FinanceLooker

Excrept from filing document 2024-06-30

The aggregate market value of the voting and non voting common stock held by non affiliates of the registrant based upon the closing price of the registrant s stock as of December 31 2023 was approximately 78 54 billion
Portions of the Proxy Statement for the 2024 Annual Meeting of Stockholders Proxy Statement to be filed pursuant to Regulation 14A within 120 days after the registrant s fiscal year ended June 30 2024 are incorporated by reference into Part III of this report
This report contains certain forward looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 as amended the Securities Exchange Act All statements other than statements of historical fact may be forward looking statements You can identify these and other forward looking statements by the use of words such as may will could would should expects plans anticipates relies believes estimates predicts intends potential continues thinks seeks or the negative of such terms or other comparable terminology Forward looking statements also include the assumptions underlying or relating to any of the foregoing statements Such forward looking statements include those regarding among others forecasts of the future results of our operations including profitability orders for our products and capital equipment generally sales of semiconductors the investments by our customers in advanced technologies and new materials growth of revenue in the semiconductor industry the semiconductor capital equipment industry and our business technological trends in the semiconductor industry future developments or trends in the global capital and financial markets our future product offerings and product features the success and market acceptance of new products timing of shipment of order backlog our future product shipments and product and service revenues our future gross margins our future research and development R D expenses and selling general and administrative SG A expenses international sales and operations our ability to maintain or improve our existing competitive position success of our product offerings creation and funding of programs for R D results of our investment in leading edge technologies the effects of hedging transactions the effect of the sale of trade receivables and promissory notes from customers the effect of future compliance with laws and regulations our future effective income tax rate our recognition of tax benefits the effects of any audits or litigation future payments of dividends to our stockholders the completion of any acquisitions of third parties or the technology or assets thereof benefits received from any acquisitions and development of acquired technologies sufficiency of our existing cash balance investments cash generated from operations and the unfunded portion of our Revolving Credit Facility as defined below in Item 1A Risk Factors to meet our operating and working capital requirements including debt service and payment thereof future dividends and stock repurchases our compliance with the financial covenants under the Credit Agreement as defined below in Item 1A Risk Factors for our Revolving Credit Facility the adoption of new accounting pronouncements our repayment of our outstanding indebtedness and our environmental social and governance ESG related targets goals and commitments
Our actual results may differ significantly from those projected in the forward looking statements in this report Factors that might cause or contribute to such differences include but are not limited to
Evolving Bureau of Industry and Security BIS of the U S Department of Commerce Commerce rules and regulations the BIS Rules and their impact on our ability to sell products to and provide services to certain customers in People s Republic of China China
This report contains ESG related statements based on hypothetical scenarios and assumptions as well as estimates that are subject to a high level of uncertainty and these statements should not necessarily be viewed as being representative of current or actual risk or performance or forecasts of expected risk or performance In addition historical current and forward looking environmental and social related statements may be based on standards for measuring progress that are still developing and internal controls and processes that continue to evolve Forward looking and other statements in this report including regarding our corporate responsibility and sustainability progress plans and goals are in some instances informed by various stakeholder expectations including certain third party standards and frameworks as such the inclusion of such statements is not an indication that these matters are necessarily material for the purposes of complying with or reporting pursuant to the U S federal securities laws and regulations even if we use the word material or materiality in this report or elsewhere
For a more detailed discussion of these and other risk factors that might cause or contribute to differences from the forward looking statements in this report see Item 1A Risk Factors in this Annual Report on Form 10 K as well as in Item 1 Business and Item 7 Management s Discussion and Analysis of Financial Condition and Results of Operations in this report You should carefully review these risks and also review the risks described in other parts of this report and in documents we file from time to time with the Securities and Exchange Commission SEC including the Quarterly Reports on Form 10 Q that we will file in the fiscal year ending June 30 2025 You are cautioned not to place undue reliance on these forward looking statements and we expressly assume no obligation and do not intend to update the forward looking statements in this report after the date hereof
KLA Corporation and its majority owned subsidiaries KLA or the Company and also referred to as we our us or similar references are suppliers of industry leading equipment and services that enables innovation throughout the electronics industry We provide advanced process control and process enabling solutions for manufacturing wafers reticles masks chemicals materials integrated circuits IC or chip packaged ICs and printed circuit boards PCB as well as comprehensive support and services across our installed base Our suite of advanced products coupled with our unique process control software and services allow us to deliver the solutions our customers need to achieve their technology advancement and high volume production goals by significantly improving yields while simultaneously reducing waste risks and costs This improves our customers overall profitability and return on investment
KLA was formed as KLA Tencor Corporation in April 1997 through the merger of KLA Instruments Corporation and Tencor Instruments two long time leaders in the semiconductor capital equipment industry that began operations in 1975 and 1976 respectively We are organized into three reportable segments Semiconductor Process Control Specialty Semiconductor Process and PCB and Component Inspection
Within the Semiconductor Process Control segment our comprehensive portfolio of inspection metrology and software products as well as related services help IC wafer reticle mask and chemical materials manufacturers achieve target yields throughout the entire fabrication process from R D to high volume production These products and services are designed to provide comprehensive solutions to help customers accelerate development and production ramp cycles achieve higher and more stable product yields and improve their overall profitability
Within the Specialty Semiconductor Process segment we develop and sell advanced vacuum deposition and etch process tools which are used by a broad range of specialty semiconductor customers including manufacturers of microelectromechanical systems MEMS radio frequency RF communication semiconductors and power semiconductors for automotive and industrial applications
Within the PCB and Component Inspection segment we sell products and services that enable electronic device manufacturers to inspect test and measure PCBs IC substrates and packaged 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
Additional information about KLA is available at www kla com Our Annual Reports on Form 10 K Quarterly Reports on Form 10 Q Current Reports on Form 8 K and amendments to those reports filed or furnished pursuant to Section 13 a or 15 d of the Securities Exchange Act are available free of charge on our website as soon as reasonably practicable after they are electronically filed with or furnished to the SEC Information on our website is not part of this Annual Report on Form 10 K or our other filings with the SEC Additionally these filings may be obtained through the SEC s website www sec gov which contains reports proxy and information statements and other information regarding issuers that file electronically
Investors and others should note that we may announce material financial information to investors using our investor relations website ir kla com which includes our SEC filings press releases public earnings calls and conference webcasts The investor relations website is used to communicate with the public about us and our products services and other matters
Our core focus is enabling technological advances and improving manufacturing yields in the semiconductor industry The semiconductor fabrication process begins with a bare silicon wafer a round disk typically 200 millimeters or 300 millimeters in diameter about as thick as a credit card and gray in color The process of manufacturing wafers is highly sophisticated and involves the creation of large ingots of silicon by pulling them out of a vat of molten silicon The ingots are then sliced into wafers Prime silicon wafers are then polished to a mirror finish Other more specialized wafers such as epitaxial silicon epi silicon on insulator SOI gallium nitride GaN and silicon carbide SiC are also used in the semiconductor industry
The manufacturing cycle of an IC is grouped into three phases design fabrication and testing IC design involves the architectural layout of the circuit as well as design verification and reticle generation The fabrication of a semiconductor chip or semiconductor is accomplished by depositing a series of film layers that act as conductors semiconductors or insulators
on bare wafers The deposition of these film layers is interspersed with numerous other process steps that create circuit patterns remove portions of the film layers and perform other functions such as heat treatment measurement and inspection Most advanced chip designs require hundreds of individual steps many performed multiple times Most chips consist of two main structures the lower structure typically consisting of transistors or capacitors which performs the smart functions and the upper interconnect structure typically consisting of circuitry which connects the components in the lower structure When the layers on the wafer have been fabricated each chip on the wafer is tested for functionality The wafer is then cut into individual chips and the chips that pass functional testing are packaged Final testing is performed on all packaged chips Packaged chips are then mounted onto PCBs for connection to the rest of the electronic system
Our business depends upon the capital expenditures of semiconductor semiconductor related and electronic device manufacturers This is driven by the current and anticipated market demand for ICs products utilizing ICs and other electronic components We do not consider our business to be seasonal Still our business has historically been cyclical with respect to the capital equipment procurement practices of semiconductor semiconductor related and electronic device manufacturers and it is impacted by the investment patterns of such manufacturers in different global markets Downturns in the semiconductor or other industries in which we operate or slowdowns in the worldwide economy as well as customer consolidation could have a material adverse effect on our future business and financial results
Companies anticipating future market demands by developing and advancing new technologies and manufacturing processes are better positioned to lead in the semiconductor market Accelerating the yield ramp and maximizing production yields of high performance devices are critical goals of modern semiconductor and related electronics manufacturing Ramping to high volume production ahead of competitors can dramatically increase IC manufacturers revenue and profit for a given product Leading semiconductor manufacturers invest in simultaneous production integration of multiple new process technologies some requiring new substrate and film materials new geometries new transistor architectures new power distribution schemes advanced multi patterning optical and extreme ultraviolet EUV lithography and advanced packaging techniques As design rules decrease yields become more sensitive to the size and density of defects Device performance characteristics namely speed capacity or power management also become more sensitive to parameters such as linewidth and film thickness variation New process materials require extensive characterization before they can be used in the manufacturing process Moving several of these advanced technologies into production at once only adds to the risks that chipmakers face The continuing evolution of semiconductors to smaller geometries and more complex multi level circuitry has significantly increased the performance and cost requirements of the capital equipment used to manufacture these devices Construction of an advanced IC fabrication facility today can cost well above 10 billion substantially more than previous generation facilities In addition chipmakers are demanding increased productivity and higher returns from their manufacturing equipment and are also seeking ways to extend the performance of their existing equipment
The semiconductor capital equipment industry has been experiencing multiple growth drivers bolstered by demand for semiconductors from leading edge foundry and logic manufacturers to support computational power and connectivity for markets such as artificial intelligence AI and 5G wireless technology and increasing investment by our customers in legacy nodes The growth of virtual engagement and the pace of digitization has been driven by COVID 19 related travel restrictions work from home activities and advances in healthcare and industrial applications These factors together with the increasing adoption of electric vehicles and intelligence in automobiles are powering leading edge design node technology investments and capacity expansions Intertwined in these areas spurred by the requirements of AI is the growth in demand for memory chips Regionalization of semiconductors has become a trend as access to semiconductors is viewed from the lens of national security China remains as a major region for the manufacturing of legacy node logic and memory chips adding to its role as the world s largest consumer of ICs The Chinese government initiatives around self sustainability are propelling China to expand its domestic manufacturing capacity Although China is currently seen as an important long term growth region for the semiconductor capital equipment sector Commerce has added certain China based entities to the U S Entity List a list of parties that are generally ineligible to receive U S regulated items without prior licensing from BIS restricting our ability to provide products and services to such entities without a license In addition Commerce has imposed export licensing requirements on China based customers that are military end users or engaged in military end uses It also requires our customers to obtain an export license when they use certain semiconductor capital equipment based on U S technology to manufacture products connected to certain entities on the U S Entity List
