Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA


Consolidated Balance Sheets as of June 30, 2023 and 2022			55

Consolidated Statements of Operations for each of the three years in the period ended June 30, 2023			56

Consolidated Statements of Comprehensive Income for each of the three years in the period ended June 30, 2023			57

Consolidated Statements of Stockholders’ Equity for each of the three years in the period ended June 30, 2023			58

Consolidated Statements of Cash Flows for each of the three years in the period ended June 30, 2023			59

Notes to Consolidated Financial Statements			60

Report of Independent Registered Public Accounting Firm (PCAOB ID 238)			102

Schedule II Valuation and Qualifying Accounts			104

KLA CORPORATION

Consolidated Balance Sheets


	As of June 30,
(In thousands, except par value)	2023		2022
ASSETS
Current assets:
Cash and cash equivalents	$	1,927,865	$	1,584,908
Marketable securities	1,315,294		1,123,100
Accounts receivable, net	1,753,361		1,811,877
Inventories	2,876,784		2,146,889

Other current assets	498,728		502,137
Total current assets	8,372,032		7,168,911
Land, property and equipment, net	1,031,841		849,929
Goodwill	2,278,820		2,320,049
Deferred income taxes	816,899		579,173
Purchased intangible assets, net	935,303		1,194,414
Other non-current assets	637,462		484,612
Total assets	$	14,072,357	$	12,597,088
LIABILITIES, NON-CONTROLLING INTEREST AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	371,026	$	443,338
Deferred system revenue	651,720		500,969
Deferred service revenue	416,606		381,737


Other current liabilities	2,303,490		1,545,039
Total current liabilities	3,742,842		2,871,083
Long-term debt	5,890,736		6,660,718
Deferred tax liabilities	529,287		658,937
Deferred service revenue	176,681		124,618
Other non-current liabilities	813,058		882,642
Total liabilities	11,152,604		11,197,998
Commitments and contingencies (Notes 9, 15 and 16)
Stockholders’ equity:
Preferred stock, $0.001 par value, 1,000 shares authorized, none outstanding	—		—
Common stock, $0.001 par value, 500,000 shares authorized, 279,995 and 279,210 shares issued, 136,750 and 141,804 shares outstanding, as of June 30, 2023 and June 30, 2022, respectively	137		142
Capital in excess of par value	2,107,526		1,061,798
Retained earnings	848,431		366,882
Accumulated other comprehensive loss	(36,341)		(27,471)
Total KLA stockholders’ equity	2,919,753		1,401,351
Non-controlling interest in consolidated subsidiaries	—		(2,261)
Total stockholders’ equity	2,919,753		1,399,090
Total liabilities and stockholders’ equity	$	14,072,357	$	12,597,088

See accompanying notes to Consolidated Financial Statements.

KLA CORPORATION

Consolidated Statements of Operations


	Year Ended June 30,
(In thousands, except per share amounts)	2023		2022		2021
Revenues:
Product	$	8,379,025	$	7,301,428	$	5,240,316
Service	2,117,031		1,910,455		1,678,418
Total revenues	10,496,056		9,211,883		6,918,734
Costs and expenses:
Costs of revenues	4,218,307		3,592,441		2,772,165
Research and development	1,296,727		1,105,254		928,487
Selling, general and administrative	986,326		860,007		729,602

Interest expense	296,940		160,339		157,328
Loss on extinguishment of debt	13,286		—		—
Other expense (income), net	(104,720)		4,605		(29,302)
Income before income taxes	3,789,190		3,489,237		2,360,454
Provision for income taxes	401,839		167,177		283,101
Net income	3,387,351		3,322,060		2,077,353
Less: Net income (loss) attributable to non-controlling interest	74		253		(939)
Net income attributable to KLA	$	3,387,277	$	3,321,807	$	2,078,292
Net income per share attributable to KLA
Basic	$	24.28	$	22.07	$	13.49
Diluted	$	24.15	$	21.92	$	13.37
Weighted-average number of shares:
Basic	139,483		150,494		154,086
Diluted	140,235		151,555		155,437

See accompanying notes to Consolidated Financial Statements.

KLA CORPORATION

Consolidated Statements of Comprehensive Income


	Year Ended June 30,
(In thousands)	2023		2022		2021
Net income	$	3,387,351	$	3,322,060	$	2,077,353
Other comprehensive income (loss):
Currency translation adjustments:
Cumulative currency translation adjustments	(22,288)		(15,915)		12,236
Income tax (provision) benefit	1,547		4,592		(842)
Net change related to currency translation adjustments	(20,741)		(11,323)		11,394
Cash flow hedges:
Net unrealized gains arising during the period	30,025		104,952		3,782
Reclassification adjustments for net (gains) losses included in net income	(29,058)		(5,919)		181
Income tax (provision) benefit	2,141		(22,105)		(805)
Net change related to cash flow hedges	3,108		76,928		3,158
Net change related to unrecognized losses and transition obligations in connection with defined benefit plans	6,074		(1,438)		(7,247)
Available-for-sale securities:
Net unrealized gains (losses) arising during the period	2,459		(20,792)		(3,678)
Reclassification adjustments for net (gains) losses included in net income	986		306		(253)
Income tax (provision) benefit	(756)		4,405		843
Net change related to available-for-sale securities	2,689		(16,081)		(3,088)
Other comprehensive income (loss)	(8,870)		48,086		4,217
Less: Comprehensive income (loss) attributable to non-controlling interest	74		253		(939)
Total comprehensive income attributable to KLA	$	3,378,407	$	3,369,893	$	2,082,509

See accompanying notes to Consolidated Financial Statements.

KLA CORPORATION

Consolidated Statements of Stockholders’ Equity


	Common Stock and Capital in Excess of Par Value			Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total KLA Stockholders’ Equity		Non-Controlling Interest		Total Stockholders’ Equity
(In thousands, except per share amounts)	Shares	Amount
Balances as of June 30, 2020	155,461	$	2,090,268	$	654,930	$	(79,774)	$	2,665,424	$	15,586	$	2,681,010
Adoption of ASC 326	—	—		(5,530)		—		(5,530)		—		(5,530)

Net income attributable to KLA	—	—		2,078,292		—		2,078,292		—		2,078,292
Net loss attributable to non-controlling interest	—	—		—		—		—		(939)		(939)
Other comprehensive income	—	—		—		4,217		4,217		—		4,217


Net issuance under employee stock plans	973	29,736		—		—		29,736		—		29,736
Repurchase of common stock	(3,658)	(55,414)		(889,193)		—		(944,607)		—		(944,607)
Cash dividends ($3.60 per share) and dividend equivalents declared	—	—		(561,376)		—		(561,376)		—		(561,376)


Stock-based compensation expense	—	111,398		—		—		111,398		438		111,836
Net issuance on exercise of option by non-controlling interest	—	—		—		—		—		127		127
Disposal of non-controlling interest	—	—		—		—		—		(17,124)		(17,124)
Balances as of June 30, 2021	152,776	2,175,988		1,277,123		(75,557)		3,377,554		(1,912)		3,375,642

Net income attributable to KLA	—	—		3,321,807		—		3,321,807		—		3,321,807
Net income attributable to non-controlling interest	—	—		—		—		—		253		253
Other comprehensive income	—	—		—		48,086		48,086		—		48,086
Net issuance under employee stock plans	796	28,644		—		—		28,644		—		28,644
Repurchase of common stock	(11,768)	(1,269,610)		(3,592,657)		—		(4,862,267)		—		(4,862,267)
Cash dividends ($4.20 per share) and dividend equivalents declared	—	—		(639,391)		—		(639,391)		—		(639,391)
Dividend to non-controlling interest	—	—		—		—		—		(602)		(602)
Stock-based compensation expense	—	126,918		—		—		126,918		—		126,918


Balances as of June 30, 2022	141,804	1,061,940		366,882		(27,471)		1,401,351		(2,261)		1,399,090

Net income attributable to KLA	—	—		3,387,277		—		3,387,277		—		3,387,277
Net income attributable to non-controlling interest	—	—		—		—		—		74		74
Other comprehensive loss	—	—		—		(8,870)		(8,870)		—		(8,870)
Net issuance under employee stock plans	790	29,930		—		—		29,930		—		29,930
Repurchase of common stock	(5,844)	842,467		(2,172,181)		—		(1,329,714)		—		(1,329,714)
Cash dividends ($5.20 per share) and dividend equivalents declared	—	—		(733,547)		—		(733,547)		—		(733,547)

Stock-based compensation expense	—	171,424		—		—		171,424				171,424
Purchase of non-controlling interest	—	1,902		—		—		1,902		(6,196)		(4,294)
Disposal of non-controlling interest	—	—		—		—		—		8,383		8,383
Balances as of June 30, 2023	136,750	$	2,107,663	$	848,431	$	(36,341)	$	2,919,753	$	—	$	2,919,753

See accompanying notes to Consolidated Financial Statements.

KLA CORPORATION

Consolidated Statements of Cash Flows


	Year Ended June 30,
(In thousands)	2023		2022		2021
Cash flows from operating activities:
Net income	$	3,387,351	$	3,322,060	$	2,077,353
Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization	415,113		363,344		333,335
Loss on extinguishment of debt	13,286		—		—

Unrealized foreign exchange (gain) loss and other	(17,825)		46,531		(19,441)
Asset impairment charges	9,905		5,962		842
Disposal of non-controlling interest	8,270		—		—
Stock-based compensation expense	171,424		126,918		111,836
Gain on sale of business	(29,687)		—		(4,422)
Deferred income taxes	(298,145)		(329,501)		(44,445)
Gain on fair value adjustment of marketable equity securities	—		—		(26,719)
Settlement of treasury lock agreement	—		82,799		—
Changes in assets and liabilities, net of assets acquired and liabilities assumed in business acquisitions:
Accounts receivable	(48,534)		(510,326)		(203,155)
Inventories	(749,047)		(567,003)		(270,100)
Other assets	(121,018)		(217,070)		(96,218)
Accounts payable	(144,661)		101,632		79,366
Deferred system revenue	150,750		213,368		(44,674)
Deferred service revenue	88,223		129,718		45,845

Other liabilities	834,400		544,270		245,623
Net cash provided by operating activities	3,669,805		3,312,702		2,185,026
Cash flows from investing activities:

Proceeds from sale of assets	—		27,658		1,855
Net proceeds from sale of business	75,358		—		16,833
Business acquisitions, net of cash acquired	(27,144)		(479,113)		—
Capital expenditures	(341,591)		(307,320)		(231,628)
Purchases of available-for-sale securities	(1,441,933)		(987,660)		(1,018,744)
Proceeds from sale of available-for-sale securities	124,620		113,538		145,533
Proceeds from maturity of available-for-sale securities	1,134,182		760,548		581,679
Purchases of trading securities	(96,611)		(121,254)		(107,867)
Proceeds from sale of trading securities	89,528		116,350		111,321
Proceeds from other investments	1,020		795		614
Net cash used in investing activities	(482,571)		(876,458)		(500,404)
Cash flows from financing activities:
Payment of debt issuance costs	(6,515)		—		—
Proceeds from issuance of debt, net of issuance costs	—		2,967,409		40,343
Proceeds from revolving credit facility, net of costs	300,000		875,000		—
Repayment of debt	(1,087,250)		(620,000)		(70,000)
Common stock repurchases	(1,311,864)		(3,967,806)		(938,607)
Forward contract for accelerated share repurchases	—		(900,000)		—
Payment of dividends to stockholders	(732,556)		(638,528)		(559,353)
Payment of dividends to subsidiary’s non-controlling interest holders	—		(602)		—
Issuance of common stock	124,847		113,014		86,098
Tax withholding payments related to vested and released restricted stock units	(94,806)		(84,371)		(56,362)
Payment of contingent consideration payable	(17,850)		(1,121)		—

Purchase of non-controlling interest	(4,295)		—		—
Net cash used in financing activities	(2,830,289)		(2,257,005)		(1,497,881)
Effect of exchange rate changes on cash and cash equivalents	(13,988)		(28,941)		13,460
Net increase in cash and cash equivalents	342,957		150,298		200,201
Cash and cash equivalents at beginning of period	1,584,908		1,434,610		1,234,409
Cash and cash equivalents at end of period	$	1,927,865	$	1,584,908	$	1,434,610
Supplemental cash flow disclosures:
Income taxes paid, net	$	495,101	$	464,526	$	326,002
Interest paid	$	223,955	$	154,673	$	154,196
Non-cash activities:

Contingent consideration payable - financing activities	$	(1,878)	$	16,281	$	(7,448)
Dividends payable - financing activities	$	7,903	$	7,028	$	6,285

Unsettled common stock repurchase - financing activities	$	11,000	$	—	$	6,000

Accrued purchase of land, property and equipment - investing activities	$	18,445	$	19,595	$	30,615

See accompanying notes to Consolidated Financial Statements.

KLA CORPORATION

Notes to Consolidated Financial Statements

NOTE 1— DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Description of Business and Principles of Consolidation. KLA Corporation and its majority-owned subsidiaries (“KLA” or the “Company” and also referred to as “we,” “our,” “us,” or similar references) is a supplier of process equipment, process control equipment, and data analytics products for a broad range of industries, including semiconductors, printed circuit boards (“PCB”) and displays. We provide advanced process control and process-enabling solutions for manufacturing and testing wafers and reticles, integrated circuits (“IC”), advanced packaging, light-emitting diodes, power devices, compound semiconductor devices, microelectromechanical systems (“MEMS”), data storage, PCBs and flat and flexible panel displays, as well as general materials research. We also provide comprehensive support and services across our installed base. Our extensive portfolio of inspection, metrology and data analytics products, and related services, helps IC manufacturers achieve target yield throughout the entire semiconductor fabrication process, from research and development (“R&D”) to final volume production. We develop and sell advanced vacuum deposition and etching process tools, which are used by a broad range of specialty semiconductor customers. We enable electronic device manufacturers to inspect, test and measure PCBs and flat panel displays (“FPD”) and ICs to verify their quality, deposit a pattern of desired electronic circuitry on the relevant substrate and perform three-dimensional shaping of metalized circuits on multiple surfaces. Our advanced products, coupled with our unique yield management software and services, allow us to deliver the solutions our semiconductor, PCB and display customers need to achieve their productivity goals by significantly reducing their risks and costs and improving their overall profitability and return on investment. Headquartered in Milpitas, California, we have subsidiaries both in the U.S. and key markets throughout the world.

The Consolidated Financial Statements include the accounts of KLA and its majority-owned subsidiaries. All significant intercompany balances and transactions have been eliminated.

Comparability. Effective on the first day of fiscal 2022, we adopted an Accounting Standards Update (“ASU”) to simplify the accounting for income taxes in Accounting Standards Codification (“ASC”) 740, Income Taxes (“ASC 740”), on a prospective basis. We also adopted an ASU to simplify the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity, on a modified retrospective basis. The adoption of these updates had no material impact on our Consolidated Financial Statements.

Certain reclassifications have been made to the prior year’s Consolidated Financial Statements to conform to the current year presentation. The reclassifications did not have material effects on the prior year’s Consolidated Balance Sheets, Statements of Operations, Comprehensive Income and Cash Flows.

Management Estimates. The preparation of the Consolidated Financial Statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions in applying our accounting policies that affect the reported amounts of assets and liabilities (and related disclosure of contingent assets and liabilities) at the date of the Consolidated Financial Statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.

Cash Equivalents and Marketable Securities. All highly liquid debt instruments with original or remaining maturities of less than three months at the date of purchase are cash equivalents. Marketable securities are generally classified as available-for-sale for use in current operations, if required, and are reported at fair value, with unrealized gains and non-credit related unrealized losses, net of tax, presented as a separate component of stockholders’ equity under the caption “Accumulated other comprehensive income (loss).” All realized gains and losses are recorded in earnings in the period of occurrence. The specific identification method is used to determine the realized gains and losses on investments.

We regularly review the available-for-sale debt securities in an unrealized loss position and evaluate the current expected credit loss by considering available information relevant to the collectability of the security, such as historical experience, market data, issuer-specific factors including credit ratings, default and loss rates of the underlying collateral and structure and credit enhancements, current economic conditions and reasonable and supportable forecasts. There were no credit losses on available-for-sale debt securities recognized in the years ended June 30, 2023, 2022 and 2021.

If we do not expect to recover the entire amortized cost of the security, the amount representing credit losses, defined as the difference between the present value of the cash flows expected to be collected and the amortized cost basis of the debt security, is recorded as an allowance for credit losses with an offsetting entry to net income, and the amount that is not credit-related is recognized in other comprehensive income (loss) (“OCI”). If we have the intent to sell the security or it is more likely than not that we will be required to sell the security before recovery of its entire amortized cost basis, we first write off any

previously recognized allowance for credit losses with an offsetting entry to the security’s amortized cost basis. If the allowance has been fully written off and fair value is less than amortized cost basis, we write down the amortized cost basis of the security to its fair value with an offsetting entry to net income.

Investments in Equity Securities. We hold equity securities in publicly and privately held companies for the promotion of business and strategic objectives. Equity securities in publicly held companies, or marketable equity securities, are measured and recorded at fair value on a recurring basis. Equity securities in privately held companies, or non-marketable equity securities, are accounted for at cost, less impairment, plus or minus observable price changes in orderly transactions for identical or similar securities of the same issuer. Non-marketable equity securities are subject to a periodic impairment review; however, since there are no open-market valuations, the impairment analysis requires significant judgment. This analysis includes assessment of the investee’s financial condition, the business outlook for its products and technology, its projected results and cash flow, financing transactions subsequent to the acquisition of the investment, the likelihood of obtaining subsequent rounds of financing and the impact of any relevant contractual equity preferences held by us or the others. Non-marketable equity securities are included in “Other non-current assets” on the balance sheet. Realized and unrealized gains and losses resulting from changes in fair value or the sale of our marketable and non-marketable equity securities are recorded in Other expense (income), net.

Variable Interest Entities. We use a qualitative approach in assessing the consolidation requirement for variable interest entities. The approach focuses on identifying which enterprise has the power to direct the activities that most significantly impact the variable interest entity’s economic performance and which enterprise has the obligation to absorb losses or the right to receive benefits from the variable interest entity. In the event we are the primary beneficiary of a variable interest entity, the assets, liabilities, and results of operations of the variable interest entity will be included in our Consolidated Financial Statements. We have concluded that none of our equity investments require consolidation based on our most recent qualitative assessment.

