KLA Tencor CSR Report

Corporate Social Responsibility Report

KLA Tencor CSR 2014

About this report

About this report

We have prepared this report using the Global Reporting Initiative (GRI) Sustainability Reporting Guidelines. This FY14 Report represents a major step toward bringing our strong history of sustainability and corporate responsibility into a single unified document using the comprehensive GRI format guidelines.

This report contains Standard Disclosures* from the GRI Sustainability Reporting Guidelines and also lays the foundation for “in accordance� compliance in our next report for fiscal year 2015.

KLA-Tencor rides to stop diabetes

In addition, we continue to provide updated sustainability information in a range of specific reports, documents and filings, such as our Annual Report on Form 10-K, and through our active participation in industry groups, community organizations, environmental initiatives and the activities of the KLA-Tencor Foundation.

Past performance does not guarantee future results. This Corporate Responsibility Report contains forward-looking statements, and actual results could differ materially. Risk factors that could affect KLA-Tencor’s results are included in filings with the Securities and Exchange Commission, including our recent reports on Form 10-K, Form 10-Q and Form 8-K.

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* A list of the GRI Standard Disclosures and page locations in this report can be found in Appendix B

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KLA Tencor CSR 2014

Table of Contents

Table of Contents

About This Report Message from the President and CEO KLA-Tencor Business Overview Economic Performance, Market Presence and Impacts Sustainable Environment Initiatives

03 07 08 12 14

04 / Table of Content

10 / KLA-Tencor Corporation at a glance

16 / Materials and Packaging 18 / Transport 20 / Energy - Global Energy Targets for Fiscal Years 2015 & 2016 22 / Water + Emissions 24 / Effluents and Waste 26 / Biodiversity + Environmental Grievance Process and Issues Management + A Global Perspective on “Green” Initiatives

Supply Chain Social Concerns, Programs and Initiatives

28 30

28 / Environmental and Social Responsibility Management 30 / Corporate Governance + Board of Directors + Code of Conduct 32 / Compliance & Internal Controls + Anti-Corruption Commitment 34 / Standards of Business Conduct (SOBC) Training Program 35 / Labor Practices, Employment and Equal Opportunity 36 / Health and Wellness Initiatives 36 / Maintaining a Safe Work Environment 38 / Training and Professional Development + Human Rights Commitment 39 / Grievance Processes and Employee Communication

Community Programs and Initiatives Product Responsibility

Appendix A Appendix B

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40 42 44 45

40 / KLA-Tencor Foundation 42 / System Solutions that Mitigate the Semiconductor Industry’s Environmental Impacts 43 / Products Designed for Energy Efficiency, Productivity & Safety

44 / References and Documentation Sources

45 / Summary of Disclosures per GRI G4 Guidelines

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KLA Tencor CSR 2014

Message from the President & CEO

Message from the President & CEO

Fostering Sustainability and Social Responsibility Through Our People, Technologies and Ongoing Commitment to Our Global and Local Communities Conceived with sustainability as part of our corporate DNA More than 38 years ago, the companies that would merge to become KLA-Tencor both started existence with fundamental goals of improving yields and efficiency, which directly reduces the environmental impacts of the global semiconductor industry.

As worldwide production of new semiconductor devices has grown exponentially over the years, KLA-Tencor technology innovations have been instrumental in helping our customers mitigate their environmental footprints, minimize waste and conserve natural resources.

We are committed to managing, measuring and improving our sustainability practices in all internal production facilities, supply chains, partnerships and other corporate activities.

Committed to giving back, getting involved and leading by example Throughout our existence, KLA-Tencor has also fostered a corporate culture that proactively reinvests in our employees, communities and the environment.

We believe deeply that a responsible company needs to be an active and beneficial participant where we live and do business. We recognize the privilege of operating within society and, as both a company and family of employees, we welcome the opportunity to give back.

This report for Fiscal year 2014 provides an overview of the many ways KLA-Tencor strives to be a positive force for the environment and our employees, communities and stakeholders. Moving to the GRI format also serves as a benchmark by which we will measure our progress in FY15 and beyond.

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KLA Tencor CSR 2014

KLA-Tencor Business Overview

KLA-Tencor Business Overview MILPITAS, CA HEADQUARTERS

KLA-Tencor technologies serve the semiconductor, LED, and other related nanoelectronics industries.

With a comprehensive portfolio of products, services, software and expertise, KLA-Tencor helps nanoelectronics manufacturers manage yield throughout their fabrication process—from research and development to final volume production. Designed to accelerate development and production ramp cycles, KLATencor’s products and solutions help customers achieve their production yield targets, which benefits the global economy and mitigates our customers’ resource usage and waste streams.

Headquartered in Milpitas, Calif., KLA-Tencor has dedicated customer operations and service centers around the world. In addition to the main headquarters campus in California, significant manufacturing and R&D facilities are located in Belgium, China, Germany, Israel and Singapore. KLA-Tencor also maintains support and sales centers throughout Europe, the United States, Japan and Asia/Pacific.

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Our customers depend on KLA-Tencor for state-of-the-art technology and services. System level design, manufacturing, testing, quality assurance and shipping activities are mainly performed at KLA-Tencor facilities in Milpitas, Singapore, and Israel. However, the leading-edge nature of our systems depends on a global network of partners, suppliers, customers and other stakeholders.

A key element for success is our sophisticated worldwide supply base. It is critical that KLA-Tencor continues to foster strong and extremely collaborative supplier relationships and that our supply chain is innovative, reliable, effective and efficient. In addition, to fulfill our commitment to sustainability and corporate responsibility, it is critical that together we maintain the highest ethical standards and are mutually committed to global social and environmental responsibility standards, regulations and laws. In this regard, just as we hold ourselves to the highest standards, we fully expect our suppliers to continue to comply with these standards and create a business environment and processes that ensure compliance by (1) promoting standards within their companies, (2) implementing supporting business processes, (3) self-certifying, measuring, auditing and reporting performance against those standards, (4) appropriately training their employees and (5) requiring the same standards of their suppliers.

