KLA (KLAC) 10-K risk factor changes: FY2019 vs FY2018

The [removed: semiconductor equipment industry and other] industries that we [removed: serve] [added: serve, including the semiconductor, flat panel display and printed circuit board industries,] are constantly developing and changing over time.

In addition, we face a number of risks specific to ongoing changes in the semiconductor industry, as [removed: the] significant majority of our sales are [removed: made] [added: our process control and yield management products sold] to semiconductor manufacturers.

| • | the increasing cost of building and operating fabrication facilities and the impact of such increases on our customers’ [added: capital equipment] investment decisions; |

| • | In a highly concentrated business environment, if a particular customer does not place an order, or if they delay or cancel orders, we may not be able to replace the business. Furthermore, because our [added: process control and yield management] products are configured to each customer’s specifications, any changes, delays or cancellations of orders may result in significant, non-recoverable costs. |

The purchasing decisions of our customers are highly dependent on the economies of both the local markets in which they are located and the [removed: semiconductor] [added: condition of the] industry worldwide.

The timing, length and severity of the up-and-down cycles in the [removed: semiconductor equipment industry] [added: industries in which we serve] are difficult to predict.

The historically cyclical nature of the [removed: primary] [added: semiconductor] industry in which we [added: primarily] operate is largely a function of our customers’ capital spending patterns and need for expanded manufacturing capacity, which in turn are affected by factors such as capacity utilization, consumer demand for products, inventory levels and our customers’ access to capital.

Success in the [removed: semiconductor equipment industry] [added: industries in which we serve, including the semiconductor, flat panel display and printed circuit board industries] depends, in part, on continual improvement of existing technologies and rapid innovation of new solutions.

Other companies and individuals, including our larger competitors, may develop technologies and obtain patents relating to our business that are similar or superior to our technology or may design around the patents we own, [added: which may] adversely [removed: affecting] [added: affect] our business.

In addition, we face competition from smaller emerging [removed: semiconductor equipment] companies whose strategy is to provide a portion of the products and services that we offer, using innovative technology to sell products into specialized markets.

In addition, if certain of our key suppliers experience liquidity issues and are forced to discontinue operations, which is a heightened risk [added: especially] during economic downturns, it could affect their ability to deliver parts and could result in delays for our products.

As of June 30, [removed: 2018,] [added: 2019,] we had [removed: $2.25] [added: $3.45] billion aggregate principal amount of senior, unsecured long-term notes.

Additionally, we have commitments for an unfunded [removed: revolving credit facility] [added: Revolving Credit Facility] of [removed: $750.0 million] [added: $1.00 billion] under the Credit Agreement.

Factors that can affect our credit rating include changes in our operating performance, the economic environment, conditions in the [removed: semiconductor and semiconductor equipment industries,] [added: industries we serve,] our financial position, including the incurrence of additional indebtedness, and our business strategy.

Additionally, under our Revolving Credit Facility, we are required to comply with affirmative and negative covenants, which include the maintenance of certain financial ratios, the details of which can be found in Note [removed: 7,] [added: 8,] “Debt,” to our [removed: consolidated financial statements.][added: Consolidated Financial Statements.]

| • | obligations to comply with restrictive and financial covenants as noted in the above risk factor and Note [removed: 7,] [added: 8,] “Debt,” to our [removed: consolidated financial statements.] [added: Consolidated Financial Statements.] |

If our future operations do not generate sufficient cash flows, we may need to access [removed: the unfunded portion of] [added: money available for borrowing under] our Revolving Credit Facility [removed: of $750.0 million] or enter into new financing arrangements to obtain necessary funds.

Any [removed: additional borrowing] [added: borrowings] under our [removed: revolving credit facility] [added: Revolving Credit Facility] will place further pressure on us to comply with the financial covenants.

Until the earnings process is complete, our estimates could differ in comparison to [removed: actuals.][added: actual results.]

Historically, we [added: have] recorded material restructuring charges related to our prior global workforce reductions, large excess inventory write-offs, and material impairment charges related to our goodwill and purchased intangible assets.

In the past, we [added: have] recorded [removed: a] material [removed: charge] [added: charges] related to the impairment of our goodwill and purchased intangible assets.

[removed: The markets] [added: Demand] for [removed: semiconductors, and therefore] our [removed: business, are] [added: products is] ultimately driven by the global demand for electronic devices by consumers and businesses.

| • | exposure to the unique characteristics of each region in the global [removed: semiconductor] market, which can cause capital equipment investment patterns to vary significantly from period to period; |

[removed: | • |] [added: In addition,] government controls, either by the United States or other countries, that restrict our business overseas or the import or export of [removed: semiconductor] [added: our] products or increase the cost of our [removed: operations; |][added: operations through the imposition of tariffs or otherwise, could harm our business.]

As is typical in the [removed: semiconductor equipment industry,] [added: industries in which we serve,] 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.

However, [removed: we cannot ensure] [added: there can be no assurance] that licenses can be obtained or, if obtained, will be on acceptable terms or that costly litigation or other administrative proceedings will not occur.

Any of such occurrences could result in disruptions to our operations; misappropriation, corruption or theft of confidential information, including intellectual property and other critical data, of [removed: KLA-Tencor,] [added: KLA,] our customers and other business partners; misappropriation of funds and company assets; reduced value of our investments in research, development and engineering; litigation with, or payment of damages to, third parties; reputational damage; costs to comply with regulatory inquiries or actions; data privacy issues; costs to rebuild our internal information systems; and increased cybersecurity protection and remediation costs.

If we are unable to successfully integrate and manage acquired [removed: businesses] [added: businesses, if the costs associated with integrating the acquired business exceeds our expectations,] or if acquired businesses perform poorly, then our business and financial results may suffer.

As a result, risks associated with acquisition transactions may [removed: give rise] [added: lead] to a material adverse effect on our business and financial results for a number of reasons, including:

| • | the combination of businesses may [removed: cause] [added: result in] the loss of key personnel or an interruption of, or loss of momentum in, the activities of our company and/or the acquired business; |

We have significant manufacturing operations in the United States, Singapore, Israel, [removed: Germany] [added: Germany, United Kingdom, Italy,] and China.

We cannot [removed: ensure] [added: provide any assurance] that alternate means of conducting our operations (whether through alternate production capacity or service providers or otherwise) would be available if a major disruption were to occur or that, if such alternate means were available, they could be obtained on favorable terms.

Any act of terrorism or war that affects the economy or the [removed: semiconductor industry] [added: industries we serve] could adversely affect our business.

[removed: Such instability] [added: Instability in any region] could directly impact our ability to operate our business (or our customers’ ability to operate their [removed: businesses) in the affected region,] [added: businesses),] cause us to incur increased costs in transportation, make such transportation unreliable, increase our insurance costs, and cause international currency markets to fluctuate.

[removed: Such instability] [added: Instability in the region] could also have the same effects on our suppliers and their ability to timely deliver their products.

We have some exposure to fluctuations in foreign currency exchange rates, primarily the Japanese [removed: Yen] [added: Yen, the euro, the pound sterling] and the [removed: euro.][added: Israeli new shekel.]

The trading price of our common stock could continue to be highly volatile and fluctuate widely in response to various factors, including without limitation conditions in the semiconductor industry and other industries in which we operate, fluctuations in the global economy or capital markets, our operating results or other performance metrics, [removed: any perception that we might be unable to complete the merger with Orbotech, material delays in our ability to complete the merger with Orbotech,] or adverse consequences experienced by us as a result of any of the risks described elsewhere in this Item 1A.

A number of factors may adversely impact our future effective tax rates, such as the jurisdictions in which our profits are determined to be earned and taxed; changes in the tax rates imposed by those jurisdictions; expiration of tax holidays in certain jurisdictions that are not renewed; the resolution of issues arising from tax audits with various tax authorities; changes in the valuation of our deferred tax assets and liabilities; adjustments to estimated taxes upon finalization of various tax returns; increases in expenses not deductible for tax purposes, including write-offs of acquired in-process research and development and impairment of goodwill in connection with acquisitions; changes in available tax credits; changes in stock-based compensation expense; changes in tax laws or the interpretation of such tax laws; changes in generally accepted accounting principles; and the repatriation of earnings from outside the [removed: United States] [added: U.S.] for which we have not previously provided for [removed: United States] [added: U.S.] taxes.

[removed: Also,] [added: However,] the recent U.S. tax law changes are subject to [removed: further interpretations] [added: future guidance] from [removed: the] U.S. federal and state [removed: governments and regulatory organizations,] [added: governments,] such as [added: the] Treasury Department and/or [removed: IRS and this could change] the [removed: provisional tax liability or the accounting treatment of the provisional tax liability based on updated guidance and interpretations.][added: IRS.]

A significant portion of the [removed: additional provisions for] income taxes [removed: we have made] due to the enactment of the Act is payable by us over a period of [removed: up to] eight years.

We operate in industries that have historically been cyclical, including the semiconductor industry.

We have a leveraged capital structure.

For example, effective on October 30, 2018, the United States Department of Commerce added Fujian Jinhua Integrated Circuit Company, Ltd. (“JHICC”) to its entity list, restricting exports of technology to JHICC without a license.

As a result, unless JHICC is subsequently removed from the entity list, we will be unable to fulfill orders JHICC has made for our products, accept future orders placed by JHICC for our products, and provide services for any of our products already installed at JHICC.

As part of this effort, in February 2019, we announced that we had consummated our acquisition of Orbotech.

| • | we may have difficulty implementing a cohesive framework of internal controls over the entire organization; |

We maintain significant operations in Israel.

Since the establishment of the State of Israel in 1948, a number of armed conflicts have taken place between Israel and its Arab neighbors, and a state of hostility varying in degree and intensity, has led to security and economic challenges for Israel.

In addition, some our employees in Israel are obligated to perform annual reserve duty in the Israel Defense Forces, and may be called to active military duty in emergency circumstances.

We cannot assess the impact that emergency conditions in Israel in the future may have on our business, operations, financial condition or results of operations, but it could be material.

In addition to and in connection with the Israel Tax Authority (“ITA”) Assessment described in more detail in Note 13, “Income Taxes” to our Consolidated Financial Statements, there is an ongoing criminal investigation against our Orbotech subsidiary, certain of its employees and its tax consultant that began prior to the Acquisition Date.

We can make no assurances that an indictment will not result from the criminal investigation.

As of December 31, 2018, we have completed our accounting for the tax effects of the Act, which was enacted into law on December 22, 2017.

Any future guidance can change our tax liability.

| | |

| --- | --- |

The semiconductor equipment industry has been cyclical.

Our capital structure is highly leveraged.

As part of this effort, in March 2018, we announced that we had entered into a definitive agreement to acquire Orbotech.

We maintain significant manufacturing and research and development operations in Israel, an area that has historically experienced a high degree of political instability, and we are therefore exposed to risks associated with future instability in that region.

For example, as a consequence of the newly enacted Tax Cuts and Jobs Act (“the Act”), foreign earnings are now deemed to be repatriated, which resulted in a higher effective tax rate for the Company’s fiscal year ending June 30, 2018.

To address the impact of the recent U.S. tax law changes, we recorded a provisional tax amount of $339.6 million for the transitional tax liability and recorded a provisional tax amount of $102.1 million to re-measure certain deferred tax assets and liabilities as a result of the enactment of the Act.

These provisional tax amounts recorded are based on our reasonable estimate until we fully complete our assessment and we may need additional information to complete our assessment.

We are still evaluating the tax provisions related to Global Intangible Low-Taxed Income (“GILTI”) and we have not made a policy election on how to account for the GILTI provisions of the Act as allowed by the U.S. generally accepted accounting standards.

Our selection of an accounting policy with respect to the new GILTI tax rules will depend, in part, on analyzing our global income to determine whether we expect to have future U.S. inclusions in taxable income related to GILTI and, if so, what the impact is expected to be.

Risks Related to Our Pending Acquisition of Orbotech

If we are unable to complete our contemplated acquisition of Orbotech, our expected financial results and the market value of our common stock could be adversely affected.

On March 18, 2018, we entered into a definitive agreement to acquire Orbotech.

Consummation of the acquisition is subject to customary conditions to closing, including the receipt of required regulatory approvals.

If any condition to the closing of the acquisition is not satisfied or waived, the acquisition will not be completed.

We and Orbotech also may terminate the acquisition agreement under certain circumstances.

Any or all of the preceding could jeopardize our ability to consummate the acquisition on the already negotiated terms.

To the extent the acquisition is not completed for any reason, we would have devoted substantial resources and management attention to the transaction without realizing the accompanying benefits expected by our management, and our financial condition and results of operations and the market value of our stock may be adversely affected.

Additional risks and uncertainties associated with the acquisition include:

| • | the failure to consummate the acquisition may result in negative publicity and a negative impression of us in the investment community; |

| • | we and Orbotech may be subject to additional proceedings in the future, which may effect the closing of the acquisition within the expected time frame, or at all; |

| • | required regulatory approvals from governmental entities may delay the acquisition or result in the imposition of conditions that could cause the abandonment of the acquisition; |

| • | the attention of our employees and management may be diverted due to activities related to the acquisition; and |

| • | disruptions from the acquisition, whether completed or not, may harm our relationships with our employees, customers, distributors, suppliers or other business partners. |

Even if the Orbotech acquisition is consummated, we may not be able to integrate the business of Orbotech successfully with our own or realize the anticipated benefits of the acquisition.

The acquisition involves the combination of two companies that currently operate as independent public companies.

The combined company will be required to devote significant management attention and resources to integrating our business practices with those of Orbotech.

Potential difficulties that the combined company may encounter as part of the integration process include the following:

| • | the inability to successfully combine our business with Orbotech in a manner that permits the combined company to achieve the cost synergies and other benefits anticipated to result from the acquisition; |

| • | required regulatory approvals from governmental entities may result in limitations, additional costs or placement of restrictions on the conduct of the combined company, imposition of additional material costs on or materially limiting the revenues of the combined company following the acquisition; |

| • | complexities associated with managing the combined businesses, including difficulty addressing possible differences in corporate cultures and management philosophies; and |

| • | potential unknown liabilities and unforeseen increased expenses or delays associated with the acquisition. |

In addition, we have operated and, until the completion of the acquisition will continue to operate, independently.

It is possible that the integration process could result in:

| • | diversion of the attention of our management; and |

| • | the disruption of, or the loss of momentum in, our ongoing business or inconsistencies in standards, controls, procedures or policies, |

any of which could adversely affect our ability to maintain relationships with customers, suppliers, employees and other constituencies or our ability to achieve the anticipated benefits of the acquisition, or could reduce our earnings or otherwise adversely affect the business and financial results of the combined company.

The combined company is expected to incur substantial expenses related to the acquisition of and the integration of Orbotech.

