Annual report pursuant to Section 13 and 15(d)

Income Taxes

v2.4.0.6
Income Taxes
12 Months Ended
Jun. 30, 2012
Income Tax Disclosure [Abstract]
Income Taxes
INCOME TAXES
The components of income before income taxes are as follows:
Year ended June 30,
(In thousands)
2012
2011
2010
Domestic income before income taxes
$
607,146

$
752,163

$
122,219

Foreign income before income taxes
366,948

357,903

168,962

Total income before income taxes
$
974,094

$
1,110,066

$
291,181


The provision for income taxes is comprised of the following:
(In thousands)
Year ended June 30,
2012
2011
2010
Current:
Federal
$
(699
)
$
225,192

$
63687年

State
51

2,095

8,799

Foreign
24,383

31,578

30,225

$
23,735

$
258,865

$
102,711

Deferred:
Federal
$
188,882

$
40,908

$
(9,258
)
State
3,721

26,458

(3,689
)
Foreign
1,741

(10,653
)
(10883
)
194,344

56,713

(23,830
)
Provision for income taxes
$
218,079

$
315,578

$
78,881


The Company made a change in the timing of when revenue is recognized for U.S. federal income tax purposes during the fiscal year ended June 30, 2012, resulting in a lower current provision for federal income taxes, which was partially offset by a higher deferred current provision for federal income taxes. The Company expects the current and deferred provisions for federal income taxes to normalize (i.e., return closer to historical levels) relative to profit before taxes in future periods.
For the fiscal years ended June 30, 2012 and 2011 , the Company did not recognize any benefits from employee stock activity deductions, and therefore the Company did not reduce actual current tax liabilities, or record any increases to capital in excess of par value, for those years in connection with such benefits.
The significant components of deferred income tax assets and liabilities are as follows:
(In thousands)
As of June 30,
2012
2011
Deferred tax assets:
Tax credits and net operating losses
$
66,392

$
62,020

Employee benefits accrual
78,112

83,328

Stock-based compensation
37,300

63,625

Capitalized R&D expenses
57,192

79,815

Inventory reserves
57,736

53,217

Non-deductible reserves
45,682

45,154

Deferred profit
—

91,302

Unearned revenue
9,991

26,632

Other
57,464

59,275

Gross deferred tax assets
409,869

564,368

Valuation allowance
(40,479
)
(30,722
)
Net deferred tax assets
$
369,390

$
533,646

Deferred tax liabilities:
Unremitted earnings of foreign subsidiaries not permanently reinvested
$
(22,746
)
$
(25,131
)
Depreciation and amortization
(10,202
)
(20,254
)
Deferred profit
(37,906
)
—

未实现的投资收益
(1,070
)
(2,215
)
Total deferred tax liabilities
(71,924
)
(47,600
)
Total net deferred tax assets
$
297,466

