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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________________________________________
FORM 10-Q
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(Mark One) |
T | Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the quarterly period ended: March 31, 2011
or
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£ | 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
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KLA-Tencor Corporation
(Exact name of registrant as specified in its charter)
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Delaware | | 04-2564110 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
One Technology Drive
Milpitas, California
95035
(Address of principal executive offices)
(Zip Code)
(408) 875-3000
(Registrant’s telephone number, including area code)
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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 £
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No £
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.
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Large accelerated filer x | | Accelerated filer £ | | Non-accelerated filer £ | | Smaller reporting company £ |
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes £ No x
As of April 14, 2011, there were 167,903,024 shares of the registrant’s Common Stock, $0.001 par value, outstanding.
INDEX
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PART I | FINANCIAL INFORMATION | |
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Item 1 | | |
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Item 2 | | |
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Item 3 | | |
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Item 4 | | |
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PART II | OTHER INFORMATION | |
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Item 1 | | |
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Item 1A | | |
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Item 2 | | |
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Item 3 | | |
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Item 4 | | |
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Item 5 | | |
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Item 6 | | |
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
KLA-TENCOR CORPORATION
Condensed Consolidated Balance Sheets
(Unaudited)
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(In thousands) | March 31, 2011 | | June 30, 2010 |
ASSETS | | | |
Current assets: | | | |
Cash and cash equivalents | $ | 638,758 | | | $ | 529,918 | |
Marketable securities | 1,200,816 | | | 1,004,126 | |
Accounts receivable, net | 566,069 | | | 440,125 | |
Inventories, net | 556,798 | | | 401,730 | |
Deferred income taxes | 306,563 | | | 328,522 | |
Other current assets | 161,887 | | | 131,044 | |
Total current assets | 3,430,891 | | | 2,835,465 | |
Land, property and equipment, net | 250,571 | | | 236,752 | |
Goodwill | 328,159 | | | 328,006 | |
Purchased intangibles, net | 93,855 | | | 117,336 | |
Other non-current assets | 345,867 | | | 389,497 | |
Total assets | $ | 4,449,343 | | | $ | 3,907,056 | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | | | |
Current liabilities: | | | |
Accounts payable | $ | 142,126 | | | $ | 107,938 | |
Deferred system profit | 230,069 | | | 204,764 | |
Unearned revenue | 45,908 | | | 37,026 | |
Other current liabilities | 438,634 | | | 422,059 | |
Total current liabilities | 856,737 | | | 771,787 | |
Non-current liabilities: | | | |
Long-term debt | 746,154 | | | 745,747 | |
Income tax payable | 68,178 | | | 53,492 | |
Unearned revenue | 35,064 | | | 20,354 | |
Other non-current liabilities | 70,193 | | | 69,065 | |
Total liabilities | 1,776,326 | | | 1,660,445 | |
Commitments and contingencies (Note 12 and Note 13) | | | |
Stockholders’ equity: | | | |
Common stock and capital in excess of par value | 1,006,949 | | | 921,460 | |
Retained earnings | 1,674,589 | | | 1,356,454 | |
Accumulated other comprehensive income (loss) | (8,521 | ) | | (31,303 | ) |
Total stockholders’ equity | 2,673,017 | | | 2,246,611 | |
Total liabilities and stockholders’ equity | $ | 4,449,343 | | | $ | 3,907,056 | |
See accompanying notes to condensed consolidated financial statements (unaudited).
KLA-TENCOR CORPORATION
Condensed Consolidated Statements of Operations
(Unaudited)
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| Three months ended | | Nine months ended |
| March 31, | | March 31, |
(In thousands, except per share data) | 2011 | | 2010 | | 2011 | | 2010 |
Revenues: | | | | | | | |
Product | $ | 691,270 | | | $ | 349,787 | | | $ | 1,869,736 | | | $ | 893,984 | |
Service | 142,789 | | | 128,512 | | | 412,992 | | | 367,357 | |
Total revenues | 834,059 | | | 478,299 | | | 2,282,728 | | | 1,261,341 | |
Costs and operating expenses: | | | | | | | |
Costs of revenues | 327,696 | | | 208,565 | | | 903,063 | | | 587,743 | |
Engineering, research and development | 95,617 | | | 84,741 | | | 285,234 | | | 246,251 | |
Selling, general and administrative | 98,967 | | | 93,714 | | | 278,170 | | | 274,023 | |
Total costs and operating expenses | 522,280 | | | 387,020 | | | 1,466,467 | | | 1,108,017 | |
Income from operations | 311,779 | | | 91,279 | | | 816,261 | | | 153,324 | |
Interest income and other, net | 3,150 | | | 3,084 | | | 193 | | | 28,846 | |
Interest expense | 13,409 | | | 14,092 | | | 40,431 | | | 41,091 | |
Income before income taxes | 301,520 | | | 80,271 | | | 776,023 | | | 141,079 | |
Provision for income taxes | 91,737 | | | 23,255 | | | 226,552 | | | 41,864 | |
Net income | $ | 209,783 | | | $ | 57,016 | | | $ | 549,471 | | | $ | 99,215 | |
Net income per share: | | | | | | | |
Basic | $ | 1.25 | | | $ | 0.33 | | | $ | 3.29 | | | $ | 0.58 | |
Diluted | $ | 1.22 | | | $ | 0.33 | | | $ | 3.23 | | | $ | 0.57 | |
Cash dividend paid per share | $ | 0.25 | | | $ | 0.15 | | | $ | 0.75 | | | $ | 0.45 | |
Weighted average number of shares: | | | | | | | |
Basic | 167,629 | | | 171,506 | | | 166,978 | | | 171,202 | |
Diluted | 171,313 | | | 173,357 | | | 169,974 | | | 173,432 | |
See accompanying notes to condensed consolidated financial statements (unaudited).
