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表格10-Q (Mark One) [X]根据《1934年证券交易法》第13或15(d)条提交的季度报告截止季度:3月31日2001或[]过渡报告按照13到15节(d) 1934年证券交易法的过渡时期的委员会文件号码0 - 9992 KLA-TENCOR公司(注册人的确切名称指定在其宪章)特拉华州04 - 2564110 -------- ---------- ( 国家或其他管辖(国税局雇主公司或(组织)识别号)160里约热内卢Robles San Jose, California 95134(主要行政办公室地址)(邮政编码)(408)875-3000(注册人的电话号码，包括区号 ) ----------------------------------------------------------------------------- 表明通过复选标记注册人(1)是否已经提交所有提交的报告需要13 - 15节(d)在1934年的证券法案的前12个月(或短,注册人所需文件等(2)在过去90天内一直受到此类归档要求的约束。是X否----- -----截至2001年4月30日，有185,385,846股注册人的普通股，面值0.001美元，未偿付。指数

第一部分:财务信息财务报表KLA-TENCOR CORPORATION合并资产负债表(未经审计)

见合并财务报beplay官网ued表附注。3 KLA-TENCOR公司合并经营报表(未经审计)

见简明合并财beplay官网ued务报表附注。4 KLA-TENCOR公司现金流量简明合并报表（未经审计）

见合并财务报beplay官网ued表附注。根据美国证券交易委员会(“SEC”)的规定和规定，本公司(以下简称“公司”)编制了压缩合并财务报表。beplay官网ued按照这些规则和条例，通常在按照美利坚合众国普遍接受的会计原则编制的财务报表中包括的某些资料和脚注披露已被压缩或省略。管理部门认为，未经审计的中期财务报表反映了为公平反映所述期间的财务状况、业务结果和现金流动所必需的所有调整(只包括正常的经常调整)。然而，这些财务报表和附注应与公司经审计的合并财务报表和附注一起阅读，这些财务报表和附注包含在公司2000年9月28日提交给美国证券交易委员会(SEC)的截止2000年6月3beplay官网ued0日的年度报告(Form 10-K)中。截至二一年三月三十一日止的三个月及九个月期间的营运结果，未必能反映其他过渡期间或截至二一年六月三十日止的整个财政年度的预期结果。以前在特定财务报表标题中报告的某些项目已被重新分类，以符合截至2001年3月31日的三个月和九个月期间的列报。注2 -存货存货以标准成本(近似于先进先出的基础)或市场的较低者计价。存货的组成部分如下:

注3 -股票回购计划本公司已采取在公开市场上回购普通股的计划，以部分抵消员工beplay官网ued股票期权和股票购买计划造成的稀释。在截至2001年3月31日的9个月期间，公司以大约1.54亿美元的成本回购了4,580,000股普通股。beplay官网ued6注4 -综合收入综合收入的组成部分(不含税)如下:

注5：每股收益基本每股收益已使用该期间已发行普通股的加权平均股数确定。稀释每股收益的确定方式相同，但也包括该期间发行的所有稀释普通股等价股。稀释性普通股等价股包括股票期权。在截至2000年3月31日的三个月和九个月期间，分别以61.44美元的平均行使价格购买约0股和57000股股票的期权不包括在稀释每股收益的计算中，因为行使价格大于普通股的平均市场价格。在截至2001年3月31日的三个月和九个月期间，分别以58.49美元和46.28美元的平均行权价格购买约502000股和4835000股股票的期权不包括在稀释每股收益的计算中，因为行权价格高于普通股的平均市场价格。所列期间基本每股收益和稀释每股收益计算之间的调节差异包括根据员工股票期权计划向员工发行的股票期权的稀释效应。注6：非经常性收购、重组和其他成本收购2000年2月1日，KLA Tencor Corporation收购了软件开发商FINLE Technologies，Inc.（FINLE）。FINLE提供光刻建模和数据分析软件，使半导体制造商能够加快开发和生产0.13微米及更小几何形状集成电路所需的先进光刻工艺的开发。2000年3月23日，KLA Tencor Corporation收购了ObjectSpace的一个部门Fab Solutions。Fab Solutions是半导体制造业先进过程控制软件解决方案的领先供应商，它使成品率和工艺工程师能够近实时地响应影响Fab中主要成品率的参数数据。这两项收购均作为购买入账。因此，截至2000年3月31日，收购的资产和承担的负债的估计公允价值包含在KLA Tencor的简明合并资产负债表7中，从各购买日到2000年3月31日的经营结果包含在公司的简明合并经营报表中。KLA Tencor分别以500万美元和800万美元的现金收购了FINLE和Fab Solutions。根据管理层的估计，将总购买价格分配给各公司收购资产和承担负债的估计公允价值。FINLE收购协议包括某些额外的年度分期应急付款。FINLE和Fab解决方案的过程中研发费用总额为130万美元，由KLA Tencor管理层利用SEC批准的估值方法确定。然而，无法保证SEC不会对KLA Tencor估值模型中使用的假设提出异议，并要求KLA Tencor修改分配给在建研发的金额。为确定在制品技术的价值，对可归属于在制品技术的预期未来现金流进行贴现，同时考虑完工百分比、现有技术的利用率、与技术特征和应用相关的风险、现有和未来市场，以及与完成技术开发相关的技术风险。所采用的估值方法是一种贴现现金流法，通常称为“完工百分比”法，即技术产生的现金流乘以在制技术的完工百分比。重组和其他费用在截至1999年12月31日的六个月期间，公司确定在截至12月31日的三个月期间设立的3500万美元重组准备金中有780万美元，由于对公司产品的需求增加，导致管理层对某些设施的使用计划发生变化，因此1998年将不会使用。因此，在确定截至2000年3月31日的九个月期间的经营收入时，已将重组准备金转回包括在内。注7-承诺和意外事件公司目前是各种法律程序的一方，包括第二部分第1项“法律程序”，在本季度报告表10-Q中概述的法律程序。尽管管理层目前认为这些程序的最终结果，无论是单独的还是总体的，不会对公司的财务状况或经营成果产生重大不利影响，复杂法律程序的结果难以预测。然而，该公司认为，它在每一项未决索赔中都有抗辩理由，并且是vigorobeplay官网uedusly contesting each of these matters. NOTE 8 - DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES On July 1, 2000, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended by SFAS No. 138 "Accounting for Certain Derivative Instruments and Hedging Activities - An Amendment of FASB Statement No. 133." SFAS No. 133 requires that all derivatives, including foreign currency exchange contracts, be recognized on the balance sheet at fair value. Derivatives that do not qualify as hedges must be recorded at fair value through earnings. If a derivative is a qualifying hedge, depending on the nature of the hedge, changes in the fair value of the derivative are either offset against the change in fair value of the underlying assets or liabilities through earnings or recognized in Accumulated other comprehensive income until the underlying hedged item is recognized in earnings. The ineffective portion of a derivative's change in fair value is immediately recognized in earnings. 8 In accordance with the transition provisions of SFAS No. 133, the Company recorded the fair value of derivatives designated as fair value hedges on the balance sheet with an offset to earnings. The Company also recorded the change in the fair value of the hedged firm commitments on the balance sheet with an offset to earnings. The net impact on the Company's financial statements of the adjustment for fair value hedges was not material. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES The Company's activities expose it to a variety of market risks, including the effects of changes in foreign currency exchange rates and interest rates. The financial exposures are monitored and managed by the Company as an integral part of its overall risk management program. The Company's risk management program seeks to reduce the potentially adverse effects that the volatility of the markets may have on its operating results. The Company maintains a foreign currency risk management strategy that uses derivative instruments to protect its interests from unanticipated fluctuations in earnings and cash flows caused by volatility in currency exchange rates. By using derivative financial instruments to hedge exposures to changes in exchange rates, the Company exposes itself to credit risk and market risk. The Company manages exposure to counterparty credit risk by entering into derivative financial instruments with highly rated institutions that can be expected to fully perform under the terms of the agreement. Market risk is the adverse effect on the value of a financial instrument that results from a change in currency exchange rates. The Company manages exposure to market risk associated with foreign exchange contracts by establishing and monitoring parameters that limit the types and degree of market risk that may be undertaken. The