The market for semiconductor and electronics industries is characterized by rapid technological development and product innovation These technical innovations are inherently complex and require long development cycles and appropriate professional staffing We make significant investments in product R D for the timely development of new products and enhancements necessary to maintain our competitive position Accordingly we devote a significant portion of our human and financial resources to R D programs and seek to maintain close relationships with customers to remain responsive to their needs
Our key R D activities during the fiscal year ended June 30 2024 involved the development of process control and process enabling solutions for a broad range of industries including semiconductors and PCBs For information regarding our R D expenses during the last three fiscal years see Item 7 Management s Discussion and Analysis of Financial Condition and Results of Operations in this Annual Report on Form 10 K
The strength of our competitive positions in many of our existing markets is primarily due to our leading technology which is the result of our continuing significant investments in product R D Even during down cycles in the semiconductor industry we have remained committed to significant engineering efforts toward both product improvement and new product development to enhance our competitive position
We count among our largest customers the leading semiconductor semiconductor related and electronic device manufacturers in Asia the U S and Europe Our future performance will depend in part on our ability to continue to compete successfully in Asia one of the largest markets for our equipment Our ability to compete in this area depends upon the continuation of favorable trading relationships between countries in the region and the U S and our continuing ability to maintain satisfactory relationships with leading semiconductor companies in the region Refer to Backlog section below for information regarding export licenses now required for certain products and services sold to China
Our sales service and marketing efforts aim to build deep long term relationships with our customers We focus on providing comprehensive resources for the full breadth of process control process enabling and yield management solutions for manufacturing and testing wafers and reticles a wide variety of ICs PCBs IC substrates and packaging as well as general materials research Our revenues are derived primarily from product sales and related service contracts mostly through our direct sales force
We believe that the size and location of our field sales service engineering applications engineering and marketing organizations represent a competitive advantage in our served markets We have direct sales forces in Asia the U S and Europe We maintain an export compliance program designed to meet the requirements of Commerce and the U S Department of State and the trade regulations of the international jurisdictions in which we operate
In addition to sales and service offices in the U S we conduct sales marketing and services out of subsidiaries or branches in many regions some of the largest include China Germany Israel Japan Korea Singapore Taiwan and the United Kingdom We believe sales outside the U S will continue to be a significant percentage of our total revenues International revenues accounted for approximately 89 88 and 90 of our total revenues in the fiscal years ended June 30 2024 2023 and 2022 respectively Additional information regarding our revenues from foreign operations for our last three fiscal years can be found in Note 19 Segment Reporting and Geographic Information to our Consolidated Financial Statements
International sales and operations may be adversely affected by the imposition of governmental controls restrictions on export technology political instability trade restrictions changes in tariffs and the difficulties associated with staffing and managing international operations In addition international sales may be adversely affected by the economic conditions in each country and by fluctuations in currency exchange rates Such fluctuations may negatively impact our ability to compete on price with local providers or the value of revenues we generate from our international business Although we attempt to manage some of the currency risk inherent in non U S dollar product sales through hedging activities there can be no assurance that such efforts will be adequate These factors as well as any of the other risk factors related to our international business and operations that are described in Item 1A Risk Factors could have a material adverse effect on our future business and financial results
KLA develops industry leading process control and yield management solutions and services that enable innovation throughout the semiconductor and related electronics industries We provide advanced process control and process enabling
solutions for manufacturing wafers reticles ICs packaging PCBs IC substrates and flat and flexible panel displays In March 2024 we made the decision to exit our business of manufacturing flat and flexible panel displays Display by announcing the end of manufacturing of most Display products by December 31 2024 but we will continue to provide services to the installed base of Display products for existing customers
The Semiconductor Process Control segment offers a comprehensive portfolio of inspection metrology chemistry process control and software products and related services which support the semiconductor ecosystem from R D to final volume production For IC manufacturing our systems support the production of all chip types including advanced logic DRAM 3D NAND power devices MEMS legacy design node chips and more Our substrate manufacturing systems support the production of a broad range of wafer types and sizes including silicon prime silicon SOI sapphire glass wide bandgap substrates e g SiC GaN and more Our reticle systems support quality control during the manufacturing of optical and EUV reticle types We also make products that support chemical materials quality control and process tool development and qualification Our products and services for chip wafer reticle packaging solar hard disk drive original equipment manufacturer OEM and chemical materials manufacturing are designed to provide comprehensive solutions that help our customers accelerate development and production ramp cycles achieve higher and more stable product yields and improve their overall profitability The Semiconductor Process Control segment offers a variety of solutions and products including
Wired and wireless sensor wafers and reticles provide comprehensive data used to visualize diagnose and control process conditions in the equipment used to manufacture chips and reticles Additional wafer diagnostic solutions help troubleshoot and monitor materials handling to help detect and predict mechanical behaviors that may cause wafer damage
Wafer defect inspection review and metrology systems are used to help wafer substrate manufacturers manage quality throughout the wafer fabrication process by detecting defects characterizing surface quality and assessing wafer geometry
Reticle inspection and metrology systems help reticle blank patterned optical reticle patterned EUV reticle and chip manufacturers identify defects pattern placement errors and process issues during reticle manufacturing In addition to reducing yield risk during production these systems also support outgoing and incoming reticle quality control
Wafer inspection and metrology systems for advanced wafer level packaging help packaging manufacturers detect resolve and monitor excursions to provide greater control of quality for improved device performance Chemistry process monitoring systems analyze and monitor wet chemicals used in wafer level packaging WLP panel level packaging PLP and IC substrates
Software solutions centralize and analyze the data produced by inspection metrology and process systems for chip wafer reticle and packaging manufacturing These solutions provide run time process control defect excursion identification process corrections and defect classification to accelerate yield learning rates and reduce production risk Patterning simulation software allows researchers to evaluate advanced patterning technologies such as EUV lithography and multiple patterning techniques
The Specialty Semiconductor Process segment develops and sells advanced vacuum deposition and etching process tools which are used by a broad range of specialty semiconductor customers including manufacturers of MEMS RF communication chips and power semiconductors for automotive and industrial applications The Specialty Semiconductor Process segment offers a variety of solutions and products including
The PCB and Component Inspection segment enables electronic device manufacturers to inspect test and measure PCBs IC substrates flat panel displays FPD and packaged 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 The PCB and Component Inspection segment offers a variety of solutions and products including
Orbotech Corus Series Orbotech Infinitum Series Orbotech Nuvogo Fine Nuvogo Series Orbotech Diamond Series Orbotech Ultra Dimension Series Orbotech Ultra Fusion Fusion Series Orbotech Discovery II Series Orbotech Precise Series Orbotech Ultra PerFix PerFix Series Orbotech Neos Series Orbotech Sprint Series Orbotech Magna Series Orbotech Jetext Series Orbotech Apeiron Series Frontline product family
Our service programs enable our customers in all business sectors to maintain the high performance and productivity of our products through a flexible array of service options Whether a manufacturing site is producing wafers reticles ICs FPD or PCB products our highly trained service teams collaborate with customers to determine the best products and services to meet technology and business requirements
Our backlog which represents our remaining performance obligation RPO to deliver products and services totaled 9 83 billion and 11 40 billion as of June 30 2024 and 2023 respectively and primarily consists of sales orders where written customer requests have been received We expect to recognize approximately 59 to 64 of these performance obligations as revenue in the next 12 months 29 to 34 in the subsequent 12 months and the remainder thereafter but this estimate is subject to constant change The timing of revenue recognition of our RPO is evaluated quarterly and is largely driven by multiple variables many of which are beyond our control such as the readiness of customer fabs end market needs for capacity changes in the estimated versus actual start time of customers projects timing of delivery and installation dates supply chain constraints and changes in regulations The estimated amount and timing of revenue recognition are also dependent on the following
Our customers are currently purchasing equipment from us with lead times that are longer than our historical experience As customers try to balance the evolution of their technological production or market needs with the timing and content of orders placed with us there is increased risk of order modifications pushouts or cancellations
Requiring an export license from BIS for sale of anything to an entity on the U S Entity List of China based entities which is a list of parties that are generally ineligible to receive U S regulated products and services without prior licensing as well as for the use of certain semiconductor capital equipment based on U S technology to manufacture products connected to certain entities on the U S Entity List
Requiring an export license for sales to China based customers that are military end users or engaged in military end uses and for certain U S semiconductor and high performance computing technology including wafer fab equipment for the use of such technology for certain end uses in China and for the provision of support by U S persons to certain advanced IC fabs located in China
We are taking appropriate measures to comply with these regulations and are applying for export licenses when required although there can be no assurance that export licenses will be granted The possible negative effects on our future business of export licenses not being granted could be material and could result in a substantial reduction to our RPO or require us to return substantial deposits received from customers in China for purchase orders previously placed
We perform system design assembly and testing in house and utilize an outsourcing strategy to manufacture components and major subassemblies Our in house manufacturing activities consist primarily of assembling and testing components and subassemblies acquired from third party vendors and integrating those subassemblies into our finished products Our principal manufacturing activities occur in the U S Singapore Israel Germany United Kingdom Italy and China Our supply chain strategy incorporates considerations for ethical labor practices responsible minerals sourcing and Responsible Business Alliance and SEMI guidelines and there are increasing regulatory expectations on the environmental social and or geographic provenance of materials or components that may at times require us to incorporate further such considerations to our supply chain strategy
Some critical parts components and subassemblies collectively parts that we use are designed by us and manufactured by suppliers in accordance with our specifications while other parts are standard commercial products We use numerous vendors to supply parts and raw materials to manufacture and support our products Although we make reasonable efforts to ensure that these parts and raw materials are available from multiple suppliers this is not always possible Certain parts and raw materials included in our systems may be obtained only from a single supplier or a limited group of suppliers Through our business interruption planning we endeavor to minimize the risk of production interruption by among other things monitoring the financial condition of suppliers of key parts and raw materials providing financial support and incentives to encourage vendors to increase capacity when required identifying but not necessarily qualifying possible alternative suppliers of such parts and materials and ensuring adequate inventories of key parts and raw materials are available to maintain manufacturing schedules
Although we seek to reduce our dependence on sole and limited source suppliers in some cases the partial or complete loss of certain of these sources or disruptions within our suppliers often complex supply chains could disrupt scheduled deliveries to customers damage customer relationships and have a material adverse effect on our results of operations
