Item 1. FINANCIAL STATEMENTS

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Item 1. FINANCIAL STATEMENTS

KLA CORPORATION

Condensed Consolidated Balance Sheets

(Unaudited)


(In thousands)	September 30, 2021		June 30, 2021
ASSETS
Current assets:
Cash and cash equivalents	$	1,509,564	$	1,434,610
Marketable securities	1,115,249		1,059,912
Accounts receivable, net	1,463,974		1,305,479
Inventories	1,715,339		1,575,380
Other current assets	340,546		320,867
Total current assets	6,144,672		5,696,248
Land, property and equipment, net	698,547		663,027
Goodwill	2,041,338		2,011,172
Deferred income taxes	665,672		270,461
Purchased intangible assets, net	1,157,535		1,185,311
Other non-current assets	438,713		444,905
Total assets	$	11,146,477	$	10,271,124
LIABILITIES, NON-CONTROLLING INTEREST AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	380,827	$	342,083
Deferred system revenue	319,846		295,192
Deferred service revenue	286,741		284,936
Short-term debt	20,000		20,000
Other current liabilities	1,515,596		1,161,016
Total current liabilities	2,523,010		2,103,227
Non-current liabilities:
Long-term debt	3,423,436		3,422,767
Deferred tax liabilities	625,540		650,623
Deferred service revenue	94,824		87,575
Other non-current liabilities	620,581		631,290
Total liabilities	7,287,391		6,895,482
Commitments and contingencies (Notes 9, 14 and 15)
Stockholders’ equity:
Common stock and capital in excess of par value	2,137,706		2,175,988
Retained earnings	1,801,268		1,277,123
Accumulated other comprehensive income (loss)	(78,044)		(75,557)
Total KLA stockholders’ equity	3,860,930		3,377,554
Non-controlling interest in consolidated subsidiaries	(1,844)		(1,912)
Total stockholders’ equity	3,859,086		3,375,642
Total liabilities and stockholders’ equity	$	11,146,477	$	10,271,124

See accompanying notes to Condensed Consolidated Financial Statements (unaudited).

KLA CORPORATION

Condensed Consolidated Statements of Operations

(Unaudited)


	Three Months Ended September 30,
(In thousands, except per share amounts)	2021		2020
Revenues:
Product	$	1,629,888	$	1,145,495
Service	453,950		393,125
Total revenues	2,083,838		1,538,620
Costs and expenses:
Costs of revenues	813,624		620,562
Research and development	258,153		219,038
Selling, general and administrative	193,261		172,631

Interest expense	38,312		39,386

Other expense (income), net	14,140		3,197
Income before income taxes	766,348		483,806
Provision (benefit) for income taxes	(302,137)		63,664

Net income	1,068,485		420,142
Less: Net income (loss) attributable to non-controlling interest	68		(425)
Net income attributable to KLA	$	1,068,417	$	420,567
Net income per share attributable to KLA
Basic	$	7.01	$	2.71
Diluted	$	6.96	$	2.69
Weighted-average number of shares:
Basic	152,330		155,281
Diluted	153,410		156,442

See accompanying notes to Condensed Consolidated Financial Statements (unaudited).

KLA CORPORATION

Condensed Consolidated Statements of Comprehensive Income

(Unaudited)


	Three Months Ended September 30,
(In thousands)	2021		2020
Net income	$	1,068,485	$	420,142
Other comprehensive income (loss):
Currency translation adjustments:
Cumulative currency translation adjustments	(2,755)		5,440
Income tax (provision) benefit	317		(403)
Net change related to currency translation adjustments	(2,438)		5,037
Cash flow hedges:
Net unrealized gains (losses) arising during the period	852		(918)
Reclassification adjustments for net (gains) losses included in net income	(1,218)		(54)
Income tax (provision) benefit	(61)		208
Net change related to cash flow hedges	(427)		(764)
Net change related to unrecognized losses and transition obligations in connection with defined benefit plans	628		(3,119)
Available-for-sale securities:
Net unrealized gains (losses) arising during the period	(317)		(951)
Reclassification adjustments for net (gains) losses included in net income	(1)		(101)
Income tax benefit	68		226
Net change related to available-for-sale securities	(250)		(826)
Other comprehensive income (loss)	(2,487)		328
Less: Comprehensive income (loss) attributable to non-controlling interest	68		(425)
Total comprehensive income attributable to KLA	$	1,065,930	$	420,895

See accompanying notes to Condensed Consolidated Financial Statements (unaudited).

KLA CORPORATION

Condensed Consolidated Statements of Stockholders’ Equity

(Unaudited)


	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, 2021	152,776	$	2,175,988	$	1,277,123	$	(75,557)	$	3,377,554	$	(1,912)	$	3,375,642

Net income attributable to KLA	—	—		1,068,417		—		1,068,417		—		1,068,417




Net loss attributable to non-controlling interest	—	—		—		—		—		68		68
Other comprehensive income	—	—		—		(2,487)		(2,487)		—		(2,487)


Net issuance under employee stock plans	160	(46,532)		—		—		(46,532)		—		(46,532)
Repurchase of common stock	(1,190)	(16,966)		(382,711)		—		(399,677)		—		(399,677)
Cash dividends ($1.05 per share) and dividend equivalents declared	—	—		(161,561)		—		(161,561)		—		(161,561)

Stock-based compensation expense	—	25,216		—		—		25,216				25,216
Balances as of September 30, 2021	151,746	$	2,137,706	$	1,801,268	$	(78,044)	$	3,860,930	$	(1,844)	$	3,859,086


	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	—	—		420,567		—		420,567		—		420,567




Net loss attributable to non-controlling interest	—	—		—		—		—		(425)		(425)
Other comprehensive income	—	—		—		328		328		—		328
Net issuance under employee stock plans	172	(25,145)		—		—		(25,145)		—		(25,145)
Repurchase of common stock	(1,027)	(19,400)		(174,497)		—		(193,897)		—		(193,897)
Cash dividends ($0.90 per share) and dividend equivalents declared	—	—		(141,555)		—		(141,555)		—		(141,555)
Stock-based compensation expense	—	26,992		—		—		26,992		—		26,992
Balances as of September 30, 2020	154,606	$	2,072,715	$	753,915	$	(79,446)	$	2,747,184	$	15,161	$	2,762,345

See accompanying notes to Condensed Consolidated Financial Statements (unaudited).

KLA CORPORATION

Condensed Consolidated Statements of Cash Flows

(Unaudited)


	Three Months Ended September 30,
(In thousands)	2021		2020
Cash flows from operating activities:
Net income	$	1,068,485	$	420,142
Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization	84,824		80,066

Unrealized foreign exchange (gain) loss and other	15,639		(12,907)
Asset impairment charges	5,962		865
Stock-based compensation expense	25,216		26,992


Deferred income taxes	(427,970)		(14,967)
Changes in assets and liabilities, net of assets acquired and liabilities assumed in business acquisitions:
Accounts receivable	(180,354)		73,000
Inventories	(138,189)		(85,991)
Other assets	4,673		20,070
Accounts payable	41,868		(9,822)
Deferred system revenue	33,469		(82,633)
Deferred service revenue	4,912		(3,646)
Other liabilities	325,262		101,002
Net cash provided by operating activities	863,797		512,171
Cash flows from investing activities:

Proceeds from sale of assets	—		1,114

Business acquisitions, net of cash acquired	(37,986)		—
Capital expenditures	(68,955)		(55,925)
Purchases of available-for-sale securities	(264,000)		(231,821)
Proceeds from sale of available-for-sale securities	14,954		53,249
Proceeds from maturity of available-for-sale securities	178,414		95,835
Purchases of trading securities	(22,896)		(18,630)
Proceeds from sale of trading securities	25,163		21,244
Proceeds from other investments	—		614
Net cash used in investing activities	(175,306)		(134,320)
Cash flows from financing activities:


Proceeds from revolving credit facility	300,000		—
Repayment of debt	(300,000)		(50,000)
Common stock repurchases	(399,677)		(187,897)
Payment of dividends to stockholders	(162,821)		(141,164)


Tax withholding payments related to vested and released restricted stock units	(46,532)		(25,145)



Net cash used in financing activities	(609,030)		(404,206)
Effect of exchange rate changes on cash and cash equivalents	(4,507)		7,766
Net increase (decrease) in cash and cash equivalents	74,954		(18,589)
Cash and cash equivalents at beginning of period	1,434,610		1,234,409
Cash and cash equivalents at end of period	$	1,509,564	$	1,215,820
Supplemental cash flow disclosures:
Income taxes paid	$	57,532	$	54,185
Interest paid	$	39,717	$	40,071
Non-cash activities:


Contingent consideration (receivable) payable - financing activities	$	12,810	$	(2,987)
Dividends payable - financing activities	$	1,783	$	1,660
Unsettled common stock repurchase - financing activities	$	5,999	$	6,000

Accrued purchases of land, property and equipment - investing activities	$	22,962	$	23,388

See accompanying notes to Condensed Consolidated Financial Statements (unaudited).

KLA CORPORATION

Notes to Condensed Consolidated Financial Statements

(Unaudited)

NOTE 1 – BASIS OF PRESENTATION

Basis of Presentation. For purposes of this report, “KLA,” the “Company,” “we,” “our,” “us,” or similar references mean KLA Corporation and its majority-owned subsidiaries unless the context requires otherwise. The Condensed Consolidated Financial Statements have been prepared by us pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted pursuant to such rules and regulations.

The unaudited interim Condensed Consolidated Financial Statements do not include all of the information and footnotes required by GAAP for audited financial statements. The balance sheet as of June 30, 2021 was derived from the Company’s audited Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended June 30, 2021 but does not include all disclosures required by GAAP for audited financial statements. The unaudited interim Condensed Consolidated Financial Statements reflect all adjustments (consisting only of normal, recurring adjustments) necessary for a fair statement of the financial position, results of operations, comprehensive income, stockholders’ equity and cash flows for the periods indicated. These Condensed Consolidated Financial Statements and notes, however, should be read in conjunction with Item 8 “Financial Statements and Supplementary Data” included in our Annual Report on Form 10-K for the fiscal year ended June 30, 2021.

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

The results of operations for the three months ended September 30, 2021 are not necessarily indicative of the results that may be expected for any other interim period or for the full fiscal year ending June 30, 2022.

Management Estimates. The preparation of the Condensed Consolidated Financial Statements in conformity with GAAP 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 Condensed Consolidated Financial Statements and the reported amounts of revenues and expenses for the reporting periods. Actual results could differ from those estimates.

Significant Accounting Policies. There have been no material changes to our significant accounting policies summarized in Note 1 “Description of Business and Summary of Significant Accounting Policies” to our Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended June 30, 2021.

Recent Accounting Pronouncements

The Company continues to monitor new accounting pronouncements issued by the Financial Accounting Board (“FASB”) and does not believe any accounting pronouncements issued through the date of this report will have an impact on the Company’s Condensed Consolidated Financial Statements.

Recently Adopted

In December 2019, the FASB issued an Accounting Standards Update (“ASU”) to simplify the accounting for income taxes in Accounting Standard Codification (“ASC”) 740, Income Taxes (“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 Condensed 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 beneficial conversion features 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 Condensed Consolidated Financial Statements.

NOTE 2 – REVENUE

Contract Balances

The following table represents the opening and closing balances of accounts receivable, net, contract assets and contract liabilities as of the indicated dates.


	As of		As of
(Dollar amounts in thousands)	September 30, 2021		June 30, 2021		$ Change		% Change
Accounts receivable, net	$	1,463,974	$	1,305,479	$	158,495	12	%
Contract assets	$	94,877	$	91,052	$	3,825	4	%
Contract liabilities	$	701,411	$	667,703	$	33,708	5	%

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

The change in contract assets during the three months ended September 30, 2021 was mainly due to $37.8 million of contract assets reclassified to net accounts receivable as our right to consideration for these contract assets became unconditional, partially offset by $41.6 million of revenue recognized for which the payment is subject to conditions other than passage of time. Contract assets are included in Other current assets on our Condensed Consolidated Balance Sheets.

The change in contract liabilities during the three months ended September 30, 2021 was mainly due to the recognition in revenue of $303.0 million that was included in contract liabilities as of July 1, 2021, partially offset by the value of products and services billed to customers for which control of the products and service has not transferred to the customers. The change in contract liabilities during the three months ended September 30, 2020 was mainly due to the recognition in revenue of $314.8 million that was included in contract liabilities as of July 1, 2020, partially offset by the value of products and services billed to customers for which control of the products and service has not transferred to the customers. Contract liabilities are included in current and non-current liabilities on our Condensed Consolidated Balance Sheets.

Remaining Performance Obligations

As of September 30, 2021, we had $6.25 billion of remaining performance obligations, which represents our obligation to deliver products and services, and consists primarily of sales orders where written customer requests have been received. We expect to recognize approximately 5% to 15% of these performance obligations as revenue beyond the next 12 months, which percentages could increase as a result of capacity and supply chain constraints, customer pushouts or cancellations, or other factors resulting in product shipment or installation delays.

Refer to Note 18 “Segment Reporting and Geographic Information” to our Condensed Consolidated Financial Statements for information related to revenues 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.

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.

The types of instruments valued based on quoted market prices in active markets include 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 include corporate debt securities, sovereign securities, municipal securities, and certain U.S. Treasury securities. The market inputs used to value these instruments generally consist of market yields, reported trades and broker/dealer quotes. Such instruments are generally classified within Level 2 of the fair value hierarchy.

The principal market in which 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” to our Condensed Consolidated Financial Statements 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 Condensed Consolidated Balance Sheets as follows:


			Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Little or No Market Activity Inputs
As of September 30, 2021 (In thousands)	Total		(Level 1)		(Level 2)		(Level 3)
Assets
Cash equivalents:

Money market funds and other	$	690,579	$	690,579	$	—	$	—






Marketable securities:
Corporate debt securities	467,529		—		467,529		—
Municipal securities	70,892		—		70,892		—
Sovereign securities	5,049		—		5,049		—
U.S. Government agency securities	126,147		126,147		—		—
U.S. Treasury securities	247,764		241,815		5,949		—

Equity securities(1)	18,653		18,653		—		—

Total cash equivalents and marketable securities(2)	1,626,613		1,077,194		549,419		—
Other current assets:
Derivative assets	10,156		—		10,156		—
Other non-current assets:
Executive Deferred Savings Plan	262,042		199,933		62,109		—
Total financial assets(2)	$	1,898,811	$	1,277,127	$	621,684	$	—
Liabilities
Derivative liabilities	$	(4,348)	$	—	$	(4,348)	$	—
Deferred payments	(4,625)		—		—		(4,625)
Contingent consideration payable	(21,324)		—		—		(21,324)


Total financial liabilities	$	(30,297)	$	—	$	(4,348)	$	(25,949)

(1) Transfer from Level 2 to Level 1 as the security-specific restriction expired during the three months ended September 30, 2021.

(2) Excludes cash of $747.6 million held in operating accounts and time deposits of $250.6 million (of which $71.3 million were cash equivalents) as of September 30, 2021.


			Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Little or No Market Activity Inputs
As of June 30, 2021 (In thousands)	Total		(Level 1)		(Level 2)		(Level 3)
Assets
Cash equivalents:


Money market funds and other	$	691,375	$	691,375	$	—	$	—





Marketable securities:
Corporate debt securities	468,746		—		468,746		—
Municipal securities	70,228		—		70,228		—
Sovereign securities	3,052		—		3,052		—
U.S. Government agency securities	145,921		145,921		—		—
U.S. Treasury securities	233,064		205,055		28,009		—

Equity securities	29,930		—		29,930		—

Total cash equivalents and marketable securities(1)	1,642,316		1,042,351		599,965		—
Other current assets:
Derivative assets	8,252		—		8,252		—
Other non-current assets:
Executive Deferred Savings Plan	266,199		200,925		65,274		—
Total financial assets(1)	$	1,916,767	$	1,243,276	$	673,491	$	—
Liabilities
Derivative liabilities	$	(2,807)	$	—	$	(2,807)	$	—
Deferred payments	(4,550)		—		—		(4,550)
Contingent consideration payable	(8,514)		—		—		(8,514)

Total financial liabilities	$	(15,871)	$	—	$	(2,807)	$	(13,064)

(1) Excludes cash of $641.6 million held in operating accounts and time deposits of $210.6 million (of which $101.7 million were cash equivalents) as of June 30, 2021.

Besides the transfer listed above, there were no other transfers between Level 1, Level 2 and Level 3 fair value measurements during the three months ended September 30, 2021.

See Note 8 “Debt” to our Condensed Consolidated Financial Statements for disclosure of the fair value of our Senior Notes.

NOTE 4 – FINANCIAL STATEMENT COMPONENTS

Condensed Consolidated Balance Sheets


	As of		As of
(In thousands)	September 30, 2021		June 30, 2021
Accounts receivable, net:
Accounts receivable, gross	$	1,481,868	$	1,323,515
Allowance for credit losses	(17,894)		(18,036)
	$	1,463,974	$	1,305,479
Inventories:
Customer service parts	$	348,913	$	349,743
Raw materials	696,314		595,151
Work-in-process	426,855		453,432
Finished goods	243,257		177,054
	$	1,715,339	$	1,575,380
Other current assets:
Prepaid expenses	$	112,592	$	76,649
Contract assets	94,877		91,052
Deferred costs of revenues	69,865		59,953
Prepaid income and other taxes	23,893		68,847
Other current assets	39,319		24,366
	$	340,546	$	320,867
Land, property and equipment, net:
Land	$	67,862	$	67,862
Buildings and leasehold improvements	463,865		458,605
Machinery and equipment	745,877		743,710
Office furniture and fixtures	32,029		32,856
Construction-in-process	215,038		182,320
	1,524,671		1,485,353
Less: accumulated depreciation	(826,124)		(822,326)
	$	698,547	$	663,027
Other non-current assets:
Executive Deferred Savings Plan(1)	$	262,041	$	266,199

Operating lease right of use assets	99,616		102,883
Other non-current assets	77,056		75,823
	$	438,713	$	444,905
Other current liabilities:
Customer credits and advances	$	421,928	$	250,784
Compensation and benefits	421,677		305,445
Executive Deferred Savings Plan	264,740		268,028
Other accrued expenses	177,045		180,982

Income taxes payable	162,494		87,320
Interest payable	34,766		36,135
Operating lease liabilities	32,946		32,322
	$	1,515,596	$	1,161,016
Other non-current liabilities:
Income taxes payable	$	314,623	$	333,866
Pension liabilities	86,817		87,602
Operating lease liabilities	65,940		70,739
Other non-current liabilities	153,201		139,083
	$	620,581	$	631,290

(1)We have a non-qualified deferred compensation plan (known as “Executive Deferred Savings Plan” or “EDSP”) under which certain employees and non-employee directors may defer a portion of their compensation. The expense (benefit) associated with changes in the EDSP liability included in selling, general and administrative expense was $(1.0) million and $13.2 million during the three months ended September 30, 2021 and 2020, respectively. The amount of net gains (losses) associated with changes in the EDSP assets included in selling, general and administrative expense was $(1.1) million and $13.3 million during the three months ended September 30, 2021 and 2020, respectively. For additional details, refer to Note 1 “Description of Business and Summary of Significant Accounting Policies” to our Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended June 30, 2021.

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 September 30, 2021	$	(35,001)	$	345	$	(20,519)	$	(22,869)	$	(78,044)

Balance as of June 30, 2021	$	(32,563)	$	595	$	(20,092)	$	(23,497)	$	(75,557)

The effects on net income (loss) of amounts reclassified from AOCI to the Condensed Consolidated Statements of Operations for the indicated period were as follows (in thousands):


AOCI Components	Location in the Condensed Consolidated Statements of Operations	Three Months Ended September 30,
	2021	2020
Unrealized gains (losses) on cash flow hedges from foreign exchange and interest rate contracts	Revenues	$	1,729	$	(217)
	Costs of revenues and operating expenses	(232)		550
	Interest expense	(279)		(279)

	Net gains (losses) reclassified from AOCI	$	1,218	$	54
Unrealized gains (losses) on available-for-sale securities	Other expense (income), net	$	1	$	101

The amounts reclassified out of AOCI related to our defined benefit pension plans that were recognized as a component of net periodic cost for the three months ended September 30, 2021 and 2020 were $0.4 million and $0.3 million, respectively. For additional details, refer to Note 13 “Employee Benefit Plans” to our Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended June 30, 2021.

NOTE 5 – MARKETABLE SECURITIES

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


As of September 30, 2021 (In thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Corporate debt securities	$	467,126	$	516	$	(113)	$	467,529
Money market funds and other	690,579		—		—		690,579

Municipal securities	70,830		83		(21)		70,892
Sovereign securities	5,044		7		(2)		5,049
U.S. Government agency securities	126,088		103		(44)		126,147
U.S. Treasury securities	247,853		30		(119)		247,764
Equity securities(1)	3,211		15,442		—		18,653

Subtotal	1,610,731		16,181		(299)		1,626,613
Add: Time deposits(2)	250,553		—		—		250,553
Less: Cash equivalents	761,917		—		—		761,917
Marketable securities	$	1,099,367	$	16,181	$	(299)	$	1,115,249


As of June 30, 2021 (In thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Corporate debt securities	$	468,192	$	689	$	(135)	$	468,746
Money market funds and other	691,375		—		—		691,375
Municipal securities	70,155		106		(33)		70,228
Sovereign securities	3,045		7		—		3,052
U.S. Government agency securities	145,810		160		(49)		145,921
U.S. Treasury securities	233,052		129		(117)		233,064
Equity securities(1)	3,211		26,719		—		29,930

Subtotal	1,614,840		27,810		(334)		1,642,316
Add: Time deposits(2)	210,636		—		—		210,636
Less: Cash equivalents	793,040		—		—		793,040
Marketable securities	$	1,032,436	$	27,810	$	(334)	$	1,059,912

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

(2) Time deposits excluded from fair value measurements.