Company enters into foreign currency forward exchange contracts to hedge against certain future movements in foreign exchange rates that affect certain foreign currency denominated sales transactions. The Company attempts to match the forward contracts with the underlying items being hedged in terms of currency, amount and maturity. These forward contracts have a duration of no longer than one year. ACCOUNTING FOR DERIVATIVES AND HEDGING ACTIVITIES All derivatives are recognized on the balance sheet at their fair value. Changes in the fair value of a derivative that is highly effective as a fair value hedge, along with the gain or loss on the hedged item are recorded in current period Interest income and other, net. The Company formally documents all relationships between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking various hedge items. This process includes linking all derivatives that are designated as fair value hedges to specific assets, liabilities and firm commitments. The Company also formally assesses, both at the hedge's inception and on an ongoing basis, whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in the fair value of hedged items. The Company discontinues hedge accounting prospectively when (1) it is determined that a derivative is no longer effective in offsetting changes in the fair value of a hedged item; (2) the derivative expires or is sold, terminated, or exercised; (3) the derivative is discontinued as a hedge instrument, because it is unlikely that a transaction will occur; (4) a hedged firm commitment no longer meets the definition of a firm commitment; or (5) management determines that designation of the derivative as a hedge instrument is no longer appropriate. In all situations in which hedge accounting is discontinued, the derivative will be carried at its fair value on the balance sheet, with subsequent changes in its fair value recognized in current period earnings. When hedge accounting is discontinued because it is probable that a forecasted transaction will not occur, the related amounts that were accumulated in other comprehensive income are recognized immediately in earnings. For the three- and nine-month periods ending March 31, 2001, the amount of hedge ineffectiveness and the gain on hedged commitments no longer qualifying as fair value hedges was immaterial. 9 NOTE 9 - SUBSEQUENT EVENTS On April 20, 2001, the Company acquired substantially all of the assets of Phase Metrics, Inc. ("Phase Metrics"), a privately-held company, for a total of approximately $21 million in cash. Phase Metrics is a supplier of inspection/certification technologies to the data storage industry. The transaction will be accounted for as a purchase and the purchase price will be allocated to the estimated fair value of assets acquired and liabilities assumed based on management estimates. NOTE 10 - RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS In June 2000, the SEC issued Staff Accounting Bulletin ("SAB") No. 101B, "Second Amendment: Revenue Recognition in Financial Statements." SAB No. 101B amends SAB No. 101 "Revenue Recognition in Financial Statements," to defer the implementation date of SAB No. 101 for registrants until no later than the fourth fiscal quarter of fiscal years beginning after December 15, 1999. SAB No. 101 summarizes certain of the SEC's views in applying generally accepted accounting principles to revenue recognition in financial statements of all public companies. The Company is required to adopt SAB No. 101 in the fourth quarter of its fiscal year ending June 30, 2001. Accordingly, any shipments previously reported as revenue, including revenue reported for the first three quarters of fiscal 2001, that do not meet SAB No. 101's guidance will be recorded as revenue in future periods. Changes in the Company's revenue recognition policy resulting from the interpretation of SAB No. 101 would not involve the restatement of prior fiscal year statements but would, to the extent applicable, be reported as a change in accounting principle in the fiscal year ending June 30, 2001, with the appropriate restatement of interim periods as required by SFAS No. 3 "Reporting Accounting Changes in Interim Financial Statements." The Company's reported results of operations for the 12 months ending June 30, 2001 will include a cumulative adjustment for all prior annual and interim periods as if SAB No. 101 had been adopted on July 1, 2000. Management believes that SAB Nos. 101 and 101B, to the extent that they impact the Company, will not affect the underlying strength or weakness of the Company's business operations as measured by the dollar value of the Company's product shipments and cash flows. In September 2000, the FASB issued SFAS No. 140 "Accounting for the Transfers and Servicing of Financial Assets and Extinguishments of Liabilities." SFAS No. 140 is effective for transfers occurring after March 31, 2001 and for disclosures relating to the securitization transactions and collateral for fiscal years ending after December 15, 2000. It is not expected that SFAS No. 140 will have a significant impact on our financial position or results of operation. 