The worldwide market for technologically advanced process control process enabling and yield management solutions used by semiconductor and electronics manufacturers is highly competitive with important competitive factors including system performance ease of use reliability technical service and support and overall cost of ownership However we believe that while the competitive factors listed are important the customers overriding requirement is for systems that easily and effectively incorporate automated capabilities into their existing development and manufacturing processes to enhance productivity improve yields and reduce waste To remain competitive we use significant financial resources to offer a broad range of products to maintain customer service and support centers worldwide and to invest in product R D In each of our product markets we have many competitors including companies such as Applied Materials Inc ASML Holding N V Hitachi High Technologies Corporation Onto Innovation Inc and Lasertec Inc some of which may have greater financial research engineering manufacturing and marketing resources than we have We expect our competitors to continue to improve the design and performance of their current products and to introduce new products with improved pricing and performance characteristics We may also face future competition from new market entrants overseas or domestically We maintain our market position by building long term relationships with our customers to meet their dynamic needs as well as anticipating future market demands and enabling our customers to accelerate adoption and production of new technologies as discussed further in the Industry section of this Item 1 Management believes that we are well positioned in the market with our industry leading portfolio of products and services However any loss of competitive position could negatively impact our prices customer orders revenue gross margin and market share Should this occur it could negatively impact our operating results and financial condition
We continuously evaluate strategic acquisitions and alliances to expand our technologies product offerings and distribution capabilities Acquisitions involve numerous risks including management issues and costs in connection with integration of the operations technologies and products of the acquired companies and the potential loss of key employees of the acquired companies The inability to manage these risks effectively could negatively impact our operating results and financial condition
We protect our proprietary technology through reliance on a variety of IP laws including patent copyright and trade secret We have filed and obtained a number of patents in the U S and abroad and intend to continue pursuing the legal protection of our technology through IP laws In addition from time to time we acquire license rights under U S and foreign patents and other proprietary rights of third parties and we attempt to protect our trade secrets and other proprietary information through confidentiality and other agreements with our customers suppliers employees and consultants and through other security measures
No assurance can be given that patents will be issued on any of our applications that license assignments will be made as anticipated or that our patents licenses or other proprietary rights will be sufficiently broad to protect our technology No assurance can be given that any patents issued to or licensed by us will not be challenged invalidated or circumvented or that the rights granted thereunder will provide us with a competitive advantage In addition there can be no assurance that we will be able to protect our technology or that competitors will not be able to independently develop similar or functionally competitive technology
We are subject to a variety of federal state and local governmental laws and regulations worldwide including but not limited to laws rules and regulations related to anti corruption antitrust data privacy requirements employment environmental foreign exchange controls health and safety requirements immigration import export requirements IP and tax Any failure to comply with laws and regulations may subject us to a range of consequences including fines suspension of certain of our business activities limitations on our ability to sell our products obligations to remediate in the case of environmental contamination and criminal and civil liabilities or other sanctions Changes in environmental laws and regulations could require us to invest in potentially costly pollution control equipment alter our manufacturing processes or use substitute materials Our failure to comply with laws rules and regulations could subject us to future liabilities
KLA strives to proactively manage and address the ESG topics most important to our stakeholders Guided by our values we have integrated ESG considerations into many of our business practices and policies and work together with our customers peers partners and suppliers to promote improvement in human rights labor environment health and safety anti corruption ethics and management system standards within our operations and our supply chain Our ESG initiatives are another way KLA seeks to deliver long term value for our stockholders and exemplify our core values For more information on our core values refer to the Human Capital Management section of this Item 1
We have an ESG Steering Committee composed of global leaders within the organization that implements and executes our ESG strategy under the oversight of the KLA executive team and the Board of Directors Training and awareness are central to the strategy s success As part of its responsibilities the steering committee partners with policy owners to promote KLA s ESG goals within all KLA policies such as our Standards of Business Conduct Our ESG strategy is organized into four pillars based on the areas where we believe we have the greatest opportunities to make positive impacts
As a technological innovator we seek to deliver solutions for our customers to increase production yields reduce waste and meet their own profitability and sustainability goals Refer to Research and Development and Patents and Other Proprietary Rights of this Item 1 for more information on our efforts for advancing innovation In addition to legal protections as already discussed above we also work to protect our operations by significantly focusing on cybersecurity We have developed and implemented a cybersecurity risk management process intended to protect the confidentiality integrity and availability of our critical systems and information For more information on our cybersecurity efforts initiatives and governance refer to Item 1C Cybersecurity in this Annual Report on Form 10 K
We work across our global footprint to shape a more sustainable future As part of our drive to be better we have established environmental sustainability goals Our goals include using 100 renewable electricity across our global operations by 2030 reducing our Scope 1 and 2 emissions from our 2021 baseline by 50 by 2030 and achieving net zero Scope 1 and 2 emissions by 2050 In 2023 we announced that we are submitting our climate goals including a goal for Scope 3 emissions reductions to the Science Based Target Initiative SBTi for validation which was recently received Our company wide Environmental Management Policy establishes a commitment to complying with applicable environmental laws and standards across company locations globally In 2023 we established a global waste and water policy to guide our efforts in
these spaces as well KLA is committed to protecting and respecting our environment and energy resources throughout our operations for future generations and follows the recommendations of the Task Force on Climate Related Financial Disclosures transparently reporting climate related governance strategy risk management metrics and targets to our stakeholders We continue to monitor various climate related risks even if some are not currently expected to have a material impact on KLA s business or financial condition for assessed time horizons
Our goal is to work together to harness the untapped human potential of a more just and inclusive world Refer to the Human Capital Management and Manufacturing Raw Materials and Supplies sections of this Item 1 for information on our inclusion human rights health and safety initiatives
We aim to empower today s as well as tomorrow s leaders by infusing our values into everything we do Refer to the Human Capital Management and Government Regulations sections of this Item 1 for examples of our employee centric culture and our commitment to operating our business responsibly in compliance with regulations and best practices worldwide
For more information on ESG see KLA s 2022 Global Impact Report on our website however this citation is provided solely for informational purposes and the content of KLA s 2022 Global Impact Report is expressly not incorporated by reference into this filing We include details in our 2022 Global Impact Report that are not included in this Form 10 K because we seek to be responsive to various areas of interest of our stakeholders however such information generally does not and is not expected to have a material effect on our capital expenditures financial condition results of operations or competitive position In addition no assurance can be given that our ESG initiatives will have the intended results or be able to be completed as currently envisioned whether due to cost feasibility or other constraints Our 2023 Global Impact Report is expected to be published in the first quarter of fiscal 2025
At KLA our people drive our success and we celebrate the diversity of backgrounds and experiences that all employees bring to the table We recognize that our competitive advantage is our people and the technology they develop We believe it is critical to attract motivate and retain a dedicated talented and innovative team of employees who exhibit our core values As talent and retention continue to be a challenging issue for many companies we strive to work proactively to address these concerns We also aim to support employees personal and professional growth Our talent development programs focus on developing the whole person through comprehensive training offerings employee engagement programs and health and wellness activities We embrace our responsibility to lead through exceptional training programs and professional development and through enabling our employees to be safe secure healthy and feel included and empowered to bring their whole self to work
At KLA our core values demonstrating perseverance striving to be better being honest forthright and consistent building high performing teams and being indispensable to our customers serve as a foundation for our relationships with employees customers suppliers and other stakeholders and reflect a commitment to ethical business practices and corporate citizenship in the places where we do business
As of June 30 2024 we had approximately 15 000 regular full time employees and approximately 230 part time and temporary employees in facilities located in 18 regions Approximately 31 of our regular full time employees are located in the U S 21 in Europe and Middle Eastern countries and 48 in Asia Pacific and Japan with approximately 20 engaged in manufacturing 27 in R D 28 in customer service 5 in sales and marketing and 20 in other roles Except for our employees in Belgium where a trade union delegation has been recognized and our employees in the German operations of our MIE and Laser Imaging Systems business units who are represented by employee works councils none of our employees are represented by a labor union We have not experienced work stoppages and believe that our employee relations are good
At KLA our talent is the heartbeat of our organization We value our employees as individuals and aim to recognize and support their needs so they can bring their best selves to work every day We engage with our employees about what they need to be successful in and out of the workplace
We seek to achieve our objective of attracting retaining and motivating our workforce by linking a significant portion of compensation to Company and business unit performance We seek competitiveness and fairness in total compensation relative
to peer comparisons and internal equity We offer a long term benefit program to a broad base of employees to share in our success through restricted stock units RSU and an Employee Stock Purchase Plan ESPP We also provide incentive bonus or profit sharing to employees
In addition to providing our employees with competitive compensation packages we have built out a robust suite of benefits to help foster the well being of all employees Our benefits are designed to meet the needs of employees and their families Benefits are inclusive of leave programs e g paid time off parental leave and bereavement leave health coverage contributions to retirement savings and access to employee assistance and work life programs
We offer programs and opportunities to employees to help improve their health and well being KLA s virtual and in person well being course offerings span physical financial and mental health We offer in person and virtual workout classes We hold online fitness and well being classes that include body tune up yoga and nutrition as well as the maintenance of life balance and the importance of sleep hydration and relaxation Throughout our sites we host a series of events and challenges both virtually and in person to encourage our employees to stay active We offer employees the opportunity to pursue coaching and therapy sessions through our Employee Assistance Program and we host seminars on financial literacy and planning and other wellness topics We expanded hybrid work options and telecommuting We support working parents faced with challenges balancing working from home and caring for their families needs Our well being programs help employees manage and improve their physical financial and mental health and build healthy lifestyle habits in engaging ways
The journey to becoming a truly inclusive and diverse global organization takes time and we are deeply committed to this path At KLA Inclusion Diversity I D is a shared aspiration commitment and responsibility as well as a direct expression of our core values In our drive to be better we seek to create an increasingly diverse workforce We do this because KLA like society benefits when we work with diverse teams to harness varying perspectives and talents in the furtherance of humanity
KLA is an equal opportunity employer and we follow affirmative action requirements applicable to federal contractors We continue to look for ways to recruit develop and retain a more diverse workforce with a focus on groups underrepresented in the technology field We continue to provide training with a focus on inclusion Managers and employees are introduced to models of intentional inclusion that emphasize key leadership qualities We continued our campaign on Inclusion For All through fiscal 2024 This campaign engages all employees in KLA s I D efforts by providing tips on everyday actions that can have large impacts This campaign supplements the formal training we offer around I D and the work of our Employee Resource Groups ERG