We have incurred and expect to continue to incur substantial expenses in connection with the acquisition of and the integration of Orbotech.

(See “Special Note Regarding Forward-Looking [removed: Statements.”)][added: Statements”).]

We base these estimates and assumptions on historical [removed: experience,] [added: experience] and evaluate them on an ongoing basis to ensure that they remain reasonable under current conditions.

| • | [removed: When] the customer [removed: fab] has [added: accepted the product, or whether customer acceptance is considered a formality based on history of acceptance of similar products (for example, when the customer has] previously accepted the same tool, with the same specifications, and when we can objectively demonstrate that the tool meets all of the required acceptance [removed: criteria.] [added: criteria, and when the installation of the system is deemed perfunctory).] |

In circumstances in which [removed: we recognize] revenue [added: is recognized] prior to [removed: installation,] the [added: product acceptance, the] portion of revenue associated with [removed: installation] [added: our performance obligations to install product] is deferred [removed: based on estimated fair value,] and [removed: that revenue is] recognized upon [removed: completion of the installation.][added: acceptance.]

[removed: Service and maintenance contract revenue] [added: Revenue from PCS] is [added: deferred at contract inception and] recognized ratably over the [removed: term of the maintenance contract.][added: service period, or as services are performed.]

Revenue from services performed in the absence of a maintenance contract, including [removed: consulting and] training revenue, is recognized when the related services are [removed: performed and collectibility is reasonably assured.][added: performed.]

While changes in the allocation of [removed: the estimated selling price] [added: SSP] between [removed: the accounting units] [added: performance obligations] will not affect the amount of total revenue recognized for a particular [removed: arrangement,] [added: contract,] any material changes [removed: in these allocations] could impact the timing of revenue recognition, which could have a material effect on our financial position and [removed: results] [added: result] of operations.

A majority of our accounts [removed: receivables] [added: receivable] are derived from sales to large multinational semiconductor manufacturers throughout the world.

We accrue a liability and recognize as expense the estimated costs expected to be incurred [removed: over the next twelve months] to defend or settle asserted and unasserted claims existing as of the balance sheet date.

See Note [removed: 13,] [added: 14,] “Commitments and Contingencies” and Note [removed: 14,] [added: 15,] “Litigation and Other Legal Matters” to [removed: the] [added: our] Consolidated Financial Statements for additional details.

Goodwill and [added: Purchased] Intangible Assets.

See Note [removed: 6,] [added: 7,] “Goodwill and Purchased Intangible Assets” to the Consolidated Financial Statements for additional details.

We performed our annual qualitative assessment of the goodwill by reporting unit during the [added: third quarter of the] fiscal year ended June 30, [removed: 2018] [added: 2019] and concluded that there was no impairment.

The next annual evaluation of the goodwill by reporting unit will be performed in the third quarter of the fiscal year ending June 30, [removed: 2019.][added: 2020.]

If we were to encounter challenging economic conditions, such as a decline in our operating results, an unfavorable industry or macroeconomic environment, a substantial decline in our stock price, or any other adverse change in market conditions, we may be required to perform [removed: the two-step] quantitative goodwill impairment analysis.

We applied the current interpretations from the U.S. federal and state governments and regulatory organization in [removed: our] [added: its] calculation of the transition tax [removed: liability and our reasonable estimate of the transition tax liability could change if further interpretations are provided for in the future.][added: liability.]

[removed: In addition, the] [added: The] calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax regulations.

For a description of recent accounting pronouncements, including those recently adopted and the expected dates of adoption as well as estimated effects, if any, on our [removed: consolidated financial statements] [added: Consolidated Financial Statements] of those not yet adopted, see Note 1, “Description of Business and Summary of Significant Accounting Policies” of the [removed: Notes] [added: notes] to [added: our] Consolidated Financial Statements.

[removed: KLA-Tencor Corporation is] [added: We are] a leading supplier of process control and yield management solutions for the semiconductor and related nanoelectronics industries.

As [removed: we are] a supplier to the global [removed: semiconductor and] [added: semiconductor,] semiconductor-related [added: and electronics] industries, our customer base continues to become more highly concentrated over time, thereby increasing the potential impact of a sudden change in capital spending by a major customer on our revenues and profitability.

In the global semiconductor [added: and electronics] related industries, China is emerging as a major region for manufacturing of logic and memory chips, adding to its role as the world’s largest consumer of ICs.

China is currently seen as an important long-term growth region for the semiconductor [added: and electronics] capital equipment sector.

We are also subject to the cyclical capital spending that has historically characterized the [removed: semiconductor and] [added: semiconductor,] semiconductor-related [added: and electronics] industries.

The semiconductor [removed: industry has] [added: and electronics industries have] also been characterized by constant technological innovation.

Expansion of [removed: the Internet of Things (“IoT”)] [added: IoT] together with increasing acceptance of advanced driver assistance systems (“ADAS”) in anticipation of the introduction of autonomous cars have begun to accelerate legacy-node technology conversions and capacity expansions.

The following table sets forth some of our key consolidated financial information for each of our last three fiscal [removed: years:][added: years(1):]

| (Dollar amounts in thousands, except diluted net income per share) | [removed: 2018] [added: 2019] | | | | [removed: 2017] [added: 2018] | | | | [removed: 2016] [added: 2017] | | |

| Total revenues | $ | [removed: 4,036,701] [added: 4,568,904] | | | $ | [removed: 3,480,014] [added: 4,036,701] | | | $ | [removed: 2,984,493] [added: 3,480,014] | |

| Gross margin percentage | [removed: 64] [added: 59] | | % | | [removed: 63] [added: 64] | | % | | [removed: 61] [added: 63] | | % |

| Net income [added: attributable to KLA(2)] | $ | [removed: 802,265] [added: 1,175,617] | | | $ | [removed: 926,076] [added: 802,265] | | | $ | [removed: 704,422] [added: 926,076] | |

| Diluted net income per share [added: attributable to KLA] | $ | [removed: 5.10] [added: 7.49] | | | $ | [removed: 5.88] [added: 5.10] | | | $ | [removed: 4.49] [added: 5.88] | |

Total revenues during the fiscal year ended June 30, [removed: 2018] [added: 2019] increased by [removed: 16%] [added: 13%] compared to the fiscal year ended June 30, [removed: 2017.][added: 2018.]

[removed: Our year over year revenue growth was] [added: Revenue from our Semiconductor Process Control segment increased by 16%,] primarily due to increases from sales of both our wafer inspection and patterning products as our customers continue to invest in [added: the] process control and services, and an increase in the number of post-warranty systems installed at our customers’ sites over this time [removed: period for our service revenues.][added: period.]

| (Dollar amounts in thousands) | [removed: 2018] [added: 2019] | | | | [removed: 2017] [added: 2018] | | | | [removed: 2016] [added: 2017] | | | | [removed: FY18] [added: FY19] vs. [removed: FY17] [added: FY18] | | | | | | | [removed: FY17] [added: FY18] vs. [removed: FY16] [added: FY17] | | | | | |

| Product | $ | [removed: 3,160,671] [added: 3,392,243] | | | $ | [removed: 2,703,934] [added: 3,160,671] | | | $ | [removed: 2,250,260] [added: 2,703,934] | | | $ | [removed: 456,737] [added: 231,572] | | | [removed: 17] [added: 7] | % | | $ | [removed: 453,674] [added: 456,737] | | | [removed: 20] [added: 17] | % |

| Service | [removed: 876,030] [added: 1,176,661] | | | | [removed: 776,080] [added: 876,030] | | | | [removed: 734,233] [added: 776,080] | | | | [removed: 99,950] [added: 300,631] | | | | [removed: 13] [added: 34] | % | | [removed: 41,847] [added: 99,950] | | | | [removed: 6] [added: 13] | % |

| Total revenues | $ | [removed: 4,036,701] [added: 4,568,904] | | | $ | [removed: 3,480,014] [added: 4,036,701] | | | $ | [removed: 2,984,493] [added: 3,480,014] | | | $ | [removed: 556,687] [added: 532,203] | | | [removed: 16] [added: 13] | % | | $ | [removed: 495,521] [added: 556,687] | | | [removed: 17] [added: 16] | % |

| Gross margin percentage | [removed: 64] [added: 59] | | % | | [removed: 63] [added: 64] | | % | | [removed: 61] [added: 63] | | % | | [removed: 1] [added: (5] | | [removed: %] [added: )%] | | | | | [removed: 2] [added: 1] | | % | | | |

Service revenues are generated from [added: product] maintenance [removed: contracts,] [added: and support services,] as well as billable time and material service calls made to our [removed: customers after the expiration of the warranty period.][added: customers.]

The amount of our service revenues is typically a function of the number of [removed: post-warranty] systems installed at our customers’ sites and the utilization of those systems, but it is also impacted by other factors, such as our rate of service contract renewals, the types of systems being serviced and fluctuations in foreign exchange rates.

Pursuant to the FAST Act Modernization and Simplification of Regulation S-K, discussions related to the changes in results of operations from fiscal year 2018 to fiscal year 2017 have been omitted.

Such omitted discussion can be found under Item 7 of our annual Form 10-K for the fiscal year ended June 30, 2018, filed with the SEC.

Through the acquisition of Orbotech, Ltd. (“Orbotech”), we have expanded our reach in the electronics value chain to include technologically advanced, yield-enhancing and process-enabling solutions to address various manufacturing stages of Printed Circuit Boards (“PCB”), Flat Panel Displays (“FPD”), Specialty Semiconductor Devices (“SD”) and other electronic components.

The products include Automated Optical Inspection (“AOI”), Automated Optical Shaping (“AOS”), Direct Imaging (“DI”), additive printing, laser drilling, laser plotters, Computer aided manufacturing (“CAM”) and engineering solutions for PCB and additional adjacent electronics component manufacturing, as well as AOI, test, repair and process monitoring systems for FPD manufacturing and vacuum process tools for etch, Physical Vapor Deposition (“PVD”), Molecular Vapor Deposition (“MVD”) and Chemical Vapor Deposition (“CVD”) solutions for SD manufacturing.

In our newly acquired Orbotech business, consumer end markets have been experiencing a fundamental shift in technology complexity, driven primarily by the proliferation of high-end mobile devices and automotive devices, as well as by the demand for large area FPDs such as large-size LCD televisions and OLED displays.

The shift towards 5G connectivity and the fast-paced growth of the Internet of Things (“IoT”) services is expected to continue to further accelerate this shift as more devices become connected and dependent upon other electronic devices.

Additionally, a significant portion of global FPD and PCB manufacturing has migrated to China.

Additionally, current trends in smart mobile devices, 5G connectivity, automotive electronics, smart vehicles, flexible displays, AR/VR and wearable devices, high-performance computing, large size televisions and the IoT are expected to drive the need for production, inspection, test and repair solutions that are able to address the cutting-edge technology embedded in these types of electronic products.

Our customers continuously seek to increase yields and enhance the efficiency of their manufacturing processes, including by improving their manufacturing, inspection, testing and repair capabilities.

Subsequent to the Orbotech Acquisition, we changed our organizational structure resulting in four reportable segments: Semiconductor Process Control, Specialty Semiconductor Process, PCB, Display and Component Inspection, and Other.

Prior period results have been recast to conform to the current presentation.

Our view of the current wafer fab equipment demand climate is aligned with consensus industry analyst expectations for the calendar year 2019, which reflects a decline in capital equipment spending by memory customers.

In contrast to the memory business, capital equipment spending by foundry and logic customers at the leading edge has begun to ramp up, and the momentum is expected to continue in calendar year 2019.

We have already seen our mix of business begin to shift toward increased purchases by logic and foundry customers as a percentage of total sales, and we expect spending from these customers to continue to remain strong.

Because of a more diversified semiconductor device-end demand, and disciplined capacity planning by wafer fab equipment customers, we believe the long-term growth dynamics for the industry remain strong.

While manufacturers of PCBs, FPDs, SDs and other electronic components create different products for diverse end-markets, they share similar production challenges in an increasingly competitive environment.

| Costs of revenues | $ | 1,869,377 | | | $ | 1,446,041 | | | $ | 1,286,215 | |

| (1) | On July 1, 2018, we adopted ASC 606 using the modified retrospective transition approach. Results for reporting periods beginning after June 30, 2018 are presented under ASC 606, while prior period amounts are not adjusted and continue to be reported in accordance with the previous revenue guidance in ASC 605. |

| (2) | Our net income attributable to KLA decreased to $802.3 million in the fiscal year ended June 30, 2018, primarily as a result of the income tax effects from the enacted tax reform legislation through the Tax Cuts and Jobs Act, which was signed into law on December 22, 2017. |

Our year over year revenue growth reflected strong demand in the semiconductor process control market, growth in service revenues, and additional revenues from the Orbotech business which was acquired in the fiscal year ended June 30, 2019.

Acquisition of Orbotech, Ltd.

On February 20, 2019, we completed the acquisition of Orbotech for total purchase consideration of approximately $3.26 billion.

Orbotech’s core business enables electronic device manufacturers to inspect, test and measure printed circuit boards and flat panel displays to verify their quality; pattern electronic circuitry on substrate and perform three-dimensional shaping of metalized circuits on multiple surfaces; and utilize advanced vacuum deposition and etching process in semiconductor device and semiconductor manufacturing and to perform laser drilling of electronic substrates.

For additional details on the financial statement impacts of the Orbotech acquisition, refer to Note 6 “Business Combinations” to our Consolidated Financial Statements.

In addition, our Board of Directors has authorized a share repurchase of up to $2.00 billion of our common stock, reflecting an increase from $1.00 billion upon the close of the Orbotech Acquisition.

We raised approximately $1.20 billion in new long-term debt financing to partially refinance our existing debt, to repurchase shares and for general corporate purposes.

For additional details, refer to Note 8, “Debt”, and Note 10, “Stock Repurchase Program” to our Consolidated Financial Statements.

We primarily derive revenue from the sale of process control and yield management solutions for the semiconductor and related nanoelectronics industries, maintenance and support of all these products, installation and training services and the sale of spare parts.

Our solutions provide a comprehensive portfolio of inspection, metrology and data analytics products, which are accompanied by a flexible portfolio of services to enable our customers to maintain the performance and productivity of the solutions purchased.

The acquisition of Orbotech enabled us to broaden our portfolio to include the yield enhancement and production solutions used by manufacturers of printed circuit boards, flat panel displays, advanced packaging, micro-electro-mechanical systems and other electronic components.

Our solutions are generally not sold with a right of return, nor have we experienced significant returns from or refunds to our customers.

We account for a contract with a customer when there is approval and commitment from both parties, the rights of the parties are identified, payment terms are identified, the contract has commercial substance and collectibility of consideration is probable.