Inventory Valuation. Inventories are stated at the lower of cost or net realizable value using standard costs that approximate actual costs on a first-in, first-out basis. The carrying value of product inventory is reduced for estimated obsolescence equal to the difference between its cost and the estimated net realizable value based on assumptions about future demand for meeting our product manufacturing plans. The carrying value of service inventory is reduced for estimated obsolescence equal to the difference between its cost and the estimated net realizable value based on assumptions about future demand to meet our customers’ support requirements. Demonstration units are stated at their manufacturing cost and written down to their net realizable value. The Company’s policy is to assess the valuation of all inventories including manufacturing raw materials, work-in-process, finished goods and spare parts in each reporting period. The estimate of net realizable value of inventory is impacted by assumptions regarding general semiconductor market conditions, manufacturing schedules, technology changes, new product introductions and possible alternative uses, and require us to use significant judgment that may include uncertain elements. Actual demand may differ from forecasted demand, and such differences may have a material effect on recorded inventory values. Our manufacturing overhead standards for product costs are calculated assuming full absorption of forecasted spending over projected volumes, adjusted for excess capacity. Abnormal inventory costs such as costs of idle facilities, excess freight and handling costs and spoilage are recognized as current period charges.

Allowance for Credit Losses. A majority of our accounts receivable are derived from sales to large multinational semiconductor and electronics manufacturers throughout the world. We maintain an allowance for credit losses for expected uncollectible accounts receivable, which is recorded as an offset to accounts receivable and changes in such are classified as selling, general and administrative (“SG&A”) expense in the Consolidated Statements of Income. We assess collectability by reviewing accounts receivable on a collective basis where similar risk characteristics exist and on an individual basis when we identify specific customers with known disputes or collectability issues. The estimate of expected credit losses considers historical credit loss information that is adjusted for current conditions and reasonable and supportable forecasts. The allowance for credit losses is reviewed on a quarterly basis to assess the adequacy of the allowance. Our assessment considered estimates of expected credit and collectability trends. The credit losses recognized on accounts receivable were not significant as of June 30, 2023 and 2022. Volatility in market conditions and evolving credit trends are difficult to predict and may cause variability that may have a material impact on our allowance for credit losses in future periods.

Property and Equipment. Property and equipment are recorded at cost, net of accumulated depreciation. Depreciation of property and equipment is based on the straight-line method over the estimated useful lives of the assets. The following table

sets forth the estimated useful life for various asset categories:


Asset Category			Range of Useful Lives
Buildings			30 to 50 years
Leasehold improvements			Shorter of 15 years or lease term
Machinery and equipment			2 to 10 years
Office furniture and fixtures			7 years

Construction-in-process assets are not depreciated until the assets are placed in service. Depreciation expense for the fiscal years ended June 30, 2023, 2022 and 2021 was $154.2 million, $122.2 million and $111.1 million, respectively.

Leases. Under ASC 842 Leases, a contract is or contains a lease when we have the right to control the use of an identified asset for a period of time. We determine if an arrangement is a lease at inception of the contract, which is the date on which the terms of the contract are agreed to, and the agreement creates enforceable rights and obligations. The commencement date of the lease is the date that the lessor makes an underlying asset available for our use. On the commencement date, leases are evaluated for classification and assets and liabilities are recognized based on the present value of lease payments over the lease term.

The lease term used to calculate the lease liability includes options to extend or terminate the lease when it is reasonably certain that the option will be exercised. The right of use (“ROU”) asset is initially measured as the amount of lease liability, adjusted for any initial lease costs, prepaid lease payments and any lease incentives. Variable lease payments, consisting primarily of reimbursement of costs incurred by lessors for common area maintenance, real estate taxes and insurance, are not included in the lease liability and are recognized as they are incurred.

As most of our leases do not provide an implicit rate, we use our incremental borrowing rate at lease commencement to measure ROU assets and lease liabilities. The incremental borrowing rate used by us is based on baseline rates and adjusted by the credit spreads commensurate with our secured borrowing rate, over a similar term. We used the incremental borrowing rate on June 30, 2019 for all leases that commenced on or prior to that date. Operating lease expense is generally recognized on a straight-line basis over the lease term.

We have elected the practical expedient to account for the lease and non-lease components as a single lease component for the majority of our asset classes. For leases with a term of one year or less, we have elected not to record the ROU asset or liability.

Goodwill, Purchased Intangible Assets and Impairment Assessment. Purchased intangible assets that are not considered to have an indefinite useful life are amortized over their estimated useful lives, which generally range from six months to nine years. The carrying values of our intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of an asset or asset group may not be fully recoverable. Impairment indicators primarily include the declines in our operating cash flows from the use of these assets. If impairment indicators are present, we are required to perform a recoverability test by comparing the carrying value of the asset to the following: in the case of finite-lived intangible assets, the sum of the estimated undiscounted future cash flows attributable to these long-lived assets, or in the case of indefinite-lived intangible assets, its fair value. If the asset is considered to be impaired, the amount of any impairment is measured as the difference between the carrying value and the fair value.

Goodwill represents the excess of the purchase price in a business combination over the fair value of the net tangible and intangible assets acquired. We assess goodwill for impairment annually during our third fiscal quarter or whenever events or changes in circumstances indicate the carrying value may not be fully recoverable. We have the option to perform a qualitative assessment prior to necessitating a quantitative impairment test. The former is performed when the fair value of a reporting unit historically has significantly exceeded the carrying value of its net assets and, based on current operations, is expected to continue to do so. In the qualitative assessment, if we determine that it is more likely than not that the fair value of a reporting unit is less than the carrying value, a quantitative test is then performed, which involves comparing the estimated fair value of a reporting unit to its carrying value including goodwill. We determine the fair value of a reporting unit using the income approach which uses discounted cash flow analysis, the market approach when deemed appropriate and the necessary information is available, or a combination of both. If the fair value of a reporting unit is less than its carrying value, a goodwill impairment charge is recorded for the difference. See Note 7 “Goodwill and Purchased Intangible Assets” for additional information. Any further impairment charges could have a material adverse effect on our operating results and net asset value in the quarter and fiscal year in which we recognize the impairment charge.

Impairment of Long-Lived Assets. We evaluate the carrying value of our long-lived assets whenever events or changes in business circumstances indicate that the carrying value of the asset may be impaired. An impairment loss is recognized when

estimated future cash flows expected to result from the use of the asset, including disposition, are less than the carrying value of the asset. Such an impairment charge would be measured as the excess of the carrying value of the asset over its fair value.

Concentration of Credit Risk. Financial instruments that potentially subject us to significant concentrations of credit risk consist primarily of cash equivalents, short-term marketable securities, trade accounts receivable and derivative financial instruments used in hedging activities. We invest in a variety of financial instruments, such as, but not limited to, certificates of deposit, corporate debt and municipal securities, U.S. Treasury and Government agency securities, and equity securities and, by policy, we limit the amount of credit exposure with any one financial institution or commercial issuer. We have not experienced any material credit losses on our investments.

A majority of our accounts receivable are derived from sales to large multinational semiconductor and electronics manufacturers located throughout the world, with a majority located in Asia. In recent years, our customer base has become increasingly concentrated due to corporate consolidations, acquisitions and business closures, and to the extent that these customers experience liquidity issues in the future, we may be required to reserve for potential credit losses with respect to trade receivables. We perform ongoing credit evaluations of our customers’ financial condition and generally require little to no collateral to secure accounts receivable. We maintain an allowance for potential credit losses based upon expected collectability risk of all accounts receivable. In addition, we may utilize letters of credit (“LC”) or non-recourse factoring to mitigate credit risk when considered appropriate.

We are exposed to credit loss in the event of non-performance by counterparties on the foreign exchange contracts that we use in hedging activities and in certain factoring transactions. These counterparties are large international financial institutions, and, to date, no such counterparty has failed to meet its financial obligations to us under such contracts.

The following customers each accounted for more than 10% of total revenues, primarily in the Semiconductor Process Control segment, for the indicated periods:


Year Ended June 30,
2023	2022	2021
Taiwan Semiconductor Manufacturing Company Limited	Taiwan Semiconductor Manufacturing Company Limited	Taiwan Semiconductor Manufacturing Company Limited
Samsung Electronics Co., Ltd.	Samsung Electronics Co., Ltd.	Samsung Electronics Co., Ltd.

The following customers each accounted for more than 10% of net accounts receivable as of the dates indicated below:


As of June 30,
2023						2022
Taiwan Semiconductor Manufacturing Company Limited						Taiwan Semiconductor Manufacturing Company Limited
Samsung Electronics Co., Ltd.

Foreign Currency. The functional currencies of our foreign subsidiaries are primarily the local currencies, except as described below. Accordingly, all assets and liabilities of these foreign operations are translated to U.S. dollars at current period end exchange rates, and revenues and expenses are translated to U.S. dollars using average exchange rates in effect during the period. The gains and losses from foreign currency translation of these subsidiaries’ financial statements are recorded directly into a separate component of stockholders’ equity under the caption “Accumulated other comprehensive income (loss).”

Our manufacturing subsidiaries in Singapore, Israel, Germany, and the United Kingdom use the U.S. dollar as their functional currency. Accordingly, monetary assets and liabilities in non-functional currency of these subsidiaries are remeasured using exchange rates in effect at the end of the period. Revenues and costs in local currency are remeasured using average exchange rates for the period, except for costs related to those balance sheet items that are remeasured using historical exchange rates. The resulting remeasurement gains and losses are included in the Consolidated Statements of Operations as incurred.

Derivative Financial Instruments. We use financial instruments, such as foreign exchange contracts including forward and options transactions, to hedge a portion of, but not all, existing and forecasted foreign currency denominated transactions. The purpose of our foreign exchange hedging program is to manage the effect of exchange rate fluctuations on certain foreign currency denominated revenues, costs and eventual cash flows. The effect of exchange rate changes on foreign exchange contracts is expected to offset the effect of exchange rate changes on the underlying hedged items. We also use rate lock agreements to hedge the risk associated with the variability of cash flows due to changes in the benchmark interest rate of the intended debt financing. We believe these financial instruments do not subject us to speculative risk that would otherwise result from changes in currency exchange rates or interest rates. All of our derivative financial instruments are recorded at fair value

based upon quoted market prices for comparable instruments adjusted for risk of counterparty non-performance.

For derivative instruments designated and qualifying as cash flow hedges of forecasted foreign currency denominated transactions or debt financing, the effective portion of the gains or losses is reported in Accumulated other comprehensive income (loss) (“AOCI”) and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. We elected to include time value for the assessment of effectiveness on all forward transactions designated as cash flow hedges. The change in fair value of the derivative is recorded in AOCI until the hedged transaction is recognized in earnings. The assessment of effectiveness of options contracts designated as cash flow hedges excludes time value. The initial value of the component excluded from the assessment of effectiveness is recognized in earnings over the life of the derivative contract. Any differences between change in the fair value of the excluded components and the amounts recognized in earnings are recorded in AOCI. For foreign exchange contracts that are designated and qualify as a net investment hedge in a foreign operation and that meet the effectiveness requirements, the net gains or losses attributable to changes in spot exchange rates are recorded in cumulative translation within AOCI. The remainder of the change in value of such instruments is recorded in earnings using the mark-to-market approach. Recognition in earnings of amounts previously recorded in cumulative translation is limited to circumstances such as complete or substantially complete liquidation of the net investment in the hedged foreign operations. For foreign exchange contracts that are not designated as hedges, gains and losses are recognized in Other expense (income), net. We use foreign exchange contracts to hedge certain foreign currency denominated assets or liabilities. The gains and losses on these derivative instruments are largely offset by the changes in the fair value of the assets or liabilities being hedged.

Revenue Recognition. We primarily derive revenue from the sale of process control and process-enabling solutions for the semiconductor and related electronics industries, maintenance and support of all these products, installation and training services and the sale of spare parts. Our portfolio includes yield enhancement and production solutions for manufacturing wafers and reticles, ICs, packaging, PCBs and FPDs, as well as comprehensive support and services across our installed base.

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 collectability 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 price (“SSP”) for each distinct product or service. Management considers a variety of factors to determine the SSP, such as historical stand-alone 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.

Product Revenue

We recognize revenue from product sales at a point in time when we have satisfied our performance obligation by transferring control of the product to the customer. We use judgment to evaluate whether control has transferred by considering several indicators, including whether:

We have a present right to payment;
The customer has legal title;
The customer has physical possession;
The customer has significant risk and rewards of ownership; and
The customer has 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 criteria, and when the installation of the system is deemed perfunctory).

Not all of the indicators need to be met for us to conclude that control has transferred to the customer. In circumstances in which revenue is recognized prior to the product acceptance, the fair value of revenue associated with our performance obligations to install the product is deferred and recognized as revenue at a point in time, once installation is complete.

We enter into volume purchase agreements with some of our customers. We adjust the transaction consideration for estimated credits earned by our customers for such incentives. These credits are estimated based upon the forecasted and actual product sales for any given period and agreed incentive rate. The estimate is reviewed for material changes and updated at each reporting period.

We offer perpetual and term licenses for software products. The primary difference between perpetual and term licenses is the duration over which the customer can benefit from the use of the software, while the functionality and the features of the software are the same. Software is generally bundled with post-contract customer support (“PCS”), which includes unspecified software updates that are made available throughout the entire term of the arrangement. Revenue from software licenses is recognized at a point in time, when the software is made available to the customer. Revenue from PCS is deferred at contract inception and recognized ratably over the service period, or as services are performed.

Services Revenue

The majority of product sales include a standard six to 12-month warranty that is not separately paid for by the customers. The customers may also purchase an extended warranty for periods beyond the initial period as part of the initial product sale. We have concluded that the standard six to 12-month warranty as well as any extended warranty periods included in the initial product sales are separate performance obligations for most of our products. The estimated fair value of warranty services is deferred and recognized ratably as revenue over the warranty period, as the customer simultaneously receives and consumes the benefits of warranty services provided by us.

Additionally, we offer product maintenance and support services, which the customer may purchase separately from the standard and extended warranty offered as part of the initial product sale. Revenue from separately negotiated maintenance and support service contracts is also recognized over time based on the terms of the applicable service period. Revenue from services performed in the absence of a maintenance contract, including training revenue, is recognized when the related services are performed. We also sell spare parts, revenue from which is recognized when control over the spare parts is transferred to the customer.

Significant Judgments

Our contracts with our customers often include promises to transfer multiple products and services. Each product and service is generally capable of being distinct within the context of the contract and represents a separate performance obligation. Determining the SSP for each distinct performance obligation and allocation of consideration from an arrangement to the individual performance obligations and the appropriate timing of revenue recognition are significant judgments with respect to these arrangements. We typically estimate the SSP of products and services based on observable transactions when the products and services are sold on a stand-alone basis and those prices fall within a reasonable range. We typically have more than one SSP for individual products and services due to the stratification of these products by customers and circumstances. In these instances, we use information such as the size of the customer, geographic region, as well as customization of the products in determining the SSP. In instances where the SSP is not directly observable, we determine the SSP using information that includes market conditions, entity-specific factors, including discounting strategies, information about the customer or class of customer that is reasonably available and other observable inputs. While changes in the allocation of SSP between performance obligations will not affect the amount of total revenue recognized for a particular contract, any material changes could impact the timing of revenue recognition, which could have a material effect on our financial position and results of operations.

Although our products are generally not sold with a right of return, we may provide other credits or sales incentives, which are accounted for either as variable consideration or material right, depending on the specific terms and conditions of the arrangement. These credits and incentives are estimated at contract inception and updated at the end of each reporting period if and when additional information becomes available.

As outlined above, we use judgments to evaluate whether or not the customer has obtained control of the product and consider several indicators in evaluating whether or not control has transferred to the customer. Not all of the indicators need to be met for us to conclude that control has transferred to the customer.

Contract Assets/Liabilities

The timing of revenue recognition, billings and cash collections may result in accounts receivable, contract assets, and contract liabilities (deferred revenue) on our Consolidated Balance Sheets. A receivable is recorded in the period we deliver products or provide services when we have an unconditional right to payment. Contract assets primarily relate to the value of products and services transferred to the customer for which the right to payment is not just dependent on the passage of time. Contract assets are transferred to accounts receivable when rights to payment become unconditional.

A contract liability is recognized when we receive payment or have an unconditional right to payment in advance of the satisfaction of performance. The contract liabilities represent (1) deferred product revenue related to the value of products that have been shipped and billed to customers and for which control has not been transferred to the customers, and (2) deferred service revenue, which is recorded when we receive consideration, or such consideration is unconditionally due, from a customer prior to transferring services to the customer under the terms of a contract. Deferred service revenue typically results from warranty services, and maintenance and other service contracts.

Contract assets and liabilities related to rights and obligations in a contract are recorded net in the Consolidated Balance Sheets.

Research and Development Costs. R&D costs are expensed as incurred.

Shipping and Handling Costs. Shipping and handling costs are included as a component of cost of sales.

Accounting for Stock-Based Compensation Plans. We account for stock-based awards granted to employees for services based on the fair value of those awards. The fair value of stock-based awards is measured at the grant date and is recognized as expense over the employee’s requisite service period. The fair value for restricted stock units (“RSU”) granted without “dividend equivalent” rights is determined using the closing price of our common stock on the grant date, adjusted to exclude the present value of dividends which are not accrued on the RSUs. The fair value for RSUs granted with “dividend equivalent” rights is determined using the closing price of our common stock on the grant date. The award holder is not entitled to receive payments under dividend equivalent rights unless the associated RSU award vests (i.e., the award holder is entitled to receive credits, payable in cash or shares of common stock, equal to the cash dividends that would have been received on the shares of our common stock underlying the RSUs had the shares been issued and outstanding on the dividend record date, but such dividend equivalents are only paid subject to the recipient satisfying the vesting requirements of the underlying award). Compensation expense for RSUs with performance metrics is calculated based upon expected achievement of the metrics specified in the grant, or when a grant contains a market condition, the grant date fair value using a Monte Carlo simulation. The Monte Carlo simulation incorporates estimates of the potential outcomes of the market condition on the grant date fair value of each award. Additionally, we estimate forfeitures based on historical experience and revise those estimates in subsequent periods if actual forfeitures differ from the estimated amounts. The fair value for our Employee Stock Purchase Plan (“ESPP”) is determined using a Black-Scholes valuation model for purchase rights. The Black-Scholes option-pricing model requires the input of assumptions, including the option’s expected term and the expected price volatility of the underlying stock. The expected stock price volatility assumption is based on the market-based historical implied volatility from traded options of our common stock.