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KLA Tencor CSR 2014

KLA-Tencor Corporation at a glance

KLA-Tencor Corporation at a glance

Key Products/Services:

FY14

Wafer, metrology, reticle, software and services.

REVENUE

$

See KLA-Tencor Product List

Funding: Publicly held

(NASDAQ: KLAC)

Fiscal Year 2014 Revenue:

$2.9

billion

Number of mployees: About

6,200 17

employees in

countries

(as of June 30, 2014)

Founded: Founded in 1997 through the merger of two companies: KLA Instruments and Tencor Instruments

Changes to organization structure during FY14: No significant changes to KLA-Tencor’s organization structure during the Fiscal year 2014 reporting period.

KLA-Tencor

Global HQ

One Technology Drive Milpitas, California 95035 U.S.A. Phone: +1-408-875-3000 Fax: +1-408-875-4144

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Manufacturing/ R & D Facilities: KLA-Tencor One Technology Drive Milpitas, California 95035 U.S.A. KLA-Tencor Hong Kong 2F Prosperity Centre 77-81 Container Port Road Kwai Chung, New Territories, Hong Kong

KLA-Tencor Singapore Serangoon North No. 4, Serangoon North Avenue 5 Singapore 554532 KLA-Tencor China (Shanghai) No.79-80, Lane 887 Zu ChongZhi Road Zhangjiang High-tech Park Shanghai, 201203 China

KLA-Tencor Israel 4, Haticshoret Street P.O. Box 143 Migdal Ha’emek 23100 Israel KLA-Tencor Belgium Research Park Haasrode Zone 1 Esperantolaan 8 3001 Leuven Belgium

KLA-Tencor Weilburg Kubacher Weg 4 D-35781 Weilburg Germany KLA-Tencor China (Shenzhen) 2F & 3F Plant Building 2 Xue Gang North Road Ban Tian Street Long Gang District Shenzhen 518129 China

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KLA Tencor CSR 2014

Economic Performance, Market Presence and Impacts

Economic Performance, Market Presence and Impacts

Rapid Change 2008: Laptop > Desktop

Internet of Things

2009: Smartphone > Laptop

100,000

2010: Social Network > Email Users 2011: Smartphone > Total PC

10,000

2014: > 1B Smartphones

Mobile

1,000

Internet

100

As a leader for more than three decades in

PC

Semiconductor

10

the semiconductor capital equipment industry, KLA-Tencor is responsible for key innovations, system solutions, software and services that contribute significantly to yield acceleration,

Industry Drivers

Servers

Source: Gartner, IDC, Samsung

1

Minicomputers 1960

1970

1980

1990

2000

2010

2020

production efficiency and overall industry growth.

KLA-Tencor’s process control solutions have helped spur overall growth and economic development in the sectors that we serve by helping customers shorten the time-to-market for new products and more efficiently ramp up production of innovative leading-edge semiconductor devices. This enables our customers to respond quickly to market opportunities and fuel their growth, while controlling costs and manufacturing yields, which in turn optimizes their use of resources and mitigates overall environmental impacts of industry growth.

In addition to the approximately 6,200 people employed directly by KLA-Tencor and tens of thousands employed by our supply-chain partners, our technology innovations have in Fiscal Year 2014, contributed directly to the ongoing growth in the $300+ billion global semiconductor industry and to the growth of the global electronics market totaling more than $1.6 trillion.

KLA-Tencor is committed to sustaining the track record of innovation that has kept us at the forefront of semiconductor industry process control and yield efficiency. With more than $1.7 billion invested in R&D over the past four years, we continue to lead the way in new technologies that enable the industry to achieve continued economic growth, while helping to offset the overall impacts on available resources.

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Improved Predicability

+ Improved Yield

+ Faster Manufacturing Ramps

+

Increased Profit and Lower Costs for Chipmakers

Shorter Development Times Page 13

KLA Tencor CSR 2014

Sustainable Environment Initiatives

Sustainable Environment Initiatives KLA-Tencor is dedicated to complying with the appropriate and relevant environmental laws and standards worldwide, including product development, sales, service and maintenance, are conducted in an environmentally responsible manner. KLA-Tencor is committed to preventing pollution and to the continual improvement of its environmental programs.

KLA-Tencor has been registered to the ISO 14001 standard since 2003 and strives to continuously improve its environmental performance.

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To carry out our environmental policy, we: • Regularly evaluate the aspects of our operations and the impacts of these activities on the environment • Strive to improve the environmental performance of all our operations • Consider stakeholders’ interests • Review our environmental activities and progress towards the defined goals and targets regularly with management • Implement, maintain and document the Environmental Management System through all levels in the organization • Educate and train those who work on behalf of the organization, such as employees, contractors and vendors, to work in an environmentally responsible manner • Promote this statement and make it available to the public and to all who work on behalf of the organization

Each year we (a) evaluate our impacts on the environment, (b) identify those areas of impact over which the company has sufficient control, and (c) establish goals and objectives in those areas to reduce our environmental impacts.

Since the inception of our Environmental Management System, we have, for example, consistently focused on the issue of solid waste production in our manufacturing facilities. Through a combination of recycling, educational programs and the dedication of our Corporate Facilities and Real Estate department, we are proud to report an average of 80 percent diversion rate of solid waste away from landfills in our main campus in Milpitas, Calif. annually.

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KLA Tencor CSR 2014

Materials and Packaging

USA

Singapore

Crate Reuse Rate

Materials and Packaging

Wood Tonnage Recycled

Collapsible Crate Rate

Case Reuse Rate

FY11

22%

94%

61.37

10.35

31%

142%

FY12

57%

69%

41.60

9.84

35%

689%

FY13

60%

60%

7.66

9.75

40%

230%

FY14

36%

59%

7.74

13.17

45%

341%

FY15 GOAL

37%

73%

45%

284%

The KLA-Tencor Packaging Engineering Group continues to make strides in reducing our environmental impact. Since 2006, KLA-Tencor has prohibited the use of bleached corrugated boxes, polystyrene loose fill, and, since 2012, foam-in-place materials.

