Annual report pursuant to Section 13 and 15(d)

Note 4. Marketable Securities

 v2.3.0.11
Note 4. Marketable Securities
 12 Months Ended
Jun. 30, 2011
Marketable Securities [Abstract]  
Marketable Securities
MARKETABLE SECURITIES
The amortized cost and fair value of marketable securities as of June 30, 2011 and 2010 were as follows:
As of June 30, 2011 (In thousands)
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair Value
U.S. Treasury securities
$
58,754

 
$
165

 
$
(23
)
 
$
58,896

U.S. Government agency securities
319,375

 
931

 
(123
)
 
320,183

Municipal securities
38,688

 
275

 
(6
)
 
38,957

Corporate debt securities
870,591

 
5,162

 
(368
)
 
875,385

Money market and other
481,770

 
—

 
—

 
481,770

Sovereign securities
31,932

 
179

 
(25
)
 
32,086

Subtotal
1,801,110

 
6,712

 
(545
)
 
1,807,277

Add: Time deposits(1)
65,402

 
—

 
—

 
65,402

Less: Cash equivalents
545,475

 
—

 
(2
)
 
545,473

Marketable securities
$
1,321,037

 
$
6,712

 
$
(543
)
 
$
1,327,206

 
 
 
 
 
 
 
 
As of June 30, 2010 (In thousands)
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair Value
U.S. Treasury securities
$
42,182

 
$
112

 
$
(1
)
 
$
42,293

U.S. Government agency securities
249,182

 
1,108

 
(10
)
 
250,280

Municipal securities
55,171

 
368

 
(80
)
 
55,459

Corporate debt securities
599,118

 
5,314

 
(1,276
)
 
603,156

Money market and other
334,674

 
—

 
—

 
334,674

Sovereign securities
39,166

 
210

 
(21
)
 
39,355

Auction rate securities
16,825

 
—

 
—

 
16,825

Subtotal
1,336,318

 
7,112

 
(1,388
)
 
1,342,042

Add: Time deposits(1)
38,407

 
—

 
—

 
38,407

Less: Cash equivalents
376,316

 
7

 
—

 
376,323

Marketable securities
$
998,409

 
$
7,105

 
$
(1,388
)
 
$
1,004,126


__________________ 
(1) Time deposits excluded from fair value measurements. 
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 fair value and gross unrealized losses of the Company's investments that were in an unrealized loss position as of June 30, 2011:
(In thousands)
Fair Value
 
Gross
Unrealized
Losses(1)
U.S. Treasury securities
$
15,660

 
$
(23
)
U.S. Government agency securities
63,345

 
(121
)
Municipal securities
3,181

 
(6
)
Corporate debt securities
137,990

 
(368
)
Sovereign securities
7,542

 
(25
)
Total
$
227,718

 
$
(543
)
 __________________ 
(1)
Of the total gross unrealized losses, there were no amounts that, as of June 30, 2011, had been in a continuous loss position for 12 months or more.
The contractual maturities of securities classified as available-for-sale as of June 30, 2011, regardless of the consolidated balance sheet classification, were as follows:
 
(In thousands)
Amortized
Cost
 
Fair Value
Due within one year
$
338,240

 
$
339,968

Due after one year through three years
982,797

 
987,238

 
$
1,321,037

 
$
1,327,206


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 fiscal years ended June 30, 2011 and June 30, 2010 were $2.5 million and $4.0 million, respectively. Net realized losses for the fiscal year ended June 30, 2009 were $0.6 million.
During the fiscal years ended June 30, 2008, 2009 and 2010, the Company’s investment portfolio included auction rate securities, which were investments with contractual maturities generally between 20 to 30 years. They are usually found in the form of municipal securities, 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 received the par value. The Company accounted for the Put Option as a freestanding financial instrument, and during the three months ended December 31, 2008, it made an election to transfer these auction rate securities from available for sale to trading securities. During the fiscal year ended June 30, 2010, $23.9 million of the auction rate securities were called at par by the issuers. 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