Our revenues are measured based on consideration stipulated in the arrangement with each customer, net of any sales incentives and amounts collected on behalf of third parties, such as sales taxes.

The revenues are recognized as separate performance obligations that are satisfied by transferring control of the product or service to the customer.

Our arrangements with our customers include various combinations of products and services, which are generally capable of being distinct and accounted for as separate performance obligations.

A product or service is considered distinct if it is separately identifiable from other deliverables in the arrangement and if a customer can benefit from it on its own or with other resources that are readily available to the customer.

The transaction consideration, including any sales incentives, is allocated between separate performance obligations of an arrangement based on the stand-alone selling prices (“SSP”) for each distinct product or service.

Management considers a variety of factors to determine the SSP, such as, historical standalone sales of products and services, discounting strategies and other observable data.

From time to time, our contracts are modified to account for additional, or to change existing, performance obligations.

Our contract modifications are generally accounted for prospectively.

We recognize revenue when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the selling price is fixed or determinable, and collectibility is reasonably assured.

We derive revenue from three sources—sales of systems, spare parts and services.

In general, we recognize revenue for systems when the system has been installed, is operating according to predetermined specifications and is accepted by the customer.

When we have demonstrated a history of successful installation and acceptance, we recognize revenue upon delivery and customer acceptance.

Under certain circumstances, however, we recognize revenue prior to acceptance from the customer, as follows:

| | |

| --- | --- |

| • | When system sales to independent distributors have no installation requirement, contain no acceptance agreement, and 100% of the payment is due based upon shipment. |

| • | When the installation of the system is deemed perfunctory. |

| • | When the customer withholds acceptance due to issues unrelated to product performance, in which case revenue is recognized when the system is performing as intended and meets predetermined specifications. |

In many instances, products are sold in stand-alone arrangements.

Services are sold separately through renewals of annual maintenance contracts.

We have multiple element revenue arrangements in cases where certain elements of a sales arrangement are not delivered and accepted in one reporting period.

To determine the relative fair value of each element in a revenue arrangement, we allocate arrangement consideration based on the selling price hierarchy.

For substantially all of the arrangements with multiple deliverables pertaining to products and services, we use vendor-specific objective evidence (“VSOE”) or third-party evidence (“TPE”) to allocate the selling price to each deliverable.

We determine TPE based on historical prices charged for products and services when sold on a stand-alone basis.

When we are unable to establish relative selling price using VSOE or TPE, we use estimated selling price (“ESP”) in our allocation of arrangement consideration.

The objective of ESP is to determine the price at which we would transact a sale if the product or service were sold on a stand-alone basis.

ESP could potentially be used for new or customized products.

We regularly review relative selling prices and maintain internal controls over the establishment and updates of these estimates.

In a multiple element revenue arrangement, we defer revenue recognition associated with the relative fair value of each undelivered element until that element is delivered to the customer.

To be considered a separate element, the product or service in question must represent a separate unit of accounting, which means that such product or service must fulfill the following criteria: (a) the delivered item(s) has value to the customer on a stand-alone basis; and (b) if the arrangement includes a general right of return relative to the delivered item(s), delivery or performance of the undelivered item(s) is considered probable and substantially in our control.

If the arrangement does not meet all the above criteria, the entire amount of the sales contract is deferred until all elements are accepted by the customer.

Trade-in rights are occasionally granted to customers to trade in tools in connection with subsequent purchases.

We estimate the value of the trade-in right and reduce the revenue recognized on the initial sale.

This amount is recognized at the earlier of the exercise of the trade-in right or the expiration of the trade-in right.

We accrue the estimated credits earned by our customers for such incentives, and in situations when the credit levels vary depending upon sales volume, we update our accrual based on the amount that we estimate will be purchased pursuant to the volume purchase agreements.

Accruals for customer credits are recorded as an offset to revenue or deferred revenue.

Spare parts revenue is recognized when the parts have been shipped, risk of loss has passed to the customer and collection of the resulting receivable is reasonably assured.

We sell stand-alone software that is subject to software revenue recognition guidance.

We periodically review selling prices to determine whether VSOE exists, and in situations where we are unable to establish VSOE for undelivered elements such as post-contract service, revenue is recognized ratably over the term of the service contract.

We also defer the fair value of non-standard warranty bundled with equipment sales as unearned revenue.

Non-standard warranty includes services incremental to the standard 40-hour per week coverage for 12 months.

Non-standard warranty is recognized ratably as revenue when the applicable warranty term period commences.

The deferred system profit balance equals the value of products that have been shipped and billed to customers which have not met our revenue recognition criteria, less applicable product and warranty costs.

Deferred system profit does not include the profit associated with product shipments to certain customers in Japan, to whom title does not transfer until customer acceptance.

Shipments to such customers in Japan are classified as inventory at cost until the time of acceptance.

We enter into sales arrangements that may consist of multiple deliverables of our products and services where certain elements of the sales arrangement are not delivered and accepted in one reporting period.

Judgment is required to properly identify the accounting units of the multiple deliverable transactions and to determine the manner in which revenue should be allocated among the accounting units.

Additionally, judgment is required to interpret various commercial terms and determine when all criteria of revenue recognition have been met in order for revenue recognition to occur in the appropriate accounting period.

All of the potential changes noted below are based on sensitivity [removed: analyses] [added: analysis] performed on our financial position as of June 30, [removed: 2018.][added: 2019.]

[added: As of June 30, 2019, we had an investment portfolio of fixed income securities of $813.5 million] These securities, as with all fixed income instruments, are subject to interest rate risk and will decline in value if market interest rates increase.

If market interest rates were to increase immediately and uniformly by 100 bps from levels as of June 30, [removed: 2018,] [added: 2019,] the fair value of the portfolio would have declined by [removed: $13.6] [added: $4.3] million.

In [added: March 2019 and] November 2014, we issued [removed: $2.50] [added: $1.20] billion [added: and $2.50 billion, respectively, (each, a “2019 Senior Notes”, a “2014 Senior Notes”, and collectively the “Senior Notes”)] aggregate principal amount of fixed rate senior, unsecured long-term [removed: notes (collectively referred to as “Senior Notes”).][added: notes.]

As of June 30, [removed: 2018,] [added: 2019,] the fair value and the book value of our Senior Notes were [removed: $2.33] [added: $3.70] billion and [removed: $2.25] [added: $3.45] billion, respectively, due in various fiscal years ranging from 2020 to [removed: 2035.][added: 2049.]

Additionally, the interest expense for the [added: 2014] Senior Notes is subject to interest rate adjustments following a downgrade of our credit ratings below investment grade by the credit rating agencies.

Following a rating change below investment grade, the stated interest rate for each series of [added: the 2014] Senior Notes may increase between 25 bps to 100 bps based on the adjusted credit rating.

Refer to Note [removed: 7,] [added: 8,] “Debt” to [removed: the] [added: our] Consolidated Financial Statements in Part II, Item 8 and Management’s Discussion and Analysis of Financial Condition and Results of Operations, “Liquidity and Capital Resources,” in Part II, Item 7 for additional details.

Factors that can affect our credit ratings include changes in our operating performance, the economic environment, conditions in the [removed: semiconductor] [added: semiconductor, semiconductor-related,] and [removed: semiconductor equipment] [added: electronics] industries, our financial position, and changes in our business strategy.

As of June 30, [removed: 2018,] [added: 2019,] if our credit rating was downgraded below investment grade by Moody’s and S&P, the maximum potential increase to our annual interest expense on the [added: 2014] Senior Notes, considering a 200 bps increase to the stated interest rate for each series of our [added: 2014] Senior Notes, is estimated to be approximately [removed: $45.0] [added: $41.7] million.

As of June 30, [removed: 2018,] [added: 2019,] we do not have any outstanding floating rate debts that are subject to an increase in interest rates.

We are obligated to pay an annual commitment fee of [removed: 15] [added: 12.5] bps on the daily undrawn balance of the Revolving Credit Facility which is subject to an adjustment in conjunction with our credit rating downgrades or upgrades.

As of June 30, [removed: 2018,] [added: 2019,] if our credit ratings were downgraded to be below investment grade, the maximum potential increase to our annual commitment fee for the Revolving Credit Facility, using the highest range of the ranges discussed above, is estimated to be approximately [removed: $1.0] [added: $0.8] million.

See Note [removed: 4,] [added: 5,] “Marketable Securities” to [removed: the] [added: our] Consolidated Financial Statements in Part II, Item 8; Management’s Discussion and Analysis of Financial Condition and Results of Operations, “Liquidity and Capital Resources,” in Part II, Item 7; and Risk Factors in Part I, Item 1A of this Annual Report on Form 10-K for a description of recent market events that may affect the value of the investments in our portfolio that we held as of June 30, [removed: 2018.][added: 2019.]

As of June 30, [removed: 2018,] [added: 2019,] we had net forward and option contracts to sell [removed: $130.9] [added: $97.6] million in foreign currency in order to hedge certain currency exposures (see Note 16, “Derivative Instruments and Hedging Activities” to [removed: the] [added: our] Consolidated Financial Statements for additional details).

If we had entered into these contracts on June 30, [removed: 2018,] [added: 2019,] the U.S. dollar equivalent would have been [removed: $1.4] [added: $98.3] million.

A 10% adverse move in all currency exchange rates affecting the contracts would decrease the fair value of the contracts by [removed: $30.2] [added: $48.3] million.

Accordingly, we believe that, as a result of the hedging of certain of our foreign currency exposure, changes in most relevant foreign currency exchange rates should have no material impact on our [removed: income] [added: results of operations] or cash flows.

Unlike the 2014 Senior Notes, the interest rate for each series of the 2019 Senior Notes will not be subject to such adjustments.

In November 2018, we entered into an Incremental Facility, Extension and Amendment Agreement (the “Amendment”), which amends the Credit Agreement to (a) extend the Maturity Date (the “Maturity Date”) from November 30, 2022 to November 30, 2023, (b) increase the total commitment by $250.0 million and (c) effect certain other amendments to the Credit Agreement as set forth in the Amendment.

After giving effect to the Amendment, the total commitments under the Credit Agreement are $1.00 billion.

As of June 30, 2018, we had an investment portfolio of fixed income securities of $1.50 billion.

We made borrowings of $250.0 million from the Revolving Credit Facility on the closing date, which were paid in full during the second half of the fiscal year ended June 30, 2018.

However, if this occurred, the fair value of the underlying exposures hedged by the contracts would increase by a similar amount.

As of June 30, 2018, we had forward contracts to sell $500.0 million in treasury securities in order to hedge certain interest rate exposures (see Note 14, “Derivative Instruments and Hedging Activities,” to the consolidated financial statements for additional details).

A 10% adverse move in interest rates affecting the contracts would decrease the fair value of the contracts by $24.1 million.

Accordingly, we believe that, as a result of the hedging of certain of our interest rate exposure, changes in most relevant interest rates should have no material impact on our income or cash flows.

Within [removed: our primary area of focus,] [added: the Semiconductor Process Control segment,] our comprehensive portfolio of inspection, metrology and data [removed: analytic] [added: analytics] products, and related [removed: service, software and other offerings,] [added: service] helps integrated circuit [removed: (“IC” or “chip”)] manufacturers [removed: manage] [added: achieve target] yield throughout the entire semiconductor fabrication process—from research and development (“R&D”) to final volume production.

These [removed: products and] offerings are designed to provide comprehensive solutions to help our customers [removed: to] accelerate their development and production ramp cycles, [removed: to] achieve higher and more stable semiconductor die yields, and [removed: to] improve their overall profitability.

Our advanced products, coupled with our unique yield management services, allow us to deliver the solutions our [added: semiconductor, printed circuit board and display] customers need to [removed: accelerate] [added: achieve] their [removed: yield learning rates and] [added: productivity goals, by] significantly [removed: reduce] [added: reducing] their risks and costs.

[removed: KLA-Tencor] [added: KLA (then KLA-Tencor)] was formed in April 1997 through the merger of KLA Instruments Corporation and Tencor Instruments, two long-time leaders in the semiconductor equipment industry that began operations in 1975 and 1976, respectively.

Additional information about [removed: KLA-Tencor] [added: KLA] is available on our website at [removed: www.kla-tencor.com.][added: www.kla.com.]

Investors and others should note that we announce material financial information to our investors using our investor relations web site [removed: (ir.kla-tencor.com),] [added: (ir.kla.com),] SEC filings, press releases, public conference calls and webcasts.

[removed: KLA-Tencor’s] [added: KLA’s] core focus is the semiconductor industry.

The process of manufacturing wafers is [removed: in itself] highly sophisticated, involving the creation of large ingots of silicon by pulling them out of a vat of molten silicon.

Other, more specialized wafers, such as epitaxial silicon (“epi”), silicon on insulator (“SOI”), gallium nitride (“GaN”) and silicon carbide [removed: (“SiC”),] [added: (“SiC”)] are also common in the semiconductor industry.

When [removed: all of] the layers on the wafer have been fabricated, each chip on the wafer is tested for functionality.

The wafer is then cut into individual chips, and [removed: those] [added: the] chips that [removed: passed] [added: pass] functional testing are packaged.

The semiconductor equipment industry is currently experiencing growth from multiple drivers, such as demand for chips providing computational power and connectivity for Artificial Intelligence (“AI”) [removed: applications,] [added: applications] and continued need for chips from leading edge foundry and logic chip manufacturers that support mobile devices.

New techniques and architectures in production today include three dimensional finFET transistors; three dimensional flash memory (“3D NAND”); design technology co-optimization (“DTCO”); advanced patterning technologies, including self-aligned multiple patterning and EUV lithography; and [removed: packaging.][added: advanced packaging methods.]

[removed: KLA-Tencor’s] [added: KLA’s] inspection, metrology and data [removed: analytic] [added: analytics] technologies play key roles in enabling our customers to develop and manufacture advanced semiconductor devices to support these trends.

Today, [removed: the] leading semiconductor manufacturers are investing in simultaneous production integration of multiple new process technologies, some requiring new substrate and film materials, new geometries, advanced multi-patterning and EUV lithography and packaging techniques.

[removed: For example, as design rules decrease,] yields become more sensitive to the size and density of defects, and device performance characteristics (namely speed, capacity or power management) become more sensitive to parameters such as linewidth and film thickness variation.

New process materials, such as photoresists for EUV lithography, require extensive characterization before they can be used in the [added: manufacturing process.]

Construction of an advanced wafer fabrication facility today can cost [removed: over] [added: well above] $5.00 billion, substantially more than previous-generation facilities.

[removed: KLA-Tencor] [added: KLA] systems not only analyze defectivity and metrology issues at critical points in the wafer, reticle and IC manufacturing processes, but also provide information to our customers so that they can identify and address the underlying process problems.

