortization of transitional obligation	380			366			28
Amortization of prior service cost	64			61			44
Amortization of net loss	292			178			98
Acquisitions	—			—			313
Adjustment	—			—			3,154
Net periodic pension cost	$	5,188		$	4,770		$	6,691

Fair Value of Plan Assets

Fair value is the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The three levels of inputs that may be used to measure fair value of plan assets are as follows:

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.

The foreign plans’ investments are managed by third-party trustees consistent with the regulations or market practice of the country where the assets are invested. The 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, 2012, 2011 and 2010.

Expected employer contribution for the foreign plans during the fiscal year ending June 30, 2013 is $1.4 million.

The total benefits to be paid from the foreign pension plans are not expected to exceed $3.7 million in any year through 2022.

Foreign plan assets measured at fair value on a recurring basis consisted of the following investment categories as of June 30, 2012:

(In thousands)	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)
Cash and cash equivalents	$	8,405	$	8,405	$	—
Government, municipal securities, and other	3,304		—		3,304
Total assets measured at fair value	$	11,709	$	8,405	$	3,304

Concentration of Risk

The Company manages a variety of risks, including market, credit and liquidity risks, across its plan assets through its 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 the Company's exposure to such risks across a variety of instruments, markets and counterparties. As of June 30, 2012, the Company did not have concentrations of risk in any single entity, manager, counterparty, sector, industry or country.

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DEI Document (USD $)	12 Months Ended
	Jun. 30, 2012	Jul. 19, 2012	Dec. 31, 2011
Entity Information [Line Items]
Document Type	10-K
Amendment Flag	false
Document Period End Date	Jun. 30, 2012
Document Fiscal Year Focus	2012
Document Fiscal Period Focus	Q4
Entity Registrant Name	KLA TENCOR CORP
Entity Central Index Key	0000319201
Entity Filer Category	Large Accelerated Filer
Current Fiscal Year End Date	--06-30
Entity Current Reporting Status	Yes
Entity Voluntary Filers	No
Entity Well-known Seasoned Issuer	Yes
Trading Symbol	klac
Entity Common Stock, Shares Outstanding		166,516,316
Entity Public Float			$ 8,000,000,000

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Income Taxes

12 Months Ended

Jun. 30, 2012

Income Tax Disclosure [Abstract]

Income Taxes

INCOME TAXES

The components of income before income taxes are as follows:

	Year ended June 30,
(In thousands)	2012		2011		2010
Domestic income before income taxes	$	607,146	$	752,163	$	122,219
Foreign income before income taxes	366,948		357,903		168,962
Total income before income taxes	$	974,094	$	1,110,066	$	291,181

The provision for income taxes is comprised of the following:

(In thousands)	Year ended June 30,
	2012			2011			2010
Current:
Federal	$	(699	)	$	225,192		$	63,687
State	51			2,095			8,799
Foreign	24,383			31,578			30,225
	$	23,735		$	258,865		$	102,711
Deferred:
Federal	$	188,882		$	40,908		$	(9,258	)
State	3,721			26,458			(3,689		)
Foreign	1,741			(10,653		)	(10,883		)
	194,344			56,713			(23,830		)
Provision for income taxes	$	218,079		$	315,578		$	78,881

The Company made a change in the timing of when revenue is recognized for U.S. federal income tax purposes during the fiscal year ended June 30, 2012, resulting in a lower current provision for federal income taxes, which was partially offset by a higher deferred current provision for federal income taxes. The Company expects the current and deferred provisions for federal income taxes to normalize (i.e., return closer to historical levels) relative to profit before taxes in future periods.

For the fiscal years ended June 30, 2012 and 2011, the Company did not recognize any benefits from employee stock activity deductions, and therefore the Company did not reduce actual current tax liabilities, or record any increases to capital in excess of par value, for those years in connection with such benefits.

The significant components of deferred income tax assets and liabilities are as follows:

(In thousands)	As of June 30,
	2012			2011
Deferred tax assets:
Tax credits and net operating losses	$	66,392		$	62,020
Employee benefits accrual	78,112			83,328
Stock-based compensation	37,300			63,625
Capitalized R&D expenses	57,192			79,815
Inventory reserves	57,736			53,217
Non-deductible reserves	45,682			45,154
Deferred profit	—			91,302
Unearned revenue	9,991			26,632
Other	57,464			59,275
Gross deferred tax assets	409,869			564,368
Valuation allowance	(40,479		)	(30,722		)
Net deferred tax assets	$	369,390		$	533,646
Deferred tax liabilities:
Unremitted earnings of foreign subsidiaries not permanently reinvested	$	(22,746	)	$	(25,131	)
Depreciation and amortization	(10,202		)	(20,254		)
Deferred profit	(37,906		)	—
Unrealized gain on investments	(1,070		)	(2,215		)
Total deferred tax liabilities	(71,924		)	(47,600		)
Total net deferred tax assets	$	297,466		$	486,046

As of June 30, 2012, the Company had U.S. federal, state and foreign net operating loss (“NOL”) carry-forwards of approximately $37.5 million, $117.6 million and $35.9 million, respectively. The U.S. federal net operating loss and tax credit carry-forwards will expire at various dates beginning in 2023 through 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. State credits of $58.5 million will be carried over indefinitely. The foreign net operating loss carry-forwards will begin to expire in 2013.

The net deferred tax asset valuation allowance was $40.5 million as of June 30, 2012 and $30.7 million as of June 30, 2011. The change was primarily due to an increase in the valuation allowance related to state credit carry-forwards generated in the fiscal year ended June 30, 2012. 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, 2012, $36.4 million relates to state credit carry-forwards. The remainder of the valuation allowance relates primarily to foreign net operating loss carry-forwards.

As of June 30, 2012, U.S. income taxes were not provided for on a cumulative total of approximately $912.7 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 $302.7 million.

KLA-Tencor benefits from several tax holidays in Israel and Singapore where it manufactures certain of its products. These tax holidays are on approved investments and are scheduled to expire at varying times within the next two to nine years. However, of the tax holidays, whose expiration will have an impact on the Company's tax obligations, the soonest that any such tax holiday is scheduled to expire is during the fiscal year ending June 30, 2020. The Company was in compliance with all the terms and conditions of the tax holidays as of June 30, 2012. The net impact of these tax holidays was to decrease the Company’s tax expense by approximately $53.3 million, $30.4 million and $12.7 million in the fiscal years ended June 30, 2012, 2011 and 2010, respectively. The benefits of the tax holidays on diluted net income per share were $0.31, $0.18 and $0.07 for the fiscal years ended June 30, 2012, 2011, 2010, respectively.

The reconciliation of the United States federal statutory income tax rate to KLA-Tencor’s effective income tax rate is as follows:

	Year ended June 30,
	2012		2011		2010
Federal statutory rate	35.0	%	35.0	%	35.0	%
State income taxes, net of federal benefit	0.4	%	2.5	%	0.6	%
Effect of foreign operations taxed at various rates	(9.9	)%	(9.0	)%	(9.6	)%
Research and development tax credit	(1.1	)%	(1.2	)%	(1.2	)%
Net change in tax reserves	(2.8	)%	2.1	%	0.5	%
Domestic manufacturing benefit	(0.7	)%	(1.9	)%	(1.7	)%
Effect of stock-based compensation	1.3	%	1.4	%	4.0	%
Other	0.2	%	(0.5	)%	(0.5	)%
Effective income tax rate	22.4	%	28.4	%	27.1	%

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. The Company incurred $11.9 million of additional tax expense during the fiscal year ended June 30, 2012 due to shortfalls from employee stock activities. The Company's cumulative windfall balance reset to zero on July 1, 2012, since there was a cumulative shortfall in the fiscal year ended June 30, 2012.