The new standard is bubble wrap made of at least 50 percent recycled content and reusable cases for repairable

KLA-Tencor implemented the first-of-its-kind qualified Reuse, Refurbish, Recycle Program for crates in 2006, and we continue to expand the program to different countries, suppliers and materials to further reduce the amount of material entering the waste stream. We also prohibit the use of fumigation for all wood packaging materials.

Heat treatment is the only approved method in accordance with ISPM 15. During fiscal year 2013, we also implemented reusable packaging for 100 percent of repairable optical components.

Considerable cost and effort goes into the design and manufacture of KLA-Tencor system and subassembly crates. Over the past several years the Packaging Engineering Group has driven design for reuse, allowing for maximum return on investment and minimal impact on the environment.

optical components.

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KLA Tencor CSR 2014

Transport

Transport

Grams of CO2 to carry 1 Ton of Cargo 1 Km A collapsible crate requires half the shipping space than a full crate does.

During calendar year 2013, a key element of the KLA-Tencor transportation mitigation effort focused on reducing the size by volume of our system and customer support shipping activities. This is both a cost-saving opportunity and also helps to offset the overall environmental impacts of our carriers. The program focuses on space-optimizing all shipments by designing shipping materials that are tailored to the size of the specific size of the equipment being shipped rather than defaulting to a one-size-fits-all approach that defaults to the largest needed container size, causing wasted space in shipments.

The use of collapsible crates is another KLA-Tencor innovation that enables reusable packaging materials that can be shipped empty at approximately half of the size by volume required for a full-size crate. The half-size collapsible crates can be shipped by air using standard freight aircraft rather than jumbo freighters, thereby saving on fuel cost and allowing carriers to optimize fuel-to-load parameters. This helps to minimize the overall transportation impacts for reshipping, redeployment, and/or return of systems in the field that need to be moved to a new location.

Cargo Ship

21 Diesel Rail

59

10

Semi Truck

CO2 grams

470

Jumbo Air Cargo

We encourage employees to utilize digital technology to reduce the need for travel both locally and globally. Many of our facilities are equipped with HDTV video conferencing capabilities to provide a more environmentally responsible alternative and mitigate the need for employee travel.

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KLA Tencor CSR 2014

Lighting efficiency improvements have included: • LED bollards, LED lobby lights and LED recessed office lights • Planning for implementation of smart lighting controls Cooling system improvements have included: • Energy efficient chillers and cooling towers with integrated campus wide energy management systems • Purchased four new high efficiency chillers and reduced load on older, less efficient chillers [Note: The new systems are, to our knowledge, the most environmentally sustainable chillers on the market with an emission rate four times better than other centrifugal chillers. It is the only chiller in the world to earn an Environmental Product Declaration (EPD) registration following the requirements of ISO 14025.]

• Completed retro-commissioning of office cooling

In addition, these new projects are now underway at our headquarters campus and are expected to further mitigate energy usage for 2014 and beyond: • Compressed air audit • Infrared energy audit • Energy monitoring/sub-metering • Smart lighting controls • Energy efficient, electronically controlled f an filter units The cumulative energy savings since 2007 at our Milpitas, Calif. headquarters campus has exceeded 5 GWh to date and continues to accelerate with the new initiatives coming online.

Global Energy Targets for Fiscal Years 2015 & 2016 - KLA-Tencor continues to look for ways to reduce energy consumption throughout our global operations, which benefits the environment and saves the company money.

• In Milpitas, our target is to implement energy saving equipment and processes which curb 2 percent of total campus energy usage, which equates to 1.353 Gigawatt-Hours or 241.3 Metric Tons of CO2e • In Singapore, our target is to reduce energy consumption by 5 percent by improving the chilled water system used in manufacturing • In Israel, our target is to reduce usage by 3 percent (average per square meter)

Facility Project Energy Savings 2007-2014 6

800,000.00 700,000.00

5

600,000.00 4

500,000.00

3

400,000.00 300,000.00

2

200,000.00 1

100,000.00 0.00

0

r

r de ng ting ting se 1 hts ille se 2 hts fice se 3 ting RCx ade pus ards ting ti g r ra hti a h h i a a h h h r g gr am oll g L g Lig Of ha C C h g ha g g gh iz g ig Up ual ter Up r Up e Li e Li e Li ts P Up ll C D B fé li ay Eff. ts P ma g 1 g P n L olin t w s g o a c c n c h o h i A g ld a a LE Ca ow Vir W ille ffi ffi ffi ig ig in Pl 2 B ght ucti e C htin ED gh ez irfl er c i al ght 14 14 Ch 3 O 5 O 7 O by L Bre s Hi by L 12 1 d ig d L L A fi g 0 v i f L 0 n d r 2 I y L a ob g ob g g e e 20 2 O e er é 20 ifu 11 lpit ol Bld Bld Bld bb 12 13 L L af ess nt er S ntr 010 0 o o i e 0 C 2 L c C 11 1 1 C 2 11 2 M 012 nt 20 13 Ce 2 Re er 20 201 201 20 ta 2 0 0 14 Ce 11 01 at 2 0 2 Da ta 201 2 W 20 0 07 Da 01 20 08 2 20 e ad

on

ille

s de

Energy Curbed (kWh)

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A key goal for calendar year 2015 will be to expand these energy initiatives and best practices throughout the company’s global operations, with an emphasis first on worldwide manufacturing and R&D facilities.

Total Energy Savings (GWh)

The primary KLA-Tencor initiatives for energy conservation during FY14 focused on two major opportunity areas: Lighting and Cooling

KLA-Tencor is also a member of the Silicon Valley Leadership Group and actively participates on the group’s Energy Committee to share best practices and to help drive business community efforts for energy conservation throughout the region.

Project Energy Savings (kWh)

Energy

Energy

Energy Saved Since 2007 (GWh)

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Water + Emissions

KLA Tencor CSR 2014

Water + Emissions

Ratio of Fresh Water to Recycled Water Usage RECYCLED

POTABLE

49

45

45

47

51

55

55

53

2010

2011

2012

2013

50%

An important initiative in the water conservation arena is a program at our Milpitas headquarters campus to reduce impacts on the local water system by both transitioning a portion of the potable water usage to lower impact irrigation-quality water usage and also reducing the amount of water used in irrigation through smart-metering sensors and other measures.