[removed: KLA-Tencor’s] [added: KLA’s] inspection, metrology and data analytics products and related offerings can be broadly categorized as supporting customers in the following groups: Chip and Wafer Manufacturing; Reticle Manufacturing; Packaging Manufacturing; Compound Semiconductor and Hard Disk Drive Manufacturing; and General Purpose/Lab Applications.

[removed: The] [added: Some of the company’s] more significant [removed: of these] products are [added: described below and also] included in the [added: broader] product table at the end of this “Products” section.

[removed: For customers manufacturing legacy design rule devices, our K-T] [added: Our KLA] Pro [removed: division] [added: group] provides [added: fully] refurbished [removed: KLA-Tencor systems as part of our K-T Certified program;] [added: systems,] remanufactured [removed: trailing edge systems; and,] [added: legacy systems, and] enhancements and upgrades for [removed: last-generation KLA-Tencor] [added: previous-generation KLA] systems.

[removed: KLA-Tencor’s] [added: KLA’s] comprehensive portfolio of [added: defect] inspection, [removed: metrology] [added: review, metrology, patterning simulation, in situ process monitoring] and data analytics products, and related service, software and other offerings, helps [added: substrate and] chip manufacturers manage yield throughout the [removed: entire semiconductor] [added: wafer and chip] fabrication [removed: process—from] [added: processes, from] research and development to final volume production.

[removed: KLA-Tencor’s] [added: KLA’s wafer] defect inspection and review systems cover a broad range of yield applications [removed: within the] [added: for] IC [removed: manufacturing environment, including:] [added: and substrate manufacturers, including] research and [removed: development; incoming] [added: development,] wafer [removed: qualification;] [added: qualification,] reticle [removed: qualification;] [added: qualification,] and tool, process and line monitoring.

Our defect review systems capture high resolution images of the defects detected by inspection tools, helping [added: substrate manufacturers and] chipmakers identify and resolve yield issues.

The [removed: defect] data generated by our [removed: inspectors] [added: inspection, metrology and in situ process monitoring systems] are compiled and reduced to relevant root cause and yield analysis information with our suite of data analytics and management tools.

By implementing our defect [removed: inspection, review] [added: inspection] and [removed: data analytics] [added: review] systems, chipmakers [added: and substrate manufacturers] are able to take quick corrective action, resulting in faster yield improvement and better time to market.

[removed: We also offer] [added: For patterned wafer optical inspection, we provide] our [added: 3920 Series,] 3900 [removed: Series (for high resolution broadband plasma defect inspection); our] [added: Series, 2950 Series,] 2930 [added: Series, 2920 Series, 2910] Series and [removed: 2920] [added: 2900] Series [removed: (for] [added: (high resolution] broadband plasma defect [removed: inspection); our] [added: inspection for defect discovery, yield learning and inline monitoring across all advanced node layers); the Voyager 1015 (laser scanning patterned wafer inspection system that provides enhanced defect capture for high throughput lithography cell monitoring); the] Puma 9980 Series, Puma 9850 Series and Puma 9650 Series [removed: (for laser] [added: (laser] scanning defect inspection); our 8 Series systems [removed: (for high] [added: (high] productivity defect inspection); and our CIRCL cluster tool [removed: (for defect] [added: (defect] inspection, review and metrology of all wafer surfaces [removed: - frontside,] [added: – front side,] edge and [removed: back side).][added: backside).]

[removed: The] [added: In the field of unpatterned wafer and surface inspection, the] Surfscan SP7 unpatterned wafer defect inspection system provides high sensitivity on bare wafers, smooth films and rough films, supporting development and production of advanced substrates, processes and devices at wafer shops, [removed: OEMs] [added: original equipment manufacturers (“OEMs”)] and IC fabs.

[removed: In the] [added: For] wafer [removed: manufacturing segment,] [added: manufacturers,] these specialized inspection systems assess surface quality and detect, count and bin defects during the development and production monitoring of polished wafers, epi wafers and engineered substrates, and as a critical part of outgoing inspection.

[added: Our] FabVision [added: data management system] offers fab-wide data management and automated yield analysis for wafer manufacturers.

[removed: KLA-Tencor’s] [added: KLA’s] array of metrology solutions addresses IC and substrate manufacturing, as well as scientific research and other applications.

Precise metrology and control of pattern dimensions, film thicknesses, layer-to-layer alignment, pattern placement, surface [removed: topography and] [added: topography,] electro-optical [added: and electromagnetic] properties are important in many industries as critical dimensions narrow, film thicknesses shrink to countable numbers of atomic layers and devices become more complex.

The Archer [added: Series of] imaging-based overlay metrology systems enable characterization of overlay error on lithography process layers for advanced patterning technologies.

The [removed: ATL100 (Accurate Tunable Laser)] [added: ATL Series of] scatterometry-based overlay metrology [removed: systems, introduced in September 2017,] [added: systems] utilize tunable laser technology to automatically maintain highly accurate and robust overlay error measurements in the presence of process variations, supporting fast technology ramps and wafer disposition during production.

The SpectraShape 10K metrology system measures the CDs and [removed: three dimensional] [added: three-dimensional] shapes of finFET, 3D NAND and other complex IC device structures following etch, chemical mechanical planarization [removed: (CMP)] [added: (“CMP”)] and other process steps.

The SpectraFilm F1 film metrology system, [removed: introduced in September 2017,] employs [removed: new] optical technologies that determine single- and multi-layer film thicknesses and uniformity with high precision to monitor deposition processes in production, and deliver bandgap data that predict device electrical performance earlier than end of line test.

[removed: KLA-Tencor’s] [added: KLA’s] SensArray systems are a portfolio of advanced wireless and wired wafers and reticles that enable in situ monitoring of the production process environment.

For example, the EtchTemp in situ wafer temperature measurement systems [removed: capture] [added: measure] the effect of the plasma etch process environment on production wafers.

By characterizing thermal conditions that closely represent product wafer conditions, the [removed: EtchTemp-SE] [added: EtchTemp SE] wireless wafer assists process engineers with tuning of the etch process conditions and the qualification, matching and post-PM verification of front end of line plasma etch chambers.

KLA Corporation (“KLA” or the “Company” and also referred to as “we” or “our”) is a leading supplier of process equipment, process control equipment, and data analytics products for a broad range of industries, including semiconductors, printed circuit boards and displays.

We provide advanced process control and process-enabling solutions for manufacturing and testing wafers and reticles, integrated circuits (“IC” or “chip”), packaging, light emitting diodes, power devices, compound semiconductor devices, microelectromechanical systems, data storage, printed circuit boards and flat and flexible panel displays, as well as general materials research.

On February 20, 2019, we completed the acquisition of Orbotech, Ltd. (“Orbotech”) for a total purchase consideration of approximately $3.26 billion.

For additional details, refer to Note 6 “Business Combinations” to our Consolidated Financial Statements.

Orbotech’s core business enables electronic device manufacturers to inspect, test and measure printed circuit boards and flat panel displays to verify their quality; pattern electronic circuitry on substrate and perform three-dimensional shaping of metalized circuits on multiple surfaces; and utilize advanced vacuum deposition and etching process in semiconductor device and semiconductor manufacturing and to perform laser drilling of electronic substrates.

Subsequent to the acquisition of Orbotech, we changed our organizational structure, resulting in four reportable segments: Semiconductor Process Control; Specialty Semiconductor Process; PCB, Display and Component Inspection; and Other.

Our differentiated products and services are designed to provide comprehensive solutions that help our customers accelerate development and production ramp cycles, achieve higher and more stable semiconductor die yields and improve their overall profitability.

In the Specialty Semiconductor Process segment, we develop and sell advanced vacuum deposition and etching process tools, which are used by a broad range of specialty semiconductor customers, including manufacturers of microelectromechanical systems (“MEMS”), radio frequency (“RF”) communication chips, and power semiconductors for automotive and industrial applications.

In the PCB, Display and Component Inspection segment, we enable electronic device manufacturers to inspect, test and measure printed circuit boards (“PCBs”) and flat panel displays (“FPDs”) and ICs to verify their quality, pattern the desired electronic circuitry on the relevant substrate and perform three-dimensional shaping of metalized circuits on multiple surfaces.

Packaged chips are mounted onto printed circuit boards (“PCBs”) for connection to the outside world.

Additionally, flat panel displays are manufactured using processes similar to ICs (e.g., film deposition, photolithography, etching) except using glass as the starting substrate.

Expansion of the Internet of Things (“IoT”) together with the increasing adoption of electrical vehicles and the need for automobile connectivity are accelerating trailing-edge node technology conversions and capacity expansions.

For example, as design rules decrease,

With the Orbotech acquisition, KLA has expanded its presence in the semiconductor capital equipment market, leveraging products and technologies of Orbotech’s SPTS semiconductor processing business.

SPTS develops and sells differentiated custom deposition and etching solutions for fast-growing markets, such as power and analog devices, RF communication chips and MEMS.

These devices, which are often built on non-traditional substrates, like SiC and GaN, have become critical to accelerating some of the secular trends in automotive, industrial and communication industries.

Infrastructure build-out for 5G is creating demand for RF components; new SiC and GaN based power devices are moving into volume production for electric vehicles; and high-density packaging is growing to support AI.

The acquisition of Orbotech has also allowed KLA to enter the PCB fabrication market, providing a comprehensive portfolio of tools, services and solutions to accelerate technology transitions and production ramp.

Our portfolio includes inline inspection tools to monitor the quality of printed circuit board fabrication, equipment to repair defective boards, digital imaging technologies to print fine geometry according to the design, and computer aided manufacturing (“CAM”) software.

Growth in the PCB business is driven mainly by investments in 5G technology and its supporting applications: smartphones, smart vehicles, AI and cloud servers/high performance computing.

These applications will be based on several technological segments including flexible printed circuits (“FPCs”), high density interconnect (“HDI”), PCBs, and IC substrates.

The acquisition of Orbotech has also allowed KLA to enter the flat panel display market, providing complete yield management solutions, including automated optical inspection systems, repair technologies and electrical testers.

An accelerated transition to organic light emitting diode (“OLED”) displays to serve the mobile market, introduction of OLED technology for large size TVs, and a steep ramp in liquid crystal display (“LCD”) production for televisions in China are driving the flat panel display business.

New technologies, such as microLED, also represent a growth opportunity for KLA in the display market.

KLA develops industry-leading equipment and services that enable innovation throughout the electronics industry.

We provide advanced process control and process-enabling solutions for manufacturing wafers, reticles, integrated circuits, packaging, printed circuit boards, and flat and flexible panel displays.

Orbotech’s inspection, repair, imaging, laser drilling, electrical testing and wafer processing equipment support customers in Printed Circuit Board Manufacturing, Flexible and Flat Panel Display Manufacturing, Advanced Packaging Manufacturing, and manufacturing of semiconductor devices such as MEMS, LEDs, high speed RF IC devices and power semiconductors.

Semiconductor Process Control:

For chip manufacturers, the Surfscan systems qualify incoming bare wafers, and qualify and monitor processes during all manufacturing stages – from development through production.

Our eDR7380 high performance electron-beam (e-beam) wafer defect review and classification system produces a comprehensive defect pareto in one test for accurate defect sourcing and faster excursion detection during production.

Unique synergy with our inspectors facilitates accurate identification and classification of patterned wafer, bare wafer and bevel edge defects for faster yield learning during IC and wafer manufacturing.

The PWG3 patterned wafer geometry metrology system measures stress-induced wafer shape, wafer shape-induced pattern overlay errors, wafer thickness variations and wafer front side and backside topography for a wide range of IC processes.

This data is used for inline monitoring of fab processes, overlay corrections and scanner focus control, enabling improved patterning and faster yield ramp.

Our WaferSight bare wafer geometry metrology systems are used by substrate manufacturers to qualify polished and epitaxial silicon wafers, and engineered and other advanced substrates.

Magnetic random-access memory (“MRAM”) manufacturing requires the control of deposition, annealing, magnetization and etch of very thin ferromagnetic layers.

These memory cells are embedded into the logic chip when the chip is getting close to completion.

At this late stage, the value of the chip is high so the MRAM cell must be carefully controlled to maintain high yield.

KLA offers several systems for manufacturing control of MRAM processes, including the CAPRES CIPTech and microHall series, and the MicroSense PKMRAM and KerrMapper systems.

The AMW product (Automation Metrology Wafer) enables fab-wide automated wafer handling monitoring.

The SensArray Automation package provides fast automated collection of parametric measurement within the process tool chamber.

KLA-Tencor Corporation (“KLA-Tencor” or the “Company” and also referred to as “we” or “our”) is a leading supplier of process control and yield management solutions for the semiconductor and related nanoelectronics industries.

Our products are also used in a number of other high technology industries, including the packaging, light emitting diode (“LED”), power device, compound semiconductor, and data storage industries, as well as general materials research.

KLA-Tencor’s products and services are used by the vast majority of bare wafer, IC, reticle (“reticle” or “mask”) and hard disk drive manufacturers around the world.

These customers turn to us for inline wafer and IC defect monitoring, review and classification; reticle defect inspection and metrology; packaging and interconnect inspection; critical dimension (“CD”) metrology; pattern overlay metrology; film thickness, surface topography and composition measurements; measurement of in-chamber process conditions; wafer shape and stress metrology; computational lithography tools; and overall yield and fab-wide data management and analysis systems.

Documents that are not available through the SEC’s website may also be obtained by mailing a request to the U.S. Securities and Exchange Commission, Office of FOIA/PA Operations, 100 F Street, NE, Washington, DC 20549-2736, by submitting an online request to the SEC at www.sec.gov or by calling the SEC at 1-800-732-0330.

Proposed Merger with Orbotech, Ltd.

On March 18, 2018, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Orbotech, Ltd. (“Orbotech”) pursuant to which KLA-Tencor would acquire Orbotech for $38.86 in cash and 0.25 of a share of KLA-Tencor common stock in exchange for each ordinary share of Orbotech, which at the time of announcement valued Orbotech at $3.2 billion in enterprise value.

The merger contemplated by the Merger Agreement (the “Orbotech Merger”) is subject to receipt of required regulatory approvals and satisfaction of the other customary closing conditions.

KLA-Tencor intends to fund the cash portion of the purchase price with cash from the combined company's balance sheet.

In addition, KLA-Tencor announced a $2 billion share repurchase authorization.

The share repurchase program is targeted to be completed within 12 to 18 months following the close of this transaction.

KLA-Tencor intends to raise approximately $1 billion in new long-term debt financing to complete the share repurchase

Current Trends

Expansion of the Internet of Things (“IoT”) together with increasing acceptance of advanced driver assistance systems (“ADAS”) that support the introduction of autonomous cars have begun to accelerate legacy-node technology conversions and capacity expansions.

manufacturing process.