10 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FORWARD-LOOKING STATEMENTS This report contains certain forward-looking statements. All statements included in or incorporated by reference in this Quarterly Report on Form 10-Q, other than statements of historical fact, are forward-looking statements. Such forward-looking statements include, among others, those statements regarding our future financial results; the future results of our operations; technological trends in the semiconductor industry; our future product offerings and product features; anticipated revenue from various domestic and international regions; success of our product offerings; completion of backlog; creation of development and engineering programs for research and development; the completion of any acquisitions of third parties, or the technology or assets thereof; benefits received from any acquisitions; the outcome of any litigation to which we are a party; results of our investment in leading edge technologies, enhancements of current products and strategic acquisitions; our future income tax rate; sufficiency of our existing cash balance, investments and cash generated from operations to meet our liquidity and working capital requirements; and the effects of hedging transactions. Our actual results may differ significantly from those projected in the forward-looking statements in this report. The following discussion and analysis should be read in conjunction with the section entitled "Factors Affecting Results, Including Risks and Uncertainties," as well as the condensed consolidated financial statements and the notes thereto included in Item 1 in this Quarterly Report, our most recent Annual Report on Form 10-K filed by the Company with the SEC, and our other filings with the SEC made from time to time. RESULTS OF OPERATIONS KLA-Tencor Corporation is the world's leading supplier of process control and yield management solutions for the semiconductor and related microelectronics industries. Our comprehensive portfolio of products, software, analysis, services and expertise is designed to help integrated circuit manufacturers manage yield throughout the entire wafer fabrication process - from research and development to final mass production yield analysis. Despite a strong first half of fiscal 2001, a worldwide softening in demand for semiconductors resulted in excess capacity and reduced demand for semiconductor manufacturing equipment in the third fiscal quarter. As a result, we experienced declines in both revenue and bookings in the third fiscal quarter compared to the prior quarter. Revenues were $529 million and $1,636 million for the three- and nine-month periods ended March 31, 2001, compared to $413 million and $1,017 million for the same periods of the prior fiscal year, representing an increase of 28% and 61% for the respective periods. We experienced increased revenues across nearly all product lines as a result of the increased capital spending by major semiconductor manufacturers. Gross margins were 54% and 56% of revenues for the three- and nine-month periods ended March 31, 2001, compared to 56% and 54% of revenues for the same periods in the prior fiscal year. Gross margins decreased during the current quarter when compared to the prior year quarter primarily due to lower than expected shipment volumes and new product introduction costs. Gross margin for the nine months ended March 31, 2001 increased when compared to the same period of the prior fiscal year primarily due to increased capacity utilization resulting from higher unit volume, as well as faster growth of higher margin product revenue compared to lower margin service revenue. 11 Engineering, research and development (R&D) expenses were $90 million and $267 million for the three- and nine-month periods ended March 31, 2001, compared to $67 million and $170 million for the same periods in the prior fiscal year. As a percentage of revenues, R&D expenses were 17% and 16% for the three- and nine-month periods ended March 31, 2001, compared to 16% and 17% for the same periods in the prior fiscal year. The aggregate amount for R&D investment increased, representing our continued commitment to product development in new and emerging market segments and enhancements to existing products for 0.13 micron, copper development and 300mm wafers. Selling, general and administrative expenses were $84 million and $269 million for the three- and nine-month periods ended March 31, 2001, compared to $72 million and $185 million for the same periods in the prior fiscal year. As a percentage of revenues, selling, general and administrative expenses were 16% for both the three- and nine-month periods ended March 31, 2001, compared to 17% and 18% for the same periods in the prior fiscal year. Aggregate selling, general and administrative expenses increased, but at a slower rate than the increase in revenues. The aggregate increase was primarily due to increases in our sales and marketing infrastructure and the high level of new product activity during the last nine months. During the six-month period ended December 31, 1999, the Company determined that $7.8 million of a $35.0 million restructuring reserve established during the three-month period ended December 31, 1998 would not be utilized because of a change in management's plans for utilization of certain facilities resulting from an increase in demand for the Company's products. Accordingly, the restructuring reserve reversal was included in the determination of income from operations for the nine-month period ended March 31, 2000. Non-recurring acquisition charges were $1.3 million and $3.2 million for the three- and nine-month periods ended March 31, 2000, as a result of the acquisition of ACME Systems, Inc., FINLE Technologies, Inc. and Fab Solutions. Accordingly, the non-recurring acquisition charges were included in the determination of income from operations for the three- and nine- month periods ended March 31, 2000. Interest income and other, net, were $15 million and $41 million for the three- and nine-month periods ended March 31, 2001, compared to $11 million and $30 million in the same