A reconciliation of the gross unrecognized tax benefit is as follows:

	Year ended June 30,
(In thousands)	2012			2011			2010
Unrecognized tax benefits at the beginning of the period	$	78,337		$	53,492		$	49,738
Increases for tax positions taken in prior years	4,172			5,228			6,553
Decreases for tax positions taken in prior years	(1,002		)	—			(1,897		)
Increases for tax positions taken in current year	15,663			32,152			10,912
Decreases for settlements with taxing authorities	(43,464		)	(11,786		)	—
Decreases for lapsing of the statute of limitations	(2,867		)	(749		)	(11,814		)
Unrecognized tax benefits at the end of the period	$	50,839		$	78,337		$	53,492

The amount of unrecognized tax benefits that would impact the effective tax rate was $50.8 million as of June 30, 2012. 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, 2012 and 2011 was approximately $4.6 million and $7.2 million, respectively.

The Company is subject to federal income tax examinations for all years beginning from the 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, 2008. The Company is also subject to examinations in other major foreign jurisdictions, including Singapore, for all years beginning from the fiscal year ended June 30, 2008. The Company believes that adequate amounts have been reserved for any adjustments that may ultimately result from any future examinations of these years.

It is possible that certain examinations may be concluded in the next twelve months. The Company believes it is possible that it may recognize up to $2.2 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 examinations with various tax authorities.

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Consolidated Statements of Operations (USD $) In Thousands, except Per Share data, unless otherwise specified	12 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2010
Revenues [Abstract]
Product	$ 2,597,755	$ 2,613,438	$ 1,324,270
Service	574,189	561,729	496,490
Total revenues	3,171,944	3,175,167	1,820,760
Costs and operation expenses: [Abstract]
Costs of revenues	1,330,016	1,259,243	815,662
Engineering, research and development	452,937	386,163	329,560
Selling, general and administrative	372,666	369,431	361,372
Total costs and operating expenses	2,155,619	2,014,837	1,506,594
Income from operations	1,016,325	1,160,330	314,166
Interest income and other, net	11,966	4,064	31,532
Interest expense	54,197	54,328	54,517
Income before income taxes	974,094	1,110,066	291,181
Provision for income taxes	218,079	315,578	78,881
Net income	$ 756,015	$ 794,488	$ 212,300
Net income per share:
Basic	$ 4.53	$ 4.75	$ 1.24
Diluted	$ 4.44	$ 4.66	$ 1.23
Cash dividends declared per share	$ 1.40	$ 1.00	$ 0.60
Weighted-average number of shares:
Basic	166,795	167,261	170,652
Diluted	170,147	170,352	173,034

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Goodwill and Purchased Intangible Assets

12 Months Ended

Jun. 30, 2012

Goodwill and Intangible Assets Disclosure [Abstract]

Goodwill and Purchased Intangible Assets

GOODWILL AND PURCHASED INTANGIBLE ASSETS

Goodwill

The following table presents goodwill balances as of the dates indicated below:

(In thousands)	As of June 30, 2012			As of June 30, 2011
Gross goodwill balance	$	604,302		$	604,742
Accumulated impairment losses	(276,586		)	(276,586		)
Net goodwill balance	$	327,716		$	328,156

The changes in the gross goodwill balance during the fiscal years ended June 30, 2012 and 2011 resulted from foreign currency translation adjustments.

Goodwill represents the excess of the purchase price over the fair value of the net tangible and identifiable intangible assets acquired in each business combination. In September 2011, the FASB amended its guidance to simplify testing goodwill for impairment, allowing an entity to first assess qualitative factors to determine whether it is necessary to perform the two-step quantitative goodwill impairment test. If an entity determines as a result of the qualitative assessment that it is more likely than not (> 50% likelihood) that the fair value of a reporting unit is less than its carrying amount, then the quantitative test is required. Otherwise, no further testing is required. The Company elected to early adopt this accounting guidance during the three months ended December 31, 2011.

The Company has four reporting units: Defect Inspection, Metrology, Service and Other. As of December 31, 2011, the entire goodwill balance resided in the Defect Inspection reporting unit.

The fair value of each of the Company's reporting units was substantially in excess of its estimated carrying amount as of the most recent quantitative analysis of goodwill impairment performed in the three months ended December 31, 2010. There have been no triggering events or changes in circumstances since that quantitative analysis to indicate that the fair value of any of the Company's reporting units would be less than its carrying amount.

The Company performed a qualitative assessment of the goodwill by reporting unit as of November 30, 2011 during the three months ended December 31, 2011 and concluded that it was more likely than not that the fair value of each of the reporting units exceeded its carrying amount. In assessing the qualitative factors, the Company considered the impact of these key factors: change in industry and competitive environment, market capitalization, stock price, earnings multiples, budgeted-to-actual revenue performance from prior year, gross margin and cash flow from operating activities. As such, it was not necessary to perform the two-step goodwill impairment test at that time.

Based on the Company's assessment, goodwill in the reporting units was not impaired as of December 31, 2011 or 2010.

Purchased Intangible Assets

The components of purchased intangible assets as of the dates indicated below were as follows:

(In thousands)		As of June 30, 2012						As of June 30, 2011
Category	Range of Useful Lives	Gross Carrying Amount		Accumulated Amortization and Impairment		Net Amount		Gross Carrying Amount		Accumulated Amortization and Impairment		Net Amount
Existing technology	4-7 years	$	134,561	$	110,370	$	24,191	$	134,561	$	94,172	$	40,389
Patents	6-13 years	57,648		46,966		10,682		57,648		40,591		17,057
Trade name/Trademark	4-10 years	19,893		14,428		5,465		19,893		12,907		6,986
Customer relationships	6-7 years	54,823		39,525		15,298		54,823		33,565		21,258
Other	0-1 year	16,200		16,200		—		16,200		15,988		212
Total		$	283,125	$	227,489	$	55,636	$	283,125	$	197,223	$	85,902

Intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable.

For the fiscal years ended June 30, 2012, 2011 and 2010, amortization expense for other intangible assets was $30.3 million, $32.9 million and $33.8 million, respectively. Based on the intangible assets recorded as of June 30, 2012, and assuming no subsequent additions to or impairment of the underlying assets, the remaining estimated annual amortization expense is expected to be as follows:

Year ending June 30:	Amortization (In thousands)
2013	$	20,914
2014	15,537
2015	12,771
2016	5,582
2017	806
Thereafter	26
Total	$	55,636

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Marketable Securities

12 Months Ended

Jun. 30, 2012

Marketable Securities [Abstract]

Marketable Securities

MARKETABLE SECURITIES

The amortized cost and fair value of marketable securities as of the dates indicated below were as follows:

As of June 30, 2012 (In thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
U.S. Treasury securities	$	91,387	$	67	$	(16	)	$	91,438
U.S. Government agency securities	633,587		981		(76		)	634,492
Municipal securities	66,538		107		(102		)	66,543
Corporate debt securities	914,134		3,826		(568		)	917,392
Money market and other	607,038		—		—			607,038
Sovereign securities	29,056		89		—			29,145
Equity securities	10		—		—			10
Subtotal	2,341,750		5,070		(762		)	2,346,058
Add: Time deposits(1)	62,431		—		—			62,431
Less: Cash equivalents	625,339		—		—			625,339
Marketable securities	$	1,778,842	$	5,070	$	(762	)	$	1,783,150
As of June 30, 2011 (In thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			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

__________________ 

(1) Time deposits excluded from fair value measurements.

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 market interest rates, bond yields and/or credit ratings. 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 the Company's investments that were in an unrealized loss position as of the date indicated below:

As of June 30, 2012 (In thousands)	Fair Value		Gross Unrealized Losses(1)
U.S. Treasury securities	$	47,093	$	(16	)
U.S. Government agency securities	115,894		(76		)
Municipal securities	38,399		(102		)
Corporate debt securities	225,186		(568		)
Total	$	426,572	$	(762	)

 __________________ 

(1) Of the total gross unrealized losses, there were no amounts that, as of June 30, 2012, had been in a continuous loss position for 12 months or more.