KLA-Tencor is engaged primarily in the design, manufacture and marketing of process control and yield management solutions for the semiconductor and related nanoelectronics industries and provides a comprehensive portfolio of inspection, metrology and data analytics products, and related service, software and other offerings.

For patterned wafer optical inspection, we launched the Voyager 1015 Series during the fiscal year ended June 30, 2018.

The Voyager 1015 laser scanning patterned wafer inspection system provides enhanced defect capture for high throughput lithography cell monitoring, as well as other production ramp monitoring applications.

In the field of unpatterned wafer and surface inspection, we launched the Surfscan SP7 during the fiscal year ended June 30, 2018.

Our eDR7280 electron-beam wafer defect review and classification system identifies detected defects, producing an accurate representation of the detected defect population.

In addition, we offer a number of other products for the defect inspection market, as reflected in the product table at the conclusion of this “Products” section.

The WaferSight PWG2 system measures patterned wafer geometry after a wide range of IC processes, helping identify and monitor variations that can affect patterning, and providing comprehensive wafer stress and shape uniformity data at high productivity.

The system enables faster process ramp, overlay control, lithography focus window control and inline process monitoring for processes such as thin films, etch, CMP and rapid thermal processing (“RTP”).

In addition, we offer a number of other products for the metrology market, as reflected in the product table at the conclusion of this “Products” section.

In August 2017, we entered the dedicated reticle blank inspection market.

Products that we offer for MEMS manufacturing are highlighted in the product table at the conclusion of this “Products” section.

In the front end and back end of thin film head wafer manufacturing, we offer the same process control equipment that we provide to the semiconductor industry.

In addition, we offer an extensive range of test equipment and surface profilers with particular strength in photolithography.

In substrate and media manufacturing, we offer metrology and defect inspection solutions with KLA-Tencor’s optical surface analyzers.

The optical and stylus profiler and in situ process monitoring products that we offer for general purpose/lab applications are highlighted in the product table at the conclusion of this “Products” section.

K-T Pro

K-T Pro includes our K-T Certified fully refurbished, tested and certified systems, in addition to remanufactured legacy systems, and enhancements and upgrades for previous-generation KLA-Tencor systems.

Our comprehensive services include service engineers, technical support teams and knowledge management systems; and an extensive parts network to ensure worldwide availability of parts.

| --- | --- | --- |

| Defect Inspection/ Review | Patterned Wafer | 3900 Series, 2930 Series, 2920 Series, Puma™ 9980 Series, Puma™ 9850 Series, Puma™ 9650 Series, Voyager™ 1015 Series |

| Process Chamber Conditions | SensArray® product family | |

The product information shown in the tables above excludes some products that were solely offered through our K-T Certified refurbished tools program.

| Samsung Electronics Co., Ltd. | | Samsung Electronics Co., Ltd. | | Micron Technology, Inc. |

We focus on providing a single and comprehensive resource for the full breadth of process control and yield management products and services.

We make adjustments for shipment backlog obtained from acquired companies, sales order cancellations, customer delivery date changes and currency adjustments.

The information set forth below under Note [removed: 14,] [added: 15,] “Litigation and Other Legal Matters” to the [removed: consolidated financial statements] [added: Consolidated Financial Statements] is incorporated herein by reference.

| | For the Fiscal Year Ended June 30, [removed: 2018] [added: 2019] |

[removed: KLA-TENCOR] [added: KLA] CORPORATION

| Title of Each Class | [added: Trading Symbol(s)] | Name of Each Exchange on Which Registered |

| Common Stock, $0.001 par value per share | [added: KLAC] | The Nasdaq Stock Market, LLC |

The aggregate market value of the voting and non-voting common stock held by non-affiliates of the registrant based upon the closing price of the registrant’s stock, as of December 31, [removed: 2017,] [added: 2018,] was approximately [removed: $16.43] [added: $13.53] billion.

The registrant had [removed: 156,126,508] [added: 159,255,950] shares of common stock outstanding as of July [removed: 13, 2018.][added: 19, 2019.]

Portions of the Proxy Statement for the [removed: 2018] [added: 2019] Annual Meeting of Stockholders (“Proxy Statement”), and to be filed pursuant to Regulation 14A within 120 days after the registrant’s fiscal year ended June 30, [removed: 2018,] [added: 2019,] are incorporated by reference into Part III of this report.

| | | [Special Note Regarding Forward-Looking [removed: Statements](#s375604CEF38453F8BC67E141DBF42783)] [added: Statements](#s0F2CCE5373BF5EFD88E102D83C6D3206)] | [removed: [ii](#s375604CEF38453F8BC67E141DBF42783)] [added: [ii](#s0F2CCE5373BF5EFD88E102D83C6D3206)] |

| Item 1. | | [removed: [Business](#sB453351F19845F1AA072B2717F9E9226)] [added: [Business](#s2B502D8A05A15886ADCCD612ED09E049)] | [removed: [1](#sB453351F19845F1AA072B2717F9E9226)] [added: [1](#s2B502D8A05A15886ADCCD612ED09E049)] |

| Item 1A. | | [Risk [removed: Factors](#s736FA579D74C58EAABA75B55EDE43A64)] [added: Factors](#s8CE4610DD0C15B8E93BBA9427C49BDC2)] | [removed: [16](#s736FA579D74C58EAABA75B55EDE43A64)] [added: [20](#s8CE4610DD0C15B8E93BBA9427C49BDC2)] |

| Item 1B. | | [Unresolved Staff [removed: Comments](#sF881B0065F5B57D2925EC58B726AE37E)] [added: Comments](#sD53E9C69054D5CDDA19D3B2442FD568B)] | [removed: [34](#sF881B0065F5B57D2925EC58B726AE37E)] [added: [36](#sD53E9C69054D5CDDA19D3B2442FD568B)] |

| Item 2. | | [removed: [Properties](#sE18E9B501CCF5E849A41446D0984E3CA)] [added: [Properties](#s4B4855A6899A5AD0B50AA035371C6B3F)] | [removed: [35](#sE18E9B501CCF5E849A41446D0984E3CA)] [added: [37](#s4B4855A6899A5AD0B50AA035371C6B3F)] |

| Item 3. | | [Legal [removed: Proceedings](#s68F99B5A98AE5170A98DDC057E9A232F)] [added: Proceedings](#sB728AA09BD945BEFABD42B995F9ED149)] | [removed: [35](#s68F99B5A98AE5170A98DDC057E9A232F)] [added: [37](#sB728AA09BD945BEFABD42B995F9ED149)] |

| Item 4. | | [Mine Safety [removed: Disclosures](#s2762B840E6D1560E9330AB1968C73509)] [added: Disclosures](#sEFFEA1208F6056B2AEBE470DB6FDEC3C)] | [removed: [35](#s2762B840E6D1560E9330AB1968C73509)] [added: [37](#sEFFEA1208F6056B2AEBE470DB6FDEC3C)] |

| Item 5. | | [Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity [removed: Securities](#s288A00DE899A57EA8C2BA2E466FD027D)] [added: Securities](#sB82BA50234CB5548858775FD0F978F58)] | [removed: [36](#s288A00DE899A57EA8C2BA2E466FD027D)] [added: [38](#sB82BA50234CB5548858775FD0F978F58)] |

| Item 6. | | [Selected Financial [removed: Data](#s2E93044EF630581C96642AADC63B4345)] [added: Data](#sC1786AE68BBE5A24B26CF53E51FEBEC5)] | [removed: [38](#s2E93044EF630581C96642AADC63B4345)] [added: [40](#sC1786AE68BBE5A24B26CF53E51FEBEC5)] |

| Item 7. | | [Management’s Discussion and Analysis of Financial Condition and Results of [removed: Operations](#s7CEB514C64FF5453B0D2628534A8851B)] [added: Operations](#s856C7AAB574E5AA18FA92ED7BB3341F9)] | [removed: [39](#s7CEB514C64FF5453B0D2628534A8851B)] [added: [41](#s856C7AAB574E5AA18FA92ED7BB3341F9)] |

| Item 7A. | | [Quantitative and Qualitative Disclosures About Market [removed: Risk](#s0125DF2CEE59512CAF9813F7DEB5BC3A)] [added: Risk](#s9306C7A986BE5B148F45BEE5D1E621B3)] | [removed: [59](#s0125DF2CEE59512CAF9813F7DEB5BC3A)] [added: [60](#s9306C7A986BE5B148F45BEE5D1E621B3)] |

| Item 8. | | [Financial Statements and Supplementary [removed: Data](#s00B5978EC5455DEBA8C2F67258409D7E)] [added: Data](#sADA1123D361558D6AFD78F28227DDADB)] | [removed: [60](#s00B5978EC5455DEBA8C2F67258409D7E)] [added: [61](#sADA1123D361558D6AFD78F28227DDADB)] |

| | | [Consolidated Balance Sheets as of June 30, [removed: 2018] [added: 2019] and June 30, [removed: 2017](#s4099CB77C0E15F8DB611F0E14661BFE4)] [added: 2018](#s813814BC73DF5692BE7D8F65D7DBA45C)] | [removed: [61](#s4099CB77C0E15F8DB611F0E14661BFE4)] [added: [62](#s813814BC73DF5692BE7D8F65D7DBA45C)] |

| | | [Consolidated Statements of Operations for each of the three years in the period ended June 30, [removed: 2018](#s1E2D6A10B66858E8AF42A6A9752B97E5)] [added: 2019](#sACDC7199BAE5545FB4EF1136E04B9D23)] | [removed: [62](#s1E2D6A10B66858E8AF42A6A9752B97E5)] [added: [63](#sACDC7199BAE5545FB4EF1136E04B9D23)] |

| | | [Consolidated Statements of Comprehensive Income for each of the three years in the period ended June 30, [removed: 2018](#sD62311AFD55B5DEDA814BDEA7DE6483C)] [added: 2019](#sDDB429BFD9B6545BB52A3F64C8B2F4E7)] | [removed: [63](#sD62311AFD55B5DEDA814BDEA7DE6483C)] [added: [64](#sDDB429BFD9B6545BB52A3F64C8B2F4E7)] |

| | | [Consolidated Statements of Stockholders’ Equity for each of the three years in the period ended June 30, [removed: 2018](#sBCA8EC3316BD576DB9E1A89391D8CA5B)] [added: 2019](#s4CEBB987C4265A0A948458498F68812E)] | [removed: [64](#sBCA8EC3316BD576DB9E1A89391D8CA5B)] [added: [65](#s4CEBB987C4265A0A948458498F68812E)] |

| | | [Consolidated Statements of Cash Flows for each of the three years in the period ended June 30, [removed: 2018](#sCF56088BCE9658B3ADA019C9EF65D2F2)] [added: 2019](#s8EB76A93713457CC9FE6D9978AB46A2C)] | [removed: [65](#sCF56088BCE9658B3ADA019C9EF65D2F2)] [added: [66](#s8EB76A93713457CC9FE6D9978AB46A2C)] |

| | | [Notes to Consolidated Financial [removed: Statements](#sE903E3AE8FD0515CBD052FD7C8215D1F)] [added: Statements](#s55E7F2DA7FAA5C5981B4815D162F3ABD)] | [removed: [66](#sE903E3AE8FD0515CBD052FD7C8215D1F)] [added: [67](#s55E7F2DA7FAA5C5981B4815D162F3ABD)] |

| | | [Report of Independent Registered Public Accounting [removed: Firm](#sBAB51B0C8F5C5E39AED19DE7DA9B3920)] [added: Firm](#sA0771C1005F45C40976CBABB0CD81B48)] | [removed: [104](#sBAB51B0C8F5C5E39AED19DE7DA9B3920)] [added: [116](#sA0771C1005F45C40976CBABB0CD81B48)] |

| Item 9. | | [Changes in and Disagreements with Accountants on Accounting and Financial [removed: Disclosure](#sCDE7FAE19A635C9E81CA53E3D49B238E)] [added: Disclosure](#sF43525214B9557D492A78F4558BDA2B2)] | [removed: [106](#sCDE7FAE19A635C9E81CA53E3D49B238E)] [added: [119](#sF43525214B9557D492A78F4558BDA2B2)] |

| Item 9A. | | [Controls and [removed: Procedures](#sB26DF5C0188A5523B855B025851C0B5B)] [added: Procedures](#s025EC802017551C2B4E95DD964A7B1C5)] | [removed: [106](#sB26DF5C0188A5523B855B025851C0B5B)] [added: [119](#s025EC802017551C2B4E95DD964A7B1C5)] |

| Item 9B. | | [Other [removed: Information](#s7B1C713863E25CCA9482FE32B22852B9)] [added: Information](#s4C2B84D69CAA5DD3912637C76BECBB6A)] | [removed: [107](#s7B1C713863E25CCA9482FE32B22852B9)] [added: [120](#s4C2B84D69CAA5DD3912637C76BECBB6A)] |

| Item 10. | | [Directors, Executive Officers and Corporate [removed: Governance](#sA10F9FDFF2D45D31915D4AF8F50B7718)] [added: Governance](#s000B63F765935EEBBEC9F8E1A7DAC56C)] | [removed: [108](#sA10F9FDFF2D45D31915D4AF8F50B7718)] [added: [121](#s000B63F765935EEBBEC9F8E1A7DAC56C)] |

| Item 11. | | [Executive [removed: Compensation](#sA1B91FB2089057128DE3F443DCCB4B2D)] [added: Compensation](#s9FB700DDA0785F5A9923BF06F3D383C1)] | [removed: [108](#sA1B91FB2089057128DE3F443DCCB4B2D)] [added: [121](#s9FB700DDA0785F5A9923BF06F3D383C1)] |

| Item 12. | | [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder [removed: Matters](#sB3209858B69E51C6A45E54CA4D406E59)] [added: Matters](#s2E681A0B977A5751AD7F64FA044547E8)] | [removed: [108](#sB3209858B69E51C6A45E54CA4D406E59)] [added: [121](#s2E681A0B977A5751AD7F64FA044547E8)] |

| Item 13. | | [Certain Relationships and Related Transactions, and Director [removed: Independence](#s31A159FF349D5BCC9611FC12FA015994)] [added: Independence](#s6EAA0C775E5C58339FE60F61FEA38553)] | [removed: [108](#s31A159FF349D5BCC9611FC12FA015994)] [added: [121](#s6EAA0C775E5C58339FE60F61FEA38553)] |

| Item 14. | | [Principal Accounting Fees and [removed: Services](#s8AABBD27A02259EB80A0749B57ACBCB2)] [added: Services](#sA81A9CE51B6854F0A6D2F2E7E7035C2F)] | [removed: [108](#s8AABBD27A02259EB80A0749B57ACBCB2)] [added: [121](#sA81A9CE51B6854F0A6D2F2E7E7035C2F)] |

| Item 15. | | [Exhibits, Financial Statement [removed: Schedules](#sCCACDF39DAE95E5EAD606185FB27F493)] [added: Schedules](#sEB52B7FA7C9E5057A0792DF6AA51FA59)] | [removed: [109](#sCCACDF39DAE95E5EAD606185FB27F493)] [added: [122](#sEB52B7FA7C9E5057A0792DF6AA51FA59)] |

| | | [Schedule II Valuation and Qualifying [removed: Accounts](#s316B4D6F409A52379BA3B62F4652EFE2)] [added: Accounts](#s8831D33445945678A89EAC6EDA9ED2AE)] | [removed: [112](#s316B4D6F409A52379BA3B62F4652EFE2)] [added: [125](#s8831D33445945678A89EAC6EDA9ED2AE)] |

| Item 16. | | [Form 10-K [removed: Summary](#s4AFD2EF2A7B8558C81BB0FE9C56ACA91)] [added: Summary](#s854306F64AD051329C08EF8CA6C46971)] | [removed: [114](#s4AFD2EF2A7B8558C81BB0FE9C56ACA91)] [added: [127](#s854306F64AD051329C08EF8CA6C46971)] |