KLA currently has four ERGs with chapters around the world to engage employees in service of our I D and business goals fostering an inclusive environment WISE Women in STEM Empowered is an employee led group that includes people of all genders who have joined to support the professional growth of women at KLA WISE has chapters in the U S Israel Europe and India with more chapters forming in other regions Konexión is our Hispanic Latinx ERG where employees can interact and innovate through cultural sharing and understanding of the Hispanic Latinx community BELIEVE Black Employees Leading in Inclusion Excellence Values and Education supports the recruitment and advancement of Black talent while also promoting cultural awareness understanding and allyship of the Black community Both Konexión and BELIEVE have chapters throughout the U S Our fourth ERG is PRISM where Pride Respect Inclusion and Solidarity Meet and was started as a global ERG PRISM s mission is to amplify KLA s commitment to equality and inclusion by encouraging a safe and open working environment for LGBTQ employees and allies
Celebrating our diversity through formal observations of cultural holidays is another way we advance inclusion at KLA These celebrations are an important way for KLA employees to learn about different traditions cultural norms and our own employees experiences with different cultures
As of June 30 2024 our global workforce was 81 male and 19 female and 9 of our workforce in the U S was composed of Black or African American and or Hispanic Latinx employees At the end of fiscal 2024 30 of our Board of Directors were female and 20 of our Board of Directors were underrepresented minorities under the listing rules of the NASDAQ Stock Market
We offer our employees opportunities to advance their careers at KLA We emphasize stretch assignments on the job development as well as classroom and online training Our employees have access to a wide range of programs workshops classes and resources to help them excel in their careers and share what they know with others Our performance management process includes performance feedback against goals a review of key competencies that are needed to be successful at KLA and career development discussions
We emphasize frequent 1 on 1 meetings between managers and employees and regular coaching and feedback sessions Through coaching and mentorship programs our employees are inspired to push the boundaries of their comfort zones and seek creative solutions
If our employees pursue external learning opportunities and education we support that too through tuition reimbursement Through our partnerships with Stanford University and the University of Michigan employees can pursue advanced degrees in engineering that are customized for KLA and the skills and competencies required to support our customers We also offer a competitive student loan reimbursement program in the U S
We have a robust succession planning process especially targeted at director level positions and above Additionally our Values in Action training which was also targeted at the director level and above provided further guidance on our values business ethics and inclusion and diversity
Most of our employees are also required to take annual training courses and regular certifications related to their work including those pertaining to the environment data privacy and workplace health and safety
We conduct regular employee surveys to check in with our global workforce and obtain input on several topics The feedback we receive from these surveys helps us assess employee sentiment identify areas of improvement and guides our decision making as it relates to people management In addition our executives conduct regular quarterly webcasts that enable all employees to engage with senior leaders and ask questions in an open Q A session
As we emerged from the global pandemic many employees continued to seek connections Through our Employee Engagement Survey we continued to identify the top priorities in a post pandemic world We created action plans and involved our workforce in developing potential solutions to address these top concerns We created initiatives including global manager communications individual and team coaching and a training course titled Engaging with Engagement
The health and safety of our employees is paramount to our success We are committed to providing a safe and healthy workplace for all employees We accomplish this through strict compliance with applicable laws and regulations regarding workplace safety including recognition and control of workplace hazards tracking injury and illness rates utilizing a global travel health program and maintaining detailed emergency and disaster recovery plans
A legacy of the COVID 19 pandemic has been the development and implementation of a global approach to Employee Health and Safety EHS with strong collaboration across the regions This has resulted in the adoption of best practices for each of our sites improving business resiliency and the health and safety of our employees worldwide We continue to monitor developments in our communities to help us be able to adjust practices and controls as needed
Our goal is always zero accidents across our facilities and to achieve that we conduct proactive risk assessments and audits to constantly improve our efforts We implemented a global standard for our incidents to ensure consistency across our regions and continually outperform industry averages for injury rates
We made a commitment to globalize our ISO 45001 the internationally recognized standard for Occupational Health Safety OHS Management Systems certification and expand our ISO 14001 the internationally recognized standard for Environmental Management Systems EMS certification beyond our larger sites In 2023 we continued to make progress expanding our ISO 14001 and ISO 45001 programs across our main production and R D facilities As of year end 2023 our sites in Singapore Newport Wales Milpitas California and Migdal Ha emek Israel are certified to ISO 14001 and our Wales site is also certified to ISO 45001
We are committed to reducing safety risks across business units and at corporate sites worldwide We revised our approach to risk assessments to risk rank our own operations We are utilizing this system not only to measure our own performance but also to help improve the performance of our supply chain and customers All new hires are required to complete a health and safety training program In addition our service technicians are required to achieve and maintain role specific safety training certifications Our excellent safety record which is less than half of the semiconductor industry average is a tribute to our employees efforts the breadth and depth of our training programs and our dedication to safety policy management
For more information on Human Capital see KLA s 2022 Global Impact Report on our website however this citation is provided solely for informational purposes and the content of KLA s 2022 Global Impact Report is expressly not incorporated by reference into this filing
A semiconductor formed from chemical elements in two or more different groups in the periodic table ex III V The composition of these materials influences their properties resulting in different performance than silicon when used in electronics Primary examples include SiC GaN gallium arsenide GaAs and indium phosphide InP
A substrate technology based on growing a crystalline silicon layer on top of a silicon wafer The added layer where the structure and orientation are matched to those of the silicon wafer includes dopants impurities to imbue the substrate with special electronic properties
A substrate technology comprised of a thin top silicon layer separated from the silicon substrate by a thin insulating layer of glass or silicon dioxide used to improve performance and reduce the power consumption of IC circuits
For semiconductor manufacturing and industries using similar processing technologies substrates that do not have electronic circuits transistors interconnects etc fabricated on the surface These can include bare silicon wafers other bare substrates or substrates on which blanket films have been deposited
The ability of a semiconductor manufacturer to oversee manage and control its manufacturing processes so as to maximize the percentage of manufactured wafers or die that conform to pre determined specifications
The following summarizes the most material risks that make an investment in our securities risky or speculative If any of the following risks occur or persist our business financial condition and results of operations could be materially harmed and the price of our common stock could significantly decline
Natural disasters such as earthquakes health crises such as the COVID 19 pandemic acts of terrorism or war or other catastrophic events and the lack of insurance thereof could significantly disrupt our operations including affecting the global supply chain for lengthy periods of time
Economic political or other conditions in the jurisdictions where we earn profits can impact the tax laws and taxes we pay in those jurisdictions subsequently impacting our effective tax rate cash flows and results of operations
We may fail to comply with the covenants in our Revolving Credit Facility defined below and Senior Notes defined below which could impair our ability to borrow needed funds or require us to repay debt sooner than we planned
Demand for our products is ultimately driven by the global demand for electronic devices by consumers and businesses Economic uncertainty frequently leads to reduced consumer and business spending and can cause our customers to decrease cancel or delay their equipment and service orders The tightening of credit markets rising interest rates and concerns regarding the availability of credit can make it more difficult for our customers to raise capital whether debt or equity to finance their purchases of capital equipment including the products we sell Reduced demand combined with delays in our customers ability to obtain financing or the unavailability of such financing has at times in the past adversely affected our product and service sales and revenues and therefore has harmed our business and operating results and our operating results and financial condition may again be adversely impacted if economic conditions decline from their current levels
In addition a decline in the condition of the global financial markets could adversely impact the market values or liquidity of our investments Our investment portfolio includes corporate and government securities money market funds and other types of debt and equity investments Although we believe our portfolio continues to be comprised of sound investments due to the quality and where applicable credit ratings of such investments a decline in the capital and financial markets or rising interest rates would adversely impact the market value of our investments and their liquidity If the market value of such investments were to decline or if we were to have to sell some of our investments under illiquid market conditions we may be required to recognize an impairment charge on such investments or a loss on such sales either of which could have an adverse effect on our financial condition and operating results
If we are unable to timely and appropriately adapt to changes resulting from difficult macroeconomic conditions our business financial condition or results of operations may be materially and adversely affected
A majority of our annual revenues are derived from outside the U S and we maintain significant operations outside the U S We are exposed to numerous risks as a result of the international nature of our business and operations We expect these conditions to continue in the foreseeable future
Global trade issues and changes in and uncertainties with respect to trade policies including the ability to obtain required import and export licenses trade sanctions tariffs and international trade disputes
Political and social attitudes laws rules regulations and policies within countries that favor domestic companies over non domestic companies including customer or government supported efforts to promote the development and growth of local competitors
Political instability geopolitical tensions natural disasters legal or regulatory changes acts of war such as the wars between Russia and Ukraine or Israel and Hamas and further escalation thereof or terrorism in regions where we our customers or our suppliers have operations or where we or they do business
Rising inflation and fluctuations in interest and currency exchange rates may adversely impact our ability to compete on price with local providers or the value of revenues we generate from our international business Although we attempt to manage some of our near term currency risks through the use of hedging instruments there can be no assurance that such efforts will be adequate
Our ability to receive prepayments for certain of our products and services sold in certain jurisdictions These prepayments increase our cash flows for the quarter in which they are received If our practice of requiring prepayments in those jurisdictions changes or deteriorates our cash flows would be harmed
Required refunds for customer prepayments resulting from our inability to ship to certain jurisdictions especially for customers in China as described in more detail below If we are required to make such refunds our cash flows could be negatively affected
Over the past several years there have been a variety of rules and regulations issued by BIS that have had an impact on our ability to sell certain products and provide certain services to certain customers in China These rules and regulations may significantly harm our business results of operations financial condition and cash flows in future periods unless we are able to obtain required licenses
We maintain significant operations outside the United States and existing and evolving trade restrictions imposed by the U S and other governments could significantly disrupt our global operations The U S government has tightened export controls for commodities software and technology collectively items destined to China over the past several years These controls have included for example restrictions on exporting certain items to military end users and for military end uses the addition of numerous entities to the U S Entity List a list of parties that are generally ineligible to receive U S regulated items without prior licensing from BIS and the creation of new licensing requirements that apply to the export re export and transfer of certain foreign made items that are the direct product of U S origin technology or produced by a plant or major component of a plant that itself is the direct product of U S origin technology and which are destined to Huawei or its affiliates and other specified companies on the U S Entity List
