Quarterly report pursuant to Section 13 or 15(d)

Fair Value Measurements

v2.4.0.8
Fair Value Measurements
 6 Months Ended
Dec. 31, 2013
Fair Value Disclosures [Abstract]  
Fair Value Measurements
FAIR VALUE MEASUREMENTS
The Company’s financial assets and liabilities are measured and recorded at fair value, except for equity investments in privately-held companies. These equity investments are generally accounted for under the cost method of accounting and are periodically assessed for other-than-temporary impairment when an event or circumstance indicates that an other-than-temporary decline in value may have occurred. The Company’s non-financial assets, such as goodwill, intangible assets, and land, property and equipment, are recorded at cost and are assessed for impairment when an event or circumstance indicates that an other-than-temporary decline in value may have occurred.
Fair Value of Financial Instruments. KLA-Tencor has evaluated the estimated fair value of financial instruments using available market information and valuations as provided by third-party sources. The use of different market assumptions and/or estimation methodologies could have a significant effect on the estimated fair value amounts. The fair value of the Company's cash equivalents, accounts receivable, accounts payable and other current liabilities approximate their carrying amounts due to the relatively short maturity of these items.
Fair Value Hierarchy. The authoritative guidance for fair value measurements establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are described below:
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.
A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.
All of the Company’s financial instruments were classified within Level 1 or Level 2 of the fair value hierarchy as of December 31, 2013, because they were valued using quoted market prices, broker/dealer quotes or alternative pricing sources with reasonable levels of price transparency. As of December 31, 2013, the types of instruments valued based on quoted market prices in active markets included money market funds, U.S. Treasury securities and certain U.S. Government agency securities and sovereign securities. Such instruments are generally classified within Level 1 of the fair value hierarchy.
As of December 31, 2013, the types of instruments valued based on other observable inputs included corporate debt securities, municipal securities and certain U.S. Government agency securities and sovereign securities. The market inputs used to value these instruments generally consist of market yields, reported trades and broker/dealer quotes. Such instruments are generally classified within Level 2 of the fair value hierarchy.
The principal market in which the Company executes its foreign currency contracts is the institutional market in an over-the-counter environment with a relatively high level of price transparency. The market participants usually are large commercial banks. The Company’s foreign currency contracts’ valuation inputs are based on quoted prices and quoted pricing intervals from public data sources and do not involve management judgment. These contracts are typically classified within Level 2 of the fair value hierarchy.
Financial assets (excluding cash held in operating accounts and time deposits) and liabilities measured at fair value on a recurring basis as of the date indicated below were presented on the Company’s Condensed Consolidated Balance Sheet as follows:
As of December 31, 2013 (In thousands)
Total
 
Quoted Prices in
Active Markets
for Identical
Assets (Level 1)
 
Significant Other
Observable Inputs
(Level 2)
Assets
 
 
 
 
 
Cash equivalents:
 
 
 
 
 
U.S. Government agency securities
$
19,997

 
$
5,000

 
$
14,997

Corporate debt securities
61,797

 
—

 
61,797

Money market and other
574,904

 
574,904

 
—

Marketable securities:
 
 
 
 
 
U.S. Treasury securities
168,313

 
168,313

 
—

U.S. Government agency securities
731,636

 
709,647

 
21,989

Municipal securities
107,587

 
—

 
107,587

Corporate debt securities
1,107,255

 
—

 
1,107,255

Sovereign securities
36,439

 
8,498

 
27,941

Total cash equivalents and marketable securities(1)
2,807,928

 
1,466,362

 
1,341,566

Other current assets:
 
 
 
 
 
Derivative assets
5,584

 
—

 
5,584

Other non-current assets:
 
 
 
 
 
Executive Deferred Savings Plan
155,277

 
103,374

 
51,903

Total financial assets(1)
$
2,968,789

 
$
1,569,736

 
$
1,399,053

Liabilities
 
 
 
 
 
Other current liabilities:
 
 
 
 
 
Derivative liabilities
$
(708
)
 
$
—

 
$
(708
)
Executive Deferred Savings Plan
(155,433
)
 
(102,554
)
 
(52,879
)
Total financial liabilities
$
(156,141
)
 
$
(102,554
)
 
$
(53,587
)
________________
(1) Excludes cash of $122.8 million held in operating accounts and time deposits of $19.9 million as of December 31, 2013.

Financial assets (excluding cash held in operating accounts and time deposits) and liabilities measured at fair value on a recurring basis as of the date indicated below were presented on the Company’s Condensed Consolidated Balance Sheet as follows:  
As of June 30, 2013 (In thousands)
Total
 
Quoted Prices in
Active Markets
for Identical
Assets (Level 1)
 
Significant Other
Observable Inputs
(Level 2)
Assets
 
 
 
 
 
Cash equivalents:
 
 
 
 
 
Corporate debt securities
$
3,800

 
$
—

 
$
3,800

Money market and other
817,608

 
817,608

 
—

Marketable securities:
 
 
 
 
 
U.S. Treasury securities
93,787

 
93,787

 
—

U.S. Government agency securities
598,031

 
598,031

 
—

Municipal securities
103,455

 
—

 
103,455

Corporate debt securities
1,099,525

 
—

 
1,099,525

Sovereign securities
33,805

 
13,559

 
20,246

Total cash equivalents and marketable securities(1)
2,750,011

 
1,522,985

 
1,227,026

Other current assets:
 
 
 
 
 
Derivative assets
4,016

 
—

 
4,016

Other non-current assets:
 
 
 
 
 
Executive Deferred Savings Plan
136,461

 
96,180

 
40,281

Total financial assets(1)
$
2,890,488

 
$
1,619,165

 
$
1,271,323

Liabilities
 
 
 
 
 
Other current liabilities:
 
 
 
 
 
Derivative liabilities
$
(2,173
)
 
$
—

 
$
(2,173
)
Executive Deferred Savings Plan
(137,849
)
 
(97,570
)
 
(40,279
)
Total financial liabilities
$
(140,022
)
 
$
(97,570
)
 
$
(42,452
)
________________
(1) Excludes cash of $125.5 million held in operating accounts and time deposits of $43.4 million as of June 30, 2013.
There were no transfers in and out of Level 1 and Level 2 fair value measurements during the three and six months ended December 31, 2013. The Company did not have any assets or liabilities measured at fair value on a recurring basis within Level 3 fair value measurements as of December 31, 2013 or June 30, 2013.