Such forward-looking statements include, among others, forecasts of the future results of our operations, including profitability; orders for our products and capital equipment generally; sales of semiconductors; the investments by our customers in advanced technologies and new materials; the allocation of capital spending by our customers (and, in particular, the percentage of spending that our customers allocate to process control); growth of revenue in the semiconductor industry, the semiconductor capital equipment industry and our business; technological trends in the semiconductor industry; future developments or trends in the global capital and financial markets; our future product offerings and product features; the success and market acceptance of new products; timing of shipment of backlog; our future product shipments and product and service revenues; our future gross margins; our future research and development expenses and selling, general and administrative expenses; our ability to successfully maintain cost discipline; international sales and operations; our ability to maintain or improve our existing competitive position; success of our product offerings; creation and funding of programs for research and development; attraction and retention of employees; results of our investment in leading edge technologies; the effects of hedging transactions; the effect of the sale of trade receivables and promissory notes from customers; our future effective income tax rate; our recognition of tax benefits; [added: the effects of any audits or litigation;] future payments of dividends to our stockholders; the completion of any acquisitions of third parties, or the technology or assets thereof; benefits received from any acquisitions and development of acquired technologies; sufficiency of our existing cash balance, investments, cash generated from operations and [added: the] unfunded [added: portion of our] revolving line of credit under a Credit Agreement (the “Credit Agreement”) to meet our operating and working capital requirements, including debt service and payment thereof; future dividends, and stock repurchases; our compliance with the financial covenants under the Credit Agreement; the [removed: expected timing of the completion] [added: adoption] of [removed: our global employee workforce reduction;] [added: new accounting pronouncements including ASC 606;] the [removed: additional charges that we may incur in connection with our global employee workforce reduction;] [added: tax liabilities resulting from] the [removed: expected cost savings that we expect to recognize as a result] [added: enactment] of [removed: such workforce reduction;] the [removed: adoption of new accounting pronouncements;] [added: Tax Cuts] and [added: Jobs Act; and] our repayment of our outstanding indebtedness.

You should carefully review these risks and also review the risks described in other documents we file from time to time with the Securities and Exchange Commission, including the Quarterly Reports on Form 10-Q that we will file in the fiscal year ending June 30, [removed: 2019.][added: 2020.]

10-K 1 klac10k2019.htm 10-K

| | | [Signatures](#s876085E4AF125E62B91A5553F9120568) | [123](#s876085E4AF125E62B91A5553F9120568) |

| | | [Exhibit Index](#s6021FCC552725A1B87E359C473E0D2D9) | [126](#s6021FCC552725A1B87E359C473E0D2D9) |

10-K 1 klac10k2018.htm 10-K

| | | [Signatures](#sB062B16E64FF5A8CA8C5FF006A7EF4E2) | [110](#sB062B16E64FF5A8CA8C5FF006A7EF4E2) |

| | | [Exhibit Index](#sB74CBAB570DE5C84B0B3B96BD619DF22) | [113](#sB74CBAB570DE5C84B0B3B96BD619DF22) |

Information regarding our principal properties as of June 30, [removed: 2018] [added: 2019] is set forth below:

| [removed: (2)] [added: (1)] | [removed: We own the building] [added: Includes 248,155 square feet of property owned] at [removed: our] [added: out] location in Serangoon, Singapore, [removed: but] [added: where] the land on which this building resides is leased. |

Our operating leases expire at various times through November [removed: 8,] [added: 7,] 2028, subject to renewal, with some of the leases containing renewal option clauses at the fair market value, for additional periods up to five years.

Additional information regarding these leases is incorporated herein by reference to Note [removed: 13,] [added: 14,] “Commitments and Contingencies” to the [removed: consolidated financial statements.][added: Consolidated Financial Statements.]

Our headquarters are located in Milpitas, California.

As of June 30, 2019, we owned or leased a total of approximately 3.4 million square feet of space for research, engineering, marketing, service, sales and administration worldwide primarily in U.S., Israel, China, Singapore, Germany and Taiwan.

| (Square Feet) | United States | | | Other Countries | | | Total | |

| Owned(1) | 727,302 | | | 695,048 | | | 1,422,350 | |

| Leased | 426,535 | | | 1,519,614 | | | 1,946,149 | |

| Total | 1,153,837 | | | 2,214,662 | | | 3,368,499 | |

| | | | | | | | | |

| Location | | Type | | Principal Use | | Square Footage | | Ownership |

| Milpitas, CA | | Office, plant and warehouse | | Principal Executive Offices, Research, Engineering, Marketing, Manufacturing, Service and Sales Administration | | 727,302 | | Owned |

| Serangoon, Singapore(2) | | Office and plant | | Sales, Service and Manufacturing | | 248,155 | | Owned |

| Migdal Ha’Emek, Israel | | Office and plant | | Research, Engineering, Marketing, Manufacturing, Service and Sales Administration | | 191,982 | | Owned |

| Westwood, MA(1) | | Office and plant | | Engineering, Marketing, Manufacturing and Service | | 146,742 | | Leased |

| Weilburg, Germany | | Office and plant | | Engineering, Marketing, Manufacturing, Service and Sales Administration | | 138,119 | | Leased |

| Hsinchu, Taiwan | | Office | | Sales and Service | | 73,676 | | Leased |

| Leuven, Belgium(1) | | Office, plant and warehouse | | Engineering, Marketing and Service and Sales Administration | | 60,654 | | Owned |

| Shanghai, China | | Office | | Research, Service and Sales Administration | | 56,790 | | Leased |

| Shenzhen, China | | Office and plant | | Sales, Service and Manufacturing | | 47,840 | | Leased |

| Chennai, India | | Office | | Engineering | | 46,351 | | Leased |

| Chennai, India | | Office | | Engineering | | 33,366 | | Owned |

| Yokohama, Japan | | Office and warehouse | | Sales and Service | | 27,079 | | Leased |

| | |

| --- | --- |

| (1) | Portions of this property are sublet, are vacant and marketed to sublease, or are leased to third parties. |

As of June 30, 2018, we owned or leased a total of approximately 2.1 million square feet of space worldwide, including the locations listed above and office space for smaller sales and service offices in several locations throughout the world.

On August [removed: 2, 2018,] [added: 1, 2019,] we announced that our Board of Directors had declared a quarterly cash dividend of $0.75 per share to be paid on [removed: August 31, 2018] [added: September 3, 2019] to stockholders of record as of the close of business on August 15, [removed: 2018.][added: 2019.]

As of July [removed: 13, 2018,] [added: 19, 2019,] there were [removed: 375] [added: 383] holders of record of our common stock.

The following is a summary of stock repurchases for each month during the fourth quarter of the fiscal year ended June 30, [removed: 2018(1):][added: 2019(1):]

| (1) | [removed: On March 16, 2018, our] [added: Our] Board of Directors authorized a [removed: new repurchase] program which permits us to repurchase up to [removed: $1.00] [added: $2.00] billion of our common stock, [removed: or up to $2.00] [added: reflecting an increase from $1.00] billion [removed: if] [added: upon] the [added: close of the] Orbotech [removed: Merger closes.] [added: Acquisition.] Shares are reported based on the trade date of the applicable repurchase. |

The following graph compares the cumulative 5-year total return attained by stockholders on our common stock relative to the cumulative total returns of the S&P 500 Index [removed: (as required by SEC regulations)] and the Philadelphia Semiconductor Index (PHLX).

The graph tracks the performance of a $100 investment in our common stock and in each of the indices (with the reinvestment of all dividends) from June 30, [removed: 2013] [added: 2014] to June 30, [removed: 2018.][added: 2019.]

[removed: ][added: ]

| | June [removed: 2013 | | June] 2014 | | June 2015 | | June 2016 | | June 2017 | | June 2018 | [added: | June 2019 |]

| April 1, 2019 to April 30, 2019 | 507,700 | | | $ | 123.81 | | | $ | 1,142,833,354 | |

| May 1, 2019 to May 31, 2019 | 1,693,619 | | | $ | 109.10 | | | $ | 958,067,283 | |

| June 1, 2019 to June 30, 2019 | 899,092 | | | $ | 110.53 | | | $ | 858,692,904 | |

| Total | 3,100,411 | | | $ | 111.92 | | | | | |

| KLA Corporation | $100.00 | | $99.11 | | $133.57 | | $171.34 | | $196.71 | | $233.26 |

| S&P 500 | $100.00 | | $107.42 | | $111.71 | | $131.70 | | $150.64 | | $166.33 |

| PHLX Semiconductor | $100.00 | | $108.97 | | $113.07 | | $172.12 | | $222.22 | | $251.80 |

The prices per share reflected in the following table represent the high and low prices for our common stock on the NASDAQ Global Select Market for the periods indicated:

| | | | | | | | | | | | | | | | | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| | Year ended June 30, 2018 | | | | | | | | | | | | Year ended June 30, 2017 | | | | | | | | | | |

| | High | | | | Low | | | | Cash Dividends Declared per share | | | | High | | | | Low | | | | Cash Dividends Declared per share | | |

| First Fiscal Quarter | $ | 106.09 | | | $ | 87.93 | | | $ | 0.59 | | | $ | 77.85 | | | $ | 66.88 | | | $ | 0.52 | |

| Second Fiscal Quarter | $ | 114.43 | | | $ | 98.91 | | | $ | 0.59 | | | $ | 83.23 | | | $ | 69.75 | | | $ | 0.54 | |

| Third Fiscal Quarter | $ | 123.96 | | | $ | 96.12 | | | $ | 0.59 | | | $ | 96.91 | | | $ | 77.86 | | | $ | 0.54 | |

| Fourth Fiscal Quarter | $ | 118.56 | | | $ | 97.94 | | | $ | 0.75 | | | $ | 109.59 | | | $ | 91.09 | | | $ | 0.54 | |

| April 1, 2018 to April 30, 2018 | — | | | $ | — | | | $ | 1,000,000,000 | |

| May 1, 2018 to May 31, 2018 | 290,400 | | | $ | 110.00 | | | $ | 968,055,978 | |

| June 1, 2018 to June 30, 2018 | 52,800 | | | $ | 116.69 | | | $ | 961,894,818 | |

| Total | 343,200 | | | $ | 111.03 | | | | | |

__________________

| KLA-Tencor Corporation | $100.00 | | $134.17 | | $133.10 | | $179.39 | | $230.12 | | $264.19 |

| S&P 500 | $100.00 | | $124.61 | | $133.86 | | $139.20 | | $164.11 | | $187.70 |

| PHLX Semiconductor | $100.00 | | $134.53 | | $138.83 | | $150.22 | | $208.31 | | $271.06 |

* Assumes $100 invested on June 30, 2013 in stock or index, including reinvestment of dividends.

| (In thousands, except per share amounts) | [removed: 2018] [added: 2019] | | | | [removed: 2017] [added: 2018] | | | | [removed: 2016] [added: 2017] | | | | [removed: 2015] [added: 2016] | | | | [removed: 2014] [added: 2015] | | |

| Consolidated Statements of [removed: Operations:] [added: Operations(1)(2):] | | | | | | | | | | | | | | | | | | | |

| Total revenues | $ | [removed: 4,036,701] [added: 4,568,904] | | | $ | [removed: 3,480,014] [added: 4,036,701] | | | $ | [removed: 2,984,493] [added: 3,480,014] | | | $ | [removed: 2,814,049] [added: 2,984,493] | | | $ | [removed: 2,929,408] [added: 2,814,049] | |

| Net [removed: income(1)] [added: income attributable to KLA(3)] | $ | [removed: 802,265] [added: 1,175,617] | | | $ | [removed: 926,076] [added: 802,265] | | | $ | [removed: 704,422] [added: 926,076] | | | $ | [removed: 366,158] [added: 704,422] | | | $ | [removed: 582,755] [added: 366,158] | |

| Cash dividends declared per share (including a special cash dividend of $16.50 per share declared during the three months ended December 31, 2014) | $ | [removed: 2.52] [added: 3.00] | | | $ | [removed: 2.14] [added: 2.52] | | | $ | [removed: 2.08] [added: 2.14] | | | $ | [removed: 18.50] [added: 2.08] | | | $ | [removed: 1.80] [added: 18.50] | |

| Net income per [removed: share:] [added: share attributable to KLA:] | | | | | | | | | | | | | | | | | | | |

| Basic | $ | [removed: 5.13] [added: 7.53] | | | $ | [removed: 5.92] [added: 5.13] | | | $ | [removed: 4.52] [added: 5.92] | | | $ | [removed: 2.26] [added: 4.52] | | | $ | [removed: 3.51] [added: 2.26] | |

| Diluted | $ | [removed: 5.10] [added: 7.49] | | | $ | [removed: 5.88] [added: 5.10] | | | $ | [removed: 4.49] [added: 5.88] | | | $ | [removed: 2.24] [added: 4.49] | | | $ | [removed: 3.47] [added: 2.24] | |

| | [removed: 2018] [added: 2019] | | | | [removed: 2017] [added: 2018] | | | | [removed: 2016] [added: 2017] | | | | [removed: 2015] [added: 2016] | | | | [removed: 2014] [added: 2015] | | |

| Consolidated Balance [removed: Sheets:] [added: Sheets(1)(2):] | | | | | | | | | | | | | | | | | | | |

| Cash, cash equivalents and marketable securities | $ | [removed: 2,880,318] [added: 1,739,385] | | | $ | [removed: 3,016,740] [added: 2,880,318] | | | $ | [removed: 2,491,294] [added: 3,016,740] | | | $ | [removed: 2,387,111] [added: 2,491,294] | | | $ | [removed: 3,152,637] [added: 2,387,111] | |