KLA-TENCOR CORPORATION
Condensed Consolidated Statements of Cash Flows
(Unaudited)
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| Nine months ended March 31, |
(In thousands) | 2011 | | 2010 |
Cash flows from operating activities: | | | |
Net income | $ | 549,471 | | | $ | 99,215 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | |
Depreciation and amortization | 63,511 | | | 67,794 | |
Asset impairment charges | 7,385 | | | 10,592 | |
Gain on sale of real estate assets | (1,372 | ) | | (2,984 | ) |
Non-cash stock-based compensation expense | 62,491 | | | 62,523 | |
Tax charge from equity awards | — | | | (5,133 | ) |
Net gain on sale of marketable securities and other investments | (1,899 | ) | | (3,689 | ) |
Changes in assets and liabilities, net of assets acquired and liabilities assumed in business combinations: | | | |
Increase in accounts receivable, net | (114,301 | ) | | (107,361 | ) |
Increase in inventories | (150,016 | ) | | (1,254 | ) |
Decrease (increase) in other assets | (71,109 | ) | | 75,299 | |
Increase in accounts payable | 33,674 | | | 28,459 | |
Increase in deferred system profit | 25,306 | | | 71,136 | |
Increase in other liabilities | 130,223 | | | 69,925 | |
Net cash provided by operating activities | 533,364 | | | 364,522 | |
Cash flows from investing activities: | | | |
Acquisition of business, net of cash received | — | | | (1,500 | ) |
Capital expenditures, net | (36,544 | ) | | (24,411 | ) |
Proceeds from sale of assets | 18,185 | | | 5,878 | |
Purchase of available-for-sale securities | (757,265 | ) | | (863,289 | ) |
Proceeds from sale and maturity of available-for-sale securities | 536,718 | | | 643,962 | |
Purchase of trading securities | (48,822 | ) | | (54,555 | ) |
Proceeds from sale of trading securities | 67,084 | | | 64,975 | |
Net cash used in investing activities | (220,644 | ) | | (228,940 | ) |
Cash flows from financing activities: | | | |
Issuance of common stock | 106,648 | | | 23,813 | |
Tax withholding payments related to vested and released restricted stock units | (22,075 | ) | | (12,913 | ) |
Common stock repurchases | (176,870 | ) | | (54,630 | ) |
Payment of dividends to stockholders | (125,536 | ) | | (77,023 | ) |
Net cash used in financing activities | (217,833 | ) | | (120,753 | ) |
Effect of exchange rate changes on cash and cash equivalents | 13,953 | | | 3,709 | |
Net increase in cash and cash equivalents | 108,840 | | | 18,538 | |
Cash and cash equivalents at beginning of period | 529,918 | | | 524,967 | |
Cash and cash equivalents at end of period | $ | 638,758 | | | $ | 543,505 | |
Supplemental cash flow disclosures: | | | |
Income taxes paid (refund received), net | $ | 196,988 | | | $ | (42,971 | ) |
Interest paid | $ | 26,743 | | | $ | 26,432 | |
See accompanying notes to condensed consolidated financial statements (unaudited).
KLA-TENCOR CORPORATION
Notes to Condensed Consolidated Financial Statements
(Unaudited)
NOTE 1 – BASIS OF PRESENTATION
Basis of Presentation. The condensed consolidated financial statements have been prepared by KLA-Tencor Corporation (“KLA-Tencor” or the “Company”) pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, the unaudited interim financial statements reflect all adjustments (consisting only of normal, recurring adjustments) necessary for a fair statement of the financial position, results of operations and cash flows for the periods indicated. These financial statements and notes, however, should be read in conjunction with Item 8, “Financial Statements and Supplementary Data” included in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2010, filed with the SEC on August 6, 2010.
The condensed consolidated financial statements include the accounts of KLA-Tencor and its majority-owned subsidiaries. All significant intercompany balances and transactions have been eliminated.
References in this Quarterly Report on Form 10-Q to “authoritative guidance” are to the Accounting Standards Codification issued by the Financial Accounting Standards Board (“FASB”) in June 2009.
The results of operations for the three and nine months ended March 31, 2011 are not necessarily indicative of the results that may be expected for any other interim period or for the full fiscal year ending June 30, 2011.
Certain reclassifications have been made to the prior year’s Condensed Consolidated Balance Sheet and notes to conform to the current year presentation. The reclassifications had no effect on the Condensed Consolidated Statements of Operations or Cash Flows.
Management Estimates. The preparation of the condensed 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 condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.
Recent Accounting Pronouncements. In December 2010, the FASB amended its guidance on goodwill and other intangible assets. The amendment modifies Step 1 of the goodwill impairment test for reporting units with zero or negative carrying amounts. For those reporting units, an entity is required to perform Step 2 of the goodwill impairment test if there are qualitative factors indicating that it is more likely than not that a goodwill impairment exists. The qualitative factors are consistent with the existing guidance which requires goodwill of a reporting unit to be tested for impairment between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. This amendment was effective for the Company’s interim period ended March 31, 2011. The amendment did not have an impact on the Company’s financial position, results of operations or cash flows.
In December 2010, the FASB amended its guidance on business combinations. Under the amended guidance, a public entity that presents comparative financial statements must disclose the revenue and earnings of the combined entity as though the business combination(s) that occurred during the current year had occurred as of the beginning of the prior annual reporting period. The amendment is effective prospectively for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2010. Early adoption is permitted. The Company does not expect the implementation to have an impact on its financial position, results of operations or cash flows.
In April 2010, the FASB amended its guidance on share-based payment awards with an exercise price 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 becomes effective for the Company’s interim period ending September 30, 2011. The Company does not expect the implementation to have an impact on its 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 becomes effective for the Company’s interim reporting period ending September 30, 2011 and the Company does not expect that this guidance will have an impact on its financial position, results of operations or cash flows as it is disclosure-only in nature.
Revenue Recognition for Certain Arrangements with Software Elements and/or Multiple Deliverables. The Company typically recognizes revenue for system sales upon acceptance by the customer that the system has been installed and is operating according to predetermined specifications. Under certain circumstances, however, the Company recognizes revenue upon shipment, prior to acceptance by the customer. The portion of revenue associated with installation is deferred based on relative sales price and recognized upon completion of the installation. Spare parts revenue is recognized when the product has been shipped and risk of loss has passed to the customer, and collectability is reasonably assured. Service and maintenance contract revenue is recognized ratably over the term of the maintenance contract. Revenue from services performed in the absence of a contract, such as consulting and training revenue, is recognized when the related services are performed, and collectability is reasonably assured. The Company's arrangements generally do not include any provisions for cancellation, termination or refunds that would significantly impact recognized revenue.
In October 2009, the FASB issued amended revenue recognition guidance for arrangements with multiple deliverables and certain software sold with tangible products. This guidance eliminates the residual method of revenue recognition and allows the use of management's best estimate of selling price for individual elements of an arrangement when vendor-specific objective evidence ("VSOE") or third-party evidence ("TPE") is unavailable. The Company elected to early adopt this accounting guidance at the beginning of its second quarter of the fiscal year ended June 30, 2010 and applied the adoption retrospectively to the beginning of the fiscal year to apply the guidance to transactions originating or materially modified after June 30, 2009. The implementation resulted in additional qualitative disclosures but did not have a material impact on the Company's financial position, results of operations or cash flows as this guidance does not generally change the units of accounting for the Company's revenue transactions.
The Company enters into revenue arrangements that may consist of multiple deliverables of its products and services where certain elements of a sales contract are not delivered and accepted in one reporting period. In many instances, products are sold in stand-alone arrangements. Services are sold separately through renewals of annual maintenance contracts. As a result, for substantially all of the arrangements with multiple deliverables pertaining to products and services, the Company uses VSOE or TPE to allocate the selling price to each deliverable. The Company determines TPE based on historical prices charged for products and services when sold on a stand-alone basis.
When the Company is unable to establish relative selling price using VSOE or TPE, the Company uses estimated selling prices (“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.
NOTE 2 – FAIR VALUE MEASUREMENTS
The Company’s financial assets are measured and recorded at fair value, except for equity investments in privately-held companies. These equity investments are generally accounted for under the cost method of accounting and are periodically assessed for other-than-temporary impairment when an event or circumstance indicates that an other-than-temporary decline in value may have occurred. The Company’s non-financial assets, such as goodwill, intangible assets, and property, plant and equipment, are recorded at cost and are assessed for impairment when an event or circumstance indicates that an other-than-temporary decline in value may have occurred.