Accounting for Cash-Based Long-Term Incentive Compensation. Cash-based long-term incentive (“Cash LTI”) awards issued to employees under our Cash Long-Term Incentive Plan (“Cash LTI Plan”) vest in three or four equal installments, with one-third or one-fourth of the aggregate amount of the Cash LTI award vesting on each yearly anniversary of the grant date over a three- or four-year period. In order to receive payments under a Cash LTI award, participants must remain employed by us as of the applicable award vesting date. Compensation expense related to the Cash LTI awards is recognized over the vesting term and adjusted for the impact of estimated forfeitures.

Accounting for Non-qualified Deferred Compensation Plan. We have a non-qualified deferred compensation plan (known as the “Executive Deferred Savings Plan” (“EDSP”)) under which certain executives and non-employee directors may defer a portion of their compensation. Participants are credited with returns based on their allocation of their account balances among measurement funds. We control the investment of these funds, and the participants remain general creditors of ours. We invest these funds in certain mutual funds and such investments are classified as trading securities in the Consolidated Balance Sheets. Investments in trading securities are measured at fair value in the statement of financial position. Unrealized holding gains and losses for trading securities are included in earnings. Distributions from the EDSP commence following a participant’s retirement or termination of employment or on a specified date allowed per the EDSP provisions, except in cases where such distributions are required to be delayed in order to avoid a prohibited distribution under Internal Revenue Code Section 409A. Participants can generally elect for the distributions to be paid in a lump sum or quarterly cash payments over a scheduled period for up to 15 years and are allowed to make subsequent changes to their existing elections as permissible under the EDSP provisions. The liability associated with the EDSP is included as a component of other current liabilities in the

Consolidated Balance Sheets. Changes in the EDSP liability are recorded in SG&A expense in the Consolidated Statements of Operations. The net (benefit) expense associated with changes in the liability included in SG&A expense was $27.6 million, $(44.2) million and $56.5 million for the fiscal years ended June 30, 2023, 2022 and 2021, respectively. We also have a deferred compensation asset that corresponds to the liability under the EDSP and it is included as a component of other non-current assets in the Consolidated Balance Sheets. Changes in the EDSP assets are recorded as gains (losses), net in SG&A expense in the Consolidated Statements of Operations. The amount of net (losses) gains included in SG&A expense were $27.6 million, $(44.3) million and $56.8 million for the fiscal years ended June 30, 2023, 2022 and 2021, respectively.

Income Taxes. We account for income taxes in accordance with the authoritative guidance, which requires income tax effects for changes in tax laws to be recognized in the period in which the law is enacted.

Deferred tax assets and liabilities are recognized using enacted tax rates for the effect of temporary differences between the book and tax bases of recorded assets and liabilities. The guidance also requires that deferred tax assets be reduced by a valuation allowance if it is more likely than not that a portion of the deferred tax asset will not be realized. We have determined that a valuation allowance is necessary against a portion of the deferred tax assets, but we anticipate that our future taxable income will be sufficient to recover the remainder of our deferred tax assets. However, should there be a change in our ability to recover our deferred tax assets that are not subject to a valuation allowance, we could be required to record an additional valuation allowance against such deferred tax assets. This would result in an increase to our tax provision in the period in which we determine that the recovery is not probable.

On a quarterly basis, we provide for income taxes based upon an estimated annual effective income tax rate. The effective tax rate is highly dependent upon the geographic composition of worldwide earnings, tax regulations governing each region, availability of tax credits and the effectiveness of our tax planning strategies. We carefully monitor the changes in many factors and adjust our effective income tax rate on a timely basis. If actual results differ from these estimates, this could have a material effect on our financial condition and results of operations.

The calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax regulations. In accordance with the authoritative guidance on accounting for uncertainty in income taxes, we recognize liabilities for uncertain tax positions based on the two-step process. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained in audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon ultimate settlement. We reevaluate these uncertain tax positions on a quarterly basis. This evaluation is based on factors including, but not limited to, changes in facts or circumstances, changes in tax law, effectively settled issues under audit and new audit activities. Any change in these factors could result in the recognition of a tax benefit or an additional charge to the tax provision.

We record income taxes on the undistributed earnings of foreign subsidiaries unless the subsidiaries’ earnings are considered indefinitely reinvested outside the U.S. Our effective tax rate would be adversely affected if we change our intent or if such undistributed earnings are needed for U.S. operations because we would be required to provide or pay income taxes on some or all of these undistributed earnings.

Global Intangible Low-Taxed Income. The Tax Cut and Jobs Act includes provisions for Global Intangible Low-Taxed Income (“GILTI”) wherein U.S. taxes on foreign income are imposed in excess of a deemed return on tangible assets of foreign corporations. We elect to account for GILTI as a component of current period tax expense and not recognize deferred tax assets and liabilities for the basis differences expected to reverse as a result of GILTI provisions.

Business Combinations. We allocate the fair value of the purchase price of our acquisitions to the tangible assets acquired, liabilities assumed, and intangible assets acquired, including in-process research and development (“IPR&D”), based on their estimated fair values at acquisition date. The excess of the fair value of the purchase price over the fair values of these net tangible and intangible assets acquired is recorded as goodwill. Management’s estimates of fair value are based upon assumptions believed to be reasonable, but our estimates and assumptions are inherently uncertain and subject to refinement. As a result, during the measurement period, which will not exceed one year from the acquisition date, we record adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill. After the conclusion of the measurement period or final determination of the fair value of the purchase price of our acquisitions, whichever comes first, any subsequent adjustments are recorded to our Consolidated Statements of Operations.

The fair value of IPR&D is initially capitalized as an intangible asset with an indefinite life and assessed for impairment thereafter whenever events or changes in circumstances indicate that the carrying value of the IPR&D assets may not be recoverable. Impairment of IPR&D is recorded to R&D expenses. When an IPR&D project is completed, the IPR&D is reclassified as an amortizable purchased intangible asset and amortized to costs of revenues over the asset’s estimated useful life.

Acquisition-related expenses are recognized separately from the business combination and are expensed as incurred.

Net Income Per Share. Basic net income per share is calculated by dividing net income available to common stockholders by the weighted-average number of common shares outstanding during the period. Diluted net income per share is calculated by using the weighted-average number of common shares outstanding during the period increased to include the number of additional shares of common stock that would have been outstanding if the dilutive potential shares of common stock had been issued. The dilutive effect of RSUs and options is reflected in diluted net income per share by application of the treasury stock method. The dilutive securities are excluded from the computation of diluted net loss per share when a net loss is recorded for the period as their effect would be anti-dilutive.

Contingencies and Litigation. We are subject to the possibility of losses from various contingencies. Considerable judgment is necessary to estimate the probability and amount of any loss from such contingencies. An accrual is made when it is probable that a liability has been incurred or an asset has been impaired, and the amount of loss can be reasonably estimated. We accrue a liability and recognize as expense the estimated costs to defend or settle asserted and unasserted claims existing as of the balance sheet date. See Note 15 “Litigation and Other Legal Matters” and Note 16 “Commitments and Contingencies” for additional details.

Recent Accounting Pronouncements

Recently Adopted

In December 2019, the Financial Accounting Standards Board (“FASB”) issued an ASU to simplify the accounting for income taxes in ASC 740. This amendment removes certain exceptions and improves consistent application of accounting principles for certain areas in ASC 740. We adopted this update beginning in the first quarter of our fiscal year ending June 30, 2022 on a prospective basis and the adoption had no material impact on our Consolidated Financial Statements.

In August 2020, the FASB issued an ASU to simplify the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity. The standard eliminates the beneficial conversion feature and cash conversion models, resulting in more convertible instruments being accounted for as a single unit, and modifies the guidance on the computation of earnings per share for convertible instruments and contracts on an entity’s own equity. We adopted this update beginning in the first quarter of our fiscal year ending June 30, 2022 on a modified retrospective basis and the adoption had no material impact on our Consolidated Financial Statements.

On July 1, 2020 we adopted ASC 326, which was issued by the FASB in June 2016 as ASU No. 2016-13 Financial Instruments – Credit Losses*.* The ASU replaced previous incurred loss impairment guidance and established a single expected credit losses allowance framework for financial assets carried at amortized cost. It also eliminated the concept of other-than-temporary impairment and requires credit losses related to certain available-for-sale debt securities to be recorded through an allowance for credit losses. We adopted ASC 326 using the modified retrospective method, which requires a cumulative-effect adjustment to the opening balance of retained earnings to be recognized on the date of adoption and, accordingly, recorded a net decrease of $5.5 million to retained earnings as of July 1, 2020. Please see the “Allowance for Credit Losses” accounting policy above.

Updates Not Yet Effective

In October 2021, FASB issued authoritative guidance that requires companies to apply revenue guidance to recognize and measure contract assets and contract liabilities from contracts with customers acquired in a business combination at carrying value. Under the current business combination guidance, such assets and liabilities are recognized by the acquirer at fair value on the acquisition date. This update is effective for us in the first quarter of our fiscal year ending June 30, 2024 and should be applied on a prospective basis. Early adoption is permitted. The impact of adopting this update will depend on the magnitude of contract assets and contract liabilities acquired in future acquisitions.

NOTE 2 — REVENUE

Contract Balances

The following table represents the opening and closing balances of accounts receivable, contract assets and contract liabilities for the indicated periods.


	As of		As of		As of
(In thousands, except for percentages)	June 30, 2023		June 30, 2022		June 30, 2021		Change in Fiscal 2023				Change in Fiscal 2022
Accounts receivable, net	$	1,753,361	$	1,811,877	$	1,305,479	$	(58,516)	(3)	%	$	506,398	39	%
Contract assets	$	117,137	$	114,747	$	91,052	$	2,390	2	%	$	23,695	26	%
Contract liabilities	$	1,245,007	$	1,007,324	$	667,703	$	237,683	24	%	$	339,621	51	%

Our payment terms and conditions vary by contract type, although terms generally include a requirement of payment of 70% to 90% of total contract consideration within 30 to 60 days of shipment, with the remainder payable within 30 days of acceptance.

The change in contract assets during the fiscal year ended June 30, 2023 was mainly due to $101.0 million of revenue recognized for which the payment is subject to conditions other than the passage of time, partially offset by $98.3 million of contract assets reclassified to net accounts receivable as our right to consideration for these contract assets became unconditional. Contract assets are included in other current assets on our Consolidated Balance Sheets.

The change in contract liabilities during the fiscal year ended June 30, 2023 was mainly due to the value of products and services billed to customers for which control of the products and services has not transferred to the customers, partially offset by the recognition in revenue of $819.0 million that was included in contract liabilities as of June 30, 2022. The change in contract liabilities during the fiscal year ended June 30, 2022 was mainly due to the value of products and services billed to customers for which control of the products and services has not transferred to the customers, partially offset by the recognition in revenue of $555.4 million that was included in contract liabilities as of June 30, 2021. Contract liabilities are included in current and non-current liabilities on our Consolidated Balance Sheet.

Remaining Performance Obligations

As of June 30, 2023, we had $11.40 billion of remaining performance obligations (“RPO”), which represents our obligation to deliver products and services, and primarily consists of sales orders where written customer requests have been received. This amount includes customer deposits of $925.9 million as disclosed in Note 4 “Financial Statement Components”and excludes contract liabilities of $1.25 billion as disclosed above. We expect to recognize approximately 40% to 50% of these performance obligations as revenue beyond the next 12 months, but this estimate is subject to constant change. The supply chain disruptions caused by the pandemic as well as elevated demand levels in recent years have led to customers agreeing to purchase equipment from us with lead times that are longer than our historical experience. However, more recently, we have seen the macro-driven slowdown have an impact on consumers’ semiconductor device demand, causing the semiconductor industry to rebalance its supply chain and inventory levels. As a result, some of our customers began adjusting their capacity expansion-focused capital expenditure plans for calendar year 2023. As customers try to balance the evolution of their technological, production or market needs with the timing and content of orders placed with us, there is increased risk of order modifications, pushouts, or cancellations. In addition, in October 2022, the U.S. government issued new regulations that imposed new export licensing requirements for certain U.S. semiconductor and high-performance computing technology (including wafer fab equipment), for the use of such technology for certain end uses in the People’s Republic of China (“China”), and for the provision of support by U.S. Persons to certain advanced IC fabs located in China. The regulations impose export license requirements effectively on all KLA products and services to customers located in China that fabricate certain advanced logic, NAND and DRAM ICs. KLA is also restricted from providing certain U.S. origin tools, software and technology to certain wafer fab equipment manufacturers and maskshops located in China, absent an export license. We are taking appropriate measures to comply with these regulations and are applying for export licenses, when required, to avoid disruption to our customers’ operations. While some export licenses have been obtained by us or our customers, there can be no assurance that export licenses applied for by either us or our customers will be granted.

Practical expedients

We apply the following practical expedients in accordance with ASC 606, Revenue from Contracts with Customers:

We account for shipping and handling costs as activities to fulfill the promise to transfer goods, instead of a promised service to our customer.
We have elected to not adjust the promised amount of consideration for the effects of a significant financing component as we expect, at contract inception, that the period between when we transfer a promised good or service to a customer and when the customer pays for that good or service will generally be one year or less.
We have elected to expense costs to obtain a contract as incurred because the expected amortization period is one year or less.

Refer to Note 19 “Segment Reporting and Geographic Information” for information related to revenue by geographic region as well as significant product and service offerings.

NOTE 3 — FAIR VALUE MEASUREMENTS

Our financial assets and liabilities are measured and recorded at fair value, except for our debt and certain equity investments in privately held companies. Equity investments without a readily available fair value are accounted for using the measurement alternative. The measurement alternative is calculated as cost minus impairment, if any, plus or minus changes resulting from observable price changes. See Note 8 “Debt” for disclosure of the fair value of our Senior Notes, as defined in that Note.

Our non-financial assets, such as goodwill, intangible assets, and land, property and equipment, are assessed for impairment when an event or circumstance indicates that an other-than-temporary decline in value may have occurred.

Fair Value of Financial Instruments. We have evaluated the estimated fair value of financial instruments using available market information and valuations as provided by third-party sources. The use of different market assumptions and/or estimation methodologies could have a significant effect on the estimated fair value amounts. The fair value of our cash equivalents, accounts receivable, accounts payable and other current assets and liabilities approximate their carrying amounts due to the relatively short maturity of these items.

Fair Value Hierarchy. The authoritative guidance for fair value measurements establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are described below:


Level 1						Valuations based on quoted prices in active markets for identical assets or liabilities that the entity has the ability to access.

Level 2						Valuations based on quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable data for substantially the full term of the assets or liabilities.

Level 3						Valuations based on inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Besides the transfer listed in the table below, there were no other transfers between Level 1, Level 2 and Level 3 fair value measurements during the years ended June 30, 2023 and June 30, 2022.

The types of instruments valued based on quoted market prices in active markets included money market funds, certain U.S. Treasury securities, U.S. Government agency securities and equity securities. Such instruments are generally classified within Level 1 of the fair value hierarchy.

The types of instruments valued based on other observable inputs included corporate debt securities, municipal securities and certain U.S. Treasury securities subject to security specific restrictions. The market inputs used to value these instruments generally consist of market yields, reported trades and broker/dealer quotes. Such instruments are generally classified within Level 2 of the fair value hierarchy.

The principal market in which we execute our foreign currency contracts is the institutional market in an over-the-counter environment with a relatively high level of price transparency. The market participants generally are large financial institutions. Our foreign currency contracts’ valuation inputs are based on quoted prices and quoted pricing intervals from public data sources and do not involve management judgment. These contracts are typically classified within Level 2 of the fair value hierarchy.

The fair values of deferred payments and contingent consideration payable, the majority of which were recorded in connection with business combinations, were classified as Level 3 and estimated using significant inputs that were not observable in the market. See Note 6 “Business Combinations and Dispositions” for additional information.

Financial assets (excluding cash held in operating accounts and time deposits) and liabilities measured at fair value on a recurring basis as of the date indicated below were presented on our Consolidated Balance Sheets as follows:


As of June 30, 2023 (In thousands)	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Little or No Market Activity Inputs (Level 3)
Assets
Cash equivalents:


Money market funds and other	$	1,257,223	$	1,257,223	$	—	$	—
U.S. Government agency securities	3,788		—		3,788		—
U.S. Treasury securities	11,500		—		11,500		—


Marketable securities:
Corporate debt securities	502,650		—		502,650		—
Municipal securities	31,788		—		31,788		—


U.S. Government agency securities	129,784		127,715		2,069		—
U.S. Treasury securities	518,215		425,234		92,981		—
Equity securities	18,159		18,159		—		—

Total cash equivalents and marketable securities(1)	2,473,107		1,828,331		644,776		—
Other current assets:
Derivative assets	35,712		—		35,712		—
Other non-current assets:
EDSP	256,846		198,639		58,207		—
Total financial assets(1)	$	2,765,665	$	2,026,970	$	738,695	$	—
Liabilities
Derivative liabilities	$	(12,106)	$	—	$	(12,106)	$	—

Contingent consideration payable	(6,447)		—		—		(6,447)
Total financial liabilities	$	(18,553)	$	—	$	(12,106)	$	(6,447)

(1)Excludes cash of $298.6 million held in operating accounts and time deposits of $471.4 million (of which $356.7 million were cash equivalents) as of June 30, 2023.