Our investment portfolio consists of both corporate and government securities that have a maximum maturity of three years. The longer the duration of these securities, the more susceptible they are to changes in market interest rates and bond yields. As yields increase, those securities with a lower yield-at-cost show a mark-to-market unrealized loss. 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 September 30, 2021, we had 197 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 date indicated below, none of which were in a continuous loss position for 12 months or more:


As of September 30, 2021 (In thousands)	Fair Value		Gross Unrealized Losses
Corporate debt securities	$	142,915	$	(113)
Sovereign securities	2,002		(2)
Municipal securities	16,727		(21)
U.S. Government agency securities	37,410		(44)
U.S. Treasury securities	172,839		(119)
Total	$	371,893	$	(299)


As of June 30, 2021 (In thousands)	Fair Value		Gross Unrealized Losses
Corporate debt securities	$	161,012	$	(135)

Municipal securities	21,605		(33)
U.S. Government agency securities	38,904		(49)
U.S. Treasury securities	117,761		(117)
Total	$	339,282	$	(334)

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


As of September 30, 2021 (In thousands)	Amortized Cost		Fair Value
Due within one year	$	547,941	$	563,772
Due after one year through three years	551,426		551,477
Total	$	1,099,367	$	1,115,249

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 for the three months ended September 30, 2021 and 2020 were immaterial.

NOTE 6 - BUSINESS COMBINATIONS

On September 17, 2021, we signed a purchase agreement to acquire the outstanding shares of a privately held company for $460.0 million plus closing cash, less closing debt and certain other expenses. The purpose of the proposed acquisition is to expand our products and service offerings.

On July 1, 2021, we acquired the outstanding shares of Anchor Semiconductor Inc., a privately-held company, primarily to expand our products and services offerings, for a total purchase consideration of $80.3 million, including the fair value of the promise to pay an additional consideration up to $35.0 million contingent on the achievement of certain revenue milestones. As of September 30, 2021, the estimated fair value of the additional consideration was $12.8 million, which was classified as a non-current liability on the Condensed Consolidated Balance Sheets. 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 $30.2 million to goodwill. The total purchase consideration 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 $30.2 million of goodwill was assigned to the Wafer Inspection and Patterning reporting unit, and the amount recognized was not deductible for tax purposes.

We have included the financial results of the acquisition completed during the first quarter of the fiscal year 2022 in our Condensed Consolidated Financial Statements from the date of acquisition. These results were not material to our Condensed Consolidated Financial Statements.

As of September 30, 2021, we have $21.3 million of contingent consideration recorded for this acquisition and other acquisitions from the fiscal year ended June 30, 2019, of which $1.5 million is classified as a current liability and $19.8 million as a non-current liability on the Condensed Consolidated Balance Sheet.

For additional details, please refer to Note 6 “Business Combinations” to our Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended June 30, 2021.

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 the current and prior quarters**’** business combinations. We have four reportable segments and six operating segments. The operating segments are determined to be the same as reporting units. For additional details, refer to Note 18 “Segment Reporting and Geographic Information” to our Condensed Consolidated Financial Statements. The following table presents changes in goodwill carrying value during the three months ended September 30, 2021(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	30,164		—		—		—		—		30,164



Foreign currency adjustments	2		—		—		—		—		2
Balance as of September 30, 2021	$	447,026	$	25,908	$	681,858	$	872,971	$	13,575	$	2,041,338

(1)No goodwill was assigned to the Other reporting unit and, accordingly, it was excluded from the table above.

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.

As of September 30, 2021, there have been no significant events or circumstances affecting the valuation of goodwill subsequent to the annual assessment performed in the third quarter of the fiscal year ended June 30, 2021. There was no goodwill impairment as a result of that assessment. For additional details, refer to Note 7 “Goodwill and Purchased Intangible Assets” to our Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2021.

Purchased Intangible Assets

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


(In thousands)		As of September 30, 2021						As of June 30, 2021
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	$	1,400,191	$	540,125	$	860,066	$	1,382,612	$	499,219	$	883,393
Customer relationships	4-9	313,317		139,919		173,398		305,817		131,386		174,431
Trade name / Trademark	4-7	117,983		57,100		60,883		117,383		53,493		63,890
Backlog and other	<1-9	51,836		50,242		1,594		50,403		49,962		441
Intangible assets subject to amortization		1,883,327		787,386		1,095,941		1,856,215		734,060		1,122,155
In-process research and development		67,656		6,062		61,594		63,256		100		63,156
Total		$	1,950,983	$	793,448	$	1,157,535	$	1,919,471	$	734,160	$	1,185,311

Purchased intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be fully recoverable. The impairment indicator primarily includes the declines in our operating cash flows from the use of these assets. If the impairment indicators are present, we are required to perform a recoverability test by comparing the sum of the estimated undiscounted future cash flows attributable to these long-lived assets to their carrying value.

As of September 30, 2021, there were no impairment indicators for purchased intangible assets.

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


	Three Months Ended September 30,
(In thousands)	2021		2020
Amortization expense - Costs of revenues	$	41,124	$	37,040
Amortization expense - Selling, general and administrative	12,389		13,429
Amortization expense - Research and development	31		31
Total	$	53,544	$	50,500

Based on the purchased intangible assets gross carrying amount recorded as of September 30, 2021, the remaining estimated annual amortization expense is expected to be as follows:


Fiscal year ending June 30:	Amortization (In thousands)
2022 (remaining nine months)	$	160,633
2023	212,609
2024	209,615
2025	197,396
2026	182,071
2027 and thereafter	133,617
Total	$	1,095,941

NOTE 8 – DEBT

The following table summarizes our debt as of September 30, 2021 and June 30, 2021:


	As of September 30, 2021				As of June 30, 2021
	Amount (In thousands)		Effective Interest Rate		Amount (In thousands)		Effective Interest Rate
Fixed-rate 4.650% Senior Notes due on November 1, 2024	$	1,250,000	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 3.590% Note Payable due on February 20, 2022	20,000		2.300	%	20,000		2.300	%
Total	3,470,000				3,470,000
Unamortized discount/premium, net	(7,023)				(7,168)
Unamortized debt issuance costs	(19,541)				(20,065)
Total	$	3,443,436			$	3,442,767
Reported as:
Short-term debt	$	20,000			$	20,000
Long-term debt	3,423,436				3,422,767
Total	$	3,443,436			$	3,442,767

As of September 30, 2021, future minimum principal payments for our debt are as follows: $20.0 million in fiscal year 2022, $1.25 billion in fiscal year 2025 and $2.20 billion after fiscal year 2026.

Senior Notes and Debt Redemption:

In February 2020, we issued $750.0 million aggregate principal amount of senior, unsecured long-term notes (the “2020 Senior Notes”). In March 2019 and November 2014, we issued $1.20 billion (the “2019 Senior Notes”) and $2.50 billion (the “2014 Senior Notes,” and, together with the 2019 Senior Notes and the 2020 Senior Notes, the “Senior Notes”), respectively, aggregate principal amount of senior, unsecured long-term notes. In each of the second quarters of fiscal 2018 and 2020, we

repaid $250.0 million of the 2014 Senior Notes and in the third quarter of fiscal 2020 we repaid another $500.0 million of the 2014 Senior Notes using the proceeds from the issuance of the 2020 Senior Notes, bringing the outstanding aggregate principal amount of the 2014 Senior Notes to $1.50 billion as of September 30, 2021.

The interest rates for our Senior Notes are not subject to adjustment. Interest is payable as follows: 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 indenture for the Senior Notes (the “Indenture”) includes covenants that limit our ability to grant liens on our facilities and enter into sale and leaseback transactions, subject to certain allowances under which certain sale and leaseback transactions are not restricted.

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, S&P 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.

Based on the trading prices of the Senior Notes on the applicable dates, the fair value of the Senior Notes as of September 30, 2021 and June 30, 2021 was $3.95 billion and $3.98 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 September 30, 2021, we were in compliance with all of our covenants under the Indenture associated with the Senior Notes.