In October 2022 BIS published the 2022 BIS Rules the 2022 BIS Rules that introduce restrictions related to semiconductor semiconductor manufacturing supercomputer and advanced computing items and end uses These rules impose restrictions on our ability to sell ship and support certain equipment and otherwise conduct business with certain counterparties primarily including China based companies involved in advanced semiconductor manufacturing Further the 2022 BIS Rules impose restrictions on the activities of U S persons with respect to certain items that are not subject to the Export Administration Regulations EAR which departs from BIS typical practice of controlling items that are subject to the EAR and could further restrict our ability to conduct business in China In October 2023 BIS issued the 2023 BIS Rules the 2023 BIS Rules designed to update export controls on advanced computing semiconductors and semiconductor manufacturing equipment as well as items that support supercomputing applications and end uses to certain D1 D4 and or D5 countries in Supplement No 1 of Part 740 of the U S Export Administration Regulations including China The 2023 BIS Rules adjust the parameters included in the 2022 BIS Rules that determine whether an advanced computing chip is restricted and impose new measures to address risks of circumvention of the controls established by the 2022 BIS Rules The 2023 BIS Rules are very complex and in January 2024 KLA among other companies submitted comments to BIS on the 2023 BIS Rules BIS could revise or expand the 2023 BIS Rules in response to public comments Likewise BIS may issue guidance clarifying the scope of the rules Such revisions expansions or guidance could change the impact of the rules for our business Commerce has also added and may continue to add China based entities to the U S Entity List imposing export restrictions to entities that could disrupt or prevent our product shipment and further disrupt our revenue recognition and business operations and our ability to support our customers in China
These rules and regulations may significantly harm our business unless we are able to obtain required licenses We will continue to apply for export licenses when required in an effort to avoid disruption to our and our customers operations but there can be no assurance that export licenses applied for by either us or our customers now or in the future will be granted To the extent BIS does issue licenses to us or to our customers such licenses may have a short duration or require us to satisfy various conditions If pending and future export license applications are not granted or additional restrictions are imposed or if regulators adopt new interpretations of existing regulations the potential impact on us could be material by disrupting our supply chain and product shipment impairing our ability to complete product development in a timely manner or our ability to support existing customers of covered products or supply customers of covered products outside the impacted regions and requiring us to transition certain operations out of one or more of the identified countries Failure to obtain export licenses could also harm our RPO requiring us to return substantial deposits received from customers in China for purchase orders and or further limiting our ability to meet our contractual obligations and sell our products or provide services to our customers in China
We may lose revenue in future periods related to anticipated sales to customers in China unless we are able to replace their orders with other customer orders for which either a license has been obtained or is not required Our revenue from sales of products and provision of services to customers in China was 43 27 and 29 for fiscal years 2024 2023 and 2022 respectively
Additionally the Chinese government has adopted and may further adopt new regulations in response to U S government actions which could adversely affect our ability to do business in China We have controls and procedures designed to maintain compliance with U S and other applicable export control laws and regulations however we cannot guarantee that such controls and procedures will be successful in preventing violations or allegations of violations of increasingly complex and often conflicting regulations worldwide The complexity and evolving nature of the rules and regulations and the fact that Commerce or other relevant regulators might adopt interpretations of regulations that differ from those of the Company increase our risk of non compliance
Any violations by us of applicable export laws and regulations could result in significant civil and criminal penalties including fines and criminal proceedings against the Company or responsible employees a denial of export privileges suspension or debarment Our employees customers suppliers or other third parties with whom we work may also engage in conduct for which the Company might be held responsible We could face significant compliance litigation or settlement costs and diversion of management s attention from our business as a result Further the Company may be subject to negative publicity or reputational harm resulting in reduced demand for our products employee attrition and other negative impact on our business results of operations financial condition and cash flows
We might be involved in claims or disputes related to IP or other confidential information that may be costly to resolve prevent us from selling or using the challenged technology and seriously harm our operating results and financial condition
As is typical in the industries in which we serve from time to time we have received communications from other parties asserting the existence of patent rights copyrights trademark rights or other IP rights which they believe cover certain of our products processes technologies or information In addition we occasionally receive notification from customers who believe that we owe them indemnification or other obligations related to IP claims made against such customers by third parties With respect to IP infringement disputes our customary practice is to evaluate such infringement assertions and to consider whether to seek licenses where appropriate However there can be no assurance that licenses will be granted or if granted will be on acceptable terms or that costly litigation or other administrative proceedings will not occur The inability to obtain necessary licenses or other rights on reasonable terms could seriously harm our results of operations and financial condition Furthermore we may potentially be subject to claims by customers suppliers or other business partners or by governmental law enforcement agencies related to our receipt distribution and or use of third party IP or confidential information Legal proceedings and claims regardless of their merit and associated internal investigations with respect to IP or confidential information disputes are often expensive to prosecute defend or conduct may divert management s attention and other Company resources and or may result in restrictions on our ability to sell our products settlements on significantly adverse terms or adverse judgments for damages injunctive relief penalties and fines any of which could have a significant negative effect on our business results of operations and financial condition There can be no assurance regarding the outcome of future legal proceedings claims or investigations The instigation of legal proceedings or claims our inability to favorably resolve or settle such proceedings or claims or the determination of any adverse findings against us or any of our employees in connection with such proceedings or claims could materially and adversely affect our business financial condition and results of operations as well as our business reputation
We are subject to various risks related to compliance with laws rules and regulations enacted by legislative bodies and or regulatory agencies in the countries in which we operate and with which we must comply including environmental safety antitrust anti corruption anti bribery unclaimed property economic sanctions and export control regulations We have policies and procedures designed to promote compliance with applicable laws but there can be no assurance our policies and procedures will prove completely effective in ensuring compliance by all our personnel business partners and representatives for whose misconduct we may under some circumstances be legally responsible Our failure or inability to comply with existing or future laws rules or regulations in the countries in which we operate could result in government investigations and or enforcement actions which could result in significant financial cost including investigation expenses defense costs assessments and criminal or civil penalties reputational harm and other consequences that may adversely affect our operating results financial condition and ability to conduct our business For instance in response to the war between Russia and Ukraine the U S European Union and other countries have imposed sanctions against Russia Belarus and certain other regions entities and individuals and may impose additional sanctions export controls or other measures The imposition of sanctions export controls and other measures could adversely impact our business including preventing us from performing existing contracts recognizing revenue pursuing new business opportunities or receiving payment for products already supplied or services already performed with customers
Additionally we are subject to various domestic and international environmental laws and regulations including those that control and restrict the use transportation emission discharge storage and disposal of certain chemicals gases and other substances Current and proposed restrictions on per and polyfluoroalkyl substances PFAS may negatively impact our supply chain due to potentially decreased availability or non availability of PFAS containing products or commercially feasible alternatives Any failure to comply with applicable environmental laws regulations or requirements may subject us to a range of consequences including fines suspension of certain of our business activities limitations on our ability to sell our products obligations to remediate environmental contamination and criminal and civil liabilities or other sanctions Some of these laws impose strict liability for certain releases which may require us to incur costs regardless of fault or the legality of actions at the time of release In addition changes in environmental laws and regulations including any relating to climate change and greenhouse gas GHG emissions could require us or others in our value chain to install additional equipment alter operations to incorporate new technologies or processes or revise process inputs among other things which may cause us to incur significant costs or otherwise adversely impact our business performance Various agencies and governmental bodies have expressed particular interest in promulgating rules relating to climate change For example in March 2022 the SEC published a proposed rule that would require companies to provide significantly expanded climate related disclosures which may require us to incur significant additional costs to comply and impose increased oversight obligations on our management and Board of Directors We also face increasing complexity in our manufacturing product design and procurement operations as we adjust to new and prospective requirements relating to the composition of our products including restrictions on lead and other substances and requirements to track the sources production methods or provenance of certain metals and other materials The cost of complying or failing to comply with these and other regulatory requirements or contractual obligations could adversely affect our operating results financial condition and ability to conduct our business
From time to time we may receive inquiries subpoenas investigative demands or audit notices from governmental or regulatory bodies or we may make voluntary disclosures related to legal regulatory or tax compliance matters and these matters may result in significant financial cost including investigation expenses defense costs assessments and criminal or civil penalties reputational harm and other consequences that could materially and adversely affect our operating results and financial condition In addition we may be subject to new or amended laws including laws that conflict with other applicable laws which may impose compliance challenges and create the risk of non compliance
In addition we may from time to time be involved in legal proceedings or claims regarding employment immigration contracts product performance product liability antitrust ESG IP export controls cybersecurity and data privacy tax securities unfair competition and other matters These legal proceedings and claims regardless of their merit may be time consuming and expensive to prosecute or defend divert management s attention and resources and or inhibit our ability to sell our products There can be no assurance regarding the outcome of current or future legal proceedings or claims which could adversely affect our operating results financial condition and ability to operate our business
Certain investors capital providers shareholder advocacy groups other market participants customers and other stakeholder groups have focused increasingly on companies ESG initiatives including those regarding climate change human rights and inclusion and diversity among others This has increased and may in the future continue to increase certain of our
From time to time we create and publish voluntary disclosures regarding ESG matters Identification assessment and disclosure of such matters is complex Many of the statements in such voluntary disclosures are based on our expectations and assumptions which may require substantial discretion and forecasts about costs and future circumstances Additionally expectations regarding companies management of ESG matters continues to evolve rapidly in many instances due to factors that are out of our control
Although we have engaged and expect to continue to engage in certain voluntary ESG initiatives to improve the ESG profile of our operations and product offerings we cannot guarantee that such efforts will have the intended results including whether we are able to measure and disclose related data of sufficient quality or timeliness or in accordance with particular methodological practices For example we have adopted certain GHG emissions reduction targets for Scope 1 2 and 3 emissions Although several of these goals have been validated by SBTi our estimates concerning the timing and cost of implementing our goals are subject to risks and uncertainties some of which are outside of our control In addition standards for calculating and disclosing emissions and other sustainability metrics continue to evolve which can result in inconsistencies or other changes to data over time revisions to our strategies and targets or our ability to achieve them subjecting us to additional scrutiny For example we have recently elected to align our emissions reporting with the SBTi methodology which will result in certain changes to our emissions metrics from historical calculations however to the extent the SBTi methodology is ultimately deemed to be not in keeping with regulatory standards or best practices we may be subject to additional scrutiny or costs Standards for ESG metrics and reporting continue to evolve due to a variety of factors and our disclosures may evolve as well however we cannot guarantee that our approach will align with any particular methodology or stakeholder expectations Any failure or perceived failure to disclose in keeping with best practices regulations or other stakeholder expectations or to successfully achieve our voluntary goals or the manner in which we achieve some or any portion of our goals could adversely impact our reputation or to the extent related to our sustainability linked capital sources financial condition and results of operations