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:
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Level 1 | | Valuations based on quoted prices in active markets for identical assets or liabilities that the entity has the ability to access. |
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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. |
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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 March 31, 2011, because they were valued using quoted market prices, broker or dealer quotations, or alternative pricing sources with reasonable levels of price transparency. The types of instruments valued based on quoted market prices in active markets include money market funds, U.S. agency securities, and U.S. Treasury 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 U.S. agency securities, commercial paper, U.S. corporate bonds, municipal obligations 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 include the auction rate securities that were held by the Company as of and prior to June 30, 2010. Such instruments were generally 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 and liabilities measured at fair value on a recurring basis as of March 31, 2011 were as follows:
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(In thousands) | Total | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) |
U.S. Treasuries | $ | 92,968 | | | $ | 65,422 | | | $ | 27,546 | | | $ | — | |
U.S. Government agency securities | 284,142 | | | 284,142 | | | — | | | — | |
Municipal bonds | 61,462 | | | — | | | 61,462 | | | — | |
Corporate debt securities | 722,646 | | | — | | | 722,646 | | | — | |
Money market, bank deposits and other | 428,537 | | | 428,537 | | | — | | | — | |
Sovereign securities | 43,522 | | | 10,290 | | | 33,232 | | | — | |
Total marketable securities and cash equivalents | 1,633,277 | | * | 788,391 | | | 844,886 | | | — | |
Executive Deferred Savings Plan: | | | | | | | |
Money market and other | 610 | | | 610 | | | — | | | — | |
Mutual funds | 128,515 | | | 97,585 | | | 30,930 | | | — | |
Executive Deferred Savings Plan total | 129,125 | | | 98,195 | | | 30,930 | | | — | |
Derivative assets | 3,544 | | | — | | | 3,544 | | | — | |
Total financial assets | $ | 1,765,946 | | | $ | 886,586 | | | $ | 879,360 | | | $ | — | |
Derivative liabilities | $ | (1,012 | ) | | $ | — | | | $ | (1,012 | ) | | $ | — | |
Total financial liabilities | $ | (1,012 | ) | | $ | — | | | $ | (1,012 | ) | | $ | — | |
* Total marketable securities and cash equivalents excludes cash of $206.3 million held in operating accounts as of March 31, 2011.
Financial assets and liabilities measured at fair value on a recurring basis as of June 30, 2010 were as follows:
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(In thousands) | Total | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) |
U.S. Treasuries | $ | 42,293 | | | $ | 35,194 | | | $ | 7,099 | | | $ | — | |
U.S. Government agency securities | 250,280 | | | 243,144 | | | 7,136 | | | — | |
Municipal bonds | 55,459 | | | — | | | 55,459 | | | — | |
Corporate debt securities | 603,156 | | | — | | | 603,156 | | | — | |
Money market, bank deposits and other | 373,081 | | | 373,070 | | | 11 | | | — | |
Sovereign securities | 39,355 | | | 10,500 | | | 28,855 | | | — | |
Auction rate securities | 16,825 | | | — | | | — | | | 16,825 | |
Total marketable securities and cash equivalents | 1,380,449 | | * | 661,908 | | | 701,716 | | | 16,825 | |
Executive Deferred Savings Plan: | | | | | | | |
Money market and other | 4 | | | 4 | | | — | | | — | |
Mutual funds | 109,226 | | | 85,254 | | | 23,972 | | | — | |
Executive Deferred Savings Plan total | 109,230 | | | 85,258 | | | 23,972 | | | — | |
Derivative assets | 296 | | | — | | | 296 | | | — | |
Total financial assets | $ | 1,489,975 | | | $ | 747,166 | | | $ | 725,984 | | | $ | 16,825 | |
Derivative liabilities | $ | (5,824 | ) | | $ | — | | | $ | (5,824 | ) | | $ | — | |
Total financial liabilities | $ | (5,824 | ) | | $ | — | | | $ | (5,824 | ) | | $ | — | |
* Total marketable securities and cash equivalents excludes cash of $153.6 million held in operating accounts as of June 30, 2010.
Financial assets, excluding cash held in operating accounts, and liabilities measured at fair value on a recurring basis were presented on the Company’s Condensed Consolidated Balance Sheet as of March 31, 2011 as follows:
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(In thousands) | Total | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) |
Cash equivalents | $ | 432,461 | | | $ | 399,163 | | | $ | 33,298 | | | $ | — | |
Marketable securities | 1,200,816 | | | 389,228 | | | 811,588 | | | — | |
Other current assets | 3,544 | | | — | | | 3,544 | | | — | |
Other non-current assets | 129,125 | | | 98,195 | | | 30,930 | | | — | |
Total financial assets | $ | 1,765,946 | | | $ | 886,586 | | | $ | 879,360 | | | $ | — | |
Other current liabilities | $ | (1,012 | ) | | $ | — | | | $ | (1,012 | ) | | $ | — | |
Total financial liabilities | $ | (1,012 | ) | | $ | — | | | $ | (1,012 | ) | | $ | — | |
Financial assets, excluding cash held in operating accounts, and liabilities measured at fair value on a recurring basis were presented on the Company’s Condensed Consolidated Balance Sheet as of June 30, 2010 as follows:
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(In thousands) | Total | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) |
Cash equivalents | $ | 376,323 | | | $ | 356,224 | | | $ | 20,099 | | | $ | — | |
Marketable securities | 1,004,126 | | | 305,684 | | | 681,617 | | | 16,825 | |
Other current assets | 296 | | | — | | | 296 | | | — | |
Other non-current assets | 109,230 | | | 85,258 | | | 23,972 | | | — | |
Total financial assets | $ | 1,489,975 | | | $ | 747,166 | | | $ | 725,984 | | | $ | 16,825 | |
Other current liabilities | $ | (5,824 | ) | | $ | — | | | $ | (5,824 | ) | | $ | — | |
Total financial liabilities | $ | (5,824 | ) | | $ | — | | | $ | (5,824 | ) | | $ | — | |
Changes in the Company’s Level 3 securities for the three and nine months ended March 31, 2011 and 2010 were as follows:
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(In thousands) | Three months ended March 31, | | Nine months ended March 31, |
2011 | | 2010 | | 2011 | | 2010 |
Beginning aggregate estimated fair value of Level 3 securities | $ | — | | | $ | 32,365 | | | $ | 16,825 | | | $ | 40,584 | |
Unrealized gain included in income | — | | | 7 | | | — | | | 63 | |
Net settlements | — | | | (3,950 | ) | | (16,825 | ) | | (12,225 | ) |
Ending aggregate estimated fair value of Level 3 securities | $ | — | | | $ | 28,422 | | | $ | — | | | $ | 28,422 | |
NOTE 3 – BALANCE SHEET COMPONENTS
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(In thousands) | March 31, 2011 | | June 30, 2010 |
Accounts receivable, net | | | |
Accounts receivable, gross | $ | 588,138 | | | $ | 471,999 | |
Allowance for doubtful accounts | (22,069 | ) | | (31,874 | ) |
| $ | 566,069 | | | $ | 440,125 | |
Inventories, net | | | |
Customer service parts | $ | 142,322 | | | $ | 131,951 | |
Raw materials | 216,543 | | | 123,301 | |
Work-in-process | 133,515 | | | 95,641 | |
Finished goods | 64,418 | | | 50,837 | |