Revolving Credit Facility:

We have in place a Credit Agreement (the “Credit Agreement”) providing for a $1.00 billion unsecured Revolving Credit Facility (the "Revolving Credit Facility") with a maturity date of November 30, 2023. During the first quarter of the fiscal year ending June 30, 2022, we borrowed $300.0 million from the Revolving Credit Facility, which was paid in full in the same quarter. As of September 30, 2021, we had no outstanding 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 such Revolving Credit Facility will terminate, and all outstanding loans under such facility, together with all accrued and unpaid interest, must be repaid. We may prepay outstanding borrowings under the Revolving Credit Facility at any time without a prepayment penalty.

Borrowings under the Revolving Credit Facility will bear interest, at our option, at either: (i) the Alternative Base Rate (“ABR”) plus a spread, which ranges from 0 bps to 75 bps, or (ii) the London Interbank Offered Rate (“LIBOR”) plus a spread, which ranges from 100 bps to 175 bps. The spreads under ABR and LIBOR are subject to adjustment in conjunction with credit rating downgrades or upgrades. We are also obligated to pay an annual commitment fee on the daily undrawn balance of the Revolving Credit Facility, which ranges from 10 bps to 25 bps, subject to an adjustment in conjunction with changes to our credit rating. As of September 30, 2021, we elected to pay interest on the borrowed amount under the Revolving Credit Facility at LIBOR plus a spread of 100 bps, and we pay an annual commitment fee of 10 bps on the daily undrawn balance of the Revolving Credit Facility.

The Revolving Credit Facility requires us to maintain an interest expense coverage ratio as described in the Credit Agreement, on a quarterly basis, covering the trailing four consecutive fiscal quarters of no less than 3.50 to 1.00. In addition, we are required to maintain the maximum leverage ratio as described in the Credit Agreement, on a quarterly basis of 3.00 to 1.00, covering the trailing four consecutive fiscal quarters for each fiscal quarter, which can 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 September 30, 2021, our maximum allowed leverage ratio was 3.00 to 1.00.

We were in compliance with all covenants under the Credit Agreement as of September 30, 2021.

Notes Payable:

In December 2020 we sold promissory notes to a financial institution, borrowing an aggregate principal amount of $40.0 million ("Notes Payable"). Of the aggregate amount borrowed, $20.0 million matured and was paid on February 20, 2021 and the balance of $20.0 million matures on February 20, 2022. The premium of $0.3 million from the sale of the Notes Payable is being amortized over the life of the debt. The net proceeds from the sale of the Notes Payable were used for general corporate purposes.

For additional details, refer to Note 8 “Debt” to our Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended June 30, 2021.

NOTE 9 – LEASES

We have operating leases for facilities, vehicles, and other equipment. Our facility leases are primarily used for administrative functions, research and development, 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 16 years, including periods covered by options to extend the lease when it is reasonably certain that the option will be exercised.

Lease expense was $9.1 million and $9.6 million for the three months ended September 30, 2021 and 2020, respectively. Expense related to short-term leases, which are not recorded on the Condensed Consolidated Balance Sheets, was not material for the three months ended September 30, 2021 and 2020. As of September 30, 2021 and June 30, 2021, the weighted-average remaining lease term was 4.4 years and 4.6 years, respectively, and the weighted-average discount rate for operating leases was 1.60% and 1.64%, respectively.

Supplemental cash flow information related to leases was as follows:


	Three Months Ended September 30,
In thousands	2021		2020
Operating cash outflows from operating leases	$	9,485	$	9,370
Right of use assets obtained in exchange for new operating lease liabilities	$	5,955	$	6,844

Maturities of lease liabilities as of September 30, 2021 were as follows:


Fiscal Year Ending June 30:	(In thousands)
2022 (remaining nine months)	$	26,328
2023	26,059
2024	16,672
2025	12,161
2026	9,156
2027 and thereafter	12,644
Total lease payments	103,020
Less imputed interest	(4,134)
Total	$	98,886

As of September 30, 2021, 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 September 30, 2021, 9.9 million shares remained available for issuance under our 2004 Equity Incentive Plan (the “2004 Plan”). For details of the 2004 Plan refer to Note 10 “Equity, Long-Term Incentive Compensation Plans and Non-Controlling Interest” to our Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended June 30, 2021.

Assumed Equity Plans

As part of the acquisition of Orbotech Ltd. (“Orbotech”) in February 2019, we assumed outstanding equity incentive awards under the following Orbotech equity incentive plans: (i) Equity Remuneration Plan for Key Employees of Orbotech and

its Affiliates and Subsidiaries (as Amended and Restated in 2005), (ii) 2010 Equity-Based Incentive Plan, and (iii) 2015 Equity-Based Incentive Plan (the “Assumed Equity Plans”).

As of September 30, 2021, there were 74,535 shares of our common stock underlying the outstanding Assumed restricted stock units (“RSUs”) under the Assumed Equity Plans. For details on the Assumed Equity Plans refer to Note 10 “Equity, Long-Term Incentive Compensation Plans and Non-Controlling Interest” to our Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended June 30, 2021.

Equity Incentive Plans - General Information

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


(In thousands)			Available For Grant(1) (2)
Balance as of June 30, 2021			10,253

RSUs granted(3)			(436)
RSUs granted adjustment(4)			39
RSUs canceled			28

Balance as of September 30, 2021			9,884

(1)The number of RSUs reflects the application of the award multiplier of 2.0x to calculate the impact of the award on the shares reserved under the 2004 Plan.

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

(3)Includes RSUs granted to senior management during the three months ended September 30, 2021 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 RSUs”). This line item includes all such performance-based RSUs granted during the three months ended September 30, 2021 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 (0.2 million shares for the three months ended September 30, 2021 reflects the application of the multiplier described above).

(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 three months ended September 30, 2021.

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 which 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. 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 grand date fair value using a Monte Carlo simulation.

The following table shows stock-based compensation expense for the indicated periods:


	Three Months Ended September 30,
(In thousands)	2021		2020
Stock-based compensation expense by:
Costs of revenues	$	3,838	$	3,667
Research and development	4,694		5,471
Selling, general and administrative	16,684		17,854
Total stock-based compensation expense	$	25,216	$	26,992

Stock-based compensation capitalized as inventory as of September 30, 2021 and June 30, 2021 was $7.1 million and $8.0 million, respectively.

Restricted Stock Units

The following table shows the activity and weighted-average grant date fair values for RSUs during the three months ended September 30, 2021:


	Shares(1) (In thousands)	Weighted-Average Grant Date Fair Value
Outstanding RSUs as of June 30, 2021(2)	1,710	$	133.76
Granted(3)	218	$	353.71
Granted adjustments	(19)	$	118.47


Vested and released	(160)	$	125.29
Withheld for taxes	(133)	$	125.29
Forfeited	(16)	$	105.45
Outstanding RSUs as of September 30, 2021(2)	1,600	$	165.75

(1)Share numbers reflect actual shares subject to awarded RSUs.

(2)Includes performance-based RSUs.

(3)This line item includes performance-based RSUs granted during the three months ended September 30, 2021 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 (0.1 million shares for the three months ended September 30, 2021).

The RSUs granted by us generally vest as follows: with respect to awards with only service-based vesting criteria, over periods ranging from two to four years; with respect to awards with both performance-based and service-based vesting criteria, in two equal installments on the third and fourth anniversaries of the grant date; and 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, vested, and tax benefits realized by us in connection with vested and released RSUs for the indicated periods:


	Three Months Ended September 30,
(In thousands, except for weighted-average grant date fair value)	2021		2020
Weighted-average grant date fair value per unit	$	353.71	$	201.95

Grant date fair value of vested RSUs	$	36,740	$	27,302
Tax benefits realized by us in connection with vested and released RSUs	$	9,008	$	6,737

As of September 30, 2021, the unrecognized stock-based compensation expense balance related to RSUs was $194.2 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 September 30, 2021 was $535.1 million.