periods in the prior fiscal year. The increase was due to gains realized on sales of marketable securities and settlements of certain foreign currency contracts. Our effective tax rate for the three- and nine-month periods ended March 31, 2001 was 28% on pretax income. This rate is consistent with the effective rate applied to income from operations excluding the impact of non-recurring acquisition, restructuring and other charges during the same periods in the prior fiscal year. The tax rate on the restructuring reserve reversal in the three- and nine-month periods ended March 31, 2000 was 35%, which is consistent with the tax rate applied when the restructuring reserve was recorded during the three-month period ended December 31, 1998. Currently we anticipate an overall tax rate of approximately 28% for the balance of the fiscal year ending June 30, 2001. LIQUIDITY AND CAPITAL RESOURCES During the nine-month period ended March 31, 2001, cash, cash equivalents, short-term investments and marketable securities balances decreased to $936 million from $964 million at June 30, 2000. Net cash provided by operating activities for the nine-month period ended March 31, 2001 was $172 million, compared to $101 million of net cash from operating activities for the same period of the prior fiscal year. This change primarily resulted from increased net income before non-cash charges offset by an increase in inventory. We increased our net purchases of both available-for-sale securities and long-term investments and property and equipment in the nine-month period ended March 31, 2001 as compared to the same period of the prior fiscal year. 12 Capital expenditures for the nine-month period ended March 31, 2001 of $106 million included $15 million for the purchase of 31 acres of land in Livermore, California to build a new campus and $10 million in construction costs. The remaining capital expenditures were for manufacturing and engineering equipment and leasehold improvements necessary for our operations. We received $40 million through common stock issued through our employee stock purchase program and through stock option exercises during the nine-month period ended March 31, 2001, and we repurchased $154 million of our common stock under our stock repurchase program during the same period. Working capital increased to $1,113 million as of March 31, 2001, compared to $1,057 million at June 30, 2000. We believe that existing liquid capital resources and funds generated from operations combined with the ability, if necessary, to borrow funds will be adequate to meet our business requirements for the foreseeable future, including potential acquisitions or strategic investments, capital expenditures for the expansion or upgrading of manufacturing capacity and working capital requirements. However, we can give no assurances that we will continue to generate sufficient funds from operations or that we will be able to borrow funds on reasonable terms in the future, if necessary. FACTORS AFFECTING RESULTS, INCLUDING RISKS AND UNCERTAINTIES Fluctuations in Operating Results and Stock Price Our operating results have varied widely in the past, and our future operating results will continue to be subject to quarterly variations based upon a wide variety of factors including those listed in this section and throughout this Quarterly Report on Form 10-Q for the period ending March 31, 2001. In addition, future operating results may not follow any past trends. We believe the factors that make our results fluctuate and difficult to predict include: o the cyclical nature of the semiconductor industry; o the reduction in the price and the profitability of our products; o our timing of new product introductions; o our ability to develop and implement new technologies; o the change in customers' schedules for fulfillment of orders; o the cancellation of contracts by major customers; o the shortage of qualified workers in the areas we operate; and o our ability to manage our manufacturing requirements. Operating results also could be affected by sudden changes in customer requirements, currency exchange rate fluctuations and other economic conditions affecting customer demand and the cost of operations in one or more of the global markets in which we do business. As a result of these or other factors, we could fail to achieve our expectations as to future revenues, gross profit and income from operations. Our failure to meet the performance expectations set and published by external sources could result in a sudden and significant drop in the price of our stock, particularly on a short-term basis, and could negatively affect the value of any investment in our stock. 13 Semiconductor Equipment Industry Volatility The semiconductor equipment industry is highly cyclical. The purchasing decisions of our customers are highly dependent on the economies of both the local markets in which they are located and the semiconductor industry worldwide. The timing, length and severity of the up-and-down cycles in the semiconductor equipment industry are difficult to predict. This cyclical nature of the industry in which we operate affects our ability to accurately predict future revenues and, thus, future expense levels. When cyclical fluctuations result in lower than expected revenue levels, operating results may be adversely affected and cost reduction measures may be necessary in order for us to remain competitive and financially sound. During a down cycle, we must be in a position to adjust our cost and expense structure to prevailing market conditions and to continue to motivate and retain our key employees. In addition, during periods