| $ | 556,798 | | | $ | 401,730 | |
Other current assets | | | |
Prepaid expenses | $ | 43,288 | | | $ | 39,121 | |
Income tax related receivables | 89,859 | | | 47,934 | |
Other current assets | 28,740 | | | 43,989 | |
| $ | 161,887 | | | $ | 131,044 | |
Land, property and equipment, net | | | |
Land | $ | 41,957 | | | $ | 41,807 | |
Buildings and leasehold improvements | 232,094 | | | 224,403 | |
Machinery and equipment | 451,816 | | | 443,351 | |
Office furniture and fixtures | 19,701 | | | 23,345 | |
Construction in progress | 4,821 | | | 2,603 | |
| 750,389 | | | 735,509 | |
Less: accumulated depreciation and amortization | (499,818 | ) | | (498,757 | ) |
| $ | 250,571 | | | $ | 236,752 | |
Other non-current assets | | | |
Executive Deferred Savings Plan | $ | 129,125 | | | $ | 109,230 | |
Deferred tax assets – long-term | 188,519 | | | 244,927 | |
Other | 28,223 | | | 35,340 | |
| $ | 345,867 | | | $ | 389,497 | |
Other current liabilities | | | |
Warranty | $ | 37,226 | | | $ | 21,109 | |
Compensation and benefits | 284,510 | | | 268,446 | |
Income taxes payable | 20,973 | | | 35,340 | |
Interest payable | 21,706 | | | 8,769 | |
Accrued litigation costs | 2,664 | | | 10,439 | |
Other accrued expenses | 71,555 | | | 77,956 | |
| $ | 438,634 | | | $ | 422,059 | |
NOTE 4 – MARKETABLE SECURITIES
The amortized cost and estimated fair value of marketable securities as of March 31, 2011 and June 30, 2010 were as follows:
|
| | | | | | | | | | | | | | | |
As of March 31, 2011 (In thousands) | Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value |
U.S. Treasuries | $ | 92,955 | | | $ | 67 | | | $ | (54 | ) | | $ | 92,968 | |
U.S. Government agency securities | 284,200 | | | 501 | | | (559 | ) | | 284,142 | |
Municipal bonds | 61,428 | | | 163 | | | (129 | ) | | 61,462 | |
Corporate debt securities | 719,312 | | | 4,196 | | | (862 | ) | | 722,646 | |
Money market, bank deposits and other | 428,537 | | | — | | | — | | | 428,537 | |
Sovereign securities | 43,304 | | | 223 | | | (5 | ) | | 43,522 | |
Subtotal | 1,629,736 | | | 5,150 | | | (1,609 | ) | | 1,633,277 | |
Less: Cash equivalents | 432,470 | | | — | | | (9 | ) | | 432,461 | |
Marketable securities | $ | 1,197,266 | | | $ | 5,150 | | | $ | (1,600 | ) | | $ | 1,200,816 | |
| | | | | | | |
As of June 30, 2010 (In thousands) | Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value |
U.S. Treasuries | $ | 42,182 | | | $ | 112 | | | $ | (1 | ) | | $ | 42,293 | |
U.S. Government agency securities | 249,182 | | | 1,108 | | | (10 | ) | | 250,280 | |
Municipal bonds | 55,171 | | | 368 | | | (80 | ) | | 55,459 | |
Corporate debt securities | 599,118 | | | 5,314 | | | (1,276 | ) | | 603,156 | |
Money market, bank deposits and other | 373,081 | | | — | | | — | | | 373,081 | |
Sovereign securities | 39,166 | | | 210 | | | (21 | ) | | 39,355 | |
Auction rate securities | 16,825 | | | — | | | — | | | 16,825 | |
Subtotal | 1,374,725 | | | 7,112 | | | (1,388 | ) | | 1,380,449 | |
Less: Cash equivalents | 376,316 | | | 7 | | | — | | | 376,323 | |
Marketable securities | $ | 998,409 | | | $ | 7,105 | | | $ | (1,388 | ) | | $ | 1,004,126 | |
KLA-Tencor’s investment portfolio consists of both corporate and government securities that have a maximum maturity of three years. The longer the duration of these securities, the more susceptible they are to changes in market interest rates and bond yields. As yields increase, those securities with a lower yield-at-cost show a mark-to-market unrealized loss. All unrealized losses are due to changes in interest rates and bond yields. The Company has the ability to realize the full value of all of these investments upon maturity. The following table summarizes the estimated fair value and gross unrealized losses of the Company’s investments that were in an unrealized loss position as of March 31, 2011:
|
| | | | | | | |
(In thousands) | Estimated Fair Value | | Gross Unrealized Losses(1) |
U.S. Treasuries | $ | 26,721 | | | $ | (54 | ) |
U.S. Government agency securities | 158,411 | | | (550 | ) |
Municipal bonds | 34,387 | | | (129 | ) |
Corporate debt securities | 233,289 | | | (862 | ) |
Sovereign securities | 2,496 | | | (5 | ) |
Total | $ | 455,304 | | | $ | (1,600 | ) |
__________________
| |
(1) | Of the total gross unrealized losses, there were no amounts that have been in a continuous loss position for 12 months or more. |
The contractual maturities of securities classified as available-for-sale as of March 31, 2011, regardless of the consolidated balance sheet classification, were as follows:
|
| | | | | | | |
(In thousands) | Amortized Cost | | Estimated Fair Value |
Due within one year | $ | 344,879 | | | $ | 346,633 | |
Due after one year through three years | 852,387 | | | 854,183 | |
| $ | 1,197,266 | | | $ | 1,200,816 | |
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 three and nine months ended March 31, 2011 were $0.4 million and $1.9 million, respectively.
During the fiscal years ended June 30, 2008, 2009 and 2010, the Company’s investment portfolio included auction rate securities, which are investments with contractual maturities generally between 20 to 30 years. They are usually found in the form of municipal bonds, preferred stock, a pool of student loans, or collateralized debt obligations whose interest rates are reset. The reset typically occurs every seven to forty-nine days, through an auction process. At the end of each reset period, investors can sell or continue to hold the securities at par. The auction rate securities that were held by the Company were backed by student loans and were collateralized, insured and guaranteed by the United States Federal Department of Education. In addition, all auction rate securities that were held by the Company were rated by the major independent rating agencies as either AAA or Aaa. In February 2008, because sell orders exceeded buy orders, auctions failed for approximately $48.2 million in par value of municipal auction rate securities that were then held by the Company. These failures were not believed to be a credit issue, but rather caused by a lack of liquidity. The funds associated with these failed auctions might not have been accessible until the issuer called the security, a successful auction occurred, a buyer was found outside of the auction process, or the security matured. By letter dated August 8, 2008, the Company received notification from UBS AG (“UBS”), in connection with a settlement entered into between UBS and certain regulatory agencies, offering to repurchase all of the Company’s auction rate security holdings at par value. The Company formally accepted the settlement offer and entered into a repurchase agreement (“Agreement”) with UBS on November 11, 2008 (“Acceptance Date”). By accepting the Agreement, the Company (1) received the right (“Put Option”) to sell its auction rate securities at par value to UBS between June 30, 2010 and June 30, 2012 and (2) gave UBS the right to purchase the auction rate securities from the Company any time after the Acceptance Date as long as the Company receives the par value. The Put Option was exercised on June 30, 2010 to sell all $16.8 million of the Company’s remaining auction rate securities at par value and was subsequently settled in July 2010.