The contractual maturities of securities classified as available-for-sale, regardless of their classification on the Company's Consolidated Balance Sheet, as of the date indicated below were as follows:

As of June 30, 2012 (In thousands)	Amortized Cost		Fair Value
Due within one year	$	464,939	$	466,044
Due after one year through three years	1,313,903		1,317,106
	$	1,778,842	$	1,783,150

Actual maturities may differ from contractual maturities, because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Net realized gains for the fiscal years ended June 30, 2012, 2011 and 2010 were $0.6 million, $2.5 million and $4.0 million, respectively.

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Segment Reporting and Geographic Information

12 Months Ended

Jun. 30, 2012

Segment Reporting Information, Additional Information [Abstract]

Segment Reporting and Geographic Information

SEGMENT REPORTING AND GEOGRAPHIC INFORMATION

KLA-Tencor reports one reportable segment in accordance with the provisions of the authoritative guidance for segment reporting. Operating segments are defined as components of an enterprise about which separate financial information is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. KLA-Tencor’s chief operating decision maker is the Chief Executive Officer.

The Company is engaged primarily in designing, manufacturing and marketing process control and yield management solutions for the semiconductor and related nanoelectronics industries. All operating segments have been aggregated due to their inter-dependencies, commonality of long-term economic characteristics, products and services, the production processes, class of customer and distribution processes. The Company’s service products are an extension of the system product portfolio and provide customers with spare parts and fab management services (including system preventive maintenance and optimization services) to improve yield, increase production uptime and throughput, and lower the cost of ownership. Since the Company operates in one segment, all financial segment information required by the authoritative guidance can be found in the consolidated financial statements.

The Company's significant operations outside the United States include manufacturing facilities in Israel and Singapore, and sales, marketing and service offices in Western Europe, Japan and the Asia Pacific regions. For geographical revenue 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.

The following is a summary of revenues by geographic region, based on ship-to location, for the indicated periods (as a percentage of total revenues):

(Dollar amounts in thousands)	Year ended June 30,
	2012				2011				2010
Revenues:
United States	$	675,034	21	%	$	610,955	19	%	$	341,079	19	%
Taiwan	872,583		28	%	864,378		27	%	688,089		38	%
Japan	415,475		13	%	413,208		13	%	239,393		13	%
Europe & Israel	323,902		10	%	340,249		11	%	111,497		6	%
Korea	611,462		19	%	480,488		15	%	151,198		8	%
Rest of Asia	273,488		9	%	465,889		15	%	289,504		16	%
Total	$	3,171,944	100	%	$	3,175,167	100	%	$	1,820,760	100	%

The following is a summary of revenues by major products for the indicated periods (as a percentage of total revenues):

(Dollar amounts in thousands)	Year ended June 30,
	2012				2011				2010
Revenues:
Defect inspection	$	1,830,935	58	%	$	2,039,856	64	%	$	1,011,027	56	%
Metrology	671,597		21	%	498,904		16	%	261,105		14	%
Service	574,189		18	%	561,729		18	%	496,490		27	%
Other	95,223		3	%	74,678		2	%	52,138		3	%
Total	$	3,171,944	100	%	$	3,175,167	100	%	$	1,820,760	100	%

Long-lived assets by geographic region as of the dates indicated below were as follows:

	As of June 30,
(In thousands)	2012		2011		2010
Long-lived assets:
United States	$	211,315	$	202,520	$	174,033
Taiwan	696		803		714
Japan	3,570		4,256		3,985
Europe & Israel	77,292		90,163		127,474
Korea	2,773		2,804		3,482
Rest of Asia	46,719		53,106		56,141
Total	$	342,365	$	353,652	$	365,829

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Commitments and Contingencies

12 Months Ended

Jun. 30, 2012

Commitments and Contingencies [Abstract]

Commitments and Contingencies

COMMITMENTS AND CONTINGENCIES

Factoring. KLA-Tencor has agreements (referred to as “factoring agreements”) with financial institutions to sell certain of its trade receivables and promissory notes from customers without recourse. The Company does not believe it is at risk for any material losses as a result of these agreements. In addition, the Company periodically sells certain letters of credit (“LCs”), without recourse, received from customers in payment for goods.

The following table shows total receivables sold under factoring agreements and proceeds from sales of LCs for the indicated periods:

	Year ended June 30,
(In thousands)	2012		2011
Receivables sold under factoring agreements	$	368,894	$	313,578
Proceeds from sales of LCs	$	30,142	$	140,534

Factoring and LC fees for the sale of certain trade receivables were recorded in interest income and other, net and were not material for the periods presented.

Facilities. KLA-Tencor leases certain of its facilities under arrangements that are accounted for as operating leases. Rent expense was $9.0 million, $8.5 million and $11.1 million for the fiscal years ended June 30, 2012, 2011 and 2010, respectively.

The following is a schedule of expected operating lease payments:

Fiscal year ending June 30,	Amount (In thousands)
2013	$	8,537
2014	5,618
2015	2,998
2016	2,748
2017	2,314
2018 and thereafter	2,185
Total minimum lease payments	$	24,400

Purchase Commitments. KLA-Tencor maintains certain open inventory purchase commitments with its suppliers to ensure a smooth and continuous supply for key components. The 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 $308 million as of June 30, 2012 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.

Guarantees. KLA-Tencor provides standard warranty coverage on its systems for 40 hours per week for twelve months, providing labor and parts necessary to repair the systems during the warranty period. The 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, the 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. The Company updates these estimated charges on a quarterly basis. The actual product performance and/or field expense profiles may differ, and in those cases the Company adjusts its warranty accruals accordingly.

The following table provides the changes in the product warranty accrual for the indicated periods:

	Year ended June 30,
(In thousands)	2012			2011
Beginning balance	$	41,528		$	21,109
Accruals for warranties issued during the period	48,537			46,565
Changes in liability related to pre-existing warranties	3,971			(928		)
Settlements made during the period	(47,540		)	(25,218		)
Ending balance	$	46,496		$	41,528

The Company maintains guarantee arrangements available through various financial institutions for up to $20.2 million, of which $18.2 million had been issued as of June 30, 2012, primarily to fund guarantees to customs authorities for value-added tax (“VAT”) and other operating requirements of the Company's subsidiaries in Europe and Asia.

KLA-Tencor is a party to a variety of agreements pursuant to which it may be obligated to indemnify the other party with respect to certain matters. Typically, these obligations arise in connection with contracts and license agreements or the sale of assets, under which the Company customarily agrees to hold the other party harmless against losses arising from, or provides customers with other remedies to protect against, bodily injury or damage to personal property caused by the Company's products, non-compliance with the Company's product performance specifications, infringement by the Company'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's obligations under these agreements may be limited in terms of amounts, activity (typically at the Company'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.

Subject to certain limitations, the Company is obligated to indemnify its current and former directors, officers and employees with respect to certain litigation matters and investigations that arise in connection with their service to the Company. These obligations arise under the terms of the Company's certificate of incorporation, its bylaws, applicable contracts, and Delaware and California law. The obligation to indemnify generally means that the Company is required to pay or reimburse the individuals’ reasonable legal expenses and possibly damages and other liabilities incurred in connection with these matters.

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.

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Stock Repurchase Program

12 Months Ended

Jun. 30, 2012

Stock Repurchase Program [Abstract]

Stock Repurchase Program

STOCK REPURCHASE PROGRAM

Since July 1997, the Board of Directors has authorized the Company to systematically repurchase in the open market up to 72.8 million shares of its common stock under a repurchase 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 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. As of June 30, 2012, 3.2 million shares were available for repurchase under the Company’s repurchase program.

Share repurchases for the indicated periods (based on the settlement date of the applicable repurchase) were as follows:

(In thousands)	Year ended June 30,
	2012		2011
Number of shares of common stock repurchased	5,790		6,190
Total cost of repurchases	$	261,150	$	232,924

The Company had shares issued and outstanding of 249.5 million and 166.7 million, respectively, as of June 30, 2012. As of June 30, 2011, shares issued and outstanding were 244.3 million and 167.1 million, respectively. The difference between shares issued and outstanding is related to shares repurchased under various repurchase programs.