of rapid growth, we must be able to increase manufacturing capacity and personnel to meet customer demand. We can provide no assurance that these objectives can be met in a timely manner in response to industry cycles. If we fail to respond to industry cycles, our business could be seriously harmed. During industry down cycles, the semiconductor industry typically experiences excess production capacity that causes semiconductor manufacturers to decrease capital spending. We generally do not have long-term volume production contracts with our customers, and we do not control the timing or volume of orders placed by our customers. Whether and to what extent our customers place orders for any specific products, as well as the mix and quantities of products included in those orders, are factors beyond our control. Insufficient orders, especially in our down cycles, will result in under-utilization of our manufacturing facilities and infrastructure and will negatively affect our operating results and financial condition. International Trade and Economic Conditions Ours is an increasingly global market. A majority of our revenues are derived from outside the United States, and we expect that international revenues will continue to represent a substantial percentage of our revenues. Our international revenues and operations are affected by economic conditions specific to each country and region. Because of our significant dependence on international revenues, a decline in the economies of any of the countries or regions in which we do business could negatively affect our operating results. Managing global operations and sites located throughout the world presents challenges associated with, among other things, cultural diversity and organizational alignment. Moreover, each region in the global semiconductor equipment market exhibits unique characteristics that can cause capital equipment investment patterns to vary significantly from period to period. Periodic local or international economic downturns, trade balance issues, political instability and fluctuations in interest and currency exchange rates could negatively affect our business and results of operations. Although we attempt to manage near-term currency risks through the use of hedging instruments, there can be no assurance that such efforts will be adequate. Competition Our industry includes large manufacturers with substantial resources to support customers worldwide. Our future performance depends, in part, upon our ability to continue to compete successfully worldwide. Some of our competitors are diversified companies with greater financial resources and more extensive research, engineering, manufacturing, marketing and customer service and support capabilities than we can provide. We face competition from companies whose strategy is to provide a broad array of products and services, some of which compete with the products and services that we offer. These competitors may bundle their products in a manner that may discourage customers from purchasing our products. In addition, we face competition from smaller emerging semiconductor 14 equipment companies whose strategy is to provide a portion of the products and services which we offer, using innovative technology to sell products into specialized markets. Loss of competitive position could negatively impact our prices, customer orders, revenues, gross margins, and market share, any of which would negatively affect our operating results and financial condition. Our failure to compete successfully with these other companies would seriously harm our business. Technological Change and Customer Requirements Success in the semiconductor equipment industry depends, in part, on continual improvement of existing technologies and rapid innovation of new solutions. For example, the semiconductor industry continues to shrink the size of semiconductor devices and has begun to commercialize the process of copper-based interconnects. These and other evolving customer needs require us to respond with continued development programs and to cut back or discontinue older programs which may no longer have industry-wide support. Technical innovations are inherently complex and require long development cycles and appropriate professional staffing. Our competitive advantage and future business success depend on our ability to accurately predict evolving industry standards, to develop and introduce new products which successfully address changing customer needs, to win market acceptance of these new products and to manufacture these new products in a timely and cost-effective manner. If we do not develop and introduce new products and technologies in a timely manner in response to changing market conditions or customer requirements, our business could be seriously harmed. In this environment, we must continue to make significant investments in research and development in order to enhance the performance and functionality of our products, to keep pace with competitive products and to satisfy customer demands for improved performance, features and functionality. There can be no assurance that revenues from future products or product enhancements will be sufficient to recover the development costs associated with such products or enhancements or that we will be able to secure the financial resources necessary to fund future development. Substantial research and development costs typically are incurred before we confirm the technical feasibility and commercial viability of a product, and not all development activities result in commercially viable products. In addition, we cannot ensure that these products or