$
486,046


As of June 30, 2012 , the Company had U.S. federal, state and foreign net operating loss (“NOL”) carry-forwards of approximately $37.5 million , $117.6 million and $35.9 million , respectively. The U.S. federal net operating loss and tax credit carry-forwards will expire at various dates beginning in 2023 through 2029 。The utilization of NOLs created by acquired companies is subject to annual limitations under Section 382 of the Internal Revenue Code. However, it is not expected that such annual limitation will impair the realization of these NOLs. The state NOLs will begin to expire in 2013 。State credits of $58.5 million will be carried over indefinitely. The foreign net operating loss carry-forwards will begin to expire in 2013 。
The net deferred tax asset valuation allowance was $40.5 million as of June 30, 2012 and $30.7 million as of June 30, 2011 。这种变化主要是由于增加the valuation allowance related to state credit carry-forwards generated in the fiscal year ended June 30, 2012. The valuation allowance is based on the Company’s assessment that it is more likely than not that certain deferred tax assets will not be realized in the foreseeable future. Of the valuation allowance as of June 30, 2012 , $36.4 million relates to state credit carry-forwards. The remainder of the valuation allowance relates primarily to foreign net operating loss carry-forwards.
As of June 30, 2012 , U.S. income taxes were not provided for on a cumulative total of approximately $912.7 million of undistributed earnings for certain non-U.S. subsidiaries. If these undistributed earnings were repatriated to the United States, they would generate foreign tax credits to reduce the federal tax liability associated with the foreign dividend. Assuming a full utilization of the foreign tax credits, the potential deferred tax liability associated with undistributed earnings would be approximately $302.7 million 。
KLA-Tencor benefits from several tax holidays in Israel and Singapore where it manufactures certain of its products. These tax holidays are on approved investments and are scheduled to expire at varying times within the next two to nine years. However, of the tax holidays, whose expiration will have an impact on the Company's tax obligations, the soonest that any such tax holiday is scheduled to expire is during the fiscal year ending June 30, 2020. The Company was in compliance with all the terms and conditions of the tax holidays as of June 30, 2012 。The net impact of these tax holidays was to decrease the Company’s tax expense by approximately $53.3 million , $30.4 million and $12.7 million in the fiscal years ended June 30, 2012 , 2011 and 2010 , respectively. The benefits of the tax holidays on diluted net income per share were $0.31 , $0.18 and $0.07 for the fiscal years ended June 30, 2012 , 2011 , 2010 , respectively.
The reconciliation of the United States federal statutory income tax rate to KLA-Tencor’s effective income tax rate is as follows:
Year ended June 30,
2012
2011
2010
Federal statutory rate
35.0
%
35.0
%
35.0
%
State income taxes, net of federal benefit
0.4
%
2.5
%
0.6
%
Effect of foreign operations taxed at various rates
(9.9
)%
(9.0
)%
(9.6
)%
Research and development tax credit
(1.1
)%
(1.2
)%
(1.2
)%
Net change in tax reserves
(2.8
)%
2.1
%
0.5
%
Domestic manufacturing benefit
(0.7
)%
(1.9
)%
(1.7
)%
Effect of stock-based compensation
1.3
%
1.4
%
4.0
%
Other
0.2
%
(0.5
)%
(0.5
)%
Effective income tax rate
22.4
%
28.4
%
27.1
%

Windfall tax benefits arise when a company's tax deduction for employee stock activity exceeds book compensation for the same activity. A shortfall arises when the tax deduction is less than book compensation. Windfalls are recorded as increases to capital in excess of par value. Shortfalls are recorded as decreases to capital in excess of par value to the extent that cumulative windfalls exceed cumulative shortfalls. Shortfalls in excess of cumulative windfalls are recorded as provision for income taxes. The Company incurred $11.9 million of additional tax expense during the fiscal year ended June 30, 2012 due to shortfalls from employee stock activities. The Company's cumulative windfall balance reset to zero on July 1, 2012, since there was a cumulative shortfall in the fiscal year ended June 30, 2012.
A reconciliation of the gross unrecognized tax benefit is as follows:
Year ended June 30,
(In thousands)
2012
2011
2010
Unrecognized tax benefits at the beginning of the period
$
78,337

$
53,492

$
49,738

Increases for tax positions taken in prior years
4,172

5,228

6,553

Decreases for tax positions taken in prior years
(1,002
)
—

(1,897
)
Increases for tax positions taken in current year
15,663

32,152

10,912

Decreases for settlements with taxing authorities
(43,464
)
(11,786
)
—

Decreases for lapsing of the statute of limitations
(2,867
)
(749
)
(11,814
)
Unrecognized tax benefits at the end of the period
$
50,839

$
78,337

$
53,492


The amount of unrecognized tax benefits that would impact the effective tax rate was $50.8 million as of June 30, 2012 。KLA-Tencor’s policy is to include interest and penalties related to unrecognized tax benefits within interest income and other, net. The amount of interest and penalties accrued as of June 30, 2012 and 2011 was approximately $4.6 million and $7.2 million , respectively.
The Company is subject to federal income tax examinations for all years beginning from the fiscal year ended June 30, 2010. The Company is subject to state income tax examinations for all years beginning from the fiscal year ended June 30, 2008. The Company is also subject to examinations in other major foreign jurisdictions, including Singapore, for all years beginning from the fiscal year ended June 30, 2008. The Company believes that adequate amounts have been reserved for any adjustments that may ultimately result from any future examinations of these years.
It is possible that certain examinations may be concluded in the next twelve months. The Company believes it is possible that it may recognize up to $2.2 million of its existing unrecognized tax benefits within the next twelve months as a result of the lapse of statutes of limitations, and the resolution of examinations with various tax authorities.
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