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Stock-Based Compensation Fair Value Assumptions and ESPP (Details) (USD $) In Thousands, except Share data, unless otherwise specified	12 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2010
ESPP, maximum employee subscription rate	10.00%
ESPP, offering period	6 months
ESPP, discounted purchase price percentage	85.00%
ESPP Activities [Abstract]
Total cash received from employees for the issuance of shares under the ESPP	$ 34,263	$ 30,085	$ 20,714
Number of shares purchased by employees through the ESPP	918,000	1,123,000	758,000
Tax benefits realized by the Company in connection with the disqualifying dispositions of shares purchased under the ESPP	$ 2,206	$ 2,194	$ 994
Weighted average fair value per share based on Black-Scholes model	$ 10.02	$ 7.41	$ 8.51
Number of ESPP shares available for future issuance	2,600,000
ESPP share replenishment in period		2,000,000	2,000,000
ESPP maximum annual share replenishment	2,000,000
Employee Stock Purchase Plan
ESPP, Fair Value Assumptions and Methodology [Abstract]
Expected stock price volatility	36.00%	38.00%	35.00%
Risk free interest rate	0.10%	0.20%	0.20%
Dividend yield	3.20%	3.10%	1.60%
Expected life of options	6 months	6 months	6 months

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Long-Term Debt

12 Months Ended

Jun. 30, 2012

Long-term Debt, Other Disclosures [Abstract]

Long-Term Debt

LONG-TERM DEBT

In April 2008, the Company 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 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 of June 30, 2012.

In certain circumstances involving a change of control followed by a downgrade of the rating of the Company’s senior notes, the Company 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, 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.

Based on the trading prices of the debt on the applicable dates, the fair value of the debt as of June 30, 2012 and 2011 was $902.2 million and $863.5 million, respectively.

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Stock-Based Compensation

12 Months Ended

Jun. 30, 2012

Share-based Compensation [Abstract]

Stock-Based Compensation

STOCK-BASED COMPENSATION

Equity Incentive Program

Under the Company’s current equity incentive program, the Company issues equity awards from its 2004 Equity Incentive Plan (the “2004 Plan”), which provides for the grant of options to purchase shares of its common stock, stock appreciation rights, restricted stock units, performance shares, performance units and deferred stock units to its employees, consultants and members of its Board of Directors. The 2004 Plan permits the issuance of up to 32.0 million shares of common 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 number of shares issuable under the 2004 Plan as 1.8 shares for every one share subject thereto.

The following table summarizes the combined activity under the equity incentive plans for the indicated periods:

(In thousands)	Available For Grant
Balances as of June 30, 2009(1)	7,702
Shares added to 2004 Plan	11,000
Restricted stock units granted(2)	(5,213	)
Restricted stock units canceled (2)	1,140
Restricted stock units withheld for taxes(2)(3)	244
Options canceled/expired/forfeited	1,161
Plan shares expired(4)	(872	)
Balances as of June 30, 2010(1)	15,162
Restricted stock units granted(2)(5)	(4,062	)
Restricted stock units canceled(2)	367
Options canceled/expired/forfeited	1,141
Plan shares expired(4)	(1,054	)
Balances as of June 30, 2011(1)	11,554
Restricted stock units granted(2)(6)	(4,145	)
Restricted stock units canceled(2)	508
Options canceled/expired/forfeited	788
Plan shares expired(4)	(736	)
Balances as of June 30, 2012(1)	7,969

__________________  

(1) Includes shares available for issuance under the 2004 Plan, as well as under the Company’s 1998 Outside Director Option Plan (the “Outside Director Plan”), which only permits the issuance of stock options to the Company’s non-employee members of the Board of Directors. As of June 30, 2012, 1.7 million shares were available for grant under the Outside Director Plan.

(2) The number of restricted stock units provided in this row reflects the application of the 1.8x 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 are no longer 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 plans do not result in additional shares being available to the Company for future grant.

(5) Includes 0.3 million restricted stock units granted to senior management during the fiscal year ended June 30, 2011 with performance-based vesting criteria (in addition to service-based vesting criteria for any of such restricted stock units that are deemed to have been earned). As of June 30, 2012, it had not yet been determined the extent to which (if at all) the performance-based vesting criteria of such restricted stock units had been satisfied. Therefore, this line item includes all such performance-based restricted stock units granted during such fiscal year, reported at the maximum possible number of shares that may ultimately be issuable under such restricted stock units if all applicable performance-based and service-based criteria are fully satisfied.

(6) Includes 0.2 million restricted stock units granted to senior management during the fiscal year ended June 30, 2012 with performance-based vesting criteria (in addition to service-based vesting criteria for any of such restricted stock units that are deemed to have been earned). As of June 30, 2012, it had not yet been determined the extent to which (if at all) the performance-based vesting criteria of such restricted stock units had been satisfied. Therefore, this line item includes all such performance-based restricted stock units granted during such fiscal year, reported at the maximum possible number of shares that may ultimately be issuable under such restricted stock units if all applicable performance-based and service-based criteria are fully satisfied.

Except for stock options granted to non-employee Board 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 September 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.

The fair value of stock-based awards is measured at the grant date and is recognized as an expense over the employee’s requisite service period. The fair value is determined using a Black-Scholes valuation model 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 following table shows pre-tax stock-based compensation expense for the indicated periods:

	Year ended June 30,
(In thousands)	2012		2011		2010
Stock-based compensation expense by:
Costs of revenues	$	13,710	$	13,935	$	14,275
Engineering, research and development	21,505		24,539		27,289
Selling, general and administrative	43,620		42,956		44,418
Total stock-based compensation expense	$	78,835	$	81,430	$	85,982

The following table shows stock-based compensation capitalized as inventory as of the dates indicated below:

(In thousands)	As of June 30,
	2012		2011
Inventory	$	7,692	$	6,701

Stock Options

The following table summarizes the activity and weighted-average exercise price for stock options under all plans during the fiscal year ended June 30, 2012:

Stock Options	Shares (In thousands)		Weighted-Average Exercise Price
Outstanding stock options as of June 30, 2011	7,675		$	45.38
Granted	—		$	—
Exercised	(3,043	)	$	42.50
Canceled/expired/forfeited	(788	)	$	46.85
Outstanding stock options as of June 30, 2012	3,844		$	47.36
Vested and exercisable as of June 30, 2012	3,843		$	47.36

The Company has not issued any stock options since November 1, 2007. The weighted-average remaining contractual terms for total options outstanding under all plans and for total options vested and exercisable under all plans as of June 30, 2012 were each 1.5 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, 2012 were each $15.6 million.

The authoritative guidance on stock-based compensation permits companies to select the option-pricing model used to estimate the fair value of their stock-based compensation awards. The Black-Scholes option-pricing model requires the input of assumptions, including the option’s expected term and the expected price volatility of the underlying stock. For purposes of the fair value estimates presented in this report, the Company has based its expected stock price volatility assumption on the market-based implied volatility from traded options of the Company’s common stock. As of June 30, 2012, the unrecognized stock-based compensation balance related to stock options was immaterial.

The following table shows the total intrinsic value of options exercised, total cash received from employees and non-employee Board members as a result of stock option exercises and tax benefits realized by the Company in connection with these stock option exercises for the indicated periods:

(In thousands)	Year ended June 30,
	2012		2011		2010
Total intrinsic value of options exercised	$	23,395	$	19,408	$	1,217
Total cash received from employees and non-employee Board members as a result of stock option exercises	$	129,306	$	94,488	$	15,154
Tax benefits realized by the Company in connection with these exercises	$	7,867	$	6,653	$	447

The Company generally settles employee stock option exercises with newly issued common shares, except in certain tax jurisdictions where settling such exercises with treasury shares provides the Company or one of its subsidiaries with a tax benefit.