Cash-Based Long-Term Incentive Compensation

We have adopted a cash-based long-term incentive (“Cash LTI”) program (“Cash LTI Plan”) for many of our employees as part of our employee compensation program. Executives and non-employee members of the Board of Directors do not participate in the Cash LTI Plan. During the three months ended September 30, 2021 and 2020, we approved Cash LTI awards of $6.6 million and $3.5 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 three months ended September 30, 2021 and 2020, we recognized $21.8 million and $19.4 million, respectively, in compensation expense under the Cash LTI Plan. As of September 30, 2021, the unrecognized compensation balance (excluding the impact of estimated forfeitures) related to the Cash LTI Plan was $203.9 million. For details, refer to Note 10 “Equity, Long-Term Incentive Compensation Plans and Non-Controlling Interest” to our Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended June 30, 2021.

Employee Stock Purchase Plan

Our Employee Stock Purchase Plan (“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:


	Three Months Ended September 30,
	2021		2020
Stock purchase plan:
Expected stock price volatility	34.9	%	51.9	%
Risk-free interest rate	0.1	%	0.7	%
Dividend yield	1.4	%	1.9	%
Expected life (in years)	0.5		0.5

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)	Three Months Ended September 30,
2021			2020


Tax benefits realized by us in connection with the disqualifying dispositions of shares purchased under the ESPP	$	967		$	892
Weighted-average fair value per share based on Black-Scholes model	$	71.82		$	52.23

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 which we estimate will be required to be issued under the ESPP during the forthcoming fiscal year. As of September 30, 2021, a total of 2.2 million shares were reserved and available for issuance under the ESPP.

Quarterly Cash Dividends

On September 1, 2021, we paid a quarterly cash dividend of $1.05 per share to stockholders of record as of the close of business on August 16, 2021. The total amount of regular quarterly cash dividends and dividend equivalents paid during the three months ended September 30, 2021 and 2020 was $162.8 million and $141.2 million, respectively. The amount of accrued dividend equivalents payable for regular quarterly cash dividends on unvested RSUs with dividend equivalent rights as of September 30, 2021 and June 30, 2021 was $9.1 million and $10.3 million, respectively. These amounts will be paid upon vesting of the underlying RSUs.

Non-Controlling Interest

We have consolidated the results of Orbograph Ltd. (“Orbograph”), in which we own approximately 94% of the outstanding equity interest. Orbograph is engaged in the development and marketing of character recognition solutions to banks, financial and other payment processing institutions and healthcare providers.

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. We consolidate the results of OLTS, which is considered a non-strategic business, of which we own 97% of the outstanding equity interest as of September 30, 2021.

NOTE 11 – STOCK REPURCHASE PROGRAM

Our Board of Directors has authorized a program that permits us to repurchase our common stock. As of June 30, 2021, there was an aggregate of approximately $93 million remaining available for repurchase under previous authorizations, and on July 29, 2021, the Board of Directors authorized an additional $2.00 billion. The intent of this program is to offset the dilution from our equity incentive plans, shares issued in connection with purchases under our ESPP, as well as to return excess cash to our stockholders. Subject to market conditions, applicable legal requirements and other factors, the repurchases were made in the open market in compliance with applicable securities laws, including the Securities Exchange Act of 1934 and the rules promulgated thereunder, such as Rule 10b-18 and, if pursuant to a written plan, Rule 10b5-1. This stock repurchase program has no expiration date and may be suspended at any time. As of September 30, 2021, an aggregate of $1.69 billion was available for repurchase under the stock repurchase program.

Share repurchases for the indicated periods (based on the trade date of the applicable repurchase) were as follows:


	Three Months Ended September 30,
(In thousands)	2021		2020
Number of shares of common stock repurchased	1,190		1,027
Total cost of repurchases	$	399,677	$	193,897

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 restricted stock units had been issued. The dilutive effect of outstanding restricted stock units is reflected in diluted net income per share by application of the treasury stock method.

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


(In thousands, except per share amounts)	Three Months Ended September 30,
2021			2020
Numerator:
Net income attributable to KLA	$	1,068,417		$	420,567
Denominator:
Weighted-average shares - basic, excluding unvested restricted stock units	152,330			155,281
Effect of dilutive restricted stock units and options	1,080			1,161
Weighted-average shares - diluted	153,410			156,442
Basic net income per share attributable to KLA	$	7.01		$	2.71
Diluted net income per share attributable to KLA	$	6.96		$	2.69
Anti-dilutive securities excluded from the computation of diluted net income per share	135			169

NOTE 13 – INCOME TAXES

The following table provides details of income taxes:


	Three Months Ended September 30,
(Dollar amounts in thousands)	2021			2020
Income before income taxes	$	766,348		$	483,806
Provision (benefit) for income taxes	$	(302,137)		$	63,664
Effective tax rate	(39.4)		%	13.2		%

Our effective tax rate is lower than the U.S. federal statutory rate during the three months ended September 30, 2021 primarily due to a non-recurring tax benefit resulting from the intra-entity transfers of certain intellectual property rights (“IP rights”). During the three months ended September 30, 2021, we completed intra-entity transfers of IP rights to one of our Singapore subsidiaries in order to better align the ownership of these rights with how our business operates. The transfers did not result in taxable gains; however, our Singapore subsidiary recognized deferred tax assets for the book and tax basis difference of the eligible transferred IP rights. As a result of these transactions, we recorded deferred tax assets and related tax benefits of $395 million, based on the fair value of the eligible IP rights transferred in September 2021. The tax-deductible amortization related to the eligible transferred IP rights will be recognized over 15 years as allowed under Singapore tax law.

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 United States income tax examination for the fiscal year ended June 30, 2018. We are subject to state income tax examinations for all years beginning from the fiscal year ended June 30, 2017. 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, 2012. We are under audit in Germany related to Orbotech for the calendar years ended December 31, 2013 to December 31, 2015.

It is possible that certain examinations may be concluded in the next 12 months. The timing and resolution of income tax examinations is uncertain. 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.

In May 2017, Orbotech received an assessment from the Israel Tax Authority (“ITA”) with respect to its fiscal years 2012 through 2014 (the “Assessment” and the “Audit Period,” respectively), for an aggregate amount of tax, after offsetting all net operating losses (“NOL”) available through the end of 2014, of approximately NIS 229 million (equivalent to approximately $66 million which includes related interest and linkage differentials to the Israeli consumer price index as of the date of the issuance of the Tax Decrees, as defined below).

On August 31, 2018, Orbotech filed an objection in respect of the Assessment (the “Objection”). The ITA completed the second stage of the audit, in which the claims Orbotech raised in the Objection were examined by different personnel at the ITA. In addition, the ITA examined additional items during this second stage of the audit. As Orbotech and the ITA did not reach an agreement during the second stage, the ITA issued Tax Decrees to Orbotech on August 28, 2019 (“Tax Decrees”) for an aggregate amount of tax, after offsetting all NOLs available through the end of 2014, of approximately NIS 257 million (equivalent to approximately $73 million which includes related interest and linkage differentials to the Israeli consumer price index as of the date of the issuance of the Tax Decrees). These Tax Decrees replaced the Assessment. We believe that our recorded unrecognized tax benefits are sufficient to cover the resolution of these Tax Decrees.

Orbotech filed a notice of appeal with respect to the above Tax Decrees with the District Court of Tel Aviv on September 26, 2019. On February 27, 2020 the ITA filed its arguments in support of the Tax Decrees. Orbotech filed the grounds of appeal with respect to the above Tax Decrees on July 30, 2020. We are currently in the pre-trial hearing stage of the process. The ITA and Orbotech are continuing discussions in an effort to resolve this matter in a mutually agreeable manner.