enhancements will receive market acceptance or that we will be able to sell these products at prices that are favorable to us. Our business will be seriously harmed if we are unable to sell our products at favorable prices or if our products are not accepted by the market in which we operate. Key Suppliers We use a wide range of materials in the production of our products, including custom electronic and mechanical components, and we use numerous suppliers to supply materials. We generally do not have guaranteed supply arrangements with our suppliers. Because of the variability and uniqueness of customers' orders, we do not maintain an extensive inventory of materials for manufacturing. We seek to minimize the risk of production and service interruptions and/or shortages of key parts by selecting and qualifying alternative suppliers for key parts, monitoring the financial stability of key suppliers and maintaining appropriate inventories of key parts. Although we make reasonable efforts to ensure that parts are available from multiple suppliers, key parts may be available only from a single supplier or a limited group of suppliers. There can be no assurance that our business will not be harmed if we do not receive sufficient parts to meet our production requirements in a timely and cost-effective manner. Operations at our primary manufacturing facilities and our assembly subcontractors are subject to disruption for a variety of reasons, including work stoppages, fire, earthquake, flooding or other natural disasters. Such disruption could cause delays in shipments of products to our customers. We cannot ensure that alternate production capacity would be available if a major disruption were to occur or that, if it were available, it could be obtained on favorable terms. Such a disruption could result in cancellation of orders or loss of customers and could seriously harm our business. 15 Intellectual Property Obsolescence and Infringement Our success is dependent in part on our technology and other proprietary rights. We own various United States and international patents and have additional pending patent applications relating to some of our products and technologies. The process of seeking patent protection is lengthy and expensive, and we cannot be certain that pending or future applications will actually result in issued patents or that issued patents will be of sufficient scope or strength to provide meaningful protection or commercial advantage to us. Other companies and individuals, including our larger competitors, may develop technologies that are similar or superior to our technology or may design around the patents we own. We also maintain trademarks on certain of our products and services and claim copyright protection for certain proprietary software and documentation. However, we can give no assurance that our trademarks and copyrights will be upheld or successfully deter infringement by third parties. While patent, copyright and trademark protection for our intellectual property is important, we believe our future success in highly dynamic markets is most dependent upon the technical competence and creative skills of our personnel. We attempt to protect our trade secrets and other proprietary information through agreements with our customers, suppliers, employees and consultants and through other security measures. We also rely on trade secret protection for our technology, in part through confidentiality agreements with our employees, consultants and third parties. We also maintain exclusive and non-exclusive licenses with third parties for strategic technology used in certain products. However, these employees, consultants and third parties may breach these agreements, and we may not have adequate remedies for wrongdoing. In addition, the laws of certain territories in which we develop, manufacture or sell our products may not protect our intellectual property rights to the same extent as do the laws of the United States. As is typical in the semiconductor equipment industry, from time to time we have received communications from other parties asserting the existence of patent rights, copyrights, trademark rights or other intellectual property rights which they believe cover certain of our products, processes, technologies or information. Our customary practice is to evaluate such assertions and to consider whether to seek licenses where appropriate. However, we cannot ensure that licenses can be obtained or, if obtained, will be on acceptable terms or that litigation or other administrative proceedings will not occur. The inability to obtain necessary licenses or other rights on reasonable terms could seriously harm our operating results and financial condition. Key Employees Our employees are vital to our success, and our key management, engineering and other employees are difficult to replace. We generally do not have employment contracts with our key employees. Further, we do not maintain key person life insurance on any of our employees. The expansion of high technology companies worldwide has increased demand and competition for qualified personnel. We may not be able to attract, assimilate or retain additional highly qualified employees in the future. These factors could seriously harm our business. Acquisitions We seek to develop new technologies from both internal and external sources. As part of this effort, we may make acquisitions of, or significant investments in, businesses with complementary products, services and/or technologies. Acquisitions involve numerous risks, including management issues and costs in connection with the integration of the operations and personnel, technologies and products of the acquired companies, the possible write-downs of impaired assets, and the potential loss of key employees of the acquired companies. The inability to manage these risks effectively could seriously harm our business. 