Restricted Stock Units

The following table shows the applicable number of restricted stock units and weighted-average grant date fair value for restricted stock units granted, vested and released, withheld for taxes, and forfeited during the fiscal year ended June 30, 2012 and restricted stock units outstanding as of June 30, 2012 and 2011:

Restricted Stock Units	Shares (In thousands) (1)		Weighted-Average Grant Date Fair Value
Outstanding restricted stock units as of June 30, 2011	6,540		$	33.56
Granted(2)	2,303		$	36.63
Vested and released	(1,421	)	$	39.69
Withheld for taxes	(722	)	$	39.71
Forfeited	(282	)	$	32.54
Outstanding restricted stock units as of June 30, 2012(2)	6,418		$	32.66

 __________________ 

(1) Share numbers reflect actual shares subject to awarded restricted stock units. Under the terms of the 2004 Plan, each of the share numbers presented in this column is multiplied by 1.8 to calculate the impact on the share reserve under the 2004 Plan.

(2) Includes 0.2 million restricted stock units granted to senior management during the fiscal year ended June 30, 2012 with performance-based vesting criteria (in addition to service-based vesting criteria for any of such restricted stock units that are deemed to have been earned). As of June 30, 2012, it had not yet been determined the extent to which (if at all) the performance-based vesting criteria of such restricted stock units had been satisfied. Therefore, this line item includes all such performance-based restricted stock units, reported at the maximum possible number of shares that may ultimately be issuable under such restricted stock units if all applicable performance-based and service-based criteria are fully satisfied.

The restricted stock units granted by the Company from the beginning of the fiscal year ended June 30, 2007 through the fiscal year ended June 30, 2012 generally vest in two equal installments on the second and fourth anniversaries of the date of grant. Prior to the fiscal year ended June 30, 2007, the restricted stock units granted by the Company generally vested in two equal installments over four or five years from the 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.

The following table shows the grant date fair value after estimated forfeitures and weighted-average grant date fair value per unit for the restricted stock units granted and tax benefits realized by the Company in connection with vested and released restricted stock units for the indicated periods:

(In thousands, except for weighted-average grant date fair value)	Year ended June 30,
	2012		2011		2010
Grant date fair value after estimated forfeitures	$	60,102	$	45,915	$	64,230
Weighted-average grant date fair value per unit	$	36.63	$	31.24	$	34.36
Tax benefits realized by the Company in connection with vested and released restricted stock units	$	28,914	$	23,302	$	14,181

As of June 30, 2012, the unrecognized stock-based compensation expense balance, net of estimated forfeitures, related to restricted stock units was $103.5 million and will be recognized over an estimated weighted-average amortization period of 2.1 years.

Employee Stock Purchase Plan

KLA-Tencor’s Employee Stock Purchase Plan (“ESPP”) provides that eligible employees may contribute up to 10% of their eligible earnings toward the semi-annual purchase of KLA-Tencor’s common stock. The ESPP is qualified under Section 423 of the Internal Revenue Code. The employee’s purchase price is derived from a formula based on the closing price of the common stock on the first day of the offering period versus the closing price on the date of purchase (or, if not a trading day, on the immediately preceding trading day).

Effective January 1, 2010, the offering period (or length of the look-back period) under the ESPP has a duration of six months, and the purchase price with respect to each offering period beginning on or after such date is, until otherwise amended, equal to 85% of the lesser of (i) the fair market value of the Company’s common stock at the commencement of the applicable six-month offering period or (ii) the fair market value of the Company’s common stock on the purchase date.

The Company estimates the fair value of purchase rights under the ESPP using a Black-Scholes valuation model. The fair value of each purchase right under the ESPP was estimated on the date of grant using the Black-Scholes option valuation model and the straight-line attribution approach with the following weighted-average assumptions:

	Year ended June 30,
	2012		2011		2010
Stock purchase plan:
Expected stock price volatility	36.0	%	38.0	%	35.0	%
Risk free interest rate	0.1	%	0.2	%	0.2	%
Dividend yield	3.2	%	3.1	%	1.6	%
Expected life of options (in years)	0.50		0.50		0.50

The following table shows total cash received from employees for the issuance of shares under the ESPP, the number of shares purchased by employees through the ESPP, the tax benefits realized by the Company in connection with the disqualifying dispositions of shares purchased under the ESPP and the weighted-average fair value per share for the indicated periods:

(In thousands, except for weighted-average fair value per share)	Year ended June 30,
	2012		2011		2010
Total cash received from employees for the issuance of shares under the ESPP	$	34,263	$	30,085	$	20,714
Number of shares purchased by employees through the ESPP	918		1,123		758
Tax benefits realized by the Company in connection with the disqualifying dispositions of shares purchased under the ESPP	$	2,206	$	2,194	$	994
Weighted-average fair value per share based on Black-Scholes model	$	10.02	$	7.41	$	8.51

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 will be required to be issued under the ESPP during the forthcoming fiscal year. During each of the fiscal years ended June 30, 2011 and 2010, a total of 2.0 million additional shares were reserved under the ESPP. No additional shares were reserved under the ESPP with respect to the fiscal year ended June 30, 2012. As of June 30, 2012, a total of 2.6 million shares were reserved and available for issuance under the ESPP, and, as of the date of this report, no additional shares have been added to the ESPP with respect to the fiscal year ending June 30, 2013.

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Net Income Per Share

12 Months Ended

Jun. 30, 2012

Earnings Per Share [Abstract]

Net Income Per Share

NET INCOME PER SHARE

Basic net income per share is calculated by dividing net income available to common stockholders by the weighted-average number of common shares outstanding during the period. Diluted net income per share is calculated by using the weighted-average number of common shares outstanding 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 net income 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 is to 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 per share:

(In thousands, except per share amounts)	Year ended June 30,
	2012		2011		2010
Numerator:
Net income	$	756,015	$	794,488	$	212,300
Denominator:
Weighted-average shares-basic, excluding unvested restricted stock units	166,795		167,261		170,652
Effect of dilutive options and restricted stock units	3,352		3,091		2,382
Weighted-average shares-diluted	170,147		170,352		173,034
Basic net income per share	$	4.53	$	4.75	$	1.24
Diluted net income per share	$	4.44	$	4.66	$	1.23
Anti-dilutive securities excluded from the computation of diluted net income per share	3,123		8,003		11,109

The total amount of dividends paid during the fiscal years ended June 30, 2012, 2011 and 2010 was $233.6 million, $167.4 million and $102.4 million, respectively. The increase in the amount of dividends paid during the fiscal year ended June 30, 2012 reflects an increase during the first quarter of that year to the level of the Company's quarterly dividend from $0.25 to $0.35 per share.

As discussed in Note 19, “Subsequent Events,” on July 10, 2012, the Company announced that its Board of Directors had authorized a further increase in the level of the Company's quarterly dividend from $0.35 to $0.40 per share. Accordingly, on August 2, 2012, the Company declared a quarterly cash dividend of $0.40 per share on the outstanding shares of the Company’s common stock, to be paid on September 4, 2012 to stockholders of record on August 13, 2012.