Executive Deferred Savings Plan
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 March 31, 2011, the Company had a deferred compensation plan related asset and liability of $129.1 million and $130.2 million, respectively, included as a component of other non-current assets and other current liabilities on the Condensed Consolidated Balance Sheet. As of June 30, 2010, the Company had a deferred compensation plan related asset and liability of $109.2 million and $110.0 million, respectively, included as a component of other non-current assets and other current liabilities on the Condensed Consolidated Balance Sheet.
NOTE 5 – GOODWILL AND PURCHASED INTANGIBLE ASSETS
Goodwill
The following table presents goodwill balances and the movements during the nine months ended March 31, 2011:
|
| | | | | | | |
(In thousands) | As of March 31, 2011 | | As of June 30, 2010 |
Gross goodwill balance | $ | 604,745 | | | $ | 604,592 | |
Accumulated impairment losses | (276,586 | ) | | (276,586 | ) |
Net goodwill balance | $ | 328,159 | | | $ | 328,006 | |
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 completed its annual evaluation of the goodwill by reporting unit during the three months ended December 31, 2010 and 2009 and concluded in each case that there was no impairment. As of December 31, 2010 and 2009, the Company’s assessment of goodwill impairment indicated that the fair value of each of the Company’s reporting units was substantially in excess of its estimated carrying value, and therefore goodwill in the reporting units was not impaired. There have been no significant events or circumstances affecting the valuation of goodwill subsequent to the impairment test performed in the second quarter of the fiscal year ending June 30, 2011. The next annual evaluation of the goodwill by reporting unit will be performed in the second quarter of the fiscal year ending June 30, 2012.
Adjustments to goodwill during the three and nine months ended March 31, 2011 and 2010 resulted primarily from foreign currency translation adjustments.
Purchased Intangible Assets
The components of purchased intangible assets as of March 31, 2011 and June 30, 2010 were as follows:
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
(Dollar amounts in thousands) | | | As of March 31, 2011 | | As of June 30, 2010 |
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 | | | $ | 89,741 | | | $ | 44,820 | | | $ | 133,066 | | | $ | 75,524 | | | $ | 57,542 | |
Patents | 6-13 years | | 57,648 | | | 38,997 | | | 18,651 | | | 57,648 | | | 34,217 | | | 23,431 | |
Trade name / Trademark | 4-10 years | | 19,893 | | | 12,511 | | | 7,382 | | | 19,893 | | | 11,130 | | | 8,763 | |
Customer relationships | 6-7 years | | 54,823 | | | 32,076 | | | 22,747 | | | 54,823 | | | 27,606 | | | 27,217 | |
Other | 0-1 year | | 16,199 | | | 15,944 | | | 255 | | | 16,200 | | | 15,817 | | | 383 | |
Total | | | $ | 283,124 | | | $ | 189,269 | | | $ | 93,855 | | | $ | 281,630 | | | $ | 164,294 | | | $ | 117,336 | |
For the three months ended March 31, 2011 and 2010, amortization expense for other intangible assets was $8.0 million and $8.6 million, respectively. For the nine months ended March 31, 2011 and 2010, amortization expense for other intangible assets was $24.9 million and $25.3 million, respectively. Based on the intangible assets recorded as of March 31, 2011, and assuming no subsequent additions to, or impairment of the underlying assets, the remaining estimated amortization expense is expected to be as follows:
|
| | | |
Fiscal year ending June 30: | Amortization (in thousands) |
2011 (remaining 3 months) | $ | 7,953 | |
2012 | 30,230 | |
2013 | 20,957 | |
2014 | 15,537 | |
2015 | 12,771 | |
Thereafter | 6,407 | |
Total | $ | 93,855 | |
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 March 31, 2011.
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 March 31, 2011 and June 30, 2010, the estimated fair value of the debt as of March 31, 2011 and June 30, 2010 was $836.9 million and $834.4 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. During the nine months ended March 31, 2011, 0.3 million restricted stock units were granted to senior management with performance-based and service-based vesting criteria.
The following table summarizes the combined activity under the equity incentive plans for the indicated period:
|
| | |
(In thousands) | Available For Grant |
Balances as of June 30, 2010 (1) | 15,162 | |
Restricted stock units granted (2) | (3,955 | ) |
Restricted stock units canceled (2) | 291 | |
Options canceled/expired/forfeited | 976 | |
Plan shares expired (3) | (908 | ) |
Balances as of March 31, 2011 (1) | 11,566 | |
__________________
| |
(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 March 31, 2011, 1.6 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) | Represents the portion of shares listed as “Options canceled/expired/forfeited” above that were issued under the Company’s equity incentive plans other than the 2004 Plan or the Outside Director Plan. Because the Company is only currently authorized to issue equity awards under the 2004 Plan and the Outside Director Plan, any equity awards that are canceled, expire or are forfeited under any other Company equity incentive plan do not result in additional shares being available to the Company for future grant. |
Except for 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 June 30, 2006, stock options were granted at the market price of the Company’s common stock on the date of grant (except for the 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 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 following table shows pre-tax stock-based compensation expense for the indicated periods:
|
| | | | | | | | | | | | | | | |
(In thousands) | Three months ended March 31, | | Nine months ended March 31, |
2011 | | 2010 | | 2011 | | 2010 |
Stock-based compensation expense by: | | | | | | | |
Costs of revenues | $ | 2,990 | | | $ | 3,793 | | | $ | 10,597 | | | $ | 10,406 | |
Engineering, research and development | 5,568 | | | 6,843 | | | 19,000 | | | 20,113 | |
Selling, general and administrative | 10,289 | | | 10,833 | | | 32,894 | | | 32,004 | |
Total stock-based compensation expense | $ | 18,847 | | | $ | 21,469 | | | $ | 62,491 | | | $ | 62,523 | |
The following table shows stock-based compensation capitalized as inventory as of March 31, 2011 and June 30, 2010:
|
| | | | | | | |
(In thousands) | March 31, 2011 | | June 30, 2010 |
Inventory | $ | 6,382 | | | $ | 6,687 | |
Stock Options
The following table summarizes the activity and weighted-average exercise price for stock options under all plans during the nine months ended March 31, 2011:
|
| | | | | | |
Stock Options | Shares (In thousands) | | Weighted-Average Exercise Price |
Outstanding stock options as of June 30, 2010 | 11,358 | | | $ | 43.72 | |
Granted | — | | | $ | — | |
Exercised | (2,431 | ) | | $ | 37.21 | |
Canceled/expired/forfeited | (976 | ) | | $ | 45.95 | |
Outstanding stock options as of March 31, 2011 | 7,951 | | | $ | 45.44 | |
Vested and exercisable as of March 31, 2011 | 7,939 | | | $ | 45.38 | |
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 March 31, 2011 were each 2.2 years. The aggregate intrinsic values for total options outstanding under all plans and for total options vested and exercisable under all plans as of March 31, 2011 were each $30.8 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 highly subjective assumptions, including the option’s expected life and the price volatility of the underlying stock. The expected stock price volatility assumption was based on market-based implied volatility from traded options on the Company’s stock.