16 Litigation From time to time we are involved in litigation of various types, including litigation that alleges infringement of intellectual property rights and other claims. Litigation tends to be expensive and requires significant management time and attention. If we lose in a dispute concerning intellectual property, a court could require us to pay substantial damages and/or royalties or could issue an injunction prohibiting us from using essential technologies. For these and other reasons, this type of litigation could have a material adverse effect on our business, financial condition and results of operations. Also, although we may seek to obtain a license under a third party's intellectual property rights in order to bring an end to certain claims or actions asserted against us, we may not be able to obtain such a license on reasonable terms or at all. Regional Electric Shortages Recently, California has been experiencing a shortage of electric power supply that has resulted in intermittent loss of power in some areas in the form of rolling blackouts. While we have not experienced any power failures to date, a blackout may affect our ability to manufacture products and meet scheduled deliveries. If blackouts were to interrupt our power supply, we would be temporarily unable to continue operations at some of our facilities. Any such interruption in our ability to continue operations at our facilities could damage our reputation, harm our ability to retain existing customers and to obtain new customers, and could result in lost revenue, any of which could substantially harm our business and results of operations. Euro Conversion A new European currency was implemented commencing in January 1999 to replace the separate currencies of eleven western European countries. This requires changes in our operations as we modify systems and commercial arrangements to deal with the new currency. Modifications are necessary in operations such as payroll, benefits and pension systems, contracts with suppliers and customers, and internal financial reporting systems. During the three-year transition period in which transactions may also be made in the old currencies, we must maintain dual currency processes for our operations. We have identified the issues created by this problem, and the cost of this effort is not expected to have a material effect on our business or results of operations. We cannot be certain, however, that all problems will be foreseen and corrected or that no material disruption of our business will occur as a result of this currency change. 17 EFFECTS OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS In June 2000, the SEC issued Staff Accounting Bulletin ("SAB") No. 101B, "Second Amendment: Revenue Recognition in Financial Statements." SAB No. 101B amends SAB No. 101 "Revenue Recognition in Financial Statements," to defer the implementation date of SAB 101 for registrants until no later than the fourth fiscal quarter of fiscal years beginning after December 15, 1999. SAB No. 101 summarizes certain of the SEC's views in applying generally accepted accounting principles to revenue recognition in financial statements of all public companies. The Company is required to adopt SAB No. 101 in the fourth quarter of its fiscal year ending June 30, 2001. Accordingly, any shipments previously reported as revenue, including revenue reported for the first three quarters of fiscal 2001, that do not meet SAB No. 101's guidance will be recorded as revenue in future periods. Changes in the Company's revenue recognition policy resulting from the interpretation of SAB No. 101 would not involve the restatement of prior fiscal year statements but would, to the extent applicable, be reported as a change in accounting principle in the fiscal year ending June 30, 2001, with the appropriate restatement of interim periods as required by SFAS No. 3 "Reporting Accounting Changes in Interim Financial Statements." The Company's reported results of operations for the 12 months ending June 30, 2001 will include a cumulative adjustment for all prior annual and interim periods as if SAB No. 101 had been adopted on July 1, 2000. Management believes that SAB Nos. 101 and 101B, to the extent that they impact the Company, will not affect the underlying strength or weakness of the Company's business operations as measured by the dollar value of the Company's product shipments and cash flows. In September 2000, the FASB issued SFAS No. 140 "Accounting for the Transfers and Servicing of Financial Assets and Extinguishments of Liabilities." SFAS No. 140 is effective for transfers occurring after March 31, 2001 and for disclosures relating to the securitization transactions and collateral for fiscal years ending after December 15, 2000. It is not expected that SFAS No. 140 will have a significant impact on our financial position or results of operation. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We are exposed to financial market risks, including changes in interest rates and in foreign currency exchange rates. To mitigate these risks, we utilize derivative financial instruments. We do not use derivative financial instruments for speculative or trading purposes. All of the potential changes noted below are based on sensitivity analyses performed on our financial position at June 30, 2000 and at March 31, 2001. Actual results may differ materially. As of June 30, 2000 and March 31, 2001, we had an investment portfolio of fixed income securities of $446 million and $450 million, respectively, excluding securities classified as cash equivalents. These securities, as with all fixed income instruments, are subject to interest rate risk and will fall in value if market interest rates increase. If market interest rates were to increase immediately and uniformly by 10% from levels as of June 30, 2000 and March 31, 2001, the fair market value of our portfolio would decline by $5 million and $4 million, respectively. As of June 30, 2000 and March 31, 2001, we had forward contracts to sell $204 million and $296 million, respectively, in foreign currency in order to hedge currency exposures. The fair market value of these contracts on June 30, 2000 and March 31, 2001, based on prevailing exchange rates on those dates, was $199 million and $267 million, respectively. A 10% adverse change in currency exchange rates affecting the contracts from their June 30, 2000 and March 31, 2001 levels would decrease the fair market value of the contracts by $20 million and $30 million, respectively. However, if this occurred, the fair market value of the underlying exposures hedged by the contracts would increase by similar amounts, which we believe would result in little or no material impact on our income or cash flows. 18 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS A discussion regarding certain pending legal proceedings is included in Part I, Item 3, "Legal Proceedings," included in the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 2000. Since the fiscal year ended June 30, 2000, certain material developments have occurred with respect to the legal proceedings described in the Company's Annual Report and the Company has been named as a party in certain additional matters as follows: ADE Corporation On October 11, 2000, ADE Corporation ("ADE"), a competitor, filed a patent infringement lawsuit against the Company in the U.S. District Court in Delaware. ADE claimed damages and sought an injunction under a wafer inspection patent it holds. The Company filed a counterclaim in the same court alleging that ADE has infringed three of its patents. The Company claimed damages and a permanent injunction against ADE. In addition, the Company is seeking a declaration from the District Court that ADE's patent is invalid and not infringed by the Company. While these matters are in a preliminary stage and we cannot predict the outcome, the Company believes it has valid defenses and further believes that its counterclaims have merit. Although we cannot predict the outcome of these claims, management does not believe that any of these legal matters will have a material adverse effect on the Company. Were an unfavorable ruling to occur in one or more of the pending claims, there exists the possibility of a material impact on the Company's operating results for the period in which the ruling occurred. Therma-Wave, Inc. On April 10, 2001, the Company settled all pending litigation with Therma-Wave, Inc. As part of the settlement, the Company has granted Therma-Wave a license on the Company's U.S. Patent No. 4,899,055 entitled "Thin Film Thickness Measuring Method." In exchange, Therma-Wave has granted the Company a license on Therma-Wave's U.S. Patent No. 5,596,406, entitled "Sample Characteristic Analysis Utilizing Multi Wavelength And Multi Angle Polarization And Magnitude Change Detection;" and U.S. Patent Nos. 5,798,837 and 5,900,939, both entitled "Thin Film Optical Measurement System and Method With Calibrating Ellipsometer." In addition, Therma-Wave agreed to modify its products to avoid using certain technology patented by the Company and both parties agreed to a moratorium on any patent litigation for a period of time. Schlumberger, Inc. and Rigg Systems, Inc. On August 30,1999, we were named as a defendant in a lawsuit in which Schlumberger, Inc. alleges trade secret misappropriation, unfair competition and trade slander. On July 21, 2000, the court granted our motion for summary judgment dismissing the case. Schlumberger, Inc. subsequently filed a motion for reconsideration of that dismissal and its request for reconsideration was denied. Schlumberger has now appealed. Although the outcome of these claims cannot be predicted with certainty, we do not believe that this legal matter will have a material adverse effect on our financial condition even if plaintiff prevails. On January 26, 2000, we filed a complaint against Philip Rigg, RIGG Systems and Schlumberger, Inc. for misappropriation of trade secrets, breach of contract, breach of fiduciary duty, interference with contract, and unfair competition. The defendants filed cross-complaints on June 5, 2000 asserting various statutory and common law theories. Although the outcome of these claims cannot be 19 predicted with certainty, we do not believe that this legal matter will have a material adverse effect on our financial condition or results of operations even if the plaintiff prevails. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits None. (b) Form 8-K On March 21, 2001, the Company filed a current report on Form 8-K, dated March 19, 2001, to report a press release announcing it expects its financial results for the 3rd Quarter ending March 31, 2001 to be below the expectations provided in its earnings conference call on January 17, 2001. 20 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. KLA-TENCOR CORPORATION (Registrant) May 14, 2001 /s/ JOHN H. KISPERT - -------------------------- ------------------------------- (Date) John H. Kispert Executive Vice President and Chief Financial Officer 21