Our ESG efforts have included and may in the future include further adoption or expansion of certain ESG practices or policies which may require us to expend additional resources to implement or to forego certain business opportunities to the extent others in our value chain do not meet pertinent requirements of such policies By contrast any failure or perceived failure to conform to such policies could have an adverse impact on our reputation and business activities Our performance may be subject to greater scrutiny as a result of our announcement of any goals or policies and the publication of our performance against the same Moreover despite the voluntary nature of such efforts we may receive increasing scrutiny and pressure from external sources such as lenders investors proxy advisory firms rating agencies or other investor advocacy groups to adopt more transparent or aggressive climate or other ESG related initiatives however we may not agree that such initiatives will be appropriate for our business and we may not be able to implement such initiatives because of potential costs or technical or operational obstacles Any unfavorable ESG ratings could lead to or increase any negative investor sentiment toward us our customers or our industry which could negatively impact our share price as well as our access to and cost of capital To the extent ESG matters negatively impact our reputation they may also impede our ability to compete as effectively to recruit or retain employees or customers which may adversely affect our operations Simultaneously there are efforts by some stakeholders including certain policymakers to reduce companies efforts on certain environmental social and sustainability related matters which could subject us to increased activism or litigation In addition we note that regulators including the SEC have adopted or are considering adopting regulations regarding ESG matters including but not limited to climate change related matters To the extent we are subject to increased regulatory requirements we could become subject to increased compliance related costs and risks including potential enforcement and litigation Such ESG matters also impact at least certain of our suppliers and customers which may compound or cause new impacts on our business financial condition or results of operations
Our employees are vital to our success and our key management engineering and other employees are difficult to replace We generally do not have employment contracts with our key employees Further we do not maintain key person life insurance for any of our employees The expansion of high technology companies worldwide
has increased demand and competition for qualified personnel Competition for engineering and other technical personnel in many areas of the world in which we operate is especially intense due to the proliferation of technology companies worldwide Our competitors have targeted individuals in our organization who have desired skills and experience In addition current or future immigration laws policies or regulations may limit our ability to attract hire and retain qualified personnel
We outsource a number of services to third party service providers which decreases our control over the performance of these functions Disruptions or delays at our third party service providers could adversely impact our operations
We outsource a number of services including our transportation information systems management and logistics management of spare parts and certain accounting and procurement functions among others to domestic and overseas third party service providers While outsourcing arrangements may lower our cost of operations they also reduce our direct control over the services rendered It is uncertain what effect such diminished control will have on the quality or quantity of products delivered or services rendered on our ability to quickly respond to changing market conditions or on our ability to ensure compliance with all applicable domestic and foreign laws and regulations In addition many of these outsourced service providers including certain hosted software applications that we use for confidential data storage may employ cloud computing technology and other systems These providers may be susceptible to cyber incidents such as software vulnerabilities cyber attacks aimed at theft of sensitive data inadvertent cyber security compromises attacks aimed at operational disruption at the target or third party service providers all of which are outside of our control If we do not effectively develop and manage our outsourcing strategies if required export and other governmental approvals are not timely obtained if our third party service providers pass on the cost of inflation to us or do not perform as anticipated or do not adequately maintain operational resilience or fail to protect our data from cyber related security breaches or if there are delays or difficulties in enhancing business processes we may experience operational difficulties such as limitations on our ability to ship products increased costs manufacturing or service interruptions or delays loss of IP rights or other sensitive data quality and compliance issues and challenges in managing our product inventory or recording and reporting financial and management information any of which could materially and adversely affect our business financial condition and results of operations
In the conduct of our business we and certain of our third party providers collect use transmit and store data on information systems and networks including systems software hardware and networks owned and maintained by KLA and or by third party providers collectively IT Systems This data includes confidential information transactional information and IP belonging to us our customers and our business partners as well as personal information of individuals collectively Confidential Information We also integrate and use third party services and products including software in our IT Systems and such third party products services and systems are beyond our control We face numerous and evolving cybersecurity risks that threaten the confidentiality integrity and availability of our IT Systems and Confidential Information including from diverse threat actors such as state sponsored organizations opportunistic hackers and hacktivists as well as diverse attack vectors such as computer viruses bugs ransomware and other malware technological errors and known and unknown vulnerabilities in our software and systems and those of third parties cyber related security breaches and similar disruptions from unauthorized intrusions tampering misuse or criminal acts made directly against our systems or networks or through our third party providers or the supply chain including social engineering phishing or other events or developments that we may be unable to anticipate or fail to mitigate including but not limited to financial fraud including check fraud vulnerabilities or misconfigurations in our IT Systems In addition insider actors malicious or otherwise could misappropriate our Confidential Information compromise our IT Systems tamper with our products or otherwise cause disruptions to our business operations Moreover we have acquired and continue to acquire companies with cybersecurity vulnerabilities and or unsophisticated security measures which may expose us to significant cybersecurity operational and financial risks Remote and hybrid working arrangements at our company and at many third party providers also increase cybersecurity risks due to the challenges associated with managing remote computing assets and security vulnerabilities that are present in many non corporate and home networks
We and our third party providers regularly experience cyber attacks and events and on occasion incidents involving unauthorized access to systems and data and although no such attacks events or incidents have materially impacted our operations or financial results there can be no assurance that such attacks events or incidents will not be material to KLA in the future Because the techniques used to obtain unauthorized access to our IT Systems change frequently and increasingly leverage technologies such as AI cyber attacks may not be recognized until launched against a target and are increasingly designed to circumvent controls avoid detection and remove or obfuscate forensic artifacts As such we may be unable to anticipate these techniques implement adequate preventative measures or adequately identify investigate and recover from cybersecurity incidents There can also be no assurance that our cybersecurity risk management program and processes including our policies controls or procedures will be fully implemented complied with or effective in protecting our IT Systems and Confidential Information We prioritize the remediation of identified security vulnerabilities based on known and anticipated risks and we aim to patch vulnerabilities within reasonable timeframes However we are unable to comprehensively identify all vulnerabilities particularly as related to third party software and systems apply patches or
confirm that mitigating measures are in place or ensure that any patches will be applied by us or our third parties before exploitation by a threat actor If attackers are able to exploit vulnerabilities before patches are installed or mitigating measures are implemented significant compromises could impact our systems and data AI may be used to generate cyberattacks as AI capabilities improve and are increasingly adopted These attacks crafted with AI tools could directly attack our IT Systems with greater speed and or efficiency than a human threat actor or create more effective phishing emails In addition the threat could be introduced from the result of us our customers and business partners incorporating the output of an AI tool that includes a threat such as introducing malicious code by incorporating AI generated source code
Any cybersecurity incident or occurrence could impact our business directly or indirectly by impacting third parties in the supply chain in many potential ways disruptions to operations misappropriation corruption or theft of Confidential Information misappropriation of funds and Company assets reduced value of our investments in research development and engineering litigation including class action lawsuits with or payment of damages to third parties reputational damage costs to comply with regulatory inquiries or actions data privacy issues costs to rebuild our information systems and networks and increased cybersecurity protection and remediation costs Cybersecurity incidents affecting our customers could result in substantial delays in our ability to ship to those customers or install our products which could result in delays in revenue recognition or the cancellation of orders and cybersecurity incidents affecting our suppliers could result in substantial delays in our ability to obtain necessary components for our products from those suppliers which could hamper our ability to ship our products to our customers and service them harming our results of operations For example in February 2023 one of our suppliers experienced a ransomware event that caused delays in its manufacturing operations resulting in its shipment delays to us for components we ordered which in turn caused delays in some of our outbound shipments during the quarter Similar events could cause disruptions in the future
We carry insurance that provides limited protection against the potential losses arising from a cybersecurity incident but it will not likely cover all such losses and the losses it does not cover may be significant
We rely upon certain critical information systems for our daily business operations Our inability to use or access our information systems at critical points in time could unfavorably impact our business operations
Our global operations are dependent upon certain information systems including telecommunications the internet our corporate intranet network communications email and various computer hardware and software applications System failures or malfunctions such as difficulties with our customer and supplier relationship management systems could disrupt our operations and our ability to timely and accurately process and report key components of our financial results Our enterprise resource planning ERP system is integral to our ability to accurately and efficiently maintain our books and records record transactions provide critical information to our management and prepare our financial statements Any disruptions or difficulties that may occur in connection with our ERP system or other systems whether in connection with the regular operation periodic enhancements modifications or upgrades of such systems or the integration of our acquired businesses into such systems or due to cybersecurity events such as ransomware attacks including attacks on the information systems of our business partners and other third parties could adversely affect our ability to complete important business processes such as the evaluation of our internal controls over financial reporting pursuant to Section 404 of the Sarbanes Oxley Act of 2002 Any of these events could have an adverse effect on our business operating results and financial condition
Acquisitions are an important element of our strategy but because of the uncertainties involved we may not find suitable acquisition candidates and we may not be able to successfully integrate and manage acquired businesses We are also exposed to risks in connection with strategic alliances into which we may enter
In addition to our efforts to develop new technologies from internal sources part of our growth strategy is to pursue acquisitions and acquire new technologies from external sources We may also enter into definitive agreements for and consummate acquisitions of or significant investments in businesses with complementary products services and or technologies There can be no assurance that we will find suitable acquisition candidates that we can close such acquisitions or that acquisitions we complete will be successful In addition we may use equity to finance future acquisitions which would increase our number of shares outstanding and be dilutive to current stockholders
If we are unable to successfully integrate and manage acquired businesses if the costs associated with integrating the acquired businesses exceeds our expectations or if acquired businesses perform poorly then our business and financial results may suffer It is possible that the businesses we have acquired as well as businesses we may acquire in the future may perform worse than expected or prove to be more difficult to integrate and manage than anticipated In addition we may face other risks associated with acquisition transactions that may lead to a material adverse effect on our business and financial results including
We may have difficulty implementing a cohesive framework of controls procedures and policies appropriate for a larger U S based public company at companies that prior to acquisition may not have as robust controls procedures and policies particularly with respect to the effectiveness of cyber and information security practices and incident response plans compliance with data privacy and protection and other laws and regulations and compliance with U S based economic policies and sanctions that may not have previously been applicable to the acquired company s operations
We may incur unforeseen obligations or liabilities in connection with acquisitions including but not limited to cybersecurity risks associated with integrating our networks or systems with those of acquired entities