As of June 30, 2022 (In thousands)	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Little or No Market Activity Inputs (Level 3)
Assets
Cash equivalents:

Corporate debt securities	$	922	$	—	$	922	$	—
Money market funds and other	948,027		948,027		—		—

U.S. Treasury securities	22,485		—		22,485		—


Marketable securities:
Corporate debt securities	472,047		—		472,047		—
Municipal securities	60,724		—		60,724		—
Sovereign securities	5,990		—		5,990		—
U.S. Government agency securities	91,116		91,116		—		—
U.S. Treasury securities	348,026		344,559		3,467		—

Equity securities(1)	11,035		11,035		—		—

Total cash equivalents and marketable securities(2)	1,960,372		1,394,737		565,635		—
Other current assets:
Derivative assets	40,311		—		40,311		—
Other non-current assets:
EDSP	224,188		176,928		47,260		—
Total financial assets(2)	$	2,224,871	$	1,571,665	$	653,206	$	—
Liabilities
Derivative liabilities	$	(34,315)	$	—	$	(34,315)	$	—
Deferred payments	(2,350)		—		—		(2,350)
Contingent consideration payable	(23,674)		—		—		(23,674)
Total financial liabilities	$	(60,339)	$	—	$	(34,315)	$	(26,024)

(1)Transfer from Level 2 to Level 1 as the security specific restriction expired during the first quarter of the fiscal year ending June 30, 2022.

(2)Excludes cash of $472.8 million held in operating accounts and time deposits of $274.9 million (of which $140.7 million were cash equivalents) as of June 30, 2022.

NOTE 4 — FINANCIAL STATEMENT COMPONENTS

Consolidated Balance Sheets


	As of June 30,
(In thousands)	2023		2022
Accounts receivable, net:
Accounts receivable, gross	$	1,786,993	$	1,832,508
Allowance for credit losses	(33,632)		(20,631)
	$	1,753,361	$	1,811,877
Inventories:
Customer service parts	$	524,096	$	402,121
Raw materials	1,559,202		1,042,916
Work-in-process	578,864		451,782
Finished goods	214,622		250,070
	$	2,876,784	$	2,146,889
Other current assets:
Deferred costs of revenue	$	133,067	$	124,487
Contract assets	117,137		114,747
Prepaid expenses	121,204		108,942
Prepaid income and other taxes	64,901		89,713
Other current assets	62,419		64,248
	$	498,728	$	502,137
Land, property and equipment, net:
Land	$	72,287	$	67,846
Buildings and leasehold improvements	825,975		712,751
Machinery and equipment	1,016,713		819,191
Office furniture and fixtures	58,036		44,957
Construction-in-process	168,817		110,079
	2,141,828		1,754,824
Less: accumulated depreciation	(1,109,987)		(904,895)
	$	1,031,841	$	849,929
Other non-current assets:
EDSP	$	256,846	$	224,188
Operating lease ROU assets	208,706		126,444
Other non-current assets	171,910		133,980
	$	637,462	$	484,612
Other current liabilities:
Customer deposits	$	769,000	$	394,016
Compensation and benefits	370,536		351,924
EDSP	258,223		225,867
Income taxes payable	383,012		126,964
Interest payable	105,270		39,683
Operating lease liabilities	34,042		32,218
Other liabilities and accrued expenses	383,407		374,367
	$	2,303,490	$	1,545,039


Other non-current liabilities:
Income taxes payable	$	322,113	$	367,052
Customer deposits	156,874		204,914
Operating lease liabilities	138,354		81,369
Pension liabilities	63,672		78,525
Other non-current liabilities	132,045		150,782
	$	813,058	$	882,642

Accumulated Other Comprehensive Income (Loss)

The components of AOCI as of the dates indicated below were as follows:


(In thousands)	Currency Translation Adjustments		Unrealized Gains (Losses) on Available-for-Sale Securities		Unrealized Gains (Losses) on Derivatives		Unrealized Gains (Losses) on Defined Benefit Plans		Total
Balance as of June 30, 2023	$	(64,627)	$	(12,797)	$	59,944	$	(18,861)	$	(36,341)

Balance as of June 30, 2022	$	(43,886)	$	(15,486)	$	56,836	$	(24,935)	$	(27,471)

The effects on net income of amounts reclassified from AOCI to the Consolidated Statements of Operations for the indicated periods were as follows (in thousands, amounts in parentheses indicate debits or reductions to earnings):


	Location in the Consolidated Statements of Operations		Year Ended June 30,
AOCI Components		2023			2022			2021
Unrealized gains (losses) on cash flow hedges from foreign exchange and interest rate contracts	Revenues		$	31,837		$	10,688		$	384
	Costs of revenues and operating expenses		(6,526)			(3,762)			551
	Interest expense		3,747			(1,007)			(1,116)

	Net gains (losses) reclassified from AOCI		$	29,058		$	5,919		$	(181)

Unrealized gains (losses) on available-for-sale securities	Other expense (income), net		$	(986)		$	(306)		$	253

The amounts reclassified out of AOCI related to our defined benefit pension plans, which were recognized as a component of net periodic cost for the fiscal years ended June 30, 2023, 2022 and 2021 were $1.7 million, $1.4 million and $1.2 million, respectively. For additional details, refer to Note 13 “Employee Benefit Plans.”

Consolidated Statements of Operations

The following table shows Other expense (income), net for the indicated periods:


	Year Ended June 30,
(In thousands)	2023		2022		2021
Other expense (income), net:
Interest income	$	(74,095)	$	(8,695)	$	(8,929)
Foreign exchange losses, net	233		3,925		5,005
Net realized losses (gains) on sale of investments	986		306		(253)
Other	(31,844)		9,069		(25,125)
	$	(104,720)	$	4,605	$	(29,302)

NOTE 5 — MARKETABLE SECURITIES

The amortized cost and fair value of marketable securities as of the dates indicated below were as follows:


As of June 30, 2023 (In thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Corporate debt securities	$	508,511	$	52	$	(5,913)	$	502,650
Money market funds and other	1,257,223		—		—		1,257,223
Municipal securities	32,525		—		(737)		31,788

U.S. Government agency securities	134,486		4		(918)		133,572
U.S. Treasury securities	538,487		10		(8,782)		529,715
Equity securities(1)	3,211		14,948		—		18,159

Subtotal	2,474,443		15,014		(16,350)		2,473,107
Add: Time deposits(2)	471,439		—		—		471,439
Less: Cash equivalents	1,629,248		4		—		1,629,252
Marketable securities	$	1,316,634	$	15,010	$	(16,350)	$	1,315,294

As of June 30, 2022 (In thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Corporate debt securities	$	481,881	$	3	$	(8,915)	$	472,969
Money market funds and other	948,027		—		—		948,027
Municipal securities	61,973		—		(1,249)		60,724
Sovereign securities	6,041		2		(53)		5,990
U.S. Government agency securities	92,273		26		(1,183)		91,116
U.S. Treasury securities	378,871		18		(8,378)		370,511
Equity securities(1)	3,211		7,824		—		11,035

Subtotal	1,972,277		7,873		(19,778)		1,960,372
Add: Time deposits(2)	274,873		—		—		274,873
Less: Cash equivalents	1,112,146		—		(1)		1,112,145
Marketable securities	$	1,135,004	$	7,873	$	(19,777)	$	1,123,100

(1)Unrealized gains on equity securities included in our portfolio include the initial fair value adjustment recorded upon a security becoming marketable.

(2)Time deposits excluded from fair value measurements.

Our investment portfolio includes both corporate and government securities that have a maximum maturity of three years. The longer the duration of these securities, the more susceptible they are to changes in market interest rates and bond yields. As yields increase, those securities with a lower yield-at-cost show a mark-to-market unrealized loss. Most of our unrealized losses are due to changes in market interest rates, and bond yields. We believe that we have the ability to realize the full value of all of these investments upon maturity. As of June 30, 2023, we had 494 investments in an unrealized loss position. The following table summarizes the fair value and gross unrealized losses of our investments that were in an unrealized loss position as of the dates indicated below:


As of June 30, 2023	Less than 12 Months				12 Months or Greater				Total
(In thousands)	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
Corporate debt securities	$	310,613	$	(2,242)	$	161,263	$	(3,671)	$	471,876	$	(5,913)
Municipal securities	9,011		(199)		17,253		(538)		26,264		(737)

U.S. Government agency securities	80,793		(459)		36,406		(459)		117,199		(918)
U.S. Treasury securities	288,376		(4,117)		183,475		(4,665)		471,851		(8,782)
Total	$	688,793	$	(7,017)	$	398,397	$	(9,333)	$	1,087,190	$	(16,350)


As of June 30, 2022 (In thousands)	Fair Value(1)		Gross Unrealized Losses(1)
Corporate debt securities	$	458,699	$	(8,915)
Municipal securities	58,722		(1,249)
Sovereign securities	2,963		(53)
U.S. Government agency securities	60,285		(1,183)
U.S. Treasury securities	336,819		(8,378)
Total	$	917,488	$	(19,778)

(1)As of June 30, 2022, our investments that were in a continuous loss position of 12 months or more, as well as the unrealized losses on those investments, were immaterial.

The contractual maturities of securities classified as available-for-sale, regardless of their classification on our Consolidated Balance Sheets, as of the date indicated below were as follows:


As of June 30, 2023 (In thousands)	Amortized Cost		Fair Value
Due within one year	$	704,633	$	713,189
Due after one year through three years	612,001		602,105
	$	1,316,634	$	1,315,294

Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Realized gains and losses on available for sale securities were immaterial for the fiscal years ended June 30, 2023, 2022 and 2021.

NOTE 6 - BUSINESS COMBINATIONS AND DISPOSITIONS

Fiscal 2023 Acquisitions

On August 9, 2022, we acquired a privately held company, primarily to secure the supply of materials for existing products, for aggregate purchase consideration of $32.7 million payable in cash. We allocated the purchase consideration as follows: $30.0 million to identifiable intangible assets, $2.3 million to net tangible assets, $6.5 million to deferred tax liabilities and $6.8 million to goodwill. The purchase consideration allocation is preliminary, and as additional information becomes available, we may further revise it during the remainder of the measurement period, which will not exceed 12 months from the closing of the acquisition. The goodwill was assigned to the Wafer Inspection and Patterning reporting unit.

Fiscal 2022 Acquisitions

On May 1, 2022, we acquired the outstanding shares of a privately held company for total purchase consideration of $8.6 million, paid in cash. We allocated the purchase price to the tangible and identified intangible assets acquired and liabilities assumed based on their fair values, and residual goodwill was allocated to the Wafer Inspection and Patterning reporting unit.

On February 28, 2022, we completed the acquisition of 100% of the outstanding shares of ECI Technology, Inc. (“ECI”), a privately held company, for aggregate purchase consideration of $431.5 million, paid in cash. ECI is a provider of chemical

management systems for semiconductor, photovoltaic and PCB industries. KLA acquired ECI to extend and enhance our portfolio of products and services. We allocated the purchase consideration as follows: $208.4 million to identifiable intangible assets, $2.9 million to net tangible liabilities, $40.5 million to deferred tax liabilities and $266.4 million to goodwill. The goodwill was assigned to the Wafer Inspection and Patterning reporting unit.

On July 1, 2021, we acquired Anchor Semiconductor Inc., a privately held company, primarily to expand our products and services offerings, for a total purchase consideration of $81.7 million, including post-closing working capital adjustments, as well as the fair value of the promise to pay an additional consideration up to $35.0 million contingent on the achievement of certain revenue milestones. The total purchase consideration was allocated as follows: $31.7 million to identifiable intangible assets, $26.4 million to net tangible assets, $8.0 million to deferred tax liabilities, and $31.5 million to goodwill. The goodwill was assigned to the Wafer Inspection and Patterning reporting unit.

We have included the financial results of the acquisitions in our Consolidated Financial Statements from their respective acquisition dates, and these results were not material to our Consolidated Financial Statements. The goodwill recorded as a result of the above acquisitions was not deductible for tax purposes.

Refer to Note 1 “Description of Business and Summary of Significant Accounting Policies” for our policy of allocating the purchase price of an acquisition to tangible and intangible assets as well as goodwill.

As of June 30, 2023, we had $6.4 million of contingent consideration recorded for our acquisitions in the fiscal years ended June 30, 2022 and 2019, all of which is classified as a current liability on the Consolidated Balance Sheet.

Business Dispositions

As of June 30, 2022, we owned approximately 94% of the outstanding equity interest in Orbograph Ltd. (“Orbograph”), a non-core business engaged in the development and marketing of character recognition solutions to banks, financial and other payment processing institutions and healthcare providers. On August 9, 2022, we acquired the non-controlling interest in Orbograph. On August 11, 2022, we sold our entire interest in Orbograph to a portfolio company of a private equity firm for total consideration of $110.0 million and net cash proceeds from the transaction of $75.4 million. We recognized a pre-tax gain from the sale of $29.7 million, which was recorded as part of Other expense (income), net. Included in the sale were $26.5 million in tangible assets, $30.5 million in liabilities and $61.2 million in goodwill and intangible assets.

Acquisition-Related Costs

Our acquisition and disposition related costs are primarily included within SG&A expenses in our Consolidated Statements of Operations. We incurred immaterial acquisition-related costs for fiscal 2023 and fiscal 2022 acquisitions.

NOTE 7 — GOODWILL AND PURCHASED INTANGIBLE ASSETS

Goodwill

Goodwill represents the excess of the purchase price over the fair value of the net tangible and identifiable intangible assets acquired in business combinations. We have three reportable segments and five operating segments. The operating segments are determined to be the same as reporting units. Prior to July 1, 2022, we had a fourth segment, Other, but core assets from that segment were sold, making it non-operational and the segment was eliminated.

The following table presents goodwill carrying value and the movements by reporting unit during the fiscal years ended June 30, 2023 and 2022(1):


(In thousands)	Wafer Inspection and Patterning		Global Service and Support (“GSS”)		Specialty Semiconductor Process		PCB and Display		Component Inspection		Total
Balance as of June 30, 2021	$	416,860	$	25,908	$	681,858	$	872,971	$	13,575	$	2,011,172
Acquired goodwill	308,952		—		—		—		—		308,952


Foreign currency adjustment	(75)		—		—		—		—		(75)
Balance as of June 30, 2022	725,737		25,908		681,858		872,971		13,575		2,320,049
Acquired goodwill	6,776		—		—		—		—		6,776
Goodwill disposal from sale of business(2)	—		—		—		(42,622)		—		(42,622)
Goodwill adjustments	(5,337)		—		—		—		—		(5,337)
Foreign currency adjustment	(46)		—		—		—		—		(46)
Balance as of June 30, 2023	$	727,130	$	25,908	$	681,858	$	830,349	$	13,575	$	2,278,820

(1)No goodwill was assigned to the Other reporting unit, which existed until June 30, 2022, and, accordingly, it is not disclosed in the table above.

(2)Refer to the Business Dispositions section of Note 6 “Business Combinations and Dispositions” for more information on the sale of Orbograph.

Goodwill is not subject to amortization but is tested for impairment annually during the third fiscal quarter, as well as whenever events or changes in circumstances indicate that the carrying value may not be recoverable.

We performed the required annual goodwill impairment tests as of February 28, 2023 and 2022, and concluded that goodwill was not impaired. As a result of our qualitative assessments, we determined that it was not necessary to perform the quantitative assessments at those times.

Goodwill as of June 30, 2023, 2022 and 2021 is net of accumulated impairment losses of $534.2 million, of which $277.6 million was included in the Wafer Inspection and Patterning reporting unit, $144.2 million was included in the Specialty Semiconductor Process reporting unit, and $112.5 million was included in the PCB and Display reporting unit.

There have been no significant events or circumstances affecting the valuation of goodwill subsequent to the assessment performed in the third quarter of the fiscal year ended June 30, 2023. The next annual assessment of goodwill by reporting unit is scheduled to be performed in the third quarter of the fiscal year ending June 30, 2024.

Purchased Intangible Assets

The components of purchased intangible assets as of the dates indicated below were as follows:


(In thousands)		As of June 30, 2023						As of June 30, 2022
Category	Range of Useful Lives (in years)	Gross Carrying Amount		Accumulated Amortization and Impairment		Net Amount		Gross Carrying Amount		Accumulated Amortization and Impairment		Net Amount
Existing technology	4-8	$	1,536,826	$	841,815	$	695,011	$	1,523,691	$	668,175	$	855,516
Customer relationships	4-9	358,567		205,037		153,530		366,567		167,819		198,748
Trade name/trademark	4-7	116,583		78,749		37,834		121,083		68,194		52,889
Order backlog and other	<1-7	85,836		82,264		3,572		87,836		58,970		28,866
Intangible assets subject to amortization(1)		2,097,812		1,207,865		889,947		2,099,177		963,158		1,136,019
IPR&D		61,322		15,966		45,356		64,457		6,062		58,395
Total		$	2,159,134	$	1,223,831	$	935,303	$	2,163,634	$	969,220	$	1,194,414

(1)The disposition of Orbograph during the three months ended September 30, 2022 resulted in a decrease in the gross amount of intangible assets subject to amortization of $34.5 million, a decrease in accumulated amortization of $15.9 million, and a decrease in the net amount of intangible assets of $18.6 million. Refer to the “Business Dispositions” section of Note 6 “Business Combinations and Dispositions” for more information on the sale of Orbograph.

Refer to Note 1 “Description of Business and Summary of Significant Accounting Policies” for our policy of testing purchased intangible assets for impairment.

As of June 30, 2023 and 2022, there were no impairment indicators for purchased intangible assets.