In connection with the above, there is an ongoing criminal investigation in Israel against Orbotech, certain of its employees and its tax consultant. On April 11, 2018, Orbotech received a “suspect notification letter” (dated March 28, 2018) from the Tel Aviv District Attorney’s Office (Fiscal and Financial). In the letter, it was noted that the investigation file was transferred from the Assessment Investigation Officer to the District Attorney’s Office. The letter further states that the District Attorney’s Office has not yet made a decision regarding submission of an indictment against Orbotech; and that if after studying the case, a decision is made to consider prosecuting Orbotech, Orbotech will receive an additional letter and, within 30 days, Orbotech may present its arguments to the District Attorney’s Office as to why it should not be indicted. On October 27, 2019, we received a request for additional information from the District Attorney**’**s Office. We will continue to monitor the progress of the District Attorney’s Office investigation; however, we cannot anticipate when the review of the case will be completed and what will be the results thereof. We intend to cooperate with the District Attorney’s Office to enable them to conclude their investigation.

In December 2020, Orbotech received an assessment from the ITA with respect to its fiscal years 2015 through 2018 (the “Second Assessment”) for an aggregate amount of tax, after offsetting all NOLs available through the end of 2018, of approximately NIS 227 million (equivalent to approximately $68 million which includes related interest and linkage differentials to the Israeli consumer price index as of the date of the issuance of the Second Assessment). We filed an objection to the Second Assessment with the ITA in March 2021. The objection moved the 2015-2018 audit to the second stage, in which the ITA will review the objections. We believe that our recorded unrecognized tax benefits are sufficient to cover the resolution of the Second Assessment.

NOTE 14 – 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, 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 intellectual property 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 Condensed 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 Condensed Consolidated Financial Statements or will not have a material adverse effect on our results of operations, financial condition or cash flows.

NOTE 15 – COMMITMENTS AND CONTINGENCIES

Factoring. We have agreements (referred to as “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 letters of credit (“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:


	Three Months Ended September 30,
(In thousands)	2021		2020
Receivables sold under factoring agreements	$	67,118	$	88,645
Proceeds from sales of LC	$	21,673	$	19,130

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 upon 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 approximately $1.9 billion as of September 30, 2021, which are primarily 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 September 30, 2021, we have committed $245.7 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 remain 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 $79.1 million, of which $66.5 million had been issued as of September 30, 2021, primarily to fund guarantees to customs authorities for value-added tax and other operating requirements of our 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, our 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 Condensed 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 we 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 16 – DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

The authoritative guidance requires companies to recognize all derivative instruments and hedging activities, including foreign currency exchange contracts and interest rate lock agreements, (collectively, “derivatives”) as either assets or liabilities at fair value on the Condensed Consolidated Balance Sheets. In accordance with the accounting guidance, we designate foreign currency exchange contracts and interest rate lock agreements as cash flow hedges of certain forecasted foreign currency denominated sales, purchase and spending transactions, and the benchmark interest rate of the corresponding debt financing, respectively. In accordance with the accounting guidance, we also designate foreign currency exchange contracts to hedge a portion of our investment in a foreign denominated subsidiary.

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 currency forward exchange contracts and option 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 Israeli new 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 currency forward exchange contracts and options, 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.

In January 2020, we entered into a series of forward contracts (the “2020 Rate Lock Agreements”) with a notional amount of $350.0 million in aggregate to lock the benchmark interest rate on a portion of the 2020 Senior Notes. The 2020 Rate Lock Agreements were terminated on the date of the pricing of the 2020 Senior Notes and we recorded the fair value of $21.5 million as a loss within AOCI as of March 31, 2020, which is being amortized over the life of the debt. We entered into similar forward contracts in prior years to lock the benchmark interest rates prior to expected debt issuances, for which the original fair values of $13.6 million loss in fiscal 2019 and $7.5 million gain in fiscal 2015 were recognized in AOCI, and are being amortized to interest expense over the lives of the associated debt. We recognized net expenses of $0.3 million and $0.3 million for the three months ended September 30, 2021, and 2020, respectively, for the amortization of the net of the three rate lock agreements that had been recognized in AOCI, which increased the interest expense on a net basis. As of September 30, 2021, the aggregate unamortized portion of the fair value of the forward contracts for the Rate Lock Agreements was $28.7 million.

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. Prior to adopting the new accounting guidance for hedge accounting, time value was excluded from the assessment of effectiveness for derivatives designated as cash flow hedges. Time value was amortized on a mark-to-market basis and recognized in earnings over the life of the derivative contract. For derivative contracts executed after adopting the new accounting guidance, 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 continues to exclude time value after adopting the new accounting guidance. 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 currency forward 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 Designated in Hedging Relationships: Foreign Exchange and Interest Rate Contracts

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


	Three Months Ended September 30,
(In thousands)	2021		2020
Derivatives Designated as Cash Flow Hedging Instruments:


Foreign exchange contracts:
Amounts included in the assessment of effectiveness	$	853	$	(872)
Amounts excluded from the assessment of effectiveness	$	(1)	$	(46)
Derivatives Designated as Net Investment Hedging Instruments:
Foreign exchange contracts(1):	$	650	$	—

(1)No amounts were reclassified from AOCI into earnings related to the sale of a subsidiary, as there were no such sales during the periods presented.

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


	Three Months Ended September 30,								Three Months Ended September 30,
	2021								2020
(In thousands)	Revenues		Costs of Revenues and Operating Expenses		Interest Expense		Other Expense (Income), Net		Revenues		Costs of Revenues and Operating Expenses		Interest Expense		Other Expense (Income), Net
Total amounts presented in the Condensed Consolidated Statements of Operations in which the effects of cash flow hedges are recorded	$	2,083,838	$	1,265,038	$	38,312	$	14,140	$	1,538,620	$	1,012,231	$	39,386	$	3,197
Gains (losses) on Derivatives Designated as Hedging Instruments:
Rate lock agreements:
Amount of gains (losses) reclassified from AOCI to earnings	$	—	$	—	$	(279)	$	—	$	—	$	—	$	(279)	$	—

Foreign exchange contracts:
Amount of gains (losses) reclassified from AOCI to earnings	$	1,843	$	(232)	$	—	$	—	$	(90)	$	550	$	—	$	—
Amount excluded from the assessment of effectiveness recognized in earnings	$	(114)	$	—	$	—	$	657	$	(127)	$	—	$	—	$	—

Gains (losses) on Derivatives Not Designated as Hedging Instruments:
Amount of gains (losses) recognized in earnings	$	—	$	—	$	—	$	1,069	$	—	$	—	$	—	$	(5,598)

The U.S. dollar equivalent of all outstanding notional amounts of foreign currency hedge contracts, with maximum remaining maturities of approximately 7 months as of the dates indicated below were as follows:


	As of		As of
(In thousands)	September 30, 2021		June 30, 2021
Cash flow hedge contracts - foreign currency
Purchase	$	11,456	$	12,550
Sell	$	129,603	$	134,845
Net Investment hedge contracts - foreign currency

Sell	$	66,848	$	66,848
Other foreign currency hedge contracts
Purchase	$	274,334	$	264,292
Sell	$	248,813	$	278,635

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


	Asset Derivatives						Liability Derivatives
	Balance Sheet		As of		As of		Balance Sheet	As of		As of
	Location		September 30, 2021		June 30, 2021		Location	September 30, 2021		June 30, 2021
(In thousands)		Fair Value					Fair Value
Derivatives designated as hedging instruments