| Long-term [removed: debt(3)] [added: debt(5)] | $ | [removed: 2,237,402] [added: 3,173,383] | | | $ | [removed: 2,680,474] [added: 2,237,402] | | | $ | [removed: 3,057,936] [added: 2,680,474] | | | $ | [removed: 3,173,435] [added: 3,057,936] | | | $ | [removed: 745,101] [added: 3,173,435] | |

| Total [added: KLA] stockholders’ [removed: equity(3)] [added: equity(5)] | $ | [removed: 1,620,511] [added: 2,659,108] | | | $ | [removed: 1,326,417] [added: 1,620,511] | | | $ | [removed: 689,114] [added: 1,326,417] | | | $ | [removed: 421,439] [added: 689,114] | | | $ | [removed: 3,669,346] [added: 421,439] | |

| [removed: (1)] [added: (3)] | Our net income decreased to $802.3 million in the fiscal year ended June 30, 2018, primarily as a result of the income tax effects from the enacted tax reform legislation through the Tax Cuts and Jobs Act, which was signed into law on December 22, 2017. Our net income [removed: decreased to] [added: was] $366.2 million in the fiscal year ended June 30, 2015, primarily as a result of the impact of the pre-tax net loss of $131.7 million for the loss on extinguishment of debt and certain one-time expenses of $2.5 million associated with the leveraged recapitalization that was completed during the three months ended December 31, 2014. |

| [removed: (2)] [added: (4)] | We adopted the accounting standards update regarding classification of deferred taxes on a prospective basis at the beginning of the fourth quarter of fiscal year ended 2016. Upon adoption, approximately $218.0 million in net current deferred tax assets were reclassified to noncurrent. No prior periods were retrospectively adjusted. |

| [removed: (3)] [added: (5)] | Our long-term debt increased to $3.17 billion at the end of fiscal year ended June 30, [removed: 2015, because, as part of the leveraged recapitalization plan,] [added: 2019, because] we issued [removed: $2.50] [added: $1.20] billion aggregate principal amount of senior, unsecured long-term [removed: notes (collectively referred to as “Senior Notes”), entered into $750.0 million of five\-year senior unsecured prepayable term loans and a $500.0 million unfunded revolving credit facility and redeemed our $750.0 million aggregate principal amount of 6.900% Senior Notes due in 2018 (the “2018 Notes”).] [added: notes.] Refer to Note [removed: 7,] [added: 8,] “Debt” [added: to our Consolidated Financial Statements] for additional details. Our total stockholders’ equity decreased to $421.4 million at the end of fiscal year ended June 30, 2015, because, as part of our leveraged recapitalization plan, we declared a special cash dividend of approximately $2.76 billion. Refer to Note [removed: 8, “Equity and] [added: 9, “Equity,] Long-term Incentive Compensation [removed: Plans”] [added: Plans and Non-Controlling Interest”] to the [removed: consolidated financial statements] [added: Consolidated Financial Statements] for additional details. |

| Working capital(4) | $ | 2,546,589 | | | $ | 3,334,730 | | | $ | 3,102,094 | | | $ | 2,868,062 | | | $ | 2,904,758 | |

| Total assets | $ | 9,008,516 | | | $ | 5,638,619 | | | $ | 5,550,334 | | | $ | 4,977,076 | | | $ | 4,841,023 | |

| (1) | On July 1, 2018, we adopted ASC 606 using the modified retrospective transition approach. Results for reporting periods beginning after June 30, 2018 are presented under ASC 606, while prior period amounts are not adjusted and continue to be reported in accordance with the previous revenue guidance in ASC 605. Refer to Note 2, “Revenue” to our Consolidated Financial Statements for additional details. |

| (2) | On February 20, 2019, we completed the acquisition of Orbotech for total purchase consideration of approximately $3.26 billion. The operating results of Orbotech have been included in our Consolidated Financial Statements for the fiscal year ended June 30, 2019 from the Acquisition Date. For additional details, refer to Note 6 “Business Combinations” to our Consolidated Financial Statements. |

| | |

| --- | --- |

| | |

| --- | --- |

| Working capital(2) | $ | 3,330,917 | | | $ | 3,098,904 | | | $ | 2,865,609 | | | $ | 2,902,813 | | | $ | 3,690,484 | |

| Total assets | $ | 5,619,356 | | | $ | 5,532,173 | | | $ | 4,962,432 | | | $ | 4,826,012 | | | $ | 5,535,846 | |

| [Consolidated Balance Sheets as of June 30, [removed: 2018] [added: 2019] and [removed: 2017](#s4099CB77C0E15F8DB611F0E14661BFE4)] [added: 2018](#s813814BC73DF5692BE7D8F65D7DBA45C)] | [removed: [61](#s4099CB77C0E15F8DB611F0E14661BFE4)] [added: [62](#s813814BC73DF5692BE7D8F65D7DBA45C)] |

| [Consolidated Statements of Operations for each of the three years in the period ended June 30, [removed: 2018](#s1E2D6A10B66858E8AF42A6A9752B97E5)] [added: 2019](#sACDC7199BAE5545FB4EF1136E04B9D23)] | [removed: [62](#s1E2D6A10B66858E8AF42A6A9752B97E5)] [added: [63](#sACDC7199BAE5545FB4EF1136E04B9D23)] |

| [Consolidated Statements of Comprehensive Income for each of the three years in the period ended June 30, [removed: 2018](#sD62311AFD55B5DEDA814BDEA7DE6483C)] [added: 2019](#sDDB429BFD9B6545BB52A3F64C8B2F4E7)] | [removed: [63](#sD62311AFD55B5DEDA814BDEA7DE6483C)] [added: [64](#sDDB429BFD9B6545BB52A3F64C8B2F4E7)] |

| [Consolidated Statements of Stockholders’ Equity for each of the three years in the period ended June 30, [removed: 2018](#sBCA8EC3316BD576DB9E1A89391D8CA5B)] [added: 2019](#s4CEBB987C4265A0A948458498F68812E)] | [removed: [64](#sBCA8EC3316BD576DB9E1A89391D8CA5B)] [added: [65](#s4CEBB987C4265A0A948458498F68812E)] |

| [Consolidated Statements of Cash Flows for each of the three years in the period ended June 30, [removed: 2018](#sCF56088BCE9658B3ADA019C9EF65D2F2)] [added: 2019](#s8EB76A93713457CC9FE6D9978AB46A2C)] | [removed: [65](#sCF56088BCE9658B3ADA019C9EF65D2F2)] [added: [66](#s8EB76A93713457CC9FE6D9978AB46A2C)] |

| [Notes to Consolidated Financial [removed: Statements](#sE903E3AE8FD0515CBD052FD7C8215D1F)] [added: Statements](#s55E7F2DA7FAA5C5981B4815D162F3ABD)] | [removed: [66](#sE903E3AE8FD0515CBD052FD7C8215D1F)] [added: [67](#s55E7F2DA7FAA5C5981B4815D162F3ABD)] |

| [Report of Independent Registered Public Accounting [removed: Firm](#sBAB51B0C8F5C5E39AED19DE7DA9B3920)] [added: Firm](#sA0771C1005F45C40976CBABB0CD81B48)] | [removed: [104](#sBAB51B0C8F5C5E39AED19DE7DA9B3920)] [added: [116](#sA0771C1005F45C40976CBABB0CD81B48)] |

[removed: KLA-TENCOR] [added: KLA] CORPORATION

| (In thousands, except par value) | [removed: 2018] [added: 2019] | | | | [removed: 2017] [added: 2018] | | |

| Cash and cash equivalents [removed: | $] [added: at beginning of period] | 1,404,382 | | | [removed: $] | 1,153,051 | | [added: | | 1,108,488 | | |]

| Marketable securities | [removed: 1,475,936] [added: 723,391] | | | | [removed: 1,863,689] [added: 1,475,936] | | |

| Accounts receivable, net | [removed: 651,678] [added: 990,113] | | | | [removed: 571,117] [added: 651,678] | | |

| Inventories | [removed: 931,845] [added: 1,262,500] | | | | [removed: 732,988] [added: 931,845] | | |

| Other current [removed: assets] [added: assets:] | [removed: 85,159] | | | | [removed: 71,221] | | | [added: | | | | | | | |]

| Total current assets | [removed: 4,549,000] [added: 4,315,075] | | | | [removed: 4,392,066] [added: 4,549,000] | | |

| Land, property and equipment, net | [removed: 286,306] [added: 448,799] | | | | [removed: 283,975] [added: 286,306] | | |

| Goodwill | [removed: 354,698] [added: 2,211,858] | | | | [removed: 349,526] [added: 354,698] | | |

| Deferred income taxes | [removed: 193,200] [added: 206,141] | | | | [removed: 291,967] [added: 193,200] | | |

| Other non-current [removed: assets] [added: assets:] | [removed: 216,819] | | | | [removed: 195,676] | | | [added: | | | | | | | |]

| [removed: LIABILITIES] [added: LIABILITIES, NON-CONTROLLING INTEREST] AND STOCKHOLDERS’ EQUITY | | | | | | | |

| Accounts payable | $ | [removed: 169,354] [added: 202,416] | | | $ | [removed: 147,380] [added: 169,354] | |

| Deferred system profit | [removed: 279,581] [added: —] | | | | [removed: 180,861] [added: 279,581] | | |

| Current portion of long-term debt | [removed: —] [added: 249,999] | | | | [removed: 249,983] [added: —] | | |

| Long-term debt | [removed: 2,237,402] [added: 3,173,383] | | | | [removed: 2,680,474] [added: 2,237,402] | | |

| Other non-current [removed: liabilities | 471,363 | | |] [added: liabilities(6)] | [removed: 172,407] [added: (67,901] | | [added: )] |

| Commitments and contingencies (Notes [removed: 13] [added: 14] and [removed: 14)] [added: 15)] | | | | | | | |

| Common stock, $0.001 par value, 500,000 shares authorized, [removed: 262,718] [added: 276,202] and [removed: 261,654] [added: 262,718] shares issued, [removed: 156,048] [added: 159,475] and [removed: 156,840] [added: 156,048] shares outstanding, as of June 30, [removed: 2018] [added: 2019] and June 30, [removed: 2017,] [added: 2018,] respectively | [removed: 156] [added: 159] | | | | [removed: 157] [added: 156] | | |

| Capital in excess of par value | [removed: 617,843] [added: 2,017,153] | | | | [removed: 529,126] [added: 617,843] | | |

| Retained earnings | [removed: 1,056,445] [added: 714,825] | | | | [removed: 848,457] [added: 1,056,445] | | |

| Accumulated other comprehensive income (loss) | [removed: (53,933] [added: (73,029] | | ) | | [removed: (51,323] [added: (53,933] | | ) |

| Total stockholders’ equity | [removed: 1,620,511] [added: 2,677,693] | | | | [removed: 1,326,417] [added: 1,620,511] | | |

| Total liabilities and stockholders’ equity | $ | [removed: 5,619,356] [added: 9,008,516] | | | $ | [removed: 5,532,173] [added: 5,638,619] | |

| (In thousands, except per share amounts) | [removed: 2018] [added: 2019] | | | | [removed: 2017] [added: 2018] | | | | [removed: 2016] [added: 2017] | | |

| Product | $ | [removed: 3,160,671] [added: 3,392,243] | | | $ | [removed: 2,703,934] [added: 3,160,671] | | | $ | [removed: 2,250,260] [added: 2,703,934] | |

| Service | [removed: 876,030] [added: 1,176,661] | | | | [removed: 776,080] [added: 876,030] | | | | [removed: 734,233] [added: 776,080] | | |

| Total revenues | [removed: 4,036,701] [added: 4,568,904] | | | | [removed: 3,480,014] [added: 4,036,701] | | | | [removed: 2,984,493] [added: 3,480,014] | | |

| Interest expense | [removed: 114,376] [added: 124,604] | | | | [removed: 122,476] [added: 114,376] | | | | [removed: 122,887] [added: 122,476] | | |

| [added: | |] Other expense (income), net | [removed: (33,113] | [removed: | ) | | (19,461] [added: 4] | | [removed: )] | | [removed: (20,634] [added: —] | | [removed: )] |

| Income before income taxes | [removed: 1,455,931] [added: 1,296,231] | | | | [removed: 1,173,246] [added: 1,455,931] | | | | [removed: 858,192] [added: 1,173,246] | | |

| Provision for income taxes | [removed: 653,666] [added: 121,214] | | | | [removed: 247,170] [added: 653,666] | | | | [removed: 153,770] [added: 247,170] | | |

(formerly known as KLA-TENCOR CORPORATION)

| Cash and cash equivalents | $ | 1,015,994 | | | $ | 1,404,382 | |

| Other current assets | 323,077 | | | | 85,159 | | |

| Purchased intangible assets, net | 1,560,670 | | | | 19,333 | | |

| Other non-current assets | 265,973 | | | | 236,082 | | |

| Total assets | $ | 9,008,516 | | | $ | 5,638,619 | |

| Deferred system revenue | 282,348 | | | | — | | |

| Deferred service revenue | 206,669 | | | | 69,255 | | |

| Other current liabilities | 827,054 | | | | 696,080 | | |

| Total current liabilities | 1,768,486 | | | | 1,214,270 | | |

| Deferred tax liabilities | 702,285 | | | | 1,197 | | |

| Deferred service revenue | 98,772 | | | | 71,997 | | |

| Other non-current liabilities | 587,897 | | | | 493,242 | | |

| Total liabilities | 6,330,823 | | | | 4,018,108 | | |

| Total KLA stockholders’ equity | 2,659,108 | | | | 1,620,511 | | |

| Non-controlling interest in consolidated subsidiaries | 18,585 | | | | — | | |

KLA CORPORATION

(formerly known as KLA-TENCOR CORPORATION)

| Costs of revenues | 1,869,377 | | | | 1,446,041 | | | | 1,286,215 | | |

| Research and development | 711,030 | | | | 608,531 | | | | 526,688 | | |

| Selling, general and administrative | 599,124 | | | | 442,304 | | | | 388,211 | | |

| Other expense (income), net | (31,462 | | ) | | (30,482 | | ) | | (16,822 | | ) |

| Less: Net loss attributable to non-controlling interest | (600 | | ) | | — | | | | — | | |

| Net income attributable to KLA | $ | 1,175,617 | | | $ | 802,265 | | | $ | 926,076 | |

KLA CORPORATION

(formerly known as KLA-TENCOR CORPORATION)

| Net income | $ | 1,175,017 | | | $ | 802,265 | | | $ | 926,076 | |

| Comprehensive loss attributable to non-controlling interest | (600 | | ) | | — | | | | — | | |