Amortization expense for purchased intangible assets for the periods indicated below was as follows:


	Year Ended June 30,
(In thousands)	2023		2022		2021
Amortization expense - Cost of revenues	$	181,405	$	168,957	$	156,596
Amortization expense - SG&A	79,089		60,017		49,531
Amortization expense - R&D	125		124		125
Total	$	260,619	$	229,098	$	206,252

Based on the purchased intangible assets’ gross carrying value recorded as of June 30, 2023, the remaining estimated annual amortization expense is expected to be as follows:


Fiscal Year Ending June 30:	Amortization (In thousands)
2024	$	238,575
2025	222,123
2026	206,210
2027	129,630
2028	47,232
Thereafter	46,177
Total	$	889,947

NOTE 8 — DEBT

The following table summarizes our debt as of June 30, 2023 and June 30, 2022:


	As of June 30, 2023				As of June 30, 2022
	Amount (In thousands)		Effective Interest Rate		Amount (In thousands)		Effective Interest Rate
Fixed-rate 4.650% Senior Notes due on November 1, 2024	$	750,000	4.682	%	$	1,250,000	4.682	%
Fixed-rate 5.650% Senior Notes due on November 1, 2034	250,000		5.670	%	250,000		5.670	%
Fixed-rate 4.100% Senior Notes due on March 15, 2029	800,000		4.159	%	800,000		4.159	%
Fixed-rate 5.000% Senior Notes due on March 15, 2049	400,000		5.047	%	400,000		5.047	%
Fixed-rate 3.300% Senior Notes due on March 1, 2050	750,000		3.302	%	750,000		3.302	%

Fixed-rate 4.650% Senior Notes due on July 15, 2032	1,000,000		4.657	%	1,000,000		4.657	%
Fixed-rate 4.950% Senior Notes due on July 15, 2052	1,200,000		5.009	%	1,200,000		5.009	%
Fixed-rate 5.250% Senior Notes due on July 15, 2062	800,000		5.259	%	800,000		5.259	%
Revolving Credit Facility	—		—	%	275,000		2.258	%
Total	5,950,000				6,725,000
Unamortized discount/premium, net	(17,848)				(19,304)
Unamortized debt issuance costs	(41,416)				(44,978)
Total	$	5,890,736			$	6,660,718
Reported as:

Long-term debt	5,890,736				6,660,718
Total	$	5,890,736			$	6,660,718

Senior Notes and Debt Redemption:

In June 2022, we issued $3.00 billion aggregate principal amount of senior, unsecured notes (the “2022 Senior Notes”) as follows: $1.00 billion of 4.650% senior, unsecured notes due July 15, 2032; $1.20 billion of 4.950% senior, unsecured notes due July 15, 2052; and $800.0 million of 5.250% senior, unsecured notes due July 15, 2062. A portion of the net proceeds of the 2022 Senior Notes was used to complete a tender offer in July 2022 for $500.0 million of our 2014 Senior Notes due 2024 including associated redemption premiums, accrued interest and other fees and expenses. The redemption resulted in a pre-tax net loss on extinguishment of debt of $13.3 million for the fiscal year ended June 30, 2023. The remainder of the net proceeds was used for share repurchases and for general corporate purposes.

In February 2020, March 2019 and November 2014, we issued $750.0 million, $1.20 billion and $2.50 billion, respectively (the “2020 Senior Notes,” “2019 Senior Notes” and “2014 Senior Notes,” respectively, and, collectively with the 2022 Senior Notes, the “Senior Notes”) aggregate principal amount of senior, unsecured notes. In July 2022, February 2020, October 2019 and November 2017, we repaid $500.0 million, $500.0 million, $250.0 million and $250.0 million of the Senior Notes, respectively.

The original discounts on the Senior Notes are being amortized over the life of the debt. Interest is payable as follows: semi-annually on January 15 and July 15 of each year for the 2022 Senior Notes; semi-annually on March 1 and September 1 of each year for the 2020 Senior Notes; semi-annually on March 15 and September 15 of each year for the 2019 Senior Notes; and semi-annually on May 1 and November 1 of each year for the 2014 Senior Notes. The relevant indentures for the Senior Notes (collectively, the “Indenture”) include covenants that limit our ability to grant liens on our facilities and enter into sale and leaseback transactions.

In certain circumstances involving a change of control followed by a downgrade of the rating of a series of Senior Notes by at least two of Moody’s Investors Service, S&P Global Ratings and Fitch Inc., unless we have exercised our rights to redeem the Senior Notes of such series, we will be required to make an offer to repurchase all or, at the holder’s option, any part, of each holder’s Senior Notes of that series pursuant to the offer described below (the “Change of Control Offer”). In the Change of Control Offer, we will be required to offer payment in cash equal to 101% of the aggregate principal amount of Senior Notes repurchased plus accrued and unpaid interest, if any, on the Senior Notes repurchased, up to, but not including, the date of repurchase.

The fair value of the Senior Notes as of June 30, 2023 and 2022 was $5.69 billion and $6.39 billion, respectively. While the Senior Notes are recorded at cost, the fair value of the long-term debt was determined based on quoted prices in markets that are not active; accordingly, the long-term debt is categorized as Level 2 for purposes of the fair value measurement hierarchy.

As of June 30, 2023, we were in compliance with all of our covenants under the Indenture associated with the Senior Notes.

Revolving Credit Facility:

As of March 31, 2022, we had in place a Credit Agreement (the “Prior Credit Agreement”) providing for a $1.00 billion five-year unsecured Prior Revolving Credit Facility with a maturity date of November 30, 2023. In the fourth quarter of fiscal 2022, we replaced the Prior Credit Agreement and Prior Revolving Credit Facility with a renegotiated Credit Agreement (the “Credit Agreement”) and renegotiated unsecured Revolving Credit Facility (the “Revolving Credit Facility”) having a maturity date of June 8, 2027 that allows us to borrow up to $1.50 billion. Subject to the terms of the Credit Agreement, the Revolving Credit Facility may be increased by an amount up to $250.0 million in the aggregate. As of June 30, 2022, we had an aggregate principal amount of $275.0 million outstanding under the Revolving Credit Facility, which we borrowed in the fourth quarter of fiscal 2022. During the fiscal year ended June 30, 2023, we borrowed $300.0 million from the Revolving Credit Facility and repaid $575.0 million so that, as of June 30, 2023, there were no borrowings under the Revolving Credit Facility.

We may borrow, repay and reborrow funds under the Revolving Credit Facility until the maturity date, at which time may exercise two one-year extension options with the consent of the lenders. We may prepay outstanding borrowings under the Revolving Credit Facility at any time without a prepayment penalty.

Borrowings under the Revolving Credit Facility can be made as Term Secured Overnight Financing (“SOFR”) Loans or Alternate Base Rate (“ABR”) Loans, at the Company’s option. In the event that Term SOFR is unavailable, any Term SOFR elections will be converted to Daily Simple SOFR, as long as it is available. Each Term SOFR Loan will bear interest at a rate per annum equal to the applicable Adjusted Term SOFR rate, which is equal to the applicable Term SOFR rate plus 10 bps that shall not be less than zero, plus a spread ranging from 75 bps to 125 bps, as determined by the Company’s credit ratings at the time. Each ABR Loan will bear interest at a rate per annum equal to the ABR plus a spread ranging from 0 bps to 25 bps, as determined by the Company’s credit ratings at the time. We are also obligated to pay an annual commitment fee on the daily undrawn balance of the Revolving Credit Facility, which ranges from 4.5 bps to 12.5 bps, subject to an adjustment in conjunction with changes to our credit rating. The applicable interest rates and commitment fees are also subject to adjustment based on the Company’s performance against certain environmental sustainability key performance indicators related to greenhouse gas emissions and renewable electricity usage. Our performance against these key performance indicators in calendar year 2022 resulted in reductions to the fees associated with our Revolving Credit Facility. As of June 30, 2023, we elected to pay interest on borrowings under the Revolving Credit Facility at the applicable Adjusted Term SOFR plus a spread of 97.5 bps and the applicable commitment fee on the daily undrawn balance of the Revolving Credit Facility was 8.5 bps.

The Prior Revolving Credit Facility required us to maintain an interest expense coverage ratio, as described in the Prior Credit Agreement, on a quarterly basis, covering the trailing four consecutive fiscal quarters, of no less than 3.50 to 1.00. The Revolving Credit Facility removed that requirement. The maximum leverage ratio as described in the Credit Agreement, on a quarterly basis, is 3.50 to 1.00, covering the trailing four consecutive fiscal quarters for each fiscal quarter, which may be increased to 4.00 to 1.00 for a period of time in connection with a material acquisition or a series of material acquisitions. As of June 30, 2023, our maximum allowed leverage ratio was 3.50 to 1.00.

We were in compliance with all covenants under the Credit Agreement as of June 30, 2023.

NOTE 9 — LEASES

We have operating leases for facilities, vehicles and other equipment. Our facility leases are primarily used for administrative functions, R&D, manufacturing, and storage and distribution. Our finance leases are not material.

Our existing leases do not contain significant restrictive provisions or residual value guarantees; however, certain leases contain provisions for the payment of maintenance, real estate taxes, or insurance costs by us. Our leases have remaining lease terms ranging from less than one year to 29 years, including periods covered by options to extend the lease when it is reasonably certain that the option will be exercised.

Lease expense was $41.8 million, $36.6 million and $38.9 million for the fiscal years ended June 30, 2023, 2022 and 2021, respectively. Expense related to short-term leases, which are not recorded on the Consolidated Balance Sheets, was not material for the fiscal years ended June 30, 2023 and 2022. As of June 30, 2023 and 2022, the weighted-average remaining lease term was 6.7 years and 4.8 years, respectively, and the weighted-average discount rate was 3.36% and 2.18%, respectively.

Supplemental cash flow information related to leases was as follows:


	Year Ended June 30,
(In thousands)	2023		2022
Operating cash outflows from operating leases	$	47,294	$	37,994
ROU assets obtained in exchange for new operating lease liabilities	$	115,377	$	55,886

Maturities of lease liabilities as of June 30, 2023 were as follows:


Fiscal Year Ending June 30:	Amount (In thousands)
2024	$	38,042
2025	34,555
2026	27,732
2027	22,462
2028	14,949
2029 and thereafter	60,612
Total lease payments	198,352
Less imputed interest	(25,956)
Total	$	172,396

As of June 30, 2023, we did not have any material leases that had not yet commenced.

NOTE 10 — EQUITY, LONG-TERM INCENTIVE COMPENSATION PLANS AND NON-CONTROLLING INTEREST

Equity Incentive Program

As of June 30, 2023, we were able to issue new equity incentive awards, such as RSUs and stock options, to our employees, consultants and members of our Board of Directors under our 2004 Equity Incentive Plan (the “2004 Plan”) with 7.8 million shares available for issuance.

Any 2004 Plan awards of RSUs, performance shares, performance units or deferred stock units are counted against the total number of shares issuable under the 2004 Plan share reserve as two shares for every one share subject thereto.

In addition, the plan administrator has the ability to grant “dividend equivalent” rights in connection with awards of RSUs, performance shares, performance units and deferred stock units before they are fully vested. The plan administrator, at its discretion, may grant a right to receive dividends on the aforementioned awards, which may be settled in cash or our stock subject to meeting the vesting requirement of the underlying awards.

Assumed Equity Plans

As of the Orbotech Ltd. (“Orbotech”) Acquisition on February 20, 2019 (“Acquisition Date”), we assumed outstanding equity incentive awards under Orbotech equity incentive plans (the “Assumed Equity Plans”). The awards under the Assumed Equity Plans, previously issued in the form of stock options and RSUs, were generally settled as follows:

a)Each award of Orbotech’s stock options and RSUs that was outstanding and vested immediately prior to the Acquisition Date (collectively, the “Vested Equity Awards”) was canceled and terminated and converted into the right to receive the purchase consideration in respect of such Vested Equity Awards as of the Acquisition Date and, in the case of stock options, less the exercise price.

b)Each award of Orbotech’s stock options and RSUs that was outstanding and unvested immediately prior to the Acquisition Date was assumed by us (each, an “Assumed Option” and “Assumed RSU,” and collectively the “Assumed Equity Awards”) and converted to stock options and RSUs exercisable for the number of shares of our common stock based on the exchange ratio defined in the acquisition agreement. The Assumed Equity Awards generally retain all of the rights, terms and conditions of the respective plans under which they were originally granted, including the same service-based vesting schedule, applicable thereto.

As of the Acquisition Date, the estimated fair value of the Assumed Equity Awards was $55.0 million, of which $13.3 million was recognized as goodwill and the balance of $41.7 million was recognized as stock-based compensation (“SBC”) expense over the remaining service period of the Assumed Equity Awards. The fair value of the Assumed Equity Awards for services rendered through the Acquisition Date was recognized as a component of the merger consideration, with the remaining fair value related to the post-combination services being recorded as SBC over the remaining vesting period. At the Acquisition Date, a total of 14,558 and 518,971 shares of our common stock underlay the Assumed Options and RSUs, respectively, and had an estimated weighted-average fair value of $53.3 and $104.5 per share, respectively. All Assumed Options were fully exercised as of June 30, 2020 and all Assumed RSUs were fully vested as of June 30, 2023.

Equity Incentive Plans - General Information

The following table summarizes the combined activity under our equity incentive plans:


(In thousands)			Available For Grant(1)(3)(5)
Balances as of June 30, 2020			10,760

RSUs granted(2)			(761)
RSUs granted adjustment(4)			102
RSUs canceled			152

Balances as of June 30, 2021			10,253


RSUs granted(2)			(1,152)
RSUs granted adjustment(4)			39
RSUs canceled			102
Balances as of June 30, 2022			9,242

RSUs granted(2)			(1,601)

RSUs canceled			120
Balances as of June 30, 2023			7,761

(1)The number of RSUs reflects the application of the award multiplier of 2.0x as described above.

(2)Includes RSUs granted to senior management with performance-based vesting criteria (in addition to service-based vesting criteria for any of such RSUs that are deemed to have been earned) (“performance-based RSU”). As of June 30, 2023, it had not yet been determined the extent to which (if at all) the performance-based vesting criteria had been satisfied. Therefore, this line item includes all such performance-based RSUs granted during the fiscal year, reported at the maximum possible number of shares that may ultimately be issuable if all applicable performance-based criteria are achieved at their maximum levels and all applicable service-based criteria are fully satisfied (0.6 million shares,

0.2 million shares and 0.2 million shares for the fiscal years ended June 30, 2023, 2022 and 2021, respectively, reflecting the application of the 2.0x multiplier described above).

(3)Includes RSUs granted to executive management during the fiscal year ended June 30, 2019 with both a market condition and a service condition (“market-based RSU”). Under the award agreements, the vesting of the market-based RSUs is contingent on achieving total stockholder return (including stock price appreciation and cash dividends) objectives on a per share basis of equal to or greater than 150%, 175% and 200% multiplied by the measurement price of $116.39 during the five-year period ending March 20, 2024. The awards are split into three tranches and, to the extent that total stockholder return targets have been met, one-third of the maximum number of shares available under these awards will vest on each of the third, fourth, and fifth anniversaries of the grant date. As of June 30, 2022, the market conditions were met, resulting in all three tranches being eligible to vest, subject to the service condition.

(4)Represents the portion of RSUs granted with performance-based vesting criteria and reported at the actual number of shares issued upon achievement of the performance vesting criteria during the fiscal years ended June 30, 2023, 2022, and 2021.

(5)No additional stock options, RSUs or other awards will be granted under the Assumed Equity Plans.

The fair value of stock-based awards is measured at the grant date and is recognized as an expense over the employee’s requisite service period. For RSUs granted without “dividend equivalent” rights, fair value is calculated using the closing price of our common stock on the grant date, adjusted to exclude the present value of dividends that are not accrued on those RSUs. The fair value for RSUs granted with “dividend equivalent” rights is determined using the closing price of our common stock on the grant date. The fair value for market-based RSUs is estimated on the grant date using a Monte Carlo simulation model with the following assumptions: expected volatilities ranging from 27.8% to 28.1%, based on a combination of implied volatility from traded options on our common stock and the historical volatility of our common stock; dividend yield ranging from 2.4% to 2.5%, based on our current expectations for our anticipated dividend policy; risk-free interest rate ranging from 2.3% to 2.4%, based on the implied yield available on U.S. Treasury zero-coupon issues with terms equal to the contractual terms of each tranche; and an expected term that takes into consideration the vesting term and the contractual term of the market-based award. The awards are amortized over service periods of three, four, and five years, which is the longer of the explicit service period or the period in which the market target is expected to be met. The fair value for purchase rights under our ESPP is determined using a Black-Scholes model.

The following table shows SBC expense for the indicated periods:


	Year Ended June 30,
(In thousands)	2023		2022		2021
SBC expense by:
Costs of revenues	$	29,101	$	21,108	$	17,355
R&D	44,702		27,618		23,337
SG&A	97,621		78,192		71,144
Total SBC expense	$	171,424	$	126,918	$	111,836

SBC capitalized as inventory as of June 30, 2023 and 2022 was $16.7 million and $8.6 million, respectively.

Restricted Stock Units

The following table shows the activity and weighted-average grant date fair value for RSUs during the fiscal year ended June 30, 2023:


	Shares (In thousands) (1)	Weighted-Average Grant Date Fair Value
Outstanding RSUs as of June 30, 2022(2)	1,593	$	218.03
Granted(2)	801	$	385.98

Vested and released	(372)	$	173.36
Withheld for taxes	(246)	$	173.36
Forfeited	(61)	$	218.62
Outstanding RSUs as of June 30, 2023(2)	1,715	$	312.40

(1)Share numbers reflect actual shares subject to awarded RSUs. Under the terms of the 2004 Plan, the number of shares subject to each award reflected in this number is multiplied by 2.0x to calculate the impact of the award on the share reserve under the 2004 Plan.

(2)Includes performance-based RSUs. As of June 30, 2023, it had not yet been determined the extent to which (if at all) the performance-based criteria had been satisfied. Therefore, this line item includes all such RSUs, reported at the maximum possible number of shares (i.e., 0.3 million shares for the fiscal year ended June 30, 2023) that may ultimately be issuable if all applicable performance-based criteria are achieved at their maximum.

The RSUs granted by us generally vest (a) with respect to awards with only service-based vesting criteria, over periods ranging from two to four years and (b) with respect to awards with both performance-based and service-based vesting criteria, over periods ranging from three to four years, and (c) with respect to awards with both market-based and service-based vesting criteria, in three equal installments on the third, fourth and fifth anniversaries of the grant date, in each case subject to the recipient remaining employed by us as of the applicable vesting date. The RSUs granted to the independent members of the Board of Directors vest annually.