The following table shows total intrinsic value of options exercised, total cash received from employees as a result of employee stock option exercises, and tax benefits realized by the Company in connection with these stock option exercises for the indicated periods:
|
| | | | | | | | | | | | | | | |
(In thousands) | Three months ended March 31, | | Nine months ended March 31, |
2011 | | 2010 | | 2011 | | 2010 |
Total intrinsic value of options exercised | $ | 15,244 | | | $ | 60 | | | $ | 18,533 | | | $ | 1,165 | |
Total cash received from employees as a result of employee stock option exercises | $ | 74,926 | | | $ | 351 | | | $ | 90,473 | | | $ | 14,929 | |
Tax benefits realized by the Company in connection with these exercises | $ | 5,290 | | | $ | 23 | | | $ | 6,742 | | | $ | 429 | |
As of March 31, 2011, the unrecognized stock-based compensation balance related to stock options was $0.2 million and will be recognized over an estimated weighted-average amortization period of 0.7 years.
The Company 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 after estimated forfeitures for restricted stock units granted, vested and released, withheld for taxes, and forfeited during the nine months ended March 31, 2011 and restricted stock units outstanding as of March 31, 2011 and June 30, 2010:
|
| | | | | | |
Restricted Stock Units | Shares (In thousands) (1) | | Weighted-Average Grant Date Fair Value |
Outstanding restricted stock units as of June 30, 2010 | 6,470 | | | $ | 22.52 | |
Granted | 2,197 | | | $ | 20.06 | |
Vested and released | (1,320 | ) | | $ | 24.02 | |
Withheld for taxes | (636 | ) | | $ | 24.48 | |
Forfeited | (162 | ) | | $ | 20.99 | |
Outstanding restricted stock units as of March 31, 2011 | 6,549 | | | $ | 21.24 | |
__________________
| |
(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. |
The restricted stock units granted by the Company since the beginning of the fiscal year ended June 30, 2007 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, weighted-average grant date fair value per unit, and tax benefits realized by the Company in connection with vested and released restricted stock units for the three and nine months ended March 31, 2011 and 2010:
|
| | | | | | | | | | | | | | | |
(In thousands, except for weighted-average grant date fair value) | Three months ended March 31, | | Nine months ended March 31, |
2011 | | 2010 | | 2011 | | 2010 |
Grant date fair value after estimated forfeitures | $ | 1,820 | | | $ | 490 | | | $ | 44,069 | | | $ | 63,881 | |
Weighted-average grant date fair value per unit | $ | 32.77 | | | $ | 18.84 | | | $ | 20.06 | | | $ | 22.18 | |
Tax benefits realized by the Company in connection with vested and released restricted stock units | $ | 1,075 | | | $ | 776 | | | $ | 23,414 | | | $ | 13,931 | |
As of March 31, 2011, the unrecognized stock-based compensation expense balance related to restricted stock units was $111.4 million and will be recognized over an estimated weighted-average amortization period of 2.4 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).
During the three months ended March 31, 2009, the Company’s Board of Directors approved amendments to the ESPP as part of the Company’s efforts to reduce operating expenses in response to the then-current economic conditions. Those amendments to the ESPP (a) eliminated the look-back feature (i.e., the reference to the fair market value of the Company’s common stock at the commencement of the applicable six-month offering period) and (b) reduced the purchase price discount
from 15% to 5%. These changes were effective July 1, 2009, such that the purchase price with respect to the six-month offering period that began on July 1, 2009 was 95% of the fair market value of the Company’s common stock on the purchase date, December 31, 2009.
During the quarter ended December 31, 2009, in response to improvements in the business conditions within the industries that the Company serves, the Company’s Board of Directors approved amendments to the ESPP that (a) reinstated the six-month look-back feature and (b) increased the purchase price discount from 5% to 15%. These changes became effective January 1, 2010, such that the purchase price with respect to each offering period beginning on or after such date will be 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:
|
| | | | | | | | | | | |
| Three months ended March 31, | | Nine months ended March 31, |
| 2011 | | 2010 (1) | | 2011 | | 2010 (1) |
Stock purchase plan: | | | | | | | |
Expected stock price volatility | 35 | % | | 35 | % | | 38 | % | | 35 | % |
Risk-free interest rate | 0.19 | % | | 0.21 | % | | 0.20 | % | | 0.21 | % |
Dividend yield | 2.58 | % | | 1.63 | % | | 3.13 | % | | 1.63 | % |
Expected life of options (in years) | 0.50 | | | 0.50 | | | 0.50 | | | 0.50 | |
__________________
(1) The weighted-average assumptions are identical for the three and nine months ended March 31, 2010 because there were no valuations recorded during the three and six months ended December 31, 2009. No compensation cost was recognized as the purchase price under the ESPP during these periods was based solely on the market price of the shares at the purchase date and the discount on the purchase price was 5%.
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:
|
| | | | | | | | | | | | | | | |
(In thousands, except for weighted-average fair value) | Three months ended March 31, | | Nine months ended March 31, |
2011 | | 2010 | | 2011 | | 2010 |
Total cash received from employees for the issuance of shares under the ESPP | $ | — | | | $ | — | | | $ | 16,175 | | | $ | 8,885 | |
Number of shares purchased by employees through the ESPP | — | | | — | | | 701 | | | 259 | |
Tax benefits realized by the Company in connection with the disqualifying dispositions of shares purchased under the ESPP | $ | 1,699 | | | $ | 65 | | | $ | 2,170 | | | $ | 932 | |
Weighted-average fair value per share based on Black-Scholes model | $ | 8.86 | | | $ | 8.51 | | | $ | 7.38 | | | $ | 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 issue under the ESPP during the forthcoming fiscal year. During the fiscal year ended June 30, 2010, a total of 2.0 million additional shares were reserved under the ESPP, and an additional 2.0 million shares have been reserved under the ESPP with respect to the fiscal year ending June 30, 2011. As of March 31, 2011, a total of 3.9 million shares were reserved and available for issuance under the ESPP.
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. In October 2008, the Company suspended its stock repurchase program, and the Company subsequently restarted the program in February 2010. As of March 31, 2011, 10.4 million shares were available for repurchase under the Company’s repurchase program.
Share repurchases for the three and nine months ended March 31, 2011 and 2010 were as follows:
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| | | | | | | | | | | | | | | |
(In thousands) | Three months ended March 31, | | Nine months ended March 31, |
2011 | | 2010 | | 2011 | | 2010 |
Number of shares of common stock repurchased | 1,286 | | | 1,990 | | | 4,817 | | | 1,990 | |
Total cost of repurchases | $ | 57,810 | | | $ | 59,257 | | | $ | 175,071 | | | $ | 59,257 | |
As of March 31, 2011, $2.8 million of the above total cost of repurchase amount remained unpaid and is recorded in other current liabilities. The $2.7 million which was accrued as of December 31, 2010 was paid during the three months ended March 31, 2011.