KLA CORPORATION

(formerly known as KLA-TENCOR CORPORATION)

| | | | | | | | | | | | | | | | | | | | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| | | | | | | | | | | | | | | | | | | | | | | | | | | |

| Adoption of ASC 606 | — | | | — | | | | (21,215 | | ) | | 75 | | | | (21,140 | | ) | | — | | | | (21,140 | | ) |

| Reclassification of stranded tax effects | — | | | — | | | | 10,920 | | | | (10,920 | | ) | | — | | | | — | | | | — | | |

| Balance as of July 1, 2018 | 156,048 | | | 617,999 | | | | 1,046,150 | | | | (64,778 | | ) | | 1,599,371 | | | | — | | | | 1,599,371 | | |

| Net income attributable to KLA | — | | | — | | | | 1,175,617 | | | | — | | | | 1,175,617 | | | | — | | | | 1,175,617 | | |

| Net loss attributable to non-controlling interest | — | | | — | | | | — | | | | — | | | | — | | | | (600 | | ) | | (600 | | ) |

| Assumption of stock-based compensation plan awards in connection with the acquisition of Orbotech | — | | | 13,281 | | | | — | | | | — | | | | 13,281 | | | | — | | | | 13,281 | | |

| Common stock issued upon the acquisition of Orbotech | 12,292 | | | 1,330,786 | | | | — | | | | — | | | | 1,330,786 | | | | — | | | | 1,330,786 | | |

| Purchased intangibles, net | 19,333 | | | | 18,963 | | |

| Total assets | $ | 5,619,356 | | | $ | 5,532,173 | |

| Unearned revenue | 69,255 | | | | 65,507 | | |

| Other current liabilities | 699,893 | | | | 649,431 | | |

| Total current liabilities | 1,218,083 | | | | 1,293,162 | | |

| Unearned revenue | 71,997 | | | | 59,713 | | |

| Total liabilities | 3,998,845 | | | | 4,205,756 | | |

| Costs of revenues | 1,447,369 | | | | 1,287,547 | | | | 1,163,391 | | |

| Research and development | 608,712 | | | | 526,870 | | | | 481,258 | | |

| Selling, general and administrative | 443,426 | | | | 389,336 | | | | 379,399 | | |

| Cash dividends declared per share | $ | 2.52 | | | $ | 2.14 | | | $ | 2.08 | |

| | | | | | | | | | | | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| Balances as of June 30, 2015 | 157,851 | | | $ | 474,374 | | | $ | (12,362 | ) | | $ | (40,573 | ) | | $ | 421,439 | |

| Net income | — | | | — | | | | 704,422 | | | | — | | | | 704,422 | | |

| Repurchase of common stock | (3,445 | ) | | (10,049 | | ) | | (165,694 | | ) | | — | | | | (175,743 | | ) |

| Tax benefit for equity awards | — | | | 11,540 | | | | — | | | | — | | | | 11,540 | | |

| Asset impairment charges | 1,000 | | | | 358 | | | | 1,396 | | |

| Excess tax benefit from equity awards | — | | | | — | | | | (11,936 | | ) |

| Net (gain) loss on sales of marketable securities and other investments | 195 | | | | (1,207 | | ) | | (5,887 | | ) |

| Accounts receivable, net | (76,497 | | ) | | 39,898 | | | | (8,292 | | ) |

| Inventories | (182,883 | | ) | | (46,433 | | ) | | (67,579 | | ) |

| Other assets | (37,632 | | ) | | (26,596 | | ) | | 14,613 | | |

| Other liabilities | 377,946 | | | | 28,373 | | | | (27,796 | | ) |

| Capital expenditures, net | (66,961 | | ) | | (38,594 | | ) | | (31,741 | | ) |

| Excess tax benefit from equity awards | — | | | | — | | | | 11,936 | | |

| Cash and cash equivalents at beginning of period | 1,153,051 | | | | 1,108,488 | | | | 838,025 | | |

KLA-Tencor Corporation (“KLA-Tencor” or the “Company”) is a supplier of process control and yield management solutions for the semiconductor and related nanoelectronics industries.

KLA-Tencor provides equipment, software and support that enable IC manufacturers to identify, resolve and manage significant advanced technology manufacturing process challenges and obtain higher finished product yields at lower overall cost.

In addition to serving the semiconductor industry, KLA-Tencor also provides a range of technology solutions to a number of other high technology industries, including the advanced packaging, light emitting diode (“LED”), power devices, compound semiconductor, and data storage industries, as well as general materials research.

Proposed Merger with Orbotech, Ltd. On March 18, 2018, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Orbotech, Ltd. (“Orbotech”) pursuant to which KLA-Tencor would acquire Orbotech for $38.86 in cash and 0.25 of a share of KLA-Tencor common stock in exchange for each ordinary share of Orbotech, which at the time of announcement valued Orbotech at $3.2 billion in enterprise value.

The merger contemplated by the Merger Agreement (the “Orbotech Merger”) is subject to receipt of required regulatory approvals and satisfaction of the other customary closing conditions.

| Samsung Electronics Co., Ltd. | | Samsung Electronics Co., Ltd. | | Micron Technology, Inc. |

If the transaction being hedged fails to occur, or if a portion of any derivative is (or becomes) ineffective, the gain or loss on the associated financial instrument is recorded immediately in earnings.

Warranty.

The estimated warranty cost is based on historical product performance and field expenses.

Utilizing actual service records, the Company calculates the average service hours and parts expense per system and applies the actual labor and overhead rates to determine the estimated warranty charge.

The Company updates these estimated charges on a regular basis.

The actual product performance and/or field expense profiles may differ, and in those cases the Company adjusts its warranty accruals accordingly (see Note 13, “Commitments and Contingencies”).

The Company recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the selling price is fixed or determinable, and collectibility is reasonably assured.

[removed: The Company] [added: We] conducted an evaluation of the effectiveness of the design and operation of [removed: its] [added: our] disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) (“Disclosure Controls”) as of the end of the period covered by this Annual Report on Form 10-K (this “Report”) required by Exchange Act Rules 13a-15(b) or 15d-15(b).

The controls evaluation was conducted under the supervision and with the participation of [removed: the Company’s] [added: our] management, including [removed: the Company’s] [added: our] Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”).

Based on this evaluation, the CEO and CFO have concluded that as of the end of the period covered by this Report [removed: the Company’s] [added: our] Disclosure Controls were effective at a reasonable assurance level.

Disclosure Controls are controls and procedures designed to reasonably assure that information required to be disclosed in [removed: the Company’s] [added: our] reports filed under the Exchange Act, such as this Report, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

Disclosure Controls are also designed to reasonably assure that such information is accumulated and communicated to [removed: the Company’s] [added: our] management, including [removed: the] [added: our] CEO and CFO, as appropriate to allow timely decisions regarding required disclosure.

[removed: The Company’s] [added: Our] Disclosure Controls include components of [removed: its] [added: our] internal control over financial reporting, which consists of control processes designed to provide reasonable assurance regarding the reliability of [removed: its] [added: our] financial reporting and the preparation of financial statements in accordance with generally accepted accounting principles in the United States.

To the extent that components of [removed: the Company’s] [added: our] internal control over financial reporting are included within [removed: its] [added: our] Disclosure Controls, they are included in the scope of [removed: the Company’s] [added: our] annual controls evaluation.

[removed: The Company’s] [added: Our] management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act.

Under the supervision and with the participation of [removed: the Company’s] [added: our] management, including [removed: the] [added: our] CEO and CFO, [removed: the Company] [added: we] conducted an evaluation of the effectiveness of [removed: its] [added: our] internal control over financial reporting based on criteria established in the framework in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

Based on this evaluation, [removed: the Company’s] [added: our] management concluded that [removed: the Company’s] [added: our] internal control over financial reporting was effective as of June 30, [removed: 2018.][added: 2019.]

The effectiveness of [removed: the Company’s] [added: our] internal control over financial reporting as of June 30, [removed: 2018] [added: 2019] has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which appears in Item 8, “Financial Statements and Supplementary Data” in this Annual Report on Form 10-K.

[removed: The Company’s] [added: Our] management, including the CEO and CFO, does not expect that [removed: the Company’s] [added: our] Disclosure Controls or internal control over financial reporting will prevent all [removed: errors] [added: error] and all fraud.

The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving [removed: its] [added: our] stated goals under all potential future conditions.

There were no changes in [removed: the Company’s] [added: our] internal control over financial reporting [added: identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act] that occurred during the fourth quarter of [added: the] fiscal year [removed: 2018] [added: ended June 30, 2019] that [removed: have] [added: has] materially affected, or [removed: are] [added: is] reasonably likely to materially affect, [removed: the Company’s] [added: our] internal control over financial reporting.

Management excluded Orbotech, Ltd (“Orbotech”), which was acquired by us on February 20, 2019, from its assessment of internal control over financial reporting as of June 30, 2019.

Total assets and revenues of Orbotech excluded from our assessment of internal control over financial reporting, were $917.6 million as of June 30, 2019, and $388.9 million for the year ended June 30, 2019, respectively.

For the information required by this Item, see “Proposal Two: Ratification of Appointment of PricewaterhouseCoopers LLP as Our Independent Registered Public Accounting Firm for the Fiscal Year Ending June 30, [removed: 2019”] [added: 2020”] in the Proxy Statement, which is incorporated herein by reference.

| [Consolidated Balance Sheets as of June 30, [removed: 2018] [added: 2019] and June 30, [removed: 2017](#s4099CB77C0E15F8DB611F0E14661BFE4)] [added: 2018](#s813814BC73DF5692BE7D8F65D7DBA45C)] | [removed: [61](#s4099CB77C0E15F8DB611F0E14661BFE4)] [added: [62](#s813814BC73DF5692BE7D8F65D7DBA45C)] |

| [Consolidated Statements of Operations for each of the three years in the period ended June 30, [removed: 2018](#s1E2D6A10B66858E8AF42A6A9752B97E5)] [added: 2019](#sACDC7199BAE5545FB4EF1136E04B9D23)] | [removed: [62](#s1E2D6A10B66858E8AF42A6A9752B97E5)] [added: [63](#sACDC7199BAE5545FB4EF1136E04B9D23)] |

| [Consolidated Statements of Comprehensive Income for each of the three years in the period ended June 30, [removed: 2018](#sD62311AFD55B5DEDA814BDEA7DE6483C)] [added: 2019](#sDDB429BFD9B6545BB52A3F64C8B2F4E7)] | [removed: [63](#sD62311AFD55B5DEDA814BDEA7DE6483C)] [added: [64](#sDDB429BFD9B6545BB52A3F64C8B2F4E7)] |

| [Consolidated Statements of [removed: Stockholders'] [added: Stockholders’] Equity for each of the three years in the period ended June 30, [removed: 2018](#sBCA8EC3316BD576DB9E1A89391D8CA5B)] [added: 2019](#s4CEBB987C4265A0A948458498F68812E)] | [removed: [64](#sBCA8EC3316BD576DB9E1A89391D8CA5B)] [added: [65](#s4CEBB987C4265A0A948458498F68812E)] |

| [Consolidated Statements of Cash Flows for each of the three years in the period ended June 30, [removed: 2018](#sCF56088BCE9658B3ADA019C9EF65D2F2)] [added: 2019](#s8EB76A93713457CC9FE6D9978AB46A2C)] | [removed: [65](#sCF56088BCE9658B3ADA019C9EF65D2F2)] [added: [66](#s8EB76A93713457CC9FE6D9978AB46A2C)] |

| [Notes to Consolidated Financial [removed: Statements](#sE903E3AE8FD0515CBD052FD7C8215D1F)] [added: Statements](#s55E7F2DA7FAA5C5981B4815D162F3ABD)] | [removed: [66](#sE903E3AE8FD0515CBD052FD7C8215D1F)] [added: [67](#s55E7F2DA7FAA5C5981B4815D162F3ABD)] |

| [Report of Independent Registered Public Accounting [removed: Firm](#sBAB51B0C8F5C5E39AED19DE7DA9B3920)] [added: Firm](#sA0771C1005F45C40976CBABB0CD81B48)] | [removed: [104](#sBAB51B0C8F5C5E39AED19DE7DA9B3920)] [added: [116](#sA0771C1005F45C40976CBABB0CD81B48)] |

| [Schedule II—Valuation and Qualifying [removed: Accounts](#s316B4D6F409A52379BA3B62F4652EFE2)] [added: Accounts](#s8831D33445945678A89EAC6EDA9ED2AE)] for the years ended June 30, [removed: 2018, 2017] [added: 2019, 2018] and [removed: 2016] [added: 2017] | [removed: [112](#s316B4D6F409A52379BA3B62F4652EFE2)] [added: [125](#s8831D33445945678A89EAC6EDA9ED2AE)] |

| | | | | [removed: KLA-Tencor] [added: KLA] Corporation |

| August [removed: 6, 2018] [added: 16, 2019] | | By: | | /S/ RICHARD P. WALLACE |

| /s/ RICHARD P. WALLACE | | President, Chief Executive Officer and Director (principal executive officer) | | August [removed: 6, 2018] [added: 16, 2019] |

| /s/ BREN D. HIGGINS | | Executive Vice President and Chief Financial Officer (principal financial officer) | | August [removed: 6, 2018] [added: 16, 2019] |

| /s/ VIRENDRA A. KIRLOSKAR | | Senior Vice President and Chief Accounting Officer (principal accounting officer) | | August [removed: 6, 2018] [added: 16, 2019] |

| /s/ EDWARD W. BARNHOLT | | Chairman of the Board and Director | | August [removed: 6, 2018] [added: 15, 2019] |

| /s/ ROBERT M. CALDERONI | | Director | | August [removed: 6, 2018] [added: 14, 2019] |

| /s/ JOHN T. DICKSON | | Director | | August [removed: 6, 2018] [added: 14, 2019] |

| /s/ EMIKO HIGASHI | | Director | | August [removed: 6, 2018] [added: 15, 2019] |

| /s/ KEVIN J. KENNEDY | | Director | | August [removed: 6, 2018] [added: 15, 2019] |

| /s/ GARY B. MOORE | | Director | | August [removed: 6, 2018] [added: 15, 2019] |

| /s/ KIRAN M. PATEL | | Director | | August [removed: 6, 2018] [added: 14, 2019] |

| /s/ ROBERT A. RANGO | | Director | | August [removed: 6, 2018] [added: 15, 2019] |

| /s/ ANA G. PINCZUK | | Director | | August [removed: 6, 2018] [added: 14, 2019] |

| Fiscal Year Ended June 30, [removed: 2016:] [added: 2019:] | | | | | | | | | | | | | | | |

| Allowance for Doubtful Accounts | $ | [removed: 21,663] [added: 11,639] | | | $ | [removed: —] [added: 364] | | | $ | [removed: 9] [added: (2] | [added: )] | | $ | [removed: 21,672] [added: 12,001] | |