The following table shows the weighted-average grant date fair value per unit for the RSUs granted, aggregate grant date fair value of RSUs vested, and tax benefits realized by us in connection with vested and released RSUs for the indicated periods:


(In thousands, except for weighted-average grant date fair value)	Year Ended June 30,
2023			2022			2021
Weighted-average grant date fair value per unit	$	385.98		$	353.27		$	222.86

Grant date fair value of vested RSUs	$	107,217		$	74,794		$	80,887
Tax benefits realized by us in connection with vested and released RSUs	$	25,989		$	23,634		$	26,416

As of June 30, 2023, the unrecognized SBC expense balance related to RSUs was $364.4 million, excluding the impact of estimated forfeitures, and will be recognized over a weighted-average remaining contractual term and an estimated weighted-average amortization period of 1.5 years. The intrinsic value of outstanding RSUs as of June 30, 2023 was $831.7 million.

Cash LTI Compensation

As part of our employee compensation program, we issue Cash LTI awards to many of our employees. Executives and non-employee members of the Board of Directors do not participate in the Cash LTI Plan. During the fiscal years ended June 30, 2023 and 2022, we approved Cash LTI awards of $67.1 million and $60.9 million, respectively. Cash LTI awards issued to employees under the Cash LTI Plan will vest in three or four equal installments, with one-third or one-fourth of the aggregate amount of the Cash LTI award vesting on each anniversary of the grant date over a three or four-year period. In order to receive payments under a Cash LTI award, participants must remain employed by us as of the applicable award vesting date. During the fiscal years ended June 30, 2023, 2022 and 2021, we recognized $76.4 million, $85.3 million and $75.8 million, respectively, in compensation expense under the Cash LTI Plan. As of June 30, 2023, the unrecognized compensation balance (excluding the impact of estimated forfeitures) related to the Cash LTI Plan was $154.4 million.

Employee Stock Purchase Plan

Our ESPP provides that eligible employees may contribute up to 15% of their eligible earnings toward the semi-annual purchase of our common stock. The ESPP is qualified under Section 423 of the Internal Revenue Code. The employee’s purchase price is derived from a formula based on the closing price of the common stock on the first day of the offering period versus the closing price on the date of purchase (or, if not a trading day, on the immediately preceding trading day).

The offering period (or length of the look-back period) under the ESPP has a duration of six months, and the purchase price with respect to each offering period beginning on or after such date is, until otherwise amended, equal to 85% of the lesser of (i) the fair market value of our common stock at the commencement of the applicable six-month offering period or (ii) the fair market value of our common stock on the purchase date. We estimate the fair value of purchase rights under the ESPP using a Black-Scholes model.

The fair value of each purchase right under the ESPP was estimated on the date of grant using the Black-Scholes model and the straight-line attribution approach with the following weighted-average assumptions:


	Year Ended June 30,
	2023		2022		2021
Stock purchase plan:
Expected stock price volatility	42.7	%	38.2	%	47.0	%
Risk-free interest rate	2.5	%	0.1	%	0.4	%
Dividend yield	1.6	%	1.2	%	1.6	%
Expected life (in years)	0.50		0.50		0.50

The following table shows total cash received from employees for the issuance of shares under the ESPP, the number of shares purchased by employees through the ESPP, the tax benefits realized by us in connection with the disqualifying dispositions of shares purchased under the ESPP and the weighted-average fair value per share for the indicated periods:


(In thousands, except for weighted-average fair value per share)	Year Ended June 30,
2023			2022			2021
Total cash received from employees for the issuance of shares under the ESPP	$	124,731		$	113,015		$	86,098
Number of shares purchased by employees through the ESPP	418			419			431
Tax benefits realized by us in connection with the disqualifying dispositions of shares purchased under the ESPP	$	1,916		$	1,853		$	1,972
Weighted-average fair value per share based on Black-Scholes model	$	89.52		$	94.35		$	59.84

The ESPP shares are replenished annually on the first day of each fiscal year by virtue of an evergreen provision. The provision allows for share replenishment equal to the lesser of 2.0 million shares or the number of shares that we estimate will be required to be issued under the ESPP during the forthcoming fiscal year. As of June 30, 2023, a total of 2.2 million shares were reserved and available for issuance under the ESPP.

Quarterly cash dividends

On June 1, 2023, we paid a quarterly cash dividend of $1.30 per share on the outstanding shares of our common stock to stockholders of record as of the close of business on May 15, 2023. The total amount of regular quarterly cash dividends and dividend equivalents paid during the fiscal years ended June 30, 2023 and 2022 was $732.6 million and $638.5 million, respectively. The amount of accrued dividend equivalents payable related to unvested RSUs with dividend equivalent rights was $12.2 million and $11.2 million as of June 30, 2023 and 2022, respectively. These amounts will be paid upon vesting of the underlying RSUs. Refer to Note 21 “Subsequent Events” to the Consolidated Financial Statements for additional information regarding the declaration of our quarterly cash dividend announced subsequent to June 30, 2023.

Non-controlling Interests

As of June 30, 2022, we owned approximately 94% of the outstanding equity interest of Orbograph, which was a non-core business engaged in the development and marketing of character recognition solutions to banks, financial and other payment processing institutions and healthcare providers. On August 11, 2022, we sold our interest in Orbograph; for further details, refer to Note 6 “Business Combinations and Dispositions” to our Consolidated Financial Statements.

During the fourth quarter of fiscal 2020, we entered into an Asset Purchase Agreement to sell certain core assets of Orbotech LT Solar, LLC (“OLTS”), which was engaged in the research, development and marketing of products for the deposition of thin film coating of various materials on crystalline silicon photovoltaic wafers for solar energy panels through plasma-enhanced chemical vapor deposition. The sale was completed in the first quarter of fiscal 2021 and the proceeds were not material. As a result of the sale of these core assets, OLTS is now a dormant entity with no operations; therefore, we wrote off the remaining non-controlling interest in the entity.

NOTE 11 — STOCK REPURCHASE PROGRAM

Our Board of Directors has authorized a program that permits us to repurchase our common stock, including increases in the authorized repurchase amount of $2.00 billion in the first quarter of fiscal 2022 and $6.00 billion in the fourth quarter of fiscal 2022. The stock repurchase program has no expiration date and may be suspended at any time. The intent of the program is, in part, to mitigate the potential dilutive impact related to our equity incentive plans and shares issued in connection with our ESPP as well as to return excess cash to our stockholders. Any and all share repurchase transactions are subject to market

conditions and applicable legal requirements.

On June 23, 2022, the Company executed accelerated share repurchase agreements (“ASR Agreements”) with two financial institutions to repurchase shares of our common stock in exchange for an upfront payment of $3.00 billion. The Company received initial deliveries totaling approximately 6.5 million shares of common stock in the fourth quarter of fiscal 2022, which represented 70% of the prepayment amount at the then prevailing market price of the Company’s shares of common stock. The initial shares delivered were retired immediately upon settlement and treated as repurchases of the Company’s common stock for purposes of earnings per share calculations. The total number of shares received under the ASR Agreements was based on the volume-weighted average price of the Company’s common stock during the term of the ASR Agreements, less an agreed-upon discount. Final settlement of the ASR Agreements occurred during the three months ended December 31, 2022, resulting in the delivery of 2.4 million additional shares, which yielded an average share price of $333.88 for the entire transaction.

Under the authoritative guidance, share repurchases are recognized as a reduction to retained earnings to the extent available, with any excess recognized as a reduction of capital in excess of par value. In addition, as explained further in Note 14 “Income Taxes,” the Inflation Reduction Act of 2022 (“IRA”) introduced a 1% excise tax imposed on certain stock repurchases by publicly traded companies made after December 31, 2022. The excise tax is recorded as part of the cost basis of treasury stock repurchased after December 31, 2022 and, as such, is included in stockholders’ equity.

As of June 30, 2023, an aggregate of approximately $1.91 billion was available for repurchase under our stock repurchase program.

Share repurchase transactions for the indicated periods (based on the trade date of the applicable repurchase), with fiscal 2022 excluding the $0.90 billion portion of the ASR upfront payment that was recorded as an unsettled forward contract in fiscal 2022, were as follows:


(In thousands)	Year Ended June 30,
2023			2022			2021
Number of shares of common stock repurchased	5,844			11,768			3,658
Total cost of repurchases	$	1,329,714		$	3,962,267		$	944,607

NOTE 12 — NET INCOME PER SHARE

Basic net income per share is calculated by dividing net income available to common stockholders by the weighted-average number of common shares outstanding during the period. Diluted net income per share is calculated by using the weighted-average number of common shares outstanding during the period, increased to include the number of additional shares of common stock that would have been outstanding if the shares of common stock underlying our outstanding dilutive RSUs had been issued. The dilutive effect of outstanding RSUs is reflected in diluted net income per share by application of the treasury stock method. In addition, the shares delivered under the ASR Agreements discussed in Note 11 “Stock Repurchase Program” in the fourth quarter of fiscal 2022 and second quarter of fiscal 2023 resulted in a reduction of outstanding shares used to determine our weighted-average common shares outstanding for purposes of calculating basic and diluted earnings per share for those respective fiscal years.

The following table sets forth the computation of basic and diluted net income per share attributable to KLA:


(In thousands, except per share amounts)	Year Ended June 30,
2023			2022			2021
Numerator:
Net income attributable to KLA	$	3,387,277		$	3,321,807		$	2,078,292
Denominator:
Weighted-average shares-basic, excluding unvested RSUs	139,483			150,494			154,086
Effect of dilutive RSUs and options	752			1,061			1,351
Weighted-average shares-diluted	140,235			151,555			155,437
Basic net income per share attributable to KLA	$	24.28		$	22.07		$	13.49
Diluted net income per share attributable to KLA	$	24.15		$	21.92		$	13.37
Anti-dilutive securities excluded from the computation of diluted net income per share	8			7			11

NOTE 13 — EMPLOYEE BENEFIT PLANS

We have a profit sharing program for eligible employees, which distributes a percentage of our pre-tax profits on a quarterly basis. In addition, we have an employee savings plan that qualifies as a deferred salary arrangement under Section 401(k) of the Internal Revenue Code. Since January 1, 2019, the employer match is the greater of 50% of the first $8,000 of an eligible employee’s contributions or 50% of the first 5% of eligible compensation contributed plus 25% of the next 5% of compensation contributed.

The total expenses under the profit sharing and 401(k) programs amounted to $37.3 million, $33.3 million, and $27.0 million in the fiscal years ended June 30, 2023, 2022 and 2021, respectively. We have no defined benefit plans in the U.S. In addition to the profit sharing plan and the U.S. 401(k), several of our foreign subsidiaries have retirement plans for their full-time employees, several of which are defined benefit plans. Consistent with the requirements of local law, our deposited funds for certain of these plans are held with insurance companies, with third-party trustees or in government-managed accounts. The assumptions used in calculating the obligation for the foreign plans depend on the local economic environment.

We apply authoritative guidance that requires an employer to recognize the funded status of each of our defined benefit pension and post-retirement benefit plans as a net asset or liability on its balance sheets. Additionally, the authoritative guidance requires an employer to measure the funded status of each of its plans as of the date of its year-end statement of financial position. The benefit obligations and related assets under our plans have been measured as of June 30, 2023 and 2022.

Summary data relating to our foreign defined benefit pension plans, including key weighted-average assumptions used, is provided in the following tables:


	Year Ended June 30,
(In thousands)	2023		2022
Change in projected benefit obligation:
Projected benefit obligation as of the beginning of the fiscal year	$	124,585	$	134,305
Service cost	3,807		5,054
Interest cost	1,689		1,003
Contributions by plan participants	70		78
Actuarial (gain) loss	(7,686)		3,029
Benefit payments	(4,837)		(2,164)
Plan amendment impact	191		670
Settlements impact	(931)		(1,010)

Foreign currency exchange rate changes and others, net	(3,752)		(16,380)
Projected benefit obligation as of the end of the fiscal year	$	113,136	$	124,585

	Year Ended June 30,
(In thousands)	2023		2022
Change in fair value of plan assets:
Fair value of plan assets as of the beginning of the fiscal year	$	43,593	$	44,726
Employer contributions	8,396		6,955
Foreign currency exchange rate changes and others, net	(827)		(3,831)
Settlements impact	(931)		(1,010)
Actual return on plan assets	(1,064)		(1,087)


Benefit and expense payments	(3,237)		(2,160)
Fair value of plan assets as of the end of the fiscal year	$	45,930	$	43,593


	As of June 30,
(In thousands)	2023		2022
Underfunded status	$	67,206	$	80,992

	As of June 30,
(In thousands)	2023		2022
Plans with accumulated benefit obligations in excess of plan assets:
Accumulated benefit obligation	$	65,992	$	77,697
Projected benefit obligation	$	108,084	$	124,585
Plan assets at fair value	$	40,648	$	43,593


	Year Ended June 30,
	2023	2022	2021
Weighted-average assumptions(1):
Discount rate	0.9% - 3.0%	0.9% - 3.0%	0.5% - 1.7%
Expected rate of return on assets	0.9% - 2.6%	0.9% - 3.0%	0.6% - 2.9%
Rate of compensation increases	3.0% - 5.0%	2.3% - 5.0%	2.3% - 5.0%

(1)Represents the weighted-average assumptions used to determine the benefit obligation.

The assumptions for expected rate of return on assets were developed by considering the historical returns and expectations of future returns relevant to the country in which each plan is in effect and the investments applicable to the corresponding plan. The discount rate for each plan was derived by reference to appropriate benchmark yields on high-quality corporate bonds, allowing for the approximate duration of both plan obligations and the relevant benchmark index.

The following table presents losses recognized in AOCI before tax related to our foreign defined benefit pension plans:


	As of June 30,
(In thousands)	2023		2022

Unrecognized prior service cost	$	10,733	$	12,414
Unrealized net loss	12,932		19,400
Amount of losses recognized	$	23,665	$	31,814

The components of our net periodic cost relating to our foreign subsidiaries’ defined benefit pension plans are as follows:


	Year Ended June 30,
(In thousands)	2023		2022		2021
Components of net periodic pension cost:
Service cost(1)	$	3,807	$	5,054	$	4,649
Interest cost	1,678		1,003		1,187
Return on plan assets	(426)		(528)		(549)

Amortization of prior service cost	873		671		—
Amortization of net loss	698		1,406		1,071


Loss due to settlement/curtailment	85		38		130
Foreign currency exchange rate changes	—		(19)		—
Net periodic pension cost	$	6,715	$	7,625	$	6,488

(1)Service cost is reported in Cost of revenues, R&D and SG&A expenses. All other components of net periodic pension cost are reported in Other expense (income), net in the Consolidated Statements of Operations.

Fair Value of Plan Assets

Fair value is the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The three levels of inputs used to measure fair value of plan assets are described in Note 3 “Fair Value Measurements.”

The foreign plans’ investments are managed by third-party trustees consistent with the regulations or market practice of the country where the assets are invested. We are not actively involved in the investment strategy, nor do we have control over the target allocation of these investments. These investments made up 100% of total foreign plan assets in the fiscal years ended June 30, 2023 and 2022.

The expected aggregate employer contribution for the foreign plans during the fiscal year ending June 30, 2024 is $7.7 million.

The total benefits to be paid from the foreign pension plans are not expected to exceed $6.9 million in any year through the fiscal year ending June 30, 2033.

Foreign plan assets measured at fair value on a recurring basis consisted of the following investment categories as of June 30, 2023 and 2022, respectively:


As of June 30, 2023 (In thousands)	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)
Cash and cash equivalents	$	32,114	$	32,114	$	—
Bonds, equity securities and other investments	13,816		—		13,816
Total assets measured at fair value	$	45,930	$	32,114	$	13,816

As of June 30, 2022 (In thousands)	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)
Cash and cash equivalents	$	27,543	$	27,543	$	—
Bonds, equity securities and other investments	16,050		—		16,050
Total assets measured at fair value	$	43,593	$	27,543	$	16,050

Concentration of Risk

We manage a variety of risks, including market, credit and liquidity risks, across our plan assets through our investment managers. We define a concentration of risk as an undiversified exposure to one of the above-mentioned risks that increases the exposure of the loss of plan assets unnecessarily. We monitor exposure to such risks in the foreign plans by monitoring the magnitude of the risk in each plan and diversifying our exposure to such risks across a variety of instruments, markets and counterparties. As of June 30, 2023, we did not have concentrations of plan asset investment risk in any single entity, manager, counterparty, sector, industry or country.

NOTE 14 — INCOME TAXES

The components of income before income taxes were as follows:


	Year Ended June 30,
(In thousands)	2023		2022		2021
Domestic income before income taxes	$	2,017,338	$	1,909,699	$	1,251,820
Foreign income before income taxes	1,771,852		1,579,538		1,108,634
Total income before income taxes	$	3,789,190	$	3,489,237	$	2,360,454

The provision for income taxes was comprised of the following:


(In thousands)	Year Ended June 30,
2023			2022			2021
Current:
Federal	$	553,197		$	341,614		$	201,413
State	14,804			14,149			6,164
Foreign	188,991			165,194			121,146
	756,992			520,957			328,723
Deferred:
Federal	(228,414)			11,564			(31,989)
State	(4,295)			(311)			(1,155)
Foreign	(122,444)			(365,033)			(12,478)
	(355,153)			(353,780)			(45,622)
Provision for income taxes	$	401,839		$	167,177		$	283,101

The significant components of deferred income tax assets and liabilities were as follows:


(In thousands)	As of June 30,
2023			2022
Deferred tax assets:
Tax credits and net operating losses	$	271,500		$	268,416
Capitalized R&D expenses	201,228			—
Inventory reserves	103,646			86,059
Employee benefits accrual	92,696			78,021
Depreciation and amortization	73,691			1,760
Non-deductible reserves	52,147			53,426

Unearned revenue	16,668			11,843
SBC	12,710			9,864

Other	35,360			56,911
Gross deferred tax assets	859,646			566,300
Valuation allowance	(259,172)			(244,429)
Net deferred tax assets	$	600,474		$	321,871
Deferred tax liabilities:
Unremitted earnings of foreign subsidiaries not indefinitely reinvested	$	(279,677)		$	(358,374)
Deferred profit	(23,149)			(30,268)
Unrealized gain on investments	(9,994)			(12,993)

Total deferred tax liabilities	(312,820)			(401,635)
Total net deferred tax liabilities	$	287,654		$	(79,764)

Our deferred tax assets for the year ended June 30, 2023 reflect the impact of the mandatory capitalization of research and experimental expenditures as required by the 2017 Tax Cuts and Jobs Act. This provision was first effective for the Company in the year ending June 30, 2023. We will continue to monitor legislative developments with respect to this capitalization requirement.