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 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 shares of common stock underlying the Company’s outstanding dilutive stock options and restricted stock units had been issued. The dilutive effect of outstanding options and restricted stock units is reflected in diluted earnings per share by application of the treasury stock method. Under the treasury stock method, the amount the employee must pay for exercising stock options, the amount of compensation cost for future service that the Company has not yet recognized, and the amount of tax benefits that would be recorded in additional paid-in capital when the award becomes deductible are assumed to be used to repurchase shares. The following table sets forth the computation of basic and diluted net income per share:
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| | | | | | | | | | | | | | | |
(In thousands, except per share amounts) | Three months ended March 31, | | Nine months ended March 31, |
2011 | | 2010 | | 2011 | | 2010 |
Numerator: | | | | | | | |
Net income | $ | 209,783 | | | $ | 57,016 | | | $ | 549,471 | | | $ | 99,215 | |
Denominator: | | | | | | | |
Weighted average shares outstanding, excluding unvested restricted stock units | 167,629 | | | 171,506 | | | 166,978 | | | 171,202 | |
Effect of dilutive options and restricted stock units | 3,684 | | | 1,851 | | | 2,996 | | | 2,230 | |
Denominator for diluted income per share | 171,313 | | | 173,357 | | | 169,974 | | | 173,432 | |
Basic earnings per share | $ | 1.25 | | | $ | 0.33 | | | $ | 3.29 | | | $ | 0.58 | |
Diluted earnings per share | $ | 1.22 | | | $ | 0.33 | | | $ | 3.23 | | | $ | 0.57 | |
Anti-dilutive securities excluded from the computation of diluted net income per share | 4,660 | | | 11,510 | | | 8,355 | | | 11,311 | |
The total amount of dividends paid during the three months ended March 31, 2011 and 2010 was $41.9 million and $25.7 million, respectively. The total amount of dividends paid during the nine months ended March 31, 2011 and 2010 was $125.5 million and $77.0 million, respectively.
NOTE 10 – COMPREHENSIVE INCOME
The components of comprehensive income, net of tax, are as follows:
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| | | | | | | | | | | | | | | |
(In thousands) | Three months ended March 31, | | Nine months ended March 31, |
2011 | | 2010 | | 2011 | | 2010 |
Net income | $ | 209,783 | | | $ | 57,016 | | | $ | 549,471 | | | $ | 99,215 | |
Other comprehensive income (loss): | | | | | | | |
Currency translation adjustments | 4,711 | | | (1,870 | ) | | 22,689 | | | 1,691 | |
Gain on cash flow hedging instruments, net | 1,010 | | | 4 | | | 1,210 | | | 724 | |
Change in unrecognized losses and transition obligation related to pension and post-retirement plans | 93 | | | 20 | | | 265 | | | 56 | |
Unrealized gain (loss) on investments | (953 | ) | | 681 | | | (1,382 | ) | | 606 | |
Other comprehensive income (loss) | 4,861 | | | (1,165 | ) | | 22,782 | | | 3,077 | |
Total comprehensive income | $ | 214,644 | | | $ | 55,851 | | | $ | 572,253 | | | $ | 102,292 | |
NOTE 11 – INCOME TAXES
The following table provides details of income taxes:
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| | | | | | | | | | | | | | | |
(Dollar amounts in thousands) | Three months ended March 31, | | Nine months ended March 31, |
2011 | | 2010 | | 2011 | | 2010 |
Income before income taxes | $ | 301,520 | | | $ | 80,271 | | | $ | 776,023 | | | $ | 141,079 | |
Provision for taxes | 91,737 | | | 23,255 | | | 226,552 | | | 41,864 | |
Effective tax rate | 30.4 | % | | 29.0 | % | | 29.2 | % | | 29.7 | % |
The Company’s estimated annual effective tax rate for the year is approximately 29.0%
The difference between the actual effective tax rate of 30.4% during the quarter and the estimated annual effective tax rate of 29.0% is primarily due to the tax impact of the following items during the three months ended March 31, 2011:
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• | Tax expense of $8.4 million was recognized due to shortfalls from employee stock activity. A shortfall arises when the tax deduction is less than book compensation. Shortfalls are recorded as decreases to capital in excess of par value to the extent that cumulative windfalls exceed cumulative shortfalls. A windfall arises when the tax deduction is more than book compensation. Windfalls are generally recorded as increases to capital in excess of par value. Shortfalls in excess of cumulative windfalls are recorded as provision for income taxes. |
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• | Tax expense of $1.9 million was recognized related to adjustments to the prior year provision for income taxes. |
| |
• | Tax benefit of $1.9 million was recognized related to a non-taxable increase in the assets held within the Company’s Executive Deferred Savings Plan. |
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• | Tax benefit of $1.6 million was recognized related to deductions for employee stock activity. |
Tax expense was higher as a percentage of income during the three months ended March 31, 2011 compared to the three months ended March 31, 2010 primarily due to an increase in tax expense of $8.4 million resulting from shortfalls related to employee stock activity during the three months ended March 31, 2011.
Tax expense was relatively unchanged as a percentage of income during the nine months ended March 31, 2011 compared to the nine months ended March 31, 2010.
In the normal course of business, the Company is subject to examination by taxing authorities throughout the world. The Company is under United States federal income tax examination for the fiscal years ended June 30, 2007 through June 30,
2009. The Company is under an Israel income tax examination for the fiscal years ended June 30, 2007 through June 30, 2009, a Japan income tax examination for the fiscal years ended June 30, 2006 through June 30, 2010 and under income tax examination in various other foreign tax jurisdictions. The Company is subject to state income tax examinations for all years beginning from the fiscal year ended June 30, 2007. 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, 2006. 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 $24.3 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 – 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 is currently paying defense costs to one former officer and employee facing an SEC civil action to which the Company is not a party, and the Company is also obligated to pay the attorneys' fees and expenses incurred by former employees in connection with discovery undertaken in that case. The Company is further incurring costs associated with retaining counsel to respond to discovery requests and otherwise representing the Company in that litigation. Although the maximum potential amount of future payments the Company could be required to make under these arrangements is theoretically unlimited, the Company believes the fair value of this liability, to the extent estimable, is appropriately considered within the reserve it has established for currently pending legal proceedings.
Other Legal Matters. The Company is named from time to time as a party to lawsuits 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. Litigation, in general, and intellectual property and securities litigation in particular, can be expensive and disruptive to normal business operations. Moreover, the results of legal proceedings are difficult to predict, and the costs incurred in litigation can be substantial, regardless of outcome. The Company believes the amounts provided in its 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 its financial statements or will not have a material adverse effect on its results of operations, financial condition or cash flows.
NOTE 13 – COMMITMENTS AND CONTINGENCIES
Factoring. KLA-Tencor has 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, from time to time the Company 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, proceeds from sales of LCs and related discounting fees paid for the three and nine months ended March 31, 2011 and 2010:
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| | | | | | | | | | | | | | | |
| Three months ended | | Nine months ended |
(In thousands) | March 31, 2011 | | March 31, 2010 | | March 31, 2011 | | March 31, 2010 |
Receivables sold under factoring agreements | $ | 50,417 | | | $ | 16,968 | | | $ | 207,028 | | | $ | 86,987 | |
Proceeds from sales of LCs | $ | 9,900 | | | $ | 13,384 | | | $ | 94,163 | | | $ | 23,891 | |
Discounting fees paid on sales of LCs (1) | $ | 9 | | | $ | 26 | | | $ | 164 | | | $ | 149 | |
(1) Discounting fees include bank fees and interest expense and were recorded in interest income and other, net.
Facilities. KLA-Tencor leases certain of its facilities under arrangements that are accounted for as operating leases. Rent expense was $2.1 million and $2.1 million for the three months ended March 31, 2011 and 2010, respectively. Rent expense was $6.3 million and $7.0 million for the nine months ended March 31, 2011 and 2010, respectively.