Foreign exchange contracts	Other current assets		$	4,104	$	3,940	Other current liabilities	$	(346)	$	272
Total derivatives designated as hedging instruments			4,104		3,940			(346)		272
Derivatives not designated as hedging instruments
Foreign exchange contracts	Other current assets		6,052		4,312		Other current liabilities	(4,002)		2,535
Total derivatives not designated as hedging instruments			6,052		4,312			(4,002)		2,535
Total derivatives			$	10,156	$	8,252		$	(4,348)	$	2,807

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


	Three Months Ended September 30,
(In thousands)	2021		2020
Beginning AOCI	$	(25,830)	$	(29,602)
Amount reclassified to earnings as net (gains) losses	(1,218)		(54)
Net change in unrealized gains (losses)	1,502		(918)
Ending AOCI	$	(25,546)	$	(30,574)

Offsetting of Derivative Assets and Liabilities

We present derivatives at gross fair values in the Condensed 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 (in thousands):


As of September 30, 2021							Gross Amounts of Derivatives Not Offset in the Condensed Consolidated Balance Sheets
Description	Gross Amounts of Derivatives		Gross Amounts of Derivatives Offset in the Condensed Consolidated Balance Sheets		Net Amount of Derivatives Presented in the Condensed Consolidated Balance Sheets		Financial Instruments		Cash Collateral Received		Net Amount
Derivatives - Assets	$	10,156	$	—	$	10,156	$	(3,522)	$	—	$	6,634
Derivatives - Liabilities	$	(4,348)	$	—	$	(4,348)	$	3,522	$	—	$	(826)


As of June 30, 2021							Gross Amounts of Derivatives Not Offset in the Condensed Consolidated Balance Sheets
Description	Gross Amounts of Derivatives		Gross Amounts of Derivatives Offset in the Condensed Consolidated Balance Sheets		Net Amount of Derivatives Presented in the Condensed Consolidated Balance Sheets		Financial Instruments		Cash Collateral Received		Net Amount
Derivatives - Assets	$	8,252	$	—	$	8,252	$	(2,492)	$	—	$	5,760
Derivatives - Liabilities	$	(2,807)	$	—	$	(2,807)	$	2,492	$	—	$	(315)

NOTE 17– RELATED PARTY TRANSACTIONS

During the three months ended September 30, 2021 and 2020, 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, or in the case of The Vanguard Group, Inc., together with its affiliates, beneficially owns more than 10% of our outstanding stock, including Ansys, Inc., Citrix Systems, Inc., HP Inc., Keysight Technologies, Inc., and Proofpoint, Inc. The following table provides the transactions with these parties for the indicated periods (for the portion of such period that they were considered related):


	Three Months Ended September 30,
(In thousands)	2021		2020
Total revenues	$	79	$	314
Total purchases	$	359	$	292

Our receivable balances from these parties were $1.1 million and $1.3 million as of September 30, 2021 and June 30, 2021, respectively. Our payable balances to these parties were immaterial as of September 30, 2021 and June 30, 2021.

NOTE 18 – 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 four reportable segments: Semiconductor Process Control; Specialty Semiconductor Process; Printed Circuit Board (“PCB”), Display and Component Inspection; and Other. 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.

Semiconductor Process Control

The Semiconductor Process Control (“SPC”) segment offers a comprehensive portfolio of inspection, metrology and data analytics products, and related service, which helps integrated circuit ("IC") manufacturers achieve target yield throughout the entire semiconductor fabrication process – from research and development 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 microelectromechanical systems, 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, flat panel displays 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 segment also engages in the development and marketing of character recognition solutions to banks, financial and other payment processing institutions and healthcare providers. This reportable segment is comprised of two operating segments, PCB and Display and Component Inspection.

Other

The Other segment is comprised of one operating segment. During the fourth quarter of fiscal 2020, we entered into an Asset Purchase Agreement to sell certain core assets of our non-strategic solar energy business, which accounted for the majority of our Other reportable segment. The sale was completed in the first quarter of fiscal 2021.

The CODM assesses the performance of each operating segment and allocates resources to those segments based on total revenues and segment gross margin and does not evaluate the segments using discrete asset information. Segment gross margin excludes corporate allocations and effects of 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 four reportable segments for the indicated periods:


	Three Months Ended September 30,
(In thousands)	2021		2020
SPC:
Revenues	$	1,779,083	$	1,267,954
Segment gross margin	1,161,929		814,810
Specialty Semiconductor Process:
Revenues	102,029		88,954
Segment gross margin	54,721		49,928
PCB, Display and Component Inspection:
Revenues	202,808		181,177
Segment gross margin	94,476		90,169
Other:
Revenues	—		140
Segment gross margin	—		13
Totals:
Revenues for reportable segments	$	2,083,920	$	1,538,225
Segment gross margin	$	1,311,126	$	954,920

The following table reconciles total revenues for reportable segments to total revenues for the indicated periods:


	Three Months Ended September 30,
(In thousands)	2021		2020
Total revenues for reportable segments	$	2,083,920	$	1,538,225
Corporate allocations and effects of foreign exchange rates	(82)		395
Total revenues	$	2,083,838	$	1,538,620

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


	Three Months Ended September 30,
(In thousands)	2021		2020
Total segment gross margin	$	1,311,126	$	954,920
Acquisition-related charges, corporate allocations, and effects of foreign exchange rates(1)	40,912		36,862
Research and development	258,153		219,038
Selling, general and administrative	193,261		172,631

Interest expense	38,312		39,386

Other expense (income), net	14,140		3,197
Income before income taxes	$	766,348	$	483,806

(1)Acquisition-related charges primarily include amortization of intangible assets and amortization of inventory fair value adjustments presented as part of costs of revenues.

Our significant operations outside the United States 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)	Three Months Ended September 30,
2021					2020
Revenues:
China	$	685,156	33	%		$	486,089	32	%
Taiwan	627,084		30	%		369,100		24	%
Korea	239,183		12	%		189,518		12	%
North America	177,740		9	%		170,176		11	%
Japan	175,167		8	%		164,419		11	%
Rest of Asia	92,068		4	%		76,201		5	%
Europe and Israel	87,440		4	%		83,117		5	%
Total	$	2,083,838	100	%		$	1,538,620	100	%

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


(Dollar amounts in thousands)	Three Months Ended September 30,
2021					2020
Revenues:
Wafer Inspection	$	887,512	43	%		$	519,551	34	%
Patterning	439,591		21	%		370,932		24	%
Specialty Semiconductor Process	93,120		4	%		74,027		5	%
PCB, Display and Component Inspection	137,887		7	%		120,626		8	%
Services	453,950		22	%		393,125		26	%
Other	71,778		3	%		60,359		3	%
Total	$	2,083,838	100	%		$	1,538,620	100	%

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

In the three months ended September 30, 2021, one customer accounted for approximately 24% of total revenues. In the three months ended September 30, 2020, two customers accounted for approximately 14% and 12% of total revenues. One customer on an individual basis accounted for greater than 10% of net accounts receivable at September 30, 2021 and at June 30, 2021, respectively.

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


	As of		As of
(In thousands)	September 30, 2021		June 30, 2021
Land, property and equipment, net:
United States	$	476,809	$	447,359
Singapore	81,160		76,882
Israel	60,064		57,403
Europe	56,153		56,895
Rest of Asia	24,361		24,488
Total	$	698,547	$	663,027

NOTE 19 – RESTRUCTURING CHARGES

From time to time, management approves restructuring plans including workforce reductions in an effort to streamline operations.

Restructuring charges were $0.5 million and $3.5 million for the three months ended September 30, 2021 and 2020, respectively. As of September 30, 2021 and June 30, 2021, the accrual for restructuring charges was $3.4 million and $3.3 million, respectively.

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