As of June 30, 2023, we, excluding Orbotech, had U.S. federal, state and foreign net operating loss (“NOL”) carry-forwards of approximately $8 million, $9 million and $16 million, respectively. Orbotech had state and foreign NOLs of approximately $15 million and $163 million, respectively. Orbotech also had capital loss carry-forwards of approximately $9 million as of June 30, 2023. The U.S. federal NOL carry-forwards will expire at various dates beginning in 2024 through 2037. The utilization of NOLs created by acquired companies is subject to annual limitations under Section 382 of the Internal Revenue Code. However, it is not expected that such annual limitation will significantly impair the realization of these NOLs. The state NOLs will expire at various dates beginning in 2028 through 2036. Foreign NOLs and capital loss carry-forwards will be carried forward indefinitely. State credits of approximately $331 million for us, including Orbotech, will also be carried

forward indefinitely.

The net deferred tax asset valuation allowance was $259.2 million and $244.4 million as of June 30, 2023 and 2022, respectively. The change was primarily due to an increase in the valuation allowance related to state credit carry-forwards generated in the fiscal year ended June 30, 2023. The valuation allowance is based on our assessment that it is more likely than not that certain deferred tax assets will not be realized in the foreseeable future. Of the valuation allowance as of June 30, 2023, $256.1 million was related to federal and state credit carry-forwards. The remainder of the valuation allowance was related to state and foreign NOL carry-forwards.

As of June 30, 2023, we intend to indefinitely reinvest $185.9 million of cumulative undistributed earnings held by certain non-U.S. subsidiaries. If these undistributed earnings were repatriated to the U.S., the potential deferred tax liability associated with the undistributed earnings would be approximately $39 million.

We benefit from tax holidays in Singapore where we manufacture certain of our products. These tax holidays are on approved investments and are scheduled to expire in six to nine years. We are in compliance with all the terms and conditions of the tax holidays as of June 30, 2023. The net impact of these tax holidays was to decrease our tax expense by approximately $162 million, $544 million and $12 million in the fiscal years ended June 30, 2023, 2022 and 2021, respectively. The benefits of the tax holidays on diluted net income per share were $1.18, $3.83 and $0.08 for the fiscal years ended June 30, 2023, 2022 and 2021, respectively. The benefits during the fiscal year ended June 30, 2022 include a one-time deferred tax benefit of approximately $398 million due to a tax basis step-up from a restructuring.

The reconciliation of the U.S. federal statutory income tax rate to our effective income tax rate was as follows:


	Year ended June 30,
	2023		2022		2021
Federal statutory rate	21.0	%	21.0	%	21.0	%
GILTI	3.4	%	2.0	%	2.6	%
State income taxes, net of federal benefit	0.2	%	0.3	%	0.2	%
Effect of SBC	0.1	%	(0.2)	%	(0.3)	%
Net change in tax reserves	—	%	2.0	%	(1.1)	%
Tax rate change on deferred tax liability on purchased intangibles	—	%	—	%	1.7	%

Restructuring	—	%	(11.2)	%	—	%
R&D tax credit	(1.5)	%	(1.1)	%	(1.1)	%


Foreign derived intangible income	(5.7)	%	(4.0)	%	(4.3)	%
Effect of foreign operations taxed at various rates	(7.1)	%	(4.2)	%	(6.6)	%
Other	0.2	%	0.2	%	(0.1)	%
Effective income tax rate	10.6	%	4.8	%	12.0	%

A reconciliation of gross unrecognized tax benefits was as follows:


	Year Ended June 30,
(In thousands)	2023		2022		2021
Unrecognized tax benefits at the beginning of the year	$	217,927	$	149,642	$	172,443

Increases for tax positions taken in current year	44,590		49,311		31,113
Increases for tax positions taken in prior years	434		20,917		6,557
Decreases for settlements with taxing authorities	(45,042)		—		(28,651)
Decreases for tax positions taken in prior years	(3,929)		(267)		(19,360)
Decreases for lapsing of statutes of limitations	(888)		(1,676)		(12,460)
Unrecognized tax benefits at the end of the year	$	213,092	$	217,927	$	149,642

The amounts of unrecognized tax benefits that would impact the effective tax rate were $199.0 million, $205.0 million and $137.8 million as of June 30, 2023, 2022 and 2021, respectively. The amounts of interest and penalties recognized during the years ended June 30, 2023, 2022 and 2021 were a benefit of $20.2 million and expenses of $11.5 million and $2.8 million, respectively. Our policy is to include interest and penalties related to unrecognized tax benefits within Other expense (income), net. The amounts of interest and penalties accrued as of June 30, 2023 and 2022 were approximately $33 million and $52 million, respectively.

In the normal course of business, we are subject to examination by tax authorities throughout the world. We are subject to U.S. federal income tax examinations for all years beginning from the fiscal year ended June 30, 2018 and are under U.S. federal income tax examination for the fiscal years ended June 30, 2018, 2019 and 2020. We are subject to state income tax examinations for all years beginning from the fiscal year ended June 30, 2019. We are also subject to examinations in other major foreign jurisdictions, including Singapore and Israel, for all years beginning from the calendar year ended December 31, 2019.

In August 2022, Orbotech executed a settlement agreement with the Israel Tax Authority (“ITA”) in resolution of tax examinations for fiscal years 2012 through 2014 and 2015 through 2018. The settlement agreement included a payment of approximately $25.7 million, including interest, to the ITA. In addition, Orbotech paid approximately $16.2 million to the ITA related to previous “tax exempt” earnings under the historical Approved or Beneficial Enterprises regimes. The current year election to pay tax on the previous exempt earnings was made under the Temporary Order issued in the Israel Budget, which allows for a reduced tax rate on such earnings. Approximately $5.7 million of the settlement payment related to the amount of R&D expenses eligible for deduction during the above referenced years was refunded to Orbotech in January 2023. Orbotech currently has no ongoing ITA examinations. Orbotech is subject to income tax examination in Israel for all years beginning from the calendar year ended December 31, 2019.

We believe that we may recognize up to $2.7 million of our existing unrecognized tax benefits within the next 12 months as a result of the lapse of statutes of limitations. It is possible that certain income tax examinations may be concluded in the next 12 months. Given the uncertainty around the timing of the resolution of these ongoing examinations, we are unable to estimate the full range of possible adjustments to our unrecognized tax benefits within the next 12 months.

Legislative Developments

President Biden signed into law the CHIPS and Science Act of 2022 (“CHIPS Act,” where “CHIPS” stands for Creating Helpful Incentives to Produce Semiconductors) on August 9, 2022. The CHIPS Act provides for various incentives and tax credits among other items, including the Advanced Manufacturing Investment Credit (“AMIC”), which equals 25% of qualified investments in an advanced manufacturing facility that is placed in service after December 31, 2022. There was no material impact to our financial statements from the AMIC provision.

President Biden also signed into law the IRA on August 16, 2022. The IRA has several provisions including a 15% corporate alternative minimum tax (“CAMT”) for certain large corporations that have at least an average of $1.0 billion of adjusted financial statement income over a consecutive three-tax-year period. The CAMT will be effective for us in the first quarter of our fiscal year ending June 30, 2024.

The IRA also introduced a 1% excise tax imposed on certain stock repurchases by publicly traded companies made after December 31, 2022. We began recording the excise tax as part of the cost basis of treasury stock repurchased after December 31, 2022.

Other than the AMIC and the excise tax imposed on certain stock repurchases as mentioned above, we are currently evaluating the applicability and impact of the other provisions in the IRA and the CHIPS Act on our Consolidated Financial Statements including our future cash flows.

NOTE 15 — LITIGATION AND OTHER LEGAL MATTERS

We are named, from time to time, as a party to lawsuits and other types of legal proceedings and claims in the normal course of our business. Actions filed against us include commercial, intellectual property (“IP”), customer, and labor and employment related claims, including complaints of alleged wrongful termination and potential class action lawsuits regarding alleged violations of federal and state wage and hour and other laws. In general, legal proceedings and claims, regardless of their merit, and associated internal investigations (especially those relating to IP or confidential information disputes) are often expensive to prosecute, defend or conduct and may divert management’s attention and other company resources. Moreover, the results of legal proceedings are difficult to predict, and the costs incurred in litigation can be substantial, regardless of outcome. We believe the amounts provided in our Consolidated Financial Statements are adequate in light of the probable and estimated liabilities. However, because such matters are subject to many uncertainties and the ultimate outcomes are not predictable, there can be no assurances that the actual amounts required to satisfy alleged liabilities from the matters described above will not exceed the amounts reflected in our Consolidated Financial Statements or will not have a material adverse effect on our results of operations, financial condition or cash flows.

NOTE 16 — COMMITMENTS AND CONTINGENCIES

Factoring. We have factoring agreements with financial institutions to sell certain of our trade receivables and promissory notes from customers without recourse. We do not believe we are at risk for any material losses as a result of these agreements. In addition, we periodically sell certain LC, without recourse, received from customers in payment for goods and services.

The following table shows total receivables sold under factoring agreements and proceeds from sales of LC for the indicated periods:


	Year Ended June 30,
(In thousands)	2023		2022		2021
Receivables sold under factoring agreements	$	328,933	$	250,983	$	305,565
Proceeds from sales of LC	$	69,247	$	151,924	$	133,679

Factoring and LC fees for the sale of certain trade receivables were recorded in Other expense (income), net and were not material for the periods presented.

Purchase Commitments. We maintain commitments to purchase inventory from our suppliers as well as goods, services, and other assets in the ordinary course of business. Our liability under these purchase commitments is generally restricted to a forecasted time-horizon as mutually agreed between the parties. This forecasted time-horizon can vary among different suppliers. Our estimate of our significant purchase commitments primarily for material, services, supplies and asset purchases is $2.51 billion as of June 30, 2023, a majority of which will be due within the next 12 months. Actual expenditures will vary based upon the volume of the transactions and length of contractual service provided. In addition, the amounts paid under these arrangements may be less in the event that the arrangements are renegotiated or canceled. Certain agreements provide for potential cancellation penalties.

Cash LTI Plan. As of June 30, 2023, we have committed $175.4 million for future payment obligations under our Cash LTI Plan. The calculation of compensation expense related to the Cash LTI Plan includes estimated forfeiture rate assumptions. Cash LTI awards issued to employees under the Cash LTI Plan vest in three or four equal installments, with one-third or one-fourth of the aggregate amount of the Cash LTI award vesting on each anniversary of the grant date over a three or four-year period. In order to receive payments under a Cash LTI award, participants must be employed by us as of the applicable award vesting date.

Guarantees and Contingencies. We maintain guarantee arrangements available through various financial institutions for up to $78.2 million, of which $44.7 million had been issued as of June 30, 2023, primarily to fund guarantees to customs authorities for value-added tax and other operating requirements of our consolidated subsidiaries in Europe, Israel and Asia.

Indemnification Obligations. Subject to certain limitations, we are obligated to indemnify our current and former directors, officers and employees with respect to certain litigation matters and investigations that arise in connection with their service to us. These obligations arise under the terms of our certificate of incorporation, its bylaws, applicable contracts, and Delaware and California law. The obligation to indemnify generally means that we are required to pay or reimburse the individuals’ reasonable legal expenses and possibly damages and other liabilities incurred by several of our current and former directors, officers and employees in connection with these matters. For example, we have paid or reimbursed legal expenses incurred in connection with the investigation of our historical stock option practices and the related litigation and government inquiries. Although the maximum potential amount of future payments we could be required to make under the indemnification obligations generally described in this paragraph is theoretically unlimited, we believe the fair value of this liability, to the extent estimable, is appropriately considered within the reserve we have established for currently pending legal proceedings.

We are a party to a variety of agreements pursuant to which we may be obligated to indemnify the other party with respect to certain matters. Typically, these obligations arise in connection with contracts and license agreements or the sale of assets, under which we customarily agree to hold the other party harmless against losses arising therefrom, or provide customers with other remedies to protect against, bodily injury or damage to personal property caused by our products, non-compliance with our product performance specifications, infringement by our products of third-party intellectual property rights and a breach of warranties, representations and covenants related to matters such as title to assets sold, validity of certain intellectual property rights, non-infringement of third-party rights, and certain income tax-related matters. In each of these circumstances, payment by us is typically subject to the other party making a claim to and cooperating with us pursuant to the procedures specified in the particular contract. This usually allows us to challenge the other party’s claims or, in case of breach of intellectual property representations or covenants, to control the defense or settlement of any third-party claims brought against the other party. Further, our obligations under these agreements may be limited in terms of amounts, activity (typically

at our option to replace or correct the products or terminate the agreement with a refund to the other party), and duration. In some instances, we may have recourse against third parties and/or insurance covering certain payments made by us.

In addition, we may, in limited circumstances, enter into agreements that contain customer-specific commitments on pricing, tool reliability, spare parts stocking levels, response time and other commitments. Furthermore, we may give these customers limited audit or inspection rights to enable them to confirm that we are complying with these commitments. If a customer elects to exercise its audit or inspection rights, we may be required to expend significant resources to support the audit or inspection, as well as to defend or settle any dispute with a customer that could potentially arise out of such audit or inspection. To date, we have made no significant accruals in our Consolidated Financial Statements for this contingency. While we have not in the past incurred significant expenses for resolving disputes regarding these types of commitments, we cannot make any assurance that it will not incur any such liabilities in the future.

It is not possible to predict the maximum potential amount of future payments under these or similar agreements due to the conditional nature of our obligations and the unique facts and circumstances involved in each particular agreement. Historically, payments made by us under these agreements have not had a material effect on our business, financial condition, results of operations or cash flows.

NOTE 17 — DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

The authoritative guidance requires companies to recognize all derivative instruments, including foreign exchange contracts and rate lock agreements (collectively “derivatives”) as either assets or liabilities at fair value on the Consolidated Balance Sheets. In accordance with the accounting guidance, we designate foreign currency forward transactions and options contracts and interest rate forward transactions as cash flow hedges. In accordance with the accounting guidance, we also designate certain foreign currency exchange contracts as net investment hedge transactions intended to mitigate the variability of the value of certain investments in foreign subsidiaries.

Our foreign subsidiaries operate and sell our products in various global markets. As a result, we are exposed to risks relating to changes in foreign currency exchange rates. We utilize foreign exchange contracts to hedge against future movements in foreign currency exchange rates that affect certain existing and forecasted foreign currency denominated sales and purchase transactions, such as the Japanese yen, the euro, the pound sterling and the new Israeli shekel.

We routinely hedge our exposures to certain foreign currencies with various financial institutions in an effort to minimize the impact of certain currency exchange rate fluctuations. These foreign exchange contracts, designated as cash flow hedges, generally have maturities of less than 18 months. Cash flow hedges are evaluated for effectiveness monthly, based on changes in total fair value of the derivatives. If a financial counterparty to any of our hedging arrangements experiences financial difficulties or is otherwise unable to honor the terms of the foreign currency hedge, we may experience material losses.

Since fiscal 2015, we have entered into four sets of Rate Lock Agreements to hedge the benchmark interest rate on portions of our Senior Notes prior to issuance. Upon issuance of the associated debt, the Rate Lock Agreements were settled and their fair values were recorded within AOCI. The resulting gains and losses from these transactions are amortized to interest expense over the lives of the associated debt. As of June 30, 2023, the aggregate unamortized portion of the fair value of the Rate Lock Agreements was a $51.1 million net gain.

For derivatives that are designated and qualify as cash flow hedges, the effective portion of the gains or losses is reported in AOCI and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. For derivative contracts executed after adopting the new accounting guidance in fiscal 2019, the election to include time value for the assessment of effectiveness is made on all forward contracts designated as cash flow hedges. The change in fair value of the derivative is recorded in AOCI until the hedged item is recognized in earnings. The assessment of effectiveness of options contracts designated as cash flow hedges exclude time value. The initial value of the component excluded from the assessment of effectiveness is recognized in earnings over the life of the derivative contract. Any difference between change in the fair value of the excluded components and the amounts recognized in earnings are recorded in AOCI.

For derivatives that are designated and qualify as a net investment hedge in a foreign operation and that meet the effectiveness requirements, the net gains or losses attributable to changes in spot exchange rates are recorded in cumulative translation within AOCI. The remainder of the change in value of such instruments is recorded in earnings using the mark-to-market approach. Recognition in earnings of amounts previously recorded in cumulative translation is limited to circumstances such as complete or substantially complete liquidation or sale of the net investment in the hedged foreign operations.

For derivatives that are not designated as hedges, gains and losses are recognized in Other expense (income), net. We use foreign exchange contracts to hedge certain foreign currency denominated assets or liabilities. The gains and losses on these derivative instruments are largely offset by the changes in the fair value of the assets or liabilities being hedged.

Derivatives in Hedging Relationships: Foreign Exchange Contracts and Rate Lock Agreements

The gains (losses) on derivatives in cash flow and net investment hedging relationships recognized in OCI for the indicated periods were as follows:


	Year Ended June 30,
(In thousands)	2023		2022		2021
Derivatives Designated as Cash Flow Hedging Instruments:
Rate lock agreements:
Amounts included in the assessment of effectiveness	$	—	$	82,969	$	—
Foreign exchange contracts:
Amounts included in the assessment of effectiveness	$	30,153	$	21,940	$	3,897
Amounts excluded from the assessment of effectiveness	$	(128)	$	43	$	(115)
Derivatives Designated as Net Investment Hedging Instruments:
Foreign exchange contracts(1)	$	3,626	$	3,815	$	(191)

(1)No amounts were reclassified from AOCI into earnings related to the sale of a subsidiary.