A key factor in this plan will be the opportunity to convert the evaporative cooling tower water usage from potable water to reclaimed irrigation-quality water. This effort is dependent upon the successful completion of a project undertaken by the Santa Clara County Water District to improve the quality of their irrigation water, which will make it suitable for use in the cooling towers.

Even as total water usage has tended to increase with company growth over the past decade, the proactive shifting of more usage toward reclaimed irrigation water is helping to mitigate overall environmental impacts.

If the cooling tower water conversion is successfully implemented in 2014, we should be able to show a significant acceleration in the shift toward reclaimed water usage.

The following KLA-Tencor initiatives are focused on mitigating our global water usage: • In Milpitas, the Fiscal Year 2015/2016 target is to reduce cooling tower potable (fresh) water usage by 10 percent, reduce usage of domestic fresh water by 1 percent and increase reclaimed water usage by 1 percent • In Singapore, our target is to maintain 75 percent usage of NEWater (recycled water) over domestic (city) water • In Israel we are working to establish a new baseline of water consumption

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Emissions The KLA-Tencor corporate goal for the Milpitas headquarters’ greenhouse gas emissions was to implement facility and operational improvements to curb at least 400 metric tons of CO2e emissions as compared to 2011 levels. Improvements have been achieved through campus-wide efficiency projects, such as the lighting and cooling programs described earlier and reconfiguring office environments to allow more natural lighting into the building. We realized this goal in 2013, and additional gains are planned for 2014.

2013 KLA-Tencor Milpitas Carbon Emission Equivalents (Scope 1 & 2) Scope 1

Name

Type

Quantity

Unit

Emissions (MTCO2e)

Facility Vehicles

Gasoline

2,378

gal

20.5

Security Vehicles

Gasoline

1,373

gal

11.8

Fork Lifts

Propane

1,612

gal

9.8

Generator

Diesel Fuel

2,298

gal

23.4

PG&E Gas

natural gas

278,355

therms

1,477.7

Scope 2

Electricity

Electricity

67,291

MWh

11,998.8

2013 Total Emissions

MTCO2e

13,542.0

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KLA Tencor CSR 2014

Effluents and Waste

Effluents and Waste

Total Campus Trash (tons)

Un-recycled Trash (tons)

Recycled Trash (tons)

% Diverted from Landfill

HQ Waste Stream

Through a combination of recycling, educational programs and the dedication of our Corporate Facilities and Real Estate department, we are proud to report a consistent diversion rate of solid waste away from landfills in our main campus in Milpitas, Calif., which has averaged 79.4 percent since 2010.

2008

1,131.74

397.46

734.28

64.9%

2009

1,147.11

283.38

863.73

75.3%

2010

992.26

130.37

861.89

86.9%

2011

815.23

177.91

637.32

78.2%

2012

799.98

183.70

616.28

77.0%

2013

843.49

209.85

633.64

75.1%

The California Integrated Waste Management Board has recognized KLATencor’s efforts and has awarded KLA-Tencor with a waste reduction award (WRAP Award) for each of the last eight years.

Other initiatives include: • Collocating recycle bins next to trash bins throughout the headquarters campus so that all staff are able to make routine recycling a part of their daily activities • Instituting a composting program in the headquarters food service operations that serves over 800 people per day Millions of pounds of recyclable materials have been diverted away from local landfills, saving hundreds of thousands of dollars in operating costs across the company and reducing our impact on the environment. Each manufacturing site has specific programs in place to achieve these objectives, and each of us has a role to play in the process.

In Milpitas, the waste target is to achieve an 81 percent diversion rate of waste away from the landfill.

Singapore has a diversion rate target set at 75 percent.

Israel has a target of reducing the volume of waste by 50 percent by implementing compaction of waste.

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2014 goal

80%

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KLA Tencor CSR 2014

Biodiversity + Environmental Grievance Process and Issues Management + A Global Perspective on “Green” Initiatives

Biodiversity KLA-Tencor has not identified sensitive biodiversity areas within or adjacent to any of our facilities.

Environmental Grievance Process and Issues Management KLA-Tencor has established an open third-party reporting system through the EthicsPoint Portal, which allows anyone (whether employees, customers, suppliers, community members or other stakeholders) to report their concerns, with assurance that the issues will be reviewed by appropriate KLA-Tencor staff. People can voice their concerns online or by toll-free phone number and can even register anonymous concerns if they prefer.

KLA-Tencor takes all inputs seriously and has a structured process for investigating, reviewing and resolving issues that are reported.

A Global Perspective on “Green” Initiatives As a global company, KLA-Tencor is committed to working closely with our partners and employees in all of the countries where we manufacture and sell our products to ensure that the innovations and environmental best practices developed in any of our locations can be leveraged throughout the organization.

In addition, we proactively share ideas and green innovations within our supplier ecosystem in order to help raise the level of environmental performance across the whole spectrum of our business activities. KLA-Tencor expects suppliers to comply with standards and best practices to ensure compliance by (1) promoting standards within their companies, (2) implementing supporting business processes, (3) self-certifying, measuring, auditing and reporting performance against those standards, (4) appropriately training their employees and (5) requiring the same standards of their suppliers.

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KLA Tencor CSR 2014

Supply Chain Environmental and Social Responsibility Management

KLA-Tencor Supply Chain

Supply Chain Environmental and Social Responsibility Management

Vertical Intergration & Strategic Alliances

Green Intelligent Management

KLA-Tencor is committed to ensuring that the companies in our supply chain also reflect our values by providing safe work environments, exercising good labor practices, using environmentallyresponsible manufacturing processes, and striving to reduce the overall environmental impacts of their operations.

We use a structured multi-step process and work closely with suppliers to achieve these goals. Quarterly business reviews are conducted with key suppliers in which their environmental and social responsibility programs are an integral part of the review. In addition, we have instituted a self-assessment process for suppliers that helps them understand their own compliance levels and identify issues. The suppliers’ selfassessments then provide a baseline for on-site follow-up assessments by KLA-Tencor staff.