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Employee Benefit Plans Weighted-average Assumptions on Expected Return on Assets (Details) (Foreign Pension Plans, Defined Benefit)	12 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2010
Foreign Pension Plans, Defined Benefit
Defined Benefit Plan, Weighted-average Assumptions
Discount rate, minimum	1.30%	1.80%	1.80%
Discount rate, maximum	5.50%	5.50%	4.90%
Expected return on assets, minimum	1.80%	1.80%	1.80%
Expected return on assets, maximum	4.50%	4.50%	4.50%
Rate of compensation increases, minimum	3.00%	3.00%	3.00%
Rate of compensation increases, maximum	4.50%	4.00%	4.00%

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Employee Benefit Plans Components of Net Periodic Pension Cost (Details) (Foreign Pension Plans, Defined Benefit, USD $) In Thousands, unless otherwise specified	12 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2010
Foreign Pension Plans, Defined Benefit
Components of net periodic pension cost
Service cost, net of plan participant contributions	$ 3,355	$ 3,184	$ 2,249
Interest cost	1,406	1,270	1,020
Return on plan assets	(309)	(289)	(215)
Amortization of transitional obligation	380	366	28
Amortization of prior service cost	64	61	44
Amortization of net loss	292	178	98
Acquisitions	0	0	313
Adjustment	0	0	3,154
Net periodic pension cost	$ 5,188	$ 4,770	$ 6,691

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Employee Benefit Plans (Details) (USD $)	9 Months Ended	12 Months Ended
	Mar. 31, 2011	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2010
Deferred Compensation Arrangements [Abstract]
Employer maximum contribution match	$ 3,000	$ 4,000
Deferred compensation arrangement maximum percentage contribution match of employees 401(K) contribution	50.00%	50.00%
Deferred compensation arrangement maximum 401(K) employee contribution subject to employer percentage match	6,000	8,000
Deferred compensation arrangement with individual, total expenses		12,600,000	11,600,000	6,400,000
Foreign Pension Plans, Defined Benefit
Change in projected benefit obligation [Roll Forward]
Projected benefit obligation as of the beginning of the fiscal year	46,344,000	56,810,000	46,344,000
Service cost, including plan participant contributions		3,355,000	3,184,000
Interest cost		1,406,000	1,270,000	1,020,000
Contributions by plan participants		132,000	126,000
Adjustment		148,000	9,000
Actuarial loss		6,582,000	1,363,000
Benefit payments		(789,000)	(1,357,000)
Foreign currency exchange rate changes		(2,218,000)	5,871,000
Projected benefit obligation as of the end of the fiscal year		65,426,000	56,810,000	46,344,000
Change in fair value of plan assets [Roll Forward]
Fair value of plan assets as of the beginning of the fiscal year	8,692,000	11,035,000	8,692,000
Actual return on plan assets		68,000	78,000
Employer contributions		1,926,000	2,024,000
Benefit and expense payments		(541,000)	(1,010,000)
Foreign currency exchange rate changes		(779,000)	1,251,000
Fair value of plan assets as of the end of the fiscal year		11,709,000	11,035,000	8,692,000
Funded status
Ending funded status		(53,717,000)	(45,775,000)
Net amount recognized		(53,717,000)	(45,775,000)
Plans with accumulated benefit obligations in excess of plan assets
Accumulated benefit obligation		28,844,000	39,748,000
Projected benefit obligation		65,426,000	56,810,000
Plan assets at fair value		$ 11,709,000	$ 11,035,000

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Stock Repurchase Program (Tables)

12 Months Ended

Jun. 30, 2012

Stock Repurchase Program [Abstract]

Schedule of Share Repurchases

Share repurchases for the indicated periods (based on the settlement date of the applicable repurchase) were as follows:

(In thousands)	Year ended June 30,
	2012		2011
Number of shares of common stock repurchased	5,790		6,190
Total cost of repurchases	$	261,150	$	232,924

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Marketable Securities Amortized Costs and Fair Value (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Jun. 30, 2012		Jun. 30, 2011
Marketable Securities
Amortized cost	$ 2,341,750		$ 1,801,110
Gross unrealized gains	5,070		6,712
Gross unrealized losses	(762)		(545)
Fair value	2,346,058		1,807,277
Add: time deposits(1)	62,431	[1]	65,402	[1]
Less: cash equivalents	625,339		545,475
Cash equivalents, gross unrealized gains	0		0
Cash equivalents, gross unrealized losses	0		(2)
Less: cash equivalents, fair value	625,339		545,473
Marketable securities, amortized cost	1,778,842		1,321,037
Marketable securities, gross unrealized gains	5,070		6,712
Marketable securities, gross unrealized losses	(762)		(543)
Marketable securities, fair value	1,783,150		1,327,206
Contractual Maturities of Securities
Due within one year, amortized cost	464,939
Due after one year through three years, amortized cost	1,313,903
Due within one year, fair value	466,044
Due after one year through three years, fair value	1,317,106
US Treasury securities
Marketable Securities
Amortized cost	91,387		58,754
Gross unrealized gains	67		165
Gross unrealized losses	(16)		(23)
Fair value	91,438		58,896
U.S. Government agency securities
Marketable Securities
Amortized cost	633,587		319,375
Gross unrealized gains	981		931
Gross unrealized losses	(76)		(123)
Fair value	634,492		320,183
Municipal securities
Marketable Securities
Amortized cost	66,538		38,688
Gross unrealized gains	107		275
Gross unrealized losses	(102)		(6)
Fair value	66,543		38,957
Corporate debt securities
Marketable Securities
Amortized cost	914,134		870,591
Gross unrealized gains	3,826		5,162
Gross unrealized losses	(568)		(368)
Fair value	917,392		875,385
Money market and other
Marketable Securities
Amortized cost	607,038		481,770
Gross unrealized gains	0		0
Gross unrealized losses	0		0
Fair value	607,038		481,770
Sovereign securities
Marketable Securities
Amortized cost	29,056		31,932
Gross unrealized gains	89		179
Gross unrealized losses	0		(25)
Fair value	29,145		32,086
Equity securities
Marketable Securities
Amortized cost	10
Gross unrealized gains	0
Gross unrealized losses	0
Fair value	$ 10

[1] Time deposits excluded from fair value measurements.

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Restructuring Charges

12 Months Ended

Jun. 30, 2012

Restructuring Charges [Abstract]

Restructuring Charges

RESTRUCTURING CHARGES

The Company has in recent years undertaken a number of cost reduction activities, including 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, 2012, the Company recorded a $6.1 million net restructuring charge, of which $1.9 million was recorded to costs of revenues, $2.2 million was recorded to engineering, research and development expense and $2.0 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.

The following table shows the activity primarily related to severance and benefits expense for the fiscal years ended June 30, 2012 and 2011:

	Year ended June 30,
(In thousands)	2012			2011
Beginning balance	$	1,861		$	1,221
Restructuring costs	6,712			4,420
Adjustments	(651		)	(325		)
Cash payments	(5,127		)	(3,455		)
Ending balance	$	2,795		$	1,861

Substantially all of the remaining accrued restructuring balance related to the Company’s workforce reductions is expected to be paid out by the end of calendar year 2012.

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Subsequent Events

12 Months Ended

Jun. 30, 2012

Subsequent Events [Abstract]

Subsequent Events

SUBSEQUENT EVENTS

On July 10, 2012, the Company announced that its Board of Directors had authorized an increase in the level of the Company's quarterly dividend from $0.35 to $0.40 per share. On August 2, 2012, the Company declared a quarterly cash dividend of $0.40 per share on the outstanding shares of the Company’s common stock, to be paid on September 4, 2012 to stockholders of record on August 13, 2012.

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Financial Statement Components Interest Income and Other, Net (Details) (USD $)	12 Months Ended
	Jun. 30, 2012	Jun. 30, 2011		Jun. 30, 2010
Interest income and other, net:
Interest income	$ 15,321,000	$ 15,513,000		$ 17,512,000
Foreign exchange losses, net	(2,864,000)	(2,108,000)		(5,009,000)
Realized gains on sale of investments	637,000	2,479,000		4,021,000
Other	(1,128,000)	(11,820,000)	[1]	15,008,000	[2]
Interest income and other, net	11,966,000	4,064,000		31,532,000
Other asset impairment charges		9,900,000
Decreases for lapsing of the statute of limitations	(2,867,000)	(749,000)		(11,814,000)
Foreign Transaction-based Tax [Member]
Interest income and other, net:
Decreases for lapsing of the statute of limitations				$ 15,900,000

[1] Includes impairment charges of $9.9 million recorded during the fiscal year ended June 30, 2011 for equity investments in privately-held companies.

[2] Includes a benefit of $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.