At times we may also enter into strategic alliances with customers suppliers or other business partners with respect to development of technology and IP These alliances typically require significant investments of capital and exchange of proprietary highly sensitive information The success of these alliances depends on various factors over which we may have limited or no control and requires ongoing and effective cooperation with our strategic partners Mergers and acquisitions and strategic alliances are inherently subject to significant risks and the inability to effectively manage these risks could materially and adversely affect our business financial condition and operating results
Disruption of our manufacturing facilities or other operations or those of our suppliers or in the operations of our customers due to climate change earthquake flood other natural catastrophic events public health crises such as the COVID 19 pandemic or terrorism could result in cancellation of orders delays in deliveries or other business activities or loss of customers and could seriously harm our business
We have significant manufacturing operations in the U S Singapore Israel Germany United Kingdom Italy and China In addition our business is international in nature with our sales service and administrative personnel and our customers and suppliers located in numerous countries throughout the world Operations at our manufacturing facilities and our assembly subcontractors and those of our suppliers as well as our other operations and those of our customers are subject to disruption for a variety of reasons including work stoppages acts of war terrorism public health crises such as the COVID 19 pandemic fire earthquake volcanic eruptions drought storms extreme temperatures energy shortages spikes in energy demand or power blackouts disruptions in the availability of water necessary for our operations including but not limited to in areas of relatively high water stress flooding or other natural disasters Certain of these events may become more frequent or intense as a result of climate change and climate change may also contribute to chronic changes such as sea level rise or changes to meteorological or hydrological patterns that may also disrupt our or our suppliers operations or otherwise adversely impact our business Such disruption has caused as with the COVID 19 pandemic for example and could in the future cause inefficiencies in our workforce and delays in among other things shipments of products to our customers our ability to perform services requested by our customers the ability of our suppliers to supply us components for our products in a timely manner or the timely installation and acceptance of our products at customer sites Such disruptions could also induce illiquidity for our customers and suppliers further straining our supply chain and causing continued uncertainty in customers abilities to pay for the products they purchase and their demand for our products and services In case of any disruptions in our supply chain we may need to commit to increased purchases and provide longer lead times to secure critical components which could increase inventory obsolescence risk
We cannot provide any assurance that alternate means of conducting our operations whether through alternate production capacity or service providers or otherwise would be available if a major disruption were to occur or that if such alternate means were available they could be obtained on favorable terms
We maintain a program of insurance coverage for a variety of property casualty and other risks The types and amounts of insurance we obtain vary depending on availability cost and decisions with respect to risk retention Some of our policies have broad exclusions In addition one or more of our insurance providers may be unable or unwilling to continue to provide certain coverage in the future or pay a claim Losses not covered by insurance may be large which could harm our results of
In addition as part of our cost cutting actions we have consolidated several operating facilities Our California operations are now primarily centralized in our Milpitas facility The consolidation of our California operations into a single campus could further concentrate the risks related to any of the disruptive events described above such as acts of war or terrorism earthquakes fires or other natural disasters if any such event were to impact our Milpitas facility
We are predominantly uninsured for losses and interruptions caused by terrorist acts and acts of war If international political instability or geopolitical tensions continue or increase our business and results of operations could be harmed
The threat of terrorism targeted at or acts of war in the regions of the world in which we do business increases the uncertainty in our markets Any act of terrorism or war that affects the economy or the industries we serve could adversely affect our business Increased international political instability or geopolitical tensions in various parts of the world disruption in air transportation and further enhanced security measures as a result of terrorist attacks may hinder our ability to do business and may increase our costs of operations We maintain significant operations in Israel Since the establishment of the State of Israel in 1948 a number of armed conflicts have taken place between Israel and its Arab neighbors and a state of hostility varying in degree and intensity has led to security and economic challenges for Israel In October 2023 war between Israel and Hamas began which has resulted in significant military activity in the region In addition some of our employees in Israel are obligated to perform annual reserve duty in the Israel Defense Forces and may be called to active military duty in emergency circumstances including the war against Hamas Following the war between Israel and Hamas the Houthis launched a number of attacks on marine vessels traversing the Red Sea which marine vessels were thought to either be in route towards Israel or to be partly owned by Israeli businessmen The Red Sea is a vital maritime route for international trade and major shipping companies announced suspensions of operations following these attacks Disruptions in shipping routes in the Red Sea could result in delays in shipping our products to customers which could delay the timing of revenue recognition We cannot assess the impact that emergency conditions in Israel may have on our business operations financial condition or results of operations but it could be material Instability in any region could directly impact our ability to operate our business or our customers ability to operate their businesses cause us to incur increased costs in transportation make such transportation unreliable increase our insurance costs and cause international currency markets to fluctuate Instability in any region could also have the same effects on our suppliers and their ability to timely deliver their products Our insurance does not cover losses we suffer attributable to war If international political instability and geopolitical tensions continue or increase in any region in which we do business our business and results of operations could be harmed
We purchase insurance to help mitigate the economic impact of certain insurable risks however certain risks are uninsurable are insurable only at significant cost or cannot be mitigated with insurance Accordingly we may experience a loss that is not covered by insurance either because we do not carry applicable insurance or because the loss exceeds the applicable policy amount or is less than the deductible amount of the applicable policy For example we do not currently hold earthquake insurance An earthquake could significantly disrupt our manufacturing operations a significant portion of which are conducted in California an area highly susceptible to earthquakes It could also significantly delay our research and engineering efforts on new products much of which is also conducted in California We take steps to minimize the damage that would be caused by an earthquake but there is no certainty that our efforts will prove successful in the event of an earthquake We self insure earthquake risks because we believe this is a prudent financial decision based on our cash reserves and the high cost and limited coverage available in the earthquake insurance market Certain other risks are also self insured either based on a similar cost benefit analysis or based on the unavailability of insurance If one or more of the uninsured events occurs we could suffer major financial loss
We are exposed to foreign currency exchange rate fluctuations Although we hedge certain currency risks we may still be adversely affected by changes in foreign currency exchange rates or declining economic conditions in these countries
We have some exposure to fluctuations in foreign currency exchange rates primarily the Japanese Yen the euro the pound sterling and the new Israeli shekel We have international subsidiaries that operate and sell our products globally In addition an increasing proportion of our manufacturing activities are conducted outside of the U S and many of the costs associated with such activities are denominated in foreign currencies We routinely hedge our exposures to certain foreign currencies with certain financial institutions in an effort to minimize the impact of certain currency exchange rate fluctuations but these hedges may be inadequate to protect us from currency exchange rate fluctuations To the extent that these hedges are inadequate or if there are significant currency exchange rate fluctuations in currencies for which we do not have hedges in place our reported financial results or the way we conduct our business could be adversely affected Furthermore if a financial counterparty to our hedges experiences financial difficulties or is otherwise unable to honor the terms of the foreign currency hedge we may experience material financial losses
We are exposed to fluctuations in interest rates and the market values of our portfolio investments and an impairment of our investments could harm our earnings In addition we and our stockholders are exposed to risks related to the volatility of the market for our common stock
Our investment portfolio primarily consists of both corporate and government debt securities that are susceptible to changes in market interest rates and bond yields As market interest rates and bond yields increase those securities with a lower yield at cost show a mark to market unrealized loss An impairment of the fair market value of our investments even if unrealized must be reflected in our financial statements for the applicable period and may therefore have a material adverse effect on our results of operations for that period
In addition the market price for our common stock is volatile and has fluctuated significantly during recent years The trading price of our common stock could continue to be highly volatile and fluctuate widely in response to various factors including without limitation conditions in the semiconductor industry and other industries in which we operate fluctuations in the global economy or capital markets our operating results or other performance metrics or adverse consequences experienced by us as a result of any of the risks described elsewhere in this Item 1A Volatility in the market price of our common stock could cause an investor in our common stock to experience a loss on the value of their investment in us and could also adversely impact our ability to raise capital through the sale of our common stock or to use our common stock as consideration to acquire other companies
We are subject to tax and regulatory compliance audits such as related to customs or product safety requirements in various jurisdictions and such jurisdictions may assess additional income or other taxes penalties fines or other prohibitions against us Although we believe our tax estimates are reasonable and that our products and practices comply with applicable regulations the final determination of any such audit and any related litigation could be materially different from our historical income tax provisions and accruals related to income taxes and other contingencies The results of an audit or litigation could have a material adverse effect on our operating results or cash flows in the period or periods for which that determination is made
We earn profits in and are therefore potentially subject to taxes in the U S and numerous foreign jurisdictions including Singapore and Israel the countries in which we earn the majority of our non U S profits Due to economic political or other conditions tax rates in those jurisdictions may be subject to significant change A number of factors may adversely impact our future effective tax rates such as the jurisdictions in which our profits are determined to be earned and taxed changes in the tax rates imposed by those jurisdictions expiration of tax holidays in certain jurisdictions that are not renewed the resolution of issues arising from tax audits with various tax authorities changes in the valuation of our deferred tax assets and liabilities adjustments to estimated taxes upon finalization of various tax returns increases in expenses not deductible for tax purposes including write offs of acquired in process research and development and impairment of goodwill in connection with acquisitions changes in available tax credits changes in stock based compensation expense changes in tax laws or the interpretation of such tax laws changes in generally accepted accounting principles and the repatriation of earnings from outside the U S for which we have not previously provided for U S taxes A change in our effective tax rate can materially and adversely impact our results from operations
In addition recent changes to U S tax laws will significantly impact how U S multinational corporations are taxed on foreign earnings We have completed our accounting for the tax effects of the Tax Cuts and Jobs Act the Tax Act which
was enacted into law on December 22 2017 The recent U S tax law changes are subject to future guidance from U S federal and state governments such as the Treasury Department and or the Internal Revenue Service Any future guidance can change our tax liability A significant portion of the income taxes due to the enactment of the Tax Act is payable by us over a period of eight years As a result our cash flows from operating activities will be adversely impacted until the tax liability is paid in full
The Tax Act also provides that a percentage of foreign earnings under the Global Intangible Low Taxed Income GILTI regime is taxable in the U S and a percentage of U S earnings under the Foreign Derived Intangible Income FDII regime is not subject to tax in the U S For tax years beginning on January 1 2026 the percentage of GILTI that is taxable in the U S increases from 50 to 62 5 and the percentage of FDII not subject to tax in the U S decreases from 37 5 to 21 875 The change in GILTI and FDII percentages can have a material and adverse impact to our effective tax rate beginning in the quarter ending September 30 2026
On August 16 2022 the enactment of the Inflation Reduction Act IRA introduced a corporate alternative minimum tax CAMT that is effective for us beginning in the quarter ended September 30 2023 The CAMT applies a 15 minimum income tax rate on certain large corporations We are not expecting to have any effective tax rate impact from the CAMT but changes to U S tax laws or the interpretation of such tax laws may result in CAMT liability which can have a material and adverse impact to our future effective tax rates