The locations and amounts of designated and non-designated derivatives’ gains and losses reported in the Consolidated Statements of Operations for the indicated periods were as follows:


(In thousands)	Revenues		Costs of Revenues and Operating Expense		Interest Expense		Other Expense (Income), Net
For the year ended June 30, 2021
Total amounts presented in the Consolidated Statements of Operations in which the effects of cash flow hedges are recorded	$	6,918,734	$	4,430,254	$	157,328	$	(29,302)
Gains (Losses) on Derivatives Designated as Hedging Instruments:
Rate lock agreements:
Amount of gains (losses) reclassified from AOCI to earnings	$	—	$	—	$	(1,116)	$	—

Foreign exchange contracts:
Amount of gains (losses) reclassified from AOCI to earnings	$	920	$	551	$	—	$	—
Amount excluded from the assessment of effectiveness recognized in earnings	$	(536)	$	—	$	—	$	1,216

Gains (Losses) on Derivatives Not Designated as Hedging Instruments:
Amount of gains (losses) recognized in earnings	$	—	$	—	$	—	$	670
For the year ended June 30, 2022
Total amounts presented in the Consolidated Statements of Operations in which the effects of cash flow hedges are recorded	$	9,211,883	$	5,557,702	$	160,339	$	4,605
Gains (Losses) on Derivatives Designated as Hedging Instruments:
Rate lock agreements:
Amount of gains (losses) reclassified from AOCI to earnings	$	—	$	—	$	(1,007)	$	—

Foreign exchange contracts:
Amount of gains (losses) reclassified from AOCI to earnings	$	11,219	$	(3,762)	$	—	$	—
Amount excluded from the assessment of effectiveness recognized in earnings	$	(531)	$	—	$	—	$	2,333

Gains (Losses) on Derivatives Not Designated as Hedging Instruments:
Amount of gains (losses) recognized in earnings	$	—	$	—	$	—	$	(10,665)
For the year ended June 30, 2023
Total amounts presented in the Consolidated Statements of Operations in which the effects of cash flow hedges are recorded	$	10,496,056	$	6,501,360	$	296,940	$	(104,720)
Gains (Losses) on Derivatives Designated as Hedging Instruments:
Rate lock agreements:
Amount of gains (losses) reclassified from AOCI to earnings	$	—	$	—	$	3,747	$	—

Foreign exchange contracts:
Amount of gains (losses) reclassified from AOCI to earnings	$	33,243	$	(6,526)	$	—	$	—
Amount excluded from the assessment of effectiveness recognized in earnings	$	(1,406)	$	—	$	—	$	2,598
Gains (Losses) on Derivatives Not Designated as Hedging Instruments:
Amount of gains (losses) recognized in earnings	$	—	$	—	$	—	$	(2,062)

The U.S. dollar equivalent of all outstanding notional amounts of foreign currency hedge contracts, with maximum remaining maturities of approximately 11 months as of June 30, 2023 and 11 months as of June 30, 2022, were as follows:


(In thousands)	As of June 30, 2023		As of June 30, 2022
Cash flow hedge contracts - foreign currency
Purchase	$	218,315	$	124,641
Sell	$	123,951	$	176,259
Net Investment hedge contracts - foreign currency

Sell	$	87,157	$	66,436
Other foreign currency hedge contracts
Purchase	$	527,349	$	565,586
Sell	$	204,902	$	389,368

The locations and fair value of our derivatives reported in our Consolidated Balance Sheets as of the dates indicated below were as follows:


	Asset Derivatives						Liability Derivatives
	Balance Sheet Location	As of June 30, 2023		As of June 30, 2022			Balance Sheet Location	As of June 30, 2023		As of June 30, 2022

(In thousands)	Fair Value					Fair Value
Derivatives designated as hedging instruments

Foreign exchange contracts	Other current assets	$	24,498	$	20,595		Other current liabilities	$	(442)	$	(8,406)
Total derivatives designated as hedging instruments		24,498		20,595				(442)		(8,406)
Derivatives not designated as hedging instruments

Foreign exchange contracts	Other current assets	11,214		19,716			Other current liabilities	(11,664)		(25,909)
Total derivatives not designated as hedging instruments		11,214		19,716				(11,664)		(25,909)
Total derivatives		$	35,712	$	40,311			$	(12,106)	$	(34,315)

The changes in AOCI, before taxes, related to derivatives for the indicated periods were as follows:


	Year Ended June 30,
(In thousands)	2023		2022		2021
Beginning balance	$	77,018	$	(25,830)	$	(29,602)
Amount reclassified to earnings as net (gains) losses	(29,058)		(5,919)		181
Net change in unrealized gains (losses)	33,651		108,767		3,591
Ending balance	$	81,611	$	77,018	$	(25,830)

Offsetting of Derivative Assets and Liabilities

We present derivatives at gross fair values in the Consolidated Balance Sheets. We have entered into arrangements with each of our counterparties, which reduce credit risk by permitting net settlement of transactions with the same counterparty under certain conditions. The information related to the offsetting arrangements for the periods indicated was as follows:


As of June 30, 2023							Gross Amounts of Derivatives Not Offset in the Consolidated Balance Sheets
(In thousands)	Gross Amounts of Derivatives		Gross Amounts of Derivatives Offset in the Consolidated Balance Sheets		Net Amount of Derivatives Presented in the Consolidated Balance Sheets		Financial Instruments		Cash Collateral Received		Net Amount
Derivatives - assets	$	35,712	$	—	$	35,712	$	(8,968)	$	—	$	26,744
Derivatives - liabilities	$	(12,106)	$	—	$	(12,106)	$	8,968	$	—	$	(3,138)


As of June 30, 2022							Gross Amounts of Derivatives Not Offset in the Consolidated Balance Sheets
(In thousands)	Gross Amounts of Derivatives		Gross Amounts of Derivatives Offset in the Consolidated Balance Sheets		Net Amount of Derivatives Presented in the Consolidated Balance Sheets		Financial Instruments		Cash Collateral Received		Net Amount
Derivatives - assets	$	40,311	$	—	$	40,311	$	(12,291)	$	—	$	28,020
Derivatives - liabilities	$	(34,315)	$	—	$	(34,315)	$	12,291	$	—	$	(22,024)

NOTE 18 — RELATED PARTY TRANSACTIONS

During the fiscal years ended June 30, 2023, 2022 and 2021, we purchased from, or sold to, several entities where one or more of our executive officers or members of our Board of Directors, or their immediate family members were, during the periods presented, an executive officer or a board member of a subsidiary, including Advanced Micro Devices, Inc., Ansys, Inc., HP Inc., Keysight Technologies, Microchip Technology Incorporated and Splunk Inc. Citrix Systems, Inc. was a related party only during the fiscal years ended June 30, 2022 and 2021. Proofpoint, Inc. was a related party only during the fiscal year ended June 30, 2021. The following table provides the transactions with these parties for the indicated periods (for the portion of such period that they were considered related):


	Year Ended June 30,
(In thousands)	2023		2022		2021
Total revenues	$	24,373	$	2,334	$	1,276
Total purchases	$	3,883	$	1,082	$	1,347

Our receivable balance was $1.0 million and $1.1 million and payable balances were immaterial from these parties as of June 30, 2023 and 2022, respectively. All of the related party transactions were made at current market rates.

NOTE 19 — SEGMENT REPORTING AND GEOGRAPHIC INFORMATION

ASC 280, Segment Reporting, establishes standards for reporting information about operating segments. Operating segments are defined as components of an enterprise about which separate financial information is evaluated regularly by the chief operating decision maker (“CODM”) in deciding how to allocate resources and in assessing performance. Our CODM is our Chief Executive Officer.

We have three reportable segments: Semiconductor Process Control; Specialty Semiconductor Process; and PCB, Display and Component Inspection. The reportable segments are determined based on several factors including, but not limited to, customer base, homogeneity of products, technology, delivery channels and similar economic characteristics. Prior to July 1, 2022, we had a fourth segment, Other, but core assets from that segment were sold, making it non-operational and the segment was eliminated.

Semiconductor Process Control

The Semiconductor Process Control segment offers a comprehensive portfolio of inspection, metrology and data analytics products, and related services, which helps IC manufacturers achieve target yield throughout the entire semiconductor fabrication process, from R&D to final volume production. 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. This reportable segment is comprised of two operating segments, Wafer Inspection and Patterning and GSS.

Specialty Semiconductor Process

The Specialty Semiconductor Manufacturing segment develops and sells advanced vacuum deposition and etching process tools, which are used by a broad range of specialty semiconductor customers, including manufacturers of MEMS, radio frequency communication chips, and power semiconductors for automotive and industrial applications. This reportable segment is comprised of one operating segment.

PCB, Display and Component Inspection

The PCB, Display and Component Inspection segment enables electronic device manufacturers to inspect, test and measure PCBs, 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. This reportable segment is comprised of two operating segments, PCB and Display and Component Inspection.

The CODM assesses the performance of each operating segment and allocates resources to those segments based on total revenues and segment gross profit and does not evaluate the segments using discrete asset information. Segment gross profit excludes corporate allocations and effects of changes in foreign currency exchange rates, amortization of intangible assets, amortization of inventory fair value adjustments, and transaction costs associated with our acquisitions related to costs of revenues.

The following is a summary of results for each of our three reportable segments for the indicated periods. The fiscal 2021 and fiscal 2022 presentations of segments have been modified to be consistent with the fiscal 2023 presentation in that the Other segment’s revenue and gross profit are no longer included in segment revenues or segment gross profits, but are now included in the “corporate allocations and effects of changes in foreign currency exchange rates” amounts that reconcile the respective segment subtotals to total revenues and total gross profit.


	Year Ended June 30,
(In thousands)	2023		2022		2021
Semiconductor Process Control:
Revenues	$	9,324,190	$	7,924,822	$	5,734,825
Segment gross profit	$	5,957,573	$	5,167,679	$	3,705,222
Specialty Semiconductor Process:
Revenues	$	543,398	$	456,579	$	369,216
Segment gross profit	$	281,942	$	242,520	$	206,706
PCB, Display and Component Inspection:
Revenues	$	631,604	$	832,176	$	812,620
Segment gross profit	$	221,251	$	378,964	$	390,571
Totals:
Revenues for reportable segments	$	10,499,192	$	9,213,577	$	6,916,661
Segment gross profit	$	6,460,766	$	5,789,163	$	4,302,499

The following table reconciles total reportable segment revenue to total revenue for the indicated periods:


	Year Ended June 30,
(In thousands)	2023		2022		2021
Total revenues for reportable segments	$	10,499,192	$	9,213,577	$	6,916,661
Corporate allocations and effects of changes in foreign currency exchange rates	(3,136)		(1,694)		2,073
Total revenues	$	10,496,056	$	9,211,883	$	6,918,734

The following table reconciles total segment gross profit to total income before income taxes for the indicated periods:


	Year Ended June 30,
(In thousands)	2023		2022		2021
Total segment gross profit	$	6,460,766	$	5,789,163	$	4,302,499
Acquisition-related charges, corporate allocations and effects of changes in foreign currency exchange rates(1)	183,017		169,721		155,930
R&D	1,296,727		1,105,254		928,487
SG&A	986,326		860,007		729,602

Interest expense	296,940		160,339		157,328
Loss on extinguishment of debt	13,286		—		—
Other expense (income), net	(104,720)		4,605		(29,302)
Income before income taxes	$	3,789,190	$	3,489,237	$	2,360,454

(1)Acquisition-related charges primarily include amortization of intangible assets and other acquisition-related costs classified or presented as part of Costs of revenues.

Our significant operations outside the U.S. include manufacturing facilities in China, Germany, Israel and Singapore and sales, marketing and service offices in Japan, the rest of the Asia Pacific region and Europe. For geographical revenue reporting, revenues are attributed to the geographic location in which the customer is located. Long-lived assets consist of land, property and equipment, net, and are attributed to the geographic region in which they are located.

The following is a summary of revenues by geographic region, based on ship-to location, for the indicated periods:


(Dollar amounts in thousands)	Year Ended June 30,
2023					2022					2021
Revenues:
China	$	2,867,443	27	%		$	2,660,438	29	%		$	1,831,446	26	%
Taiwan	2,493,379		24	%		2,528,482		27	%		1,690,558		25	%
Korea	1,895,710		18	%		1,430,495		16	%		1,343,473		19	%
North America	1,254,956		12	%		928,043		10	%		765,974		11	%
Japan	888,016		9	%		724,773		8	%		639,381		9	%
Europe and Israel	682,103		6	%		636,664		7	%		396,422		6	%
Rest of Asia	414,449		4	%		302,988		3	%		251,480		4	%
Total	$	10,496,056	100	%		$	9,211,883	100	%		$	6,918,734	100	%

The following is a summary of revenues by major product categories for the indicated periods:


(Dollar amounts in thousands)	Year ended June 30,
2023					2022					2021
Revenues:
Wafer Inspection	$	4,336,663	41	%		$	4,014,726	44	%		$	2,661,167	39	%
Patterning	2,791,130		26	%		2,050,025		22	%		1,505,990		22	%
Specialty Semiconductor Process	492,109		5	%		414,811		4	%		304,627		4	%
PCB, Display and Component Inspection	378,030		4	%		562,464		6	%		562,104		8	%
Services	2,117,031		20	%		1,910,455		21	%		1,678,418		24	%
Other	381,093		4	%		259,402		3	%		206,428		3	%
Total	$	10,496,056	100	%		$	9,211,883	100	%		$	6,918,734	100	%

Wafer Inspection and Patterning products are offered in the Semiconductor Process Control segment. Services are offered in multiple segments. Other includes primarily refurbished systems, remanufactured legacy systems, and enhancements and upgrades for previous-generation products that are part of the Semiconductor Process Control segment.

In the fiscal year ended June 30, 2023, two customers accounted for approximately 18% and 15% of total revenues. In the fiscal year ended June 30, 2022, two customers accounted for approximately 20% and 12% of total revenues. In the fiscal year ended June 30, 2021, two customers accounted for approximately 17% and 15% of total revenues.

Land, property and equipment, net by geographic region as of the dates indicated below were as follows:


	As of June 30,
(In thousands)	2023		2022
Land, property and equipment, net:
U.S.	$	672,561	$	547,454
Singapore	150,989		146,057
Israel	92,815		72,791
Europe	74,015		55,370



Rest of Asia	41,461		28,257
Total	$	1,031,841	$	849,929

NOTE 20 — RESTRUCTURING CHARGES

Over the last few years, management approved plans to streamline operations, which included reductions of workforce.

Restructuring charges were $44.0 million for fiscal year ended June 30, 2023, primarily due to workforce reductions announced and substantially completed in the third and fourth fiscal quarters. Restructuring charges were $1.0 million for the year ended June 30, 2022. Restructuring charges were $12.4 million for the year ended June 30, 2021 and included $3.9 million of non-cash charges for accelerated depreciation related to certain ROU assets and fixed assets to be abandoned. The amounts of restructuring charges accrued were $11.0 million and $2.1 million as of June 30, 2023 and 2022, respectively.

NOTE 21 — SUBSEQUENT EVENTS

On August 3, 2023, we announced that our Board of Directors had declared a quarterly cash dividend of $1.30 per share to be paid on September 1, 2023 to stockholders of record as of the close of business on August 15, 2023.

Report of Independent Registered Public Accounting Firm

To the Board of Directors and

Stockholders of KLA Corporation

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheets of KLA Corporation and its subsidiaries (the “Company”) as of June 30, 2023 and 2022, and the related consolidated statements of operations, comprehensive income, stockholders’ equity and cash flows for each of the three years in the period June 30, 2023, including the related notes and financial statement schedule listed in the accompanying index under item 15(a)(2) (collectively referred to as the “consolidated financial statements”). We also have audited the Company’s internal control over financial reporting as of June 30, 2023, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of June 30, 2023, and 2022, and the results of its operations and its cash flows for each of the three years in the period ended June 30, 2023 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of June 30, 2023, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.

Basis for Opinions

The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Critical Audit Matters

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Valuation of Product Inventory

As described in Note 1 to the consolidated financial statements, the Company’s consolidated inventory balance, net, was $2,876.8 million as of June 30, 2023, of which product inventory makes up a significant portion of the balance. Inventories are stated at the lower of cost or net realizable value using standard costs that approximate actual costs on a first-in, first-out basis. The carrying value of product inventory is reduced for estimated obsolescence equal to the difference between its cost and the estimated net realizable value based on assumptions about future demand for meeting product manufacturing plans. The estimate of net realizable value of inventory is impacted by assumptions regarding general semiconductor market conditions, manufacturing schedules, technology changes, new product introductions and possible alternative uses, and require management to use significant judgment that may include uncertain elements.

The principal considerations for our determination that performing procedures relating to the valuation of product inventory is a critical audit matter are (i) the significant judgment by management when developing the estimated obsolescence used for determining the net realizable value of product inventory and (ii) a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating management’s assumption related to the future demand for product inventory.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to management’s estimated obsolescence used for determining the net realizable value of product inventory, including controls over the development of the future demand for product inventory assumption. These procedures also included, among others, (i) testing management’s process for determining the net realizable value of product inventory, (ii) testing the completeness and accuracy of underlying data used in determining the net realizable value of product inventory; and (iii) evaluating the reasonableness of the assumption used by management related to the future demand for product inventory. Evaluating management’s assumption related to the future demand for product inventory involved evaluating whether the assumption used was reasonable considering (i) the current and past performance of the Company and (ii) whether the assumption was consistent with the Company’s historical activity.

/s/ PricewaterhouseCoopers LLP

San Jose, California

August 4, 2023

We have served as the Company’s auditor since 1977.

SCHEDULE II

Valuation and Qualifying Accounts


(In thousands)	Balance at Beginning of Period		Charged to Expense		Deductions/ Adjustments		Balance at End of Period
Fiscal Year Ended June 30, 2021:
Allowance for Credit Losses	$	11,822	$	2,246	$	3,968	$	18,036
Allowance for Deferred Tax Assets	$	181,846	$	2,650	$	19,937	$	204,433
Fiscal Year Ended June 30, 2022:
Allowance for Credit Losses	$	18,036	$	5,710	$	(3,115)	$	20,631
Allowance for Deferred Tax Assets	$	204,433	$	8,096	$	31,900	$	244,429
Fiscal Year Ended June 30, 2023:
Allowance for Credit Losses	$	20,631	$	19,894	$	(6,893)	$	33,632
Allowance for Deferred Tax Assets	$	244,429	$	—	$	14,743	$	259,172

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