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Segment Reporting and Geographic Information (Tables)

12 Months Ended

Jun. 30, 2012

Segment Reporting Information, Additional Information [Abstract]

Summary of Revenues by Geographic Region

The following is a summary of revenues by geographic region, based on ship-to location, for the indicated periods (as a percentage of total revenues):

(Dollar amounts in thousands)	Year ended June 30,
	2012				2011				2010
Revenues:
United States	$	675,034	21	%	$	610,955	19	%	$	341,079	19	%
Taiwan	872,583		28	%	864,378		27	%	688,089		38	%
Japan	415,475		13	%	413,208		13	%	239,393		13	%
Europe & Israel	323,902		10	%	340,249		11	%	111,497		6	%
Korea	611,462		19	%	480,488		15	%	151,198		8	%
Rest of Asia	273,488		9	%	465,889		15	%	289,504		16	%
Total	$	3,171,944	100	%	$	3,175,167	100	%	$	1,820,760	100	%

Summary of Revenues by Major Products

The following is a summary of revenues by major products for the indicated periods (as a percentage of total revenues):

(Dollar amounts in thousands)	Year ended June 30,
	2012				2011				2010
Revenues:
Defect inspection	$	1,830,935	58	%	$	2,039,856	64	%	$	1,011,027	56	%
Metrology	671,597		21	%	498,904		16	%	261,105		14	%
Service	574,189		18	%	561,729		18	%	496,490		27	%
Other	95,223		3	%	74,678		2	%	52,138		3	%
Total	$	3,171,944	100	%	$	3,175,167	100	%	$	1,820,760	100	%

Long-Lived Assets by Geographic Region

Long-lived assets by geographic region as of the dates indicated below were as follows:

	As of June 30,
(In thousands)	2012		2011		2010
Long-lived assets:
United States	$	211,315	$	202,520	$	174,033
Taiwan	696		803		714
Japan	3,570		4,256		3,985
Europe & Israel	77,292		90,163		127,474
Korea	2,773		2,804		3,482
Rest of Asia	46,719		53,106		56,141
Total	$	342,365	$	353,652	$	365,829

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Consolidated Statements of Stockholders' Equity (USD $) In Thousands, except Share data, unless otherwise specified	Total	Common Stock and Capital in Excess of Par Value, Amount	Retained Earnings	Accumulated Other Comprehensive Income (Loss)	Common Stock and Capital in Excess of Par Value, Shares
Balances at Jun. 30, 2009	$ 2,184,392	$ 835,477	$ 1,370,132	$ (21,217)
Common stock, shares, outstanding, beginning at Jun. 30, 2009					170,669,000
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income	212,300	0	212,300	0
Components of comprehensive income:
Change in unrealized gain (loss) on defined benefit plan assets, net of tax	(4,446)	0	0	(4,446)
Change in unrealized gain (loss) on investments, net of tax	36	0	0	36
Currency translation adjustments	(5,439)	0	0	(5,439)
Deferred gains (losses) on cash flow hedging instruments, net of tax	(237)	0	0	(237)
Total comprehensive income	202,214
Net issuance under employee stock plans	22,353	22,353	0	0
Repurchase of common stock	(140,910)	(17,341)	(123,569)	0
Cash dividends declared	(102,409)	0	(102,409)	0
Stock-based compensation expense	85,982	85,982	0	0
Tax charges for stock option transactions	(5,011)	(5,011)	0	0
Net issuance under employee stock plans, shares					1,999,000
Repurchase of common stock, shares					(4,625,000)
Balances at Jun. 30, 2010	2,246,611	921,460	1,356,454	(31,303)
Common stock, shares, outstanding, ending at Jun. 30, 2010					168,043,000
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income	794,488	0	794,488	0
Components of comprehensive income:
Change in unrealized gain (loss) on defined benefit plan assets, net of tax	(643)	0	0	(643)
Change in unrealized gain (loss) on investments, net of tax	347	0	0	347
Currency translation adjustments	27,951	0	0	27,951
Deferred gains (losses) on cash flow hedging instruments, net of tax	1,249	0	0	1,249
Total comprehensive income	823,392
Net issuance under employee stock plans	102,016	102,016	0	0
Repurchase of common stock	(232,924)	(102,013)	(130,911)	0
Issuance of common stock for litigation settlement related to historical stock option practices	7,766	7,766	0	0	263
Cash dividends declared	(167,398)	0	(167,398)	0
Stock-based compensation expense	81,430	81,430	0	0
Net issuance under employee stock plans, shares					5,002,000
Repurchase of common stock, shares	(6,190,000)				(6,190,000)
Balances at Jun. 30, 2011	2,860,893	1,010,659	1,852,633	(2,399)
Common stock, shares, outstanding, ending at Jun. 30, 2011	167,118,000				167,118,000
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income	756,015	0	756,015	0
Components of comprehensive income:
Change in unrealized gain (loss) on defined benefit plan assets, net of tax	(6,350)	0	0	(6,350)
Change in unrealized gain (loss) on investments, net of tax	(1,098)	0	0	(1,098)
Currency translation adjustments	(10,669)	0	0	(10,669)
Deferred gains (losses) on cash flow hedging instruments, net of tax	(627)	0	0	(627)
Total comprehensive income	737,271
Net issuance under employee stock plans	133,307	133,307	0	0
Repurchase of common stock	(261,150)	(133,321)	(127,829)	0
Cash dividends declared	(233,561)	0	(233,561)	0
Stock-based compensation expense	78,835	78,835	0	0
Net issuance under employee stock plans, shares					5,382,000
Repurchase of common stock, shares	(5,790,000)				(5,790,000)
Balances at Jun. 30, 2012	$ 3,315,595	$ 1,089,480	$ 2,247,258	$ (21,143)
Common stock, shares, outstanding, ending at Jun. 30, 2012	166,710,000				166,710,000

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Financial Statement Components

12 Months Ended

Jun. 30, 2012

Financial Statement Components [Abstract]

Financial Statement Components

FINANCIAL STATEMENT COMPONENTS

Consolidated Balance Sheets

	As of June 30,
(In thousands)	2012			2011
Accounts receivable, net:
Accounts receivable, gross	$	723,607		$	605,376
Allowance for doubtful accounts	(22,327		)	(22,106		)
	$	701,280		$	583,270
Inventories:
Customer service parts	$	197,013		$	148,466
Raw materials	234,549			235,605
Work-in-process	170,254			131,804
Finished goods	48,986			59,855
	$	650,802		$	575,730
Other current assets:
Prepaid expenses	$	53,472		$	61,796
Income tax related receivables	22,943			59,774
Other current assets	16,432			25,508
	$	92,847		$	147,078
Land, property and equipment, net(1):
Land	$	41,397		$	41,956
Buildings and leasehold improvements	244,807			234,173
Machinery and equipment	443,668			447,772
Office furniture and fixtures	19,493			19,645
Construction in process	11,765			6,979
	761,130			750,525
Less: accumulated depreciation and amortization	(483,444		)	(493,167		)
	$	277,686		$	257,358
Other non-current assets:
Executive Deferred Savings Plan(2)	$	125,354		$	128,033
Deferred tax assets—long-term	128,738			173,788
Other	21,135			26,274

	$	275,227		$	328,095
Other current liabilities:
Warranty	$	46,496		$	41,528
Executive Deferred Savings Plan(2)	125,329			128,088
Compensation and benefits	175,007			186,761
Income taxes payable	11,251			16,364
Interest payable	8,769			8,769
Accrued litigation costs	1,080			4,824
Other accrued expenses	145,479			112,980
	$	513,411		$	499,314
Accumulated other comprehensive income (loss):
Currency translation adjustments	$	(10,419	)	$	251
Gains (losses) on cash flow hedging instruments, net of taxes (benefits) of $(343) in 2012 and $5 in 2011	(619		)	8
Unrealized gains on investments, net of taxes of $1,498 in 2012 and $2,258 in 2011	2,811			3,909
Unrealized losses of defined benefit pension plan, net of tax benefits of $(6,486) in 2012 and $(4,637) in 2011	(12,916		)	(6,567		)
	$	(21,143	)	$	(2,399	)

 __________________ 

(1)  As of June 30, 2011, the net book value of property and equipment includes assets held for sale of $2.3 million. There were no assets held for sale as of June 30, 2012.