KLA-Tencor has adopted the Supply Chain Code of Conduct guidelines as defined by the Electronics Industry Citizenship Coalition (EICC). The EICC is a collaborative effort by the world’s leading electronics companies, working together to improve efficiency and social, ethical and environmental responsibility in our global supply chains.

In accordance with EICC guidelines, KLA-Tencor has established a comprehensive set of audit and compliance processes for our entire supply chain, including the following: • Key suppliers for each KLA-Tencor plant are required to complete a structured self-assessment each calendar year • Based on these assessments, suppliers are assigned to risk categories.

• Detailed third-party Validated Audit Process assessments are required each year of those suppliers in the high risk category • Additional audits will be considered for up to 10 percent of the supply base in order to assist suppliers in proactively identifying and correcting potential issues The above process has identified suppliers that fall within the audit criteria, and the evaluations are underway.

We expect to include summary results and any resultant action plans in our Corporate Responsibility Report for calendar year 2014.

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$

Consolidated Purchasing

Global Logistics

In order to produce environmentally sound products, a companywide approach to environmental management is of key importance.

A critical component of the standard purchase agreement we put in place with our suppliers is that they establish environmental policies and ensure monitoring, controlling and proper treatment of energy consumption, air emissions, waste, wastewater, hazardous substances and chemicals generated from operations.

This helps give us increased visibility and authority regarding the environmental activities at the facilities where items are made for us.

KLA-Tencor’s standard purchase agreements include a section on “Environmental, Health, Safety and Corporate Social Responsibility.”

Under that provision, suppliers are required to have appropriate certifications, including ISO 14001; maintain standard operating procedures for Environmental, Health and Safety (EHS) guidelines; and comply with RoHS, REACH and other environmental and safety laws, regulations and requirements.

Details on KLA-Tencor supply chain regulatory requirements can be found on the web at: http://www.kla-tencor.com/company/ supply-chain-product-regulatorycompliance.html

UPDATED

KLA-Tencor requires that our suppliers provide a safe workplace environment for their employees and properly manage their labor practices in an ethical manner.

Just as we set high standards for our own employment practices, we expect all suppliers to treat their workers with dignity, respect and fairness. To assure effective management of labor practices and workplace safety, we require our suppliers to have in place policies, risk assessments, improvement programs, procedures and management reviews, that define their standards, identify concerns and take corrective actions on an ongoing basis.

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KLA Tencor CSR 2014

Social Concerns, Programs and Initiatives

Social Concerns, Programs and Initiatives Corporate Governance An intrinsic element to corporate social responsibility and meeting the expectations of all our stakeholders is KLA-Tencor’s commitment to proper governance and compliance with applicable regulations, standards and mandates. In order to maximize corporate value and enhance stockholder satisfaction, KLA-Tencor has established governance policies and structures that encompass the following principles: • Ensure the transparency and soundness of business operations • Facilitate quick decision-making and efficient execution of business activities • Disclose information in a timely and suitable manner

Board of Directors KLA-Tencor is governed by a Board of Directors established in accordance with applicable laws and the company’s Corporate Governance Standards. The Board has three standing committees: (1) the Audit Committee, (2) the Compensation Committee and (3) the Nominating and Governance Committee. The Board has determined that each of the members of each of the Committees has no material relationship with KLA-Tencor (including any relationship that, in the opinion of the Board, would interfere with the exercise of independent judgment as a Director) and is independent within the meaning of the NASDAQ Stock Market director independence standards.

Code of Conduct At KLA-Tencor, we are committed to conducting business in compliance with all applicable standards, laws and regulations. Although laws and customs vary from country to country and standards of ethics may vary in different business environments, the fundamental principles of honesty and integrity serve as the cornerstones of KLA-Tencor’s Values in Action. By holding ourselves, and each other, to a higher set of values, we place our values in action by asking questions, seeking guidance, reporting suspected violations and expressing our concerns when it is our duty to do so.

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KLA-Tencor Volunteers at Northern California Special Olympics Spring Games 2014.

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KLA Tencor CSR 2014

Social Concerns, Programs and Initiatives Compliance & Internal Controls KLA-Tencor requires that all transactions are properly recorded in accordance with our accounting policies and to comply with U.S. Generally Accepted Accounting Principles (GAAP) and applicable laws and regulations.

Management maintains a system of internal accounting controls meant to preserve integrity and objectivity.

These controls are designed to provide assurance that KLA-Tencor’s assets are properly safeguarded, transactions are executed and reported in accordance with management’s authorization and the books and records of KLATencor accurately reflect all transactions. The internal control system is augmented by a program of written policies and procedures, management reviews and training of qualified personnel.

Social Concerns, Programs and Initiatives

With regard to compliance with the U.S. Foreign Corrupt Practices Act (FCPA), our policy is: No company officer, employee or agent has authority to offer, promise, make or facilitate the making of payments to a foreign official to induce that official to affect any government act or decision in a manner that will assist KLA-Tencor Corporation or any of its affiliates, subsidiaries or divisions to obtain or retain business or any advantage. Furthermore, every officer, employee and agent is obligated by company policy and federal law to keep books, records, and accounts that accurately and fairly reflect all transactions and disposition of company assets.

Detailed guidelines for understanding the applicable laws and how they apply to real world situations, as well as rules for how to handle and report any questionable situations, are made available to at-risk employees (sales, finance, etc.) through both written documentation and web-based training. In addition to English, our detailed anti-corruption policy has been translated into seven other languages (Simplified Chinese, Traditional Chinese, French, German, Hebrew, Japanese and Korean).

KLA-Tencor is committed to strict compliance with the tax laws issued by the U.S. federal and applicable state governments as well as any foreign authorities. These laws may require the reporting of financial information, payment of taxes, filing of tax returns and withholding or collecting of necessary taxes on behalf of the workforce.

Anti-Corruption Commitment KLA-Tencor is committed to maintaining the highest level of integrity everywhere we do business. Our reputation for honesty, integrity and fair dealing is paramount and unwavering.

Our corporate policy is to always prohibit improper or unethical payments to anyone (including government officials) anywhere in the world. We have a ZERO tolerance policy in this area.