The following is a schedule of expected operating lease payments (in thousands):
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| | | |
Fiscal year ended June 30, | Amount |
2011 (remaining 3 months) | $ | 2,094 | |
2012 | 6,985 | |
2013 | 4,785 | |
2014 | 3,048 | |
2015 | 1,732 | |
2016 and thereafter | 4,274 | |
Total minimum lease payments | $ | 22,918 | |
Purchase Commitments. KLA-Tencor maintains certain open inventory purchase commitments with its suppliers to ensure a smooth and continuous supply for key components. KLA-Tencor’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 $418.7 million as of March 31, 2011 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 three and nine months ended March 31, 2011 and 2010:
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(In thousands) | Three months ended March 31, | | Nine months ended March 31, |
2011 | | 2010 | | 2011 | | 2010 |
Beginning balance | $ | 30,892 | | | $ | 15,726 | | | $ | 21,109 | | | $ | 18,213 | |
Accruals for warranties issued during the period | 11,859 | | | 5,986 | | | 33,651 | | | 16,713 | |
Changes in liability related to pre-existing warranties | 1,229 | | | (345 | ) | | 80 | | | (2,924 | ) |
Settlements made during the period | (6,754 | ) | | (4,120 | ) | | (17,614 | ) | | (14,755 | ) |
Ending balance | $ | 37,226 | | | $ | 17,247 | | | $ | 37,226 | | | $ | 17,247 | |
The Company maintains guarantee arrangements available through various financial institutions for up to $20.2 million, of which $18.0 million had been issued as of March 31, 2011, primarily to fund guarantees to customs authorities for VAT and other operating requirements of the Company’s subsidiaries in Europe and Asia.
NOTE 14 – 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 Condensed Consolidated Statement of Operations. In accordance with the guidance, the Company designates foreign currency forward exchange 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 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 counter-party 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 gain or loss 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 majority of such derivatives are 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 location and amounts of designated and non-designated derivative instruments’ gains and losses in the condensed consolidated financial statements for the three and nine months ended March 31, 2011 and 2010 are as follows:
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| | | | | | | | | | | | | | | | |
| | Three months ended March 31, | | Nine months ended March 31, |
(In thousands) | Location in Financial Statements | 2011 | | 2010 | | 2011 | | 2010 |
Derivatives Designated as Hedging Instruments | | | | | | | | |
Gain (loss) in accumulated OCI on derivative (effective portion) | Accumulated OCI | $ | 1,318 | | | $ | (460 | ) | | $ | 78 | | | $ | (862 | ) |
Loss reclassified from accumulated OCI into income (effective portion): | Revenues | $ | (696 | ) | | $ | (215 | ) | | $ | (2,023 | ) | | $ | (1,797 | ) |
| Costs of revenues | $ | (14 | ) | | $ | (251 | ) | | $ | 156 | | | $ | (227 | ) |
| Total loss reclassified from accumulated OCI into income (effective portion) | $ | (710 | ) | | $ | (466 | ) | | $ | (1,867 | ) | | $ | (2,024 | ) |
Gain (loss) recognized in income on derivative (ineffectiveness portion and amount excluded from effectiveness testing) | Interest income and other, net | $ | 76 | | | $ | 33 | | | $ | 223 | | | $ | (286 | ) |
Derivatives Not Designated as Hedging Instruments | | | | | | | | |
Gain (loss) recognized in income | Interest income and other, net | $ | 2,164 | | | $ | (3,422 | ) | | $ | 295 | | | $ | (5,534 | ) |
The U.S. dollar equivalent of all outstanding notional amounts of hedge contracts, with maximum maturity of 13 months, was as follows:
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| | | | | | | |
(In thousands) | As of March 31, 2011 | | As of June 30, 2010 |
Cash flow hedge contracts | | | |
Purchase | $ | 14,525 | | | $ | 15,835 | |
Sell | 58,891 | | | 32,853 | |
Other foreign currency hedge contracts | | | |
Purchase | 142,740 | | | 82,535 | |
Sell | 147,379 | | | 104,414 | |
The location and fair value amounts of the Company’s derivative instruments reported in its Condensed Consolidated Balance Sheets as of March 31, 2011 and June 30, 2010 were as follows:
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| Asset Derivatives | | Liability Derivatives |
| Balance Sheet Location | | March 31, 2011 | | June 30, 2010 | | Balance Sheet Location | | March 31, 2011 | | June 30, 2010 |
(In thousands) | | Fair Value | | | | Fair Value |
Derivatives designated as hedging instruments | | | | | | | | | | | |
Foreign exchange contract | Other current assets | | $ | 960 | | | $ | 125 | | | Other current liabilities | | $ | 87 | | | $ | 2,033 | |
Total derivatives designated as hedging instruments | | | $ | 960 | | | $ | 125 | | | | | $ | 87 | | | $ | 2,033 | |
Derivatives not designated as hedging instruments | | | | | | | | | | | |
Foreign exchange contract | Other current assets | | $ | 2,584 | | | $ | 171 | | | Other current liabilities | | $ | 925 | | | $ | 3,791 | |
Total derivatives not designated as hedging instruments | | | $ | 2,584 | | | $ | 171 | | | | | $ | 925 | | | $ | 3,791 | |
Total derivatives | | | $ | 3,544 | | | $ | 296 | | | | | $ | 1,012 | | | $ | 5,824 | |
The following table provides the balances and changes in accumulated other comprehensive income (loss) related to derivative instruments for the three and nine months ended March 31, 2011 and 2010:
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(In thousands) | Three months ended March 31, | | Nine months ended March 31, |
2011 | | 2010 | | 2011 | | 2010 |
Beginning balance | $ | (2,077 | ) | | $ | (457 | ) | | $ | (1,994 | ) | | $ | (1,613 | ) |
Amount reclassified to income | 710 | | | 466 | | | 1,867 | | | 2,024 | |
Net change | 1,318 | | | (460 | ) | | 78 | | | (862 | ) |
Ending balance | $ | (49 | ) | | $ | (451 | ) | | $ | (49 | ) | | $ | (451 | ) |
NOTE 15 – SALE OF REAL ESTATE
During the three months ended December 31, 2010, the Company completed the sale of its remaining real estate properties in San Jose, California. The Company had recorded asset impairment charges of $10.4 million, included in selling, general and administrative expenses, during the nine months ended March 31, 2010. The real estate properties are non-financial assets subject to Level 3 fair value measurement. 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 as an offset to selling, general and administrative expenses.
NOTE 16 – RELATED PARTY TRANSACTIONS
During the three and nine months ended March 31, 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 and Cisco Systems, Inc. For the three and nine months ended March 31, 2011 and 2010, the following table provides the transactions with these parties (for the portion of such period that they were considered related):
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(In thousands) | Three months ended March 31, | | Nine months ended March 31, |
2011 | | 2010 | | 2011 | | 2010 |
Total revenues | $ | 126 | | | $ | 2,310 | | | $ | 373 | | | $ | 6,247 | |
Total purchases | $ | 1,762 | | | $ | 104 | | | $ | 4,567 | | | $ | 2,496 | |
The Company had a receivable balance from these parties of $0.1 million and