Numerous countries are evaluating their existing tax laws due in part to recommendations made by the Organization for Economic Co operation and Development s OECD Base Erosion and Profit Shifting BEPS project The OECD continues to advance its work under the BEPS 2 0 initiative to develop the framework for Pillar Two which aims to implement a global minimum tax of 15 Many countries have enacted or drafted legislation using the Pillar Two framework to propose domestic tax laws requiring a minimum tax rate of 15 top up tax on income earned in the respective countries One country that has drafted Pillar Two legislation is Singapore where KLA earns significant profits and currently benefits from tax incentives granted by the Singapore Economic Development Board If enacted the tax liability from top up tax may have a material and adverse impact to our effective tax rate in the fiscal year when such law is effective
Compliance with federal securities laws rules and regulations as well as NASDAQ requirements has become increasingly complex and the significant attention and expense we must devote to those areas may have an adverse impact on our business
Federal securities laws rules and regulations as well as NASDAQ rules and regulations require companies to maintain extensive corporate governance measures impose comprehensive reporting and disclosure requirements set strict independence and financial expertise standards for audit and other committee members and impose civil and criminal penalties for companies and their chief executive officers chief financial officers and directors for securities law violations These laws rules and regulations have increased and in the future are expected to continue to increase the scope complexity and cost of our corporate governance reporting and disclosure practices which could harm our results of operations and divert management s attention from business operations
A change in accounting standards or practices or a change in existing taxation rules or practices or changes in interpretations of such standards practices or rules can have a significant effect on our reported results and may even affect reporting of transactions completed before the change is effective
New accounting standards and taxation rules and varying interpretations of accounting pronouncements and taxation rules have occurred and will continue to occur in the future Changes to or revised interpretations or applications of existing accounting standards or tax rules or the questioning of current or past practices may adversely affect our reported financial results or the way we conduct our business Adoption of new standards may require changes to our processes accounting systems and internal controls Difficulties encountered during adoption could result in internal control deficiencies or delay the reporting of our financial results
The industries we serve including the semiconductor and PCB industries are constantly developing and changing Many of the risks associated with operating in these industries are comparable to the risks faced by all technology companies such as the uncertainty of future growth rates in the industries that we serve pricing trends in the end markets for consumer electronics and other products which place a growing emphasis on our customers cost of ownership rising inflation in the supply chain and interest rates changes in our customers capital spending patterns and in general an environment of constant change and development including decreasing product and component dimensions use of new materials and increasingly complex device
structures applications and process steps If we fail to appropriately adjust our cost structure and operations to adapt to any of these trends or with respect to technological advances if we do not timely develop new technologies and products that successfully anticipate and address these changes we could experience a material adverse effect on our business financial condition and operating results
In addition we face a number of risks specific to ongoing changes in the semiconductor industry as a significant majority of our sales are our process control and yield management products sold to semiconductor manufacturers The trends our management monitors in operating our business include the following
The potential for reversal of the long term historical trend of declining cost per transistor with each new generation of technological advancement within the semiconductor industry and the adverse impact that such reversal may have upon our business
The emergence of disruptive technologies that change the prevailing semiconductor manufacturing processes or the economics associated with semiconductor manufacturing and as a result also impact the inspection and metrology requirements associated with such processes
The higher design costs for the most advanced ICs which could economically constrain leading edge manufacturing technology customers to focus their resources on only the large technologically advanced products and applications
Changes in semiconductor manufacturing processes that are extremely costly for our customers to implement and accordingly our customers could reduce their available budgets for process control equipment by reducing inspection and metrology sampling rates for certain technologies
The bifurcation of the semiconductor manufacturing industry into a leading edge manufacturers driving continued R D into next generation products and technologies and b other manufacturers that are content with existing including previous generation products and technologies
The ever escalating cost of next generation product development which may result in joint development programs between us and our customers or government entities to help fund such programs that could restrict our control and ownership of and profitability from the products and technologies developed through those programs and
The entry by some semiconductor manufacturers into collaboration or sharing arrangements for capacity cost or risk with other manufacturers as well as increased outsourcing of their manufacturing activities and greater focus only on specific markets or applications whether in response to adverse market conditions or other market pressures
Any of the changes described above may negatively affect our customers rate of investment in the capital equipment that we produce which could result in downward pressure on our prices customer orders revenues and gross margins If we do not successfully manage the risks resulting from any of these or other potential changes in our industries our business financial condition and operating results could be adversely impacted
Our customer base particularly in the semiconductor industry historically has been highly concentrated due to corporate consolidation acquisitions and business closures In this environment orders from a relatively limited number of manufacturers have accounted for and are expected to continue to account for a substantial portion of our sales This increasing concentration exposes our business financial condition and operating results to a number of risks including the following
The mix and type of customers and sales to any single customer may vary significantly from quarter to quarter and from year to year which expose our business and operating results to increased volatility tied to individual customers
New orders from our foundry logic customers in the past several years have constituted a significant portion of our total orders This concentration increases the impact that future business or technology changes within the foundry logic industry may have on our business financial condition and operating results
In a highly concentrated business environment if a particular customer does not place an order or if they delay or cancel orders we may not be able to replace the business Furthermore because our process control and yield
As a result of this consolidation the customers that survive the consolidation represent a greater portion of our sales and consequently have greater commercial negotiating leverage Many of our large customers have more aggressive policies regarding engaging alternative second source suppliers for the products we offer and in addition may seek and on occasion receive pricing payment IP related or other commercial terms that may have an adverse impact on our business and we may not be able to pass on the cost of inflation to our customers Any of these changes could negatively impact our prices customer orders revenues and gross margins
Certain customers have undergone significant ownership changes created alliances with other companies experienced management changes or have outsourced manufacturing activities any of which may result in additional complexities in managing customer relationships and transactions Any future change in ownership or management of our existing customers may result in similar challenges including the possibility of the successor entity or new management deciding to select a competitor s products
The highly concentrated business environment also increases our exposure to risks related to the financial condition of each of our customers For example as a result of the challenging economic environment during fiscal year 2009 we were and in some cases continue to be exposed to additional risks related to the continued financial viability of certain of our customers To the extent our customers experience liquidity issues in the future we may be required to incur additional credit losses with respect to receivables owed to us by those customers In addition customers with liquidity issues may be forced to reduce purchases of our equipment delay deliveries of our products discontinue operations or may be acquired by one of our customers and in either case such event would have the effect of further consolidating our customer base
Semiconductor manufacturers generally must commit significant resources to qualify install and integrate process control and yield management equipment into a semiconductor production line We believe that once a semiconductor manufacturer selects a particular supplier s process control and yield management equipment the manufacturer generally relies upon that equipment for that specific production line application for an extended period of time Accordingly we expect it to be more difficult to sell our products to a given customer for that specific production line application and other similar production line applications if that customer initially selects a competitor s equipment and
Prices differ among the products we offer for different applications due to differences in features offered or manufacturing costs If there is a shift in demand by our customers from our higher priced to lower priced products our gross margin and revenues would decrease In addition when products are initially introduced they tend to have higher costs because of initial development costs and lower production volumes relative to the previous product generation which can impact gross margin
We operate in industries that have historically been cyclical including the semiconductor industry The purchasing decisions of our customers are highly dependent on the economies of both the local markets in which they are located and the condition of the industry worldwide If we fail to respond to industry cycles our business financial condition and operating results could be adversely impacted
The timing length and severity of the up and down cycles in the industries in which we serve are difficult to predict The historically cyclical nature of the semiconductor industry in which we primarily operate is largely a function of our customers capital spending patterns and need for expanded manufacturing capacity which in turn are affected by factors such as capacity utilization consumer demand for products inventory levels and our customers access to capital Cyclicality affects our ability to accurately predict future revenue and in some cases future expense levels During down cycles in our industry the financial results of our customers may be negatively impacted which could result not only in a decrease in or cancellation or delay of orders which are generally subject to cancellation or delay by the customer with limited or no penalty but also a weakening of their financial condition that could impair their ability to pay for our products or our ability to recognize revenue from certain customers Our ability to recognize revenue from a particular customer may also be negatively impacted by the customer s funding status which could be weakened not only by rising interest rates adverse business conditions or inaccessibility to capital markets for any number of macroeconomic or company specific reasons but also by funding limitations imposed by the customer s unique organizational structure Any of these factors could negatively impact our business operating results and financial condition
When cyclical fluctuations result in lower than expected revenue levels operating results may be adversely affected and cost reduction measures may be necessary for us to remain competitive and financially sound During periods of declining revenues we must be in a position to adjust our cost and expense structure to prevailing market conditions and to continue to motivate and retain our key employees If we fail to respond or if our attempts to respond fail to accomplish our intended results our business could be seriously harmed Furthermore any workforce reductions and cost reduction actions that we adopt in response to down cycles may result in additional restructuring charges disruptions in our operations and loss of key personnel In addition during periods of rapid growth we must be able to increase manufacturing capacity and personnel to meet customer demand We can provide no assurance that these objectives can be met in a timely manner in response to industry cycles Each of these factors could adversely impact our operating results and financial condition
The growth that we have experienced over the past few years has resulted in higher levels of backlog or RPO The supply chain disruptions caused by the ongoing pandemic as well as favorable market trends have led to customers agreeing to purchase equipment from us with lead times that are longer than our historical experience As the lead times for delivery of our equipment get longer the risk increases that customers may choose to change their equipment orders due to the evolution of the customer s technological production or market needs This could result in order modifications rescheduling or even cancellations that may not be communicated to us in a timely manner causing RPO to remain elevated until agreed with the customer Customer communication delays for orders already placed could affect our ability to respond quickly in weakening demand environments which could harm our results of operations
We are increasingly incorporating AI capabilities into the development of technologies and our business operations and into our products and services AI technology is complex and rapidly evolving and may subject us to significant competitive legal regulatory and other risks The implementation of AI can be costly and there is no guarantee that our use of artificial intelligence will enhance our technologies benefit our business operations or produce products and services that are preferred by our customers Our competitors