Annual Report 2011
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ANNUAL REPORT 2011 TO OUR STOCKHOLDERS: I am pleased to report that KLA-Tencor performed at record levels on several fronts in fi scal year 2011. We achieved company records in our most critical fi nancial metrics, including revenues, net income, earnings per share and profi t margins, and our year-over-year revenue growth signifi cantly exceeded that of our peer group and our industry. At the same time, we generated record free cash fl ow and continued to deliver meaningful returns to our stockholders in the form of dividends and stock repurchases. This performance was the result of our unwavering focus on develop- ing market-leading technology, addressing our customers’ most critical needs and driving operational effi ciency. Though our industry has seen a recent slowdown in demand, we remain very excited about KLA-Tencor’s prospects for the future. The long-term demand drivers for KLA-Tencor and our industry remain intact, and we are well positioned to grow as demand for semiconductor capital equipment recovers. Our record results in fi scal year 2011 demonstrate that our strategies are working. Looking back over our 35-year history, we have established a pattern of achievement and leadership, which has enabled us to create the strong foundation from which we now look ahead to the future. Our accomplishments during fi scal year 2011 in each of our four strategic objectives (Customer Focus, Growth, Operational Excellence and Talent Development) are highlighted below: CUSTOMER FOCUS: MARKET LEADERSHIP Our customer focus strategic objective is measured in customer satisfaction and market share. We maintained our market leadership positions among our foundry and logic customers in fi scal year 2011 and improved our market position in memory, as evidenced by achieving record new order levels across all our end markets during the year. GROWTH: IN EXCESS OF THE MARKET Our long-term objective is to consistently deliver growth in excess of the overall semiconductor market. In fi scal year 2011, we recorded the highest level of revenues for any fi scal year in our history, achieving a year-over-year growth rate that considerably exceeded the average growth rate of our direct peers and the industry as a whole. We also extended our penetration of new growth areas, such as back-end packaging inspection, LED and photovoltaic inspection. OPERATIONAL EXCELLENCE: IMPROVE PROFITABILITY AND EFFICIENCY In fi scal year 2011, KLA-Tencor delivered record margins and profi tability, delivering on the objectives of our long-term operating plans to reduce costs, streamline our worldwide operations and improve overall operating effi ciencies. We also generated record levels of operating cash fl ow, demonstrating the strong cash generating power of our business. TALENT DEVELOPMENT: ATTRACT AND RETAIN TOP TALENT The focus of our talent-related strategic objective is to attract, retain and engage our global employee base. In fi scal year 2011, we achieved our employee retention and engagement goals, as our overall level of voluntary employee turnover was better than the forecasted rate. Early career hiring objectives were also met, with early career hires (including new college graduates) representing a majority of our global new hires during the year. During fi scal year 2011, we also remained proactive in our efforts to return value to our stockholders in the form of dividends and stock repurchases. In fi scal year 2011 we raised our quarterly dividend level from $0.15 to $0.25 per share, and we raised it again to $0.35 per share at the beginning of fi scal year 2012. These dividend increases refl ect our ongoing commitment to stockholder returns, as well as our confi dence in KLA-Tencor’s long-term strategies and the strength of our cash generating ability across business cycles. As we look ahead to fi scal year 2012 and celebrate our 35th year in business, we see, in the short-term, a business climate that has softened considerably compared with the record demand levels we saw in fi scal year 2011. However, our plan is to continue to execute against our long-term strategic objectives and sustain our focus on investing in next-generation technologies to support our customers and drive continued market and technology leadership. We believe we have the talent, strategies and customer focus to continue to execute at a very high level through all stages of our industry’s cycles. We are proud of this year’s accomplishments, and, as we begin fi scal year 2012, we remain steadfast in our commitment to maintain market and technology leadership, while continuing to return value to our stockholders. Thank you for your continuing support of KLA-Tencor. Sincerely, Rick Wallace President and Chief Executive Offi cer UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) È ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended June 30, 2011 OR ‘ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Transition Period from to Commission File No. 000-09992 KLA-TENCOR CORPORATION (Exact Name of Registrant as Specified in its Charter) Delaware 04-2564110 (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) 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 È No ‘ 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 ‘ No È 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 È No ‘ 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 È No ‘ 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. ‘ 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 È Accelerated filer ‘ Non-accelerated filer ‘ (Do not check if a smaller reporting company) Smaller reporting company ‘ Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ‘ No È 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, 2010, was approximately $6.4 billion. The registrant had 167,000,217 shares of common stock outstanding as of July 21, 2011. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Proxy Statement for the 2011 Annual Meeting of Stockholders to be held on November 3, 2011 (“Proxy Statement”), and to be filed pursuant to Regulation 14A within 120 days after the registrant’s fiscal year ended June 30, 2011, are incorporated by reference into Part III of this report. [THIS PAGE INTENTIONALLY LEFT BLANK] INDEX Special Note Regarding Forward-Looking Statements ................................. ii PART I Item 1. Business ..................................................................... 1 Item 1A. Risk Factors .................................................................. 16 Item 1B. Unresolved Staff Comments ..................................................... 31 Item 2. Properties .................................................................... 31 Item 3. Legal Proceedings ............................................................. 32 Item 4. (Removed and Reserved) ....................................................... 32 PART II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities ............................................................ 33 Item 6. Selected Financial Data ......................................................... 35 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations .... 36 Item 7A. Quantitative and Qualitative Disclosures About Market Risk ........................... 53 Item 8. Financial Statements and Supplementary Data ....................................... 54 Consolidated