(2) KLA-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. The Company 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, except in cases where such distributions are required to be delayed in order to avoid a prohibited distribution under Internal Revenue Code Section 409A. As of June 30, 2012, the Company had a deferred compensation plan related asset and liability included as a component of other non-current assets and other current liabilities on the Consolidated Balance Sheet.

Consolidated Statements of Operations

	Year ended June 30,
(In thousands)	2012			2011				2010
Interest income and other, net:
Interest income	$	15,321		$	15,513			$	17,512
Foreign exchange losses, net	(2,864		)	(2,108		)		(5,009		)
Realized gains on sale of investments	637			2,479				4,021
Other	(1,128		)	(11,820		)	(1)	15,008			(2)
	$	11,966		$	4,064			$	31,532

 __________________ 

(1) Includes impairment charges of $9.9 million recorded during the fiscal year ended June 30, 2011 for equity investments in privately-held companies.

(2) Includes a benefit of $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.

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Stock Options Activities (Details) (USD $) Share data in Thousands, except Per Share data, unless otherwise specified	12 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2010
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Weighted-average remaining contractual terms for total options outstanding and for total options vested and exercisable under all plans	1 year 6 months
Aggregate intrinsic value for total options outstanding under all plans and for total options vested and exercisable under all plans	$ 15,600,000
Total intrinsic value of options exercised	23,395,000	19,408,000	1,217,000
Total cash received from employees and non-employee Board members as a result of stock option exercises	129,306,000	94,488,000	15,154,000
Tax benefits realized by the Company in connection with these exercises	$ 7,867,000	$ 6,653,000	$ 447,000
Stock Options, Activity and Weighted-Average Exercise Price [Roll Forward]
Outstanding stock options as of June 30, 2011	7,675
Granted, shares	0
Exercised, shares	(3,043)
Options canceled/expired/forfeited, shares	(788)	(1,141)	(1,161)
Outstanding stock options as of June 30, 2012	3,844	7,675
Outstanding stock options as of June 30, 2011, weighted-average exercise price	$ 45.38
Granted, weighted-average exercise price	$ 0.00
Exercised, weighted-average exercise price	$ 42.50
Canceled/expired/forfeited, weighted-average exercise price	$ 46.85
Outstanding stock options as of June 30, 2012, weighted-average exercise price	$ 47.36	$ 45.38
Vested and exercisable as of June 30, 2012	3,843
Vested and exercisable as of June 30, 2012, weighted-average exercise price	$ 47.36

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Income Taxes Effective Income Tax Rate, Continuing Operations, Tax Rate Reconciliation (Details)	12 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2010
Federal statutory rate	35.00%	35.00%	35.00%
State income taxes, net of federal benefit	0.40%	2.50%	0.60%
Effect of foreign operations taxed at various rates	(9.90%)	(9.00%)	(9.60%)
Research and development tax credit	(1.10%)	(1.20%)	(1.20%)
Net change in tax reserves	(2.80%)	2.10%	0.50%
Domestic manufacturing benefit	(0.70%)	(1.90%)	(1.70%)
Effect of stock-based compensation	1.30%	1.40%	4.00%
Other	0.20%	(0.50%)	(0.50%)
Effective income tax rate	22.40%	28.40%	27.10%

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Quarterly Consolidated Results of Operations (Unaudited)

12 Months Ended

Jun. 30, 2012

QUARTERLY CONSOLIDATED RESULTS OF OPERATIONS (UNAUDITED) [Abstract]

Quarterly Consolidated Results of Operations (Unaudited)

QUARTERLY CONSOLIDATED RESULTS OF OPERATIONS (UNAUDITED)

The following is a summary of the Company’s quarterly consolidated results of operations (unaudited) for the fiscal years ended June 30, 2012 and 2011.

(In thousands, except per share data)	First quarter ended September 30, 2011		Second quarter ended December 31, 2011		Third quarter ended March 31, 2012		Fourth quarter ended June 30, 2012
Total revenues	$	796,476	$	642,482	$	840,521	$	892,465
Total costs and operating expenses	$	542,187	$	483,019	$	556,247	$	574,166
Gross margin	$	456,127	$	369,627	$	485,372	$	530,802
Income from operations	$	254,289	$	159,463	$	284,274	$	318,299
Net income	$	191,995	$	110,797	$	205,346	$	247,877
Net income per share:
Basic(1)	$	1.15	$	0.67	$	1.23	$	1.48
Diluted(1)	$	1.13	$	0.66	$	1.21	$	1.46

(In thousands, except per share data)	First quarter ended September 30, 2010		Second quarter ended December 31, 2010		Third quarter ended March 31, 2011		Fourth quarter ended June 30, 2011
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

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(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.

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Derivative Instruments and Hedging Activities Accumulated Other Comprehensive Income (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Jun. 30, 2012	Jun. 30, 2011
Accumulated Other Comprehensive Income [Roll Forward]
Beginning balance	$ 12
Amount reclassified to income	210
Net change	(1,184)
Ending balance	(962)
Designated as Hedging Instrument
Accumulated Other Comprehensive Income [Roll Forward]
Amount reclassified to income	$ (210)	$ (1,960)

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Commitments and Contingencies (Tables)

12 Months Ended

Jun. 30, 2012

Commitments and Contingencies [Abstract]

Changes in Product Warranty Liability

The following table provides the changes in the product warranty accrual for the indicated periods:

	Year ended June 30,
(In thousands)	2012			2011
Beginning balance	$	41,528		$	21,109
Accruals for warranties issued during the period	48,537			46,565
Changes in liability related to pre-existing warranties	3,971			(928		)
Settlements made during the period	(47,540		)	(25,218		)
Ending balance	$	46,496		$	41,528

Schedule of Future Minimum Rental Payments for Operating Leases

The following is a schedule of expected operating lease payments:

Fiscal year ending June 30,	Amount (In thousands)
2013	$	8,537
2014	5,618
2015	2,998
2016	2,748
2017	2,314
2018 and thereafter	2,185
Total minimum lease payments	$	24,400

Receivables Sold Under Factoring Agreements

The following table shows total receivables sold under factoring agreements and proceeds from sales of LCs for the indicated periods:

	Year ended June 30,
(In thousands)	2012		2011
Receivables sold under factoring agreements	$	368,894	$	313,578
Proceeds from sales of LCs	$	30,142	$	140,534

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Litigation and Other Legal Matters

12 Months Ended

Jun. 30, 2012

Loss Contingency, Information about Litigation Matters [Abstract]

Litigation and Other Legal Matters

LITIGATION AND OTHER LEGAL MATTERS

Indemnification Obligations. As a result of the Company's indemnification obligations in connection with the litigation and government inquiries related to the Company's historical stock option practices, the Company has been paying defense costs for one former officer and employee facing an SEC civil action to which the Company is not a party. That former officer and the SEC have settled the civil action. As a result, during the three months ended December 31, 2011, the Company and the former officer entered into an agreement that released each other from liabilities stemming from the former officer's employment with the Company and materially concluded the Company's indemnification obligations to the former officer. The terms of that release agreement have been appropriately considered within the accrual the Company has established for currently pending legal proceedings.

Other Legal Matters. The Company is named from time to time as a party to lawsuits and other types of legal proceedings and claims in the normal course of its business. Actions filed against the Company 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. In general, legal proceedings and claims, regardless of their merit, and associated internal investigations (especially those relating to intellectual property or confidential information disputes) are often expensive to prosecute, defend or conduct and may divert management's attention and other company resources. Moreover, the results of legal proceedings are difficult to predict, and the costs incurred in litigation can be substantial, regardless of outcome. The Company believes the amounts provided in its 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 the Company's consolidated financial statements or will not have a material adverse effect on its results of operations, financial condition or cash flows.