Annual report pursuant to Section 13 and 15(d)

Employee Benefit Plans

v2.4.0.6
Employee Benefit Plans
12 Months Ended
Jun. 30, 2012
Employee Benefit Plans [Abstract]
Employee Benefit Plans
EMPLOYEE BENEFIT PLANS
KLA-Tencor has a profit sharing program for eligible employees, which distributes, on a quarterly basis, a percentage of the Company’s pre-tax profits. In addition, the Company has an employee savings plan that qualifies as a deferred salary arrangement under Section 401(k) of the Internal Revenue Code. Through March 31, 2011, the Company matched a portion of each participating eligible employee's 401(k) contribution equal to 50% of the first $6,000 of the employee’s contribution (i.e., a maximum of $3,000 ) during each fiscal year. The Company's Board of Directors approved an amendment to the Company's 401(k) plan effective April 1, 2011 to increase the employer match amount to 50% of the first $8,000 of an eligible employee's contribution (i.e., a maximum of $4,000 ) during each fiscal year.
The total expenses under the profit sharing and 401(k) programs aggregated $12.6 million , $11.6 million and $6.4 million in the fiscal years ended June 30, 2012 , 2011 and 2010 , respectively. The Company has no defined benefit plans in the United States. In addition to the profit sharing plan and the United States 401(k), several of the Company's foreign subsidiaries have retirement plans for their full-time employees, several of which are defined benefit plans. Consistent with the requirements of local law, the Company deposits funds for certain of these plans with insurance companies, with third-party trustees or into government-managed accounts and/or accrues for the unfunded portion of the obligation. The assumptions used in calculating the obligation for the foreign plans depend on the local economic environment.
The Company applies authoritative guidance that requires an employer to recognize the funded status of each of its defined pension and post-retirement benefit plans as a net asset or liability in its statement of financial position with an offsetting amount in accumulated other comprehensive income (loss). Additionally, the authoritative guidance requires an employer to measure the funded status of each of its plans as of the date of its year-end statement of financial position. The benefit obligations and related assets under the Company’s plans have been measured as of June 30, 2012 and 2011 .
Summary data relating to the Company's foreign defined benefit pension plans, including key weighted-average assumptions used, is provided in the following tables:
Year ended June 30,
(In thousands)
2012
2011
Change in projected benefit obligation
Projected benefit obligation as of the beginning of the fiscal year
$
56,810

$
46344年

Service cost, including plan participant contributions
3,355

3,184

Interest cost
1,406

1,270

Contributions by plan participants
132

126

Adjustment
148

9

Actuarial loss
6,582

1,363

Benefit payments
(789
)
(1,357
)
Foreign currency exchange rate changes
(2,218
)
5,871

Projected benefit obligation as of the end of the fiscal year
$
65,426

$
56,810

Year ended June 30,
(In thousands)
2012
2011
Change in fair value of plan assets
Fair value of plan assets as of the beginning of the fiscal year
$
11,035

$
8,692

Actual return on plan assets
68

78

Employer contributions
1,926

2,024

Benefit and expense payments
(541
)
(1,010
)
Foreign currency exchange rate changes
(779
)
1,251

Fair value of plan assets as of the end of the fiscal year
$
11,709

$
11,035

As of June 30,
(In thousands)
2012
2011
Funded status
Ending funded status
$
(53,717
)
$
(45,775
)
Net amount recognized
$
(53,717
)
$
(45,775
)
As of June 30,
(In thousands)
2012
2011
Plans with accumulated benefit obligations in excess of plan assets
Accumulated benefit obligation
$
28,844

$
39,748

Projected benefit obligation
$
65,426

$
56,810

Plan assets at fair value
$
11,709

$
11,035


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

The assumptions for expected rate of return on assets were developed by considering the historical returns and expectations of future returns relevant to the country in which each plan is in effect and the investments applicable to the corresponding plan. The discount rate for each plan was derived by reference to appropriate benchmark yields on high quality corporate bonds, allowing for the approximate duration of both plan obligations and the relevant benchmark index.
Amounts recognized in accumulated other comprehensive income (loss) consist of:
Year ended June 30,
(In thousands)
2012
2011
Unrecognized transition obligation
$
1,868

$
2,318

Unrecognized prior service cost
392

450

Unrealized net loss
15,408

9,288

Amount recognized
$
17,668

$
12,056


Amounts in accumulated other comprehensive income (loss) expected to be recognized as components of net periodic benefit cost over the fiscal year ending June 30, 2013 are as follows:
(In thousands)
Year ending
June 30, 2013
Unrecognized transition obligation
$
374

Unrecognized prior service cost
65

Unrealized net loss
580

Amount expected to be recognized
$
1,019


The components of the Company's net periodic cost relating to its foreign subsidiaries' defined pension plans are as follows:
Year ended June 30,
(In thousands)
2012
2011
2010
Components of net periodic pension cost
Service cost, net of plan participant contributions
$
3,355

$
3,184

$
2,249

Interest cost
1,406

1,270

1,020

Return on plan assets
(309
)
(289
)
(215
)
Amortization of transitional obligation
380

366

28

Amortization of prior service cost
64

61

44

Amortization of net loss
292

178

98

Acquisitions


313

Adjustment


3,154

Net periodic pension cost
$
5,188

$
4,770

$
6,691


Fair Value of Plan Assets
Fair value is the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The three levels of inputs that may be used to measure fair value of plan assets are as follows:
Level 1
Valuations based on quoted prices in active markets for identical assets or liabilities that the entity has the ability to access.
Level 2
Valuations based on quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable data for substantially the full term of the assets or liabilities.
Level 3
Valuations based on inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
The foreign plans’ investments are managed by third-party trustees consistent with the regulations or market practice of the country where the assets are invested. The Company is not actively involved in the investment strategy, nor does it have control over the target allocation of these investments. These investments made up 100% of total foreign plan assets in the fiscal years ended June 30, 2012 , 2011 and 2010 .
Expected employer contribution for the foreign plans during the fiscal year ending June 30, 2013 is $1.4 million .
The total benefits to be paid from the foreign pension plans are not expected to exceed $3.7 million in any year through 2022 .
Foreign plan assets measured at fair value on a recurring basis consisted of the following investment categories as of June 30, 2012 :
(In thousands)
Total
Quoted Prices in
Active Markets
for Identical
Assets (Level 1)
Significant Other
Observable Inputs
(Level 2)
Cash and cash equivalents
$
8,405

$
8,405

$

Government, municipal securities, and other
3,304


3,304

Total assets measured at fair value
$
11,709

$
8,405

$
3,304


Concentration of Risk
The Company manages a variety of risks, including market, credit and liquidity risks, across its plan assets through its investment managers. The Company defines a concentration of risk as an undiversified exposure to one of the above-mentioned risks that increases the exposure of the loss of plan assets unnecessarily. The Company monitors exposure to such risks in the foreign plans by monitoring the magnitude of the risk in each plan and diversifying the Company's exposure to such risks across a variety of instruments, markets and counterparties. As of June 30, 2012 , the Company did not have concentrations of risk in any single entity, manager, counterparty, sector, industry or country.
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