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KLA Tencor CSR 2014

Social Concerns, Programs and Initiatives Standards of Business Conduct (SOBC) Training Program KLA-Tencor also emphasizes the importance of understanding and avoiding anti-corruption and anti-competitive behaviors as part our Values in Action and provides detailed information, examples and FAQs as part of our Standards of Business Conduct (SOBC) web-based training program.

All employees are required to take the SOBC training as part of their new-hire orientation process, and existing employees are required to acknowledge the terms of the SOBC as part of their annual performance review process.

Social Concerns, Programs and Initiatives

Labor Practices, Employment and Equal Opportunity KLA-Tencor values a diverse workforce and fosters an environment of understanding and challenge built on global culture, skills and knowledge. Although technology is constantly changing, KLA-Tencor’s core values and employee focus are what sustain our ongoing market leadership and technology innovation. Our talented employees are the driving factor behind our technology, and we offer extremely competitive compensation and rewards packages to incentivize our employees to perform at a high level of excellence. We acknowledge and reward our people for their work through our compensation, benefits, and recognition programs.

The Total Rewards package for U.S. employees includes: • Competitive pay, bonus and other incentive programs • Medical, dental and vision care for our employees and their families • Other benefits including flexible spending accounts and life, disability, and travel insurance • An employee stock purchase program through which employees can purchase KLA-Tencor • • • •

securities at a discount A 401(k) retirement plan that includes a matching contribution by KLA-Tencor Paid holidays and personal time off An employee assistance program complete with five free counseling sessions Award-winning training and development program, tuition reimbursement and service awards

Most of these Total Reward programs are available for KLA-Tencor employees around the world, with appropriate variations by country.

KLA-Tencor is an equal-opportunity employer and has strict rules against any form of unlawful discrimination, including unlawful harassment. These equal-opportunity rules apply broadly to key employment areas including:

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Recruitment

Hiring

Training

Disciplining

Compensation

Promotions

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KLA Tencor CSR 2014

Social Concerns, Programs and Initiatives

Social Concerns, Programs and Initiatives

Staying Healthy

Think

Work

Love

Positively

Passionately

Yourself

Exercise

Stay

Play

Daily

Inspired

More

Eat

Worry

Be

Well

Less

Happy

Health and Wellness Initiatives A variety of programs are offered throughout the year in support of the company’s wellness initiatives, including health risk assessments, health and wellness seminars, on-site sand volleyball, basketball and a fully equipped gym facility in Milpitas, Calif., with gym reimbursement available for all other U.S. locations. Our Milpitas headquarters facility has been honored by the Silicon Valley Business Journal as one of the Bay Area’s Healthiest Employers, placing second on the overall list.

The company’s OSHA reportable statistics are as follows: • IIR- njury/Illness Rate (a mathematical calculation that describes the number of recordable incidents per 100 full-time employees in any given time frame).

• LWDR- Lost Work Day Rate (a mathematical calculation that describes the number of recordable incidents per 100 full-time employees in any given time frame) • DART- Days Away or Restricted/Transferred- (a mathematical calculation that describes the number of recordable incidents per 100 full-time employees that resulted in lost or restricted days or job transfer due to work-related injuries or illnesses).

• XMOD- Experience Modifier- (a calculated rate resulting from the statistical comparison of a business’ Workers’ Compensation loss history to the average loss history of similar size business operations in California. The XMOD is calculated by the Workers’ Compensation Insurance Rating Bureau of California (WCIRB)).

Maintaining a Safe Work Environment We’re also very proud of our continuing excellent record of safety performance, which is a tribute to our employees’ efforts, with the support of our proactive training programs and safety policy management.

With the benefit of a full-time ergonomist on staff to optimize safety and human engineering practices for our products, we also leverage that in-house capability to assure safe, user-friendly work methods for our own employees.

KLA-Tencor strives for a Zero-Accident workplace and manages these efforts through a global injury and illness prevention program based on risk and hazard assessments and continuously improving loss control measures.

CA only Fatalities Recordable injuries Lost Work Day Cases Lost Work Days

2009

2010

2011

2012

2013

2014 goal (maximum)

0

0

0

0

0

0

0

29

14

21

10

17

11

10

9

2

7

6

10

4

3

298

49

218

394

616

153

125

IIR

1.1

0.7

1.0

0.5

0.7

0.5

0.45

LWDR

0.4

0.1

0.3

0.3

0.4

0.2

0

DART

0.4

0.1

0.3

0.3

0.4

0.2

0.2

XMOD

0.39

0.38

0.41

0.49

0.49

0.5

0.5

0

0

0

0

0

0

0

OSHA Citations

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2008

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KLA Tencor CSR 2014

Social Concerns, Programs and Initiatives Training and Professional Development The award-winning KLA-Tencor Corporate Learning Center offers professional development and leadership classes around the globe, plus customized advanced engineering degree and certification programs from Stanford University, San Jose State University and the University of Michigan.

Our vision is to be a Knowledge Management organization. We strive to provide access to learning and knowledge that enable all employees to not only be productive but to advance their careers. In 2008, KLATencor was inducted into Training magazine’s Top 10 Hall of Fame and is ranked in the top 10 of Training’s annual Top 125 companies list. KLA-Tencor has been regularly cited as a company at the forefront of merging technology and education.

Human Rights Commitment KLA-Tencor is committed to upholding the human rights and dignity of all people, including those within our employee groups, supply chains and partner organizations.

In addition, KLA-Tencor believes that any activities that fuel conflict, violate human rights or lead to serious environmental degradation are unacceptable. We want to ensure that all materials used in our products come from socially and environmentally responsible sources. The issue is currently especially acute with regard to socalled “conflict minerals” from the Democratic Republic of Congo and adjoining countries.

Even though KLA-Tencor does not source or buy metals directly, we are very concerned about the potential link between mining and the conflict in the Democratic Republic of Congo and adjoining nations. We are appalled by the reports from the conflict areas and strictly condemn all activities that fuel conflict or benefit militant groups. We require high ethical standards in our own operations and our supply chain and take continuous action to ensure that metals from the conflict areas that fund the conflict in those regions do not enter our supply chain. KLA-Tencor has actively worked independently and with suppliers, industry peers and other stakeholders to improve traceability and ensure responsible sourcing. We are now participants in the EICC-GeSI Conflict-Free Sourcing Initiative and work to identify smelters in our supply chain with the EICC-GeSI reporting template.

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Social Concerns, Programs and Initiatives

Main Conflict Mineral Origins

Establishing a Strong Company Management System to Keep Our Supply Chain Safe

Identify & Assess Risk-nodes 2 3 01 - Democratic Republic of Congo 02 - Sudan 03 - Central Africa Republic 04 - Congo Republic 05 - Angola 06 - Zambia 07 - Burundi 08 - Rwanda 09 - Uganda 10 - Tanzania

9

4

1

8 7

Report Regularly

Design & Implement Solutions

10

5 6

Audit Vendor’s Due Dilligence Practices

Grievance Processes and Employee Communication KLA-Tencor provides several channels and options for employees to file grievances or to report concerns such as unlawful discrimination, safety issues or potential ethics problems. Employees can contact their manager or others in their management chain or they can contact the Human Resources Department directly. They also have the option of reporting issues through our third-party channel at EthicsPoint that assures the concern will get to the appropriate management authority. Additionally, we provide the option for issues to be reported anonymously, where permitted by local law.

KLA-Tencor also has a strict nonretaliation policy that protects employees who file grievances or report issues from being subjected to any form of retribution or retaliation.

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KLA Tencor CSR 2014

Community Programs and Initiatives

Community Programs and Initiatives

Guiding Principles • Focus on organizational process improvements • Foster collaboration with service delivery organizations and with other funders • Be open to new ideas and untested efforts, as well as support programs that have demonstrated positive results and impact • Establish expectations for sustainability, significance, lasting value and positive impact

The Four KLA-Tencor Foundation Programs The KLA-Tencor Foundation and KLA-Tencor employees support community initiatives worldwide through four programs: cash grants, in-kind donations, volunteer time and matching gifts.

Community Programs and Initiatives KLA-Tencor believes in working collaboratively with, through and for our employees in order to benefit our communities and target our resources toward meaningful causes that can truly make a difference. Giving back is not just a matter of money. At KLA-Tencor it also means fostering and supporting the personal involvement of employees and management at every level to leverage their talents, interests and commitment for the good of our extended communities.

In conjunction with matching gift donations from the KLA-Tencor Foundation (see following section), employee groups participate in a wide range of charitable and local community focused events. Some examples include: Habitat for Humanity, Special Olympics, Tour de Cure, UNICEF, YMCA Camp Campbell, National Multiple Sclerosis Society, and many more.

We believe that a primary guiding light for KLA-Tencor corporate giving efforts should always come from the passions, vision and commitment of our employees.

KLA-Tencor Foundation Philosophy: KLA-Tencor Corporation established the KLA-Tencor Foundation to focus more closely on the needs of the communities where our employees and their families live and work. This approach to management of charitable giving allows the KLA-Tencor Foundation to target organizations in which we are personally involved and which seek to improve the communities in which we live and do business. The KLA-Tencor Foundation encourages all KLA-Tencor employees to share their time, talents and resources with organizations and programs that make a difference in their local communities.

Mission: The mission of the KLA-Tencor Foundation is to positively impact the communities in which we live and do business. The KLA-Tencor Foundation carries out this mission by building relationships with education, health and wellness, and social service providers inspiring individual philanthropy and establishing and maintaining support programs.

Targets: The KLA-Tencor Foundation seeks to support educational programs and institutions (with an emphasis on STEM - Science, Technology, Engineering and Math), health and wellness programs and providers, and local community human needs organizations.

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Cash Grants The KLA-Tencor Foundation grant program invests in creative ideas that support educational programs and institutions (with an emphasis on STEM ), health and wellness programs and providers, and local community human needs organizations. The KLA-Tencor Foundation strives to make a positive and lasting impact on people’s lives and encourage others to take action as well. The KLA-Tencor Foundation provides grants in locations where we have significant employee populations. Requests can be submitted through http://ktfoundation. versaic.com. All other inquiries regarding the grant program should be sent via email to foundation@kla-tencor.com.

In-kind Donations KLA-Tencor periodically donates excess furniture/fixtures and spare computer and IT equipment to the KLATencor Foundation, which in turn donates these materials to organizations around the world. All inquiries regarding the in-kind donation program should be emailed to foundation@kla-tencor.com.

Volunteer Time KLA-Tencor encourages its employees to participate in volunteer activities that make a positive impact in their local communities and community non-profit organizations by donating their time.

Matching Gifts The KLA-Tencor Foundation has a matching gift program that encourages good citizenship on the part of KLATencor employees to support charitable, cultural and civic programs that benefit local communities. Participating organizations must be 501(c)(3) tax exempt (or international equivalent) and have been approved by the KLATencor Foundation.

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KLA Tencor CSR 2014

Product Responsibility

Product Responsibility

250 200

System Solutions that Mitigate the Semiconductor Industry’s Environmental Impacts At KLA-Tencor our very reason for existing helps to offset the environmental impacts from one of the world’s largest and fastest growing industries. As a leading provider of process control and yield management solutions for the semiconductor, data storage, LED and other related nanoelectronics industries, our products are designed with an eye toward the current and future challenges not only of technology, but also environmental, health and safety regulations.

Our design teams are trained in a full complement of regulatory and compliance-related subjects that address these requirements. Some of the standards include: SEMI S23 (Guide for Conservation of Energy, Utilities, and Materials used by Semiconductor Manufacturing Equipment), RoHS (Restriction of the use of certain hazardous substances in electrical and electronic equipment), WEEE (Waste Electrical and Electronic Equipment) and many more.

KLA-Tencor is proud to provide products to our industry that help our customers achieve their environmental targets by increasing yield and thereby reducing usage of raw materials, energy, water and other resources.

For example, in a typical high volume manufacturing fab, the implementation of process control tools and sampling methods that result in faster learning cycles can save roughly 250 million liters of water, 37 million kWh of energy and 600,000 kg of waste over an 18-month period from implementation. community human needs organizations (see figure on the right).

Conversely, by not implementing better process control solutions, the yield learning cycle is slower, and the extra resources consumed will need to be disposed of properly and are likely to negatively impact a fab’s environmental performance. At KLA-Tencor we believe strongly in helping our customers proactively mitigate their environmental impact by improving their manufacturing processes, thereby minimizing the need for postprocess secondary mitigation measures.

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150 100 50 0

0

1

2 3 4 5 6 Cumulative Water Savings (Millions of Litres)

7

8

9

10 11 12 13 14 15 Water Savings/Month (Millions of Litres)

16

17

18

Products Designed for Energy Efficiency, Productivity and Safety In all of our product designs, KLA-Tencor works toward providing improvements in energy efficiency, with consideration to the SEMI S23 industry standard as well as customer performance requirements.

KLA-Tencor routinely has its products assessed for potential health and safety impacts using applicable standards and regulations, which typically include the industry’s SEMI S2 and SEMI S8 standards, the United States FDA Laser standard, and the European Machinery Directive. Identifying and resolving any health and safety impacts are also a key part of the numerous ad hoc design reviews that occur throughout the product development process.

KLA-Tencor has not identified any current issues of non-compliance with the health and safety impacts of our products nor any significant fines or sanctions concerning the provision of our products.

At KLA-Tencor, we pride ourselves on delivering leading-edge technology solutions that help fuel the efficiency, productivity and continued growth of the $300+ billion global semiconductor industry as well as the over $1.6 trillion end-product markets that are key drivers of the global economy.

At the same time, we are extremely proud of our commitment to responsible use of resources, promoting dignity and personal fulfillment throughout our workforce, adhering to the highest ethical standards in all of our business dealings, and respecting the importance of our role as a corporate citizen that leads by example in social responsibility and sustainable business practices.

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KLA Tencor CSR 2014

Appendix A – References and Documentation Sources

Appendixes

GRI Disclosure Reference Number & Topic

Page Reference in this

Planned for 2014

Report

Report

G4-1 – G4-2 Strategy and Analysis

Pg. 2-3

G4-3 – G4-9 Organizational Profile

Pg. 3-5

G4-10 – G4-11 Organizational Profile (employee statistics) G4-12 Supply Chain Description

1. KLA-Tencor company web site: www.kla-tencor.com 2. Company factsheet: http://kla-tencor.com/company/fact-sheet.html 3. Annual Reports: http://ir.kla-tencor.com/annuals.cfm

7. KLA-Tencor Supplier Regulatory Compliance Requirements: http://www.kla-tencor.com/company/supply-chain-productregulatory-compliance.html

G4-13 Changes during reporting period

5. EthicsPoint (Tip Hotline) https://secure.ethicspoint.com/domain/media/en/gui/22073/ index.html

9. Conflict-Free Sourcing Initiative: http://www.conflictfreesourcing.org 10. Electronics Industry Citizenship Coalition: http://www.eicc.info 11. KLA-Tencor Foundation: http://www.kla-tencor.com/foundation/overview.html

6. KLA-Tencor Product List: http://www.kla-tencor.com/pt/a-to-z-product-glossary.html

Pg. 5 X

G4-17 – G4-23 Material Aspects and Boundaries

X

G4-23 – G4-27 Stakeholder Engagement

X

G4-28 – G4-32 Report Profile and Content Index

Pg. 1, 2, 3, & 23 Pg 14

G4-36- G4-55 Governance Detail, Roles, etc.

G4-56 – G4-58 Ethics and Integrity G4-EC1, EC7, EC8 Economic Impacts – Direct and Indirect

X Pg. 14 - 15 Pg 6

G4-EC2-EC6, EC9 Economic Impacts (detail) G4-EN1 – EN2 Environmental – Materials

4. KLA-Tencor Standards of Business Conduct http://www.kla-tencor.com/company/supply-chain-socialenvironment-and-regulatory-responsibility.html

Pg. 12

G4-14 – G4-16 External Initiatives

G4-34 – G4-35 Corporate Governance

8. Supply Chain Human Rights Policy: http://www.kla-tencor.com/company/supply-chain-human-rightspolicy.html

X

G4-EN3 – G4-EN6 Environmental – Energy G4-EN8 – EN10 Environmental – Water

X Pg. 7 Pg. 8-9 Pg. 9-10

G4-EN11-EN14 Environmental – Biodiversity

Pg.11

G4-EN15 – EN17 Environmental – Emissions

Pg. 10

G4-EN18 – EN21 Environmental – Emissions (detail) G4-EN22 – EN26 Environmental – Effluents and Waste G4-EN27 – EN28 Environmental – Products & Packaging

X Pg.11 Pg. 7-8

G4-EN29 – Environmental – Compliance Issues (detail) G4-EN30 – Environmental – Transport

X Pg. 8

G4-EN32 – EN33 Environmental – Supplier Assessment

Pg. 12

G4-EN34 – Environmental Grievance Process

Pg. 11

G4-LA – Labor Practices, Employment, Equal Opportunity Overview

Pg. 16

G4-LA1- LA4 – Labor & Employment (detail statistics) G4-LA5 – LA8 – Occupational Health and Safety

X Pg.17

G4-LA9 – LA10 – Training and Education

Pg.17

G4-LA12 – Diversity and Equal Opportunity

Pg. 16

G4-LA13 – Equal Remuneration G$-LA16 – Grievance Mechanisms

Appendix B – Summary of Disclosures per GRI G4 Guidelines

X Pg. 18

G4-LA – Detailed Statistics – Diversity, Training, etc.

G4-HR – Human Rights (overview)

X Pg.17

G4-HR1-HR12 – Human Rights (detailed statistics)

X

G4-SO3 – Society – Anti-corruption

Pg. 15

G4-SO1 – Society – Local Community Involvement

Pg. 18

G4-SO9 – Society – Supplier Impacts Assessment

Pg. 12

G4-SO – Society – (detailed statistics) G4-PR1 – PR9 – Product Responsibility G4-PR – Product Responsibility (detailed statistics)

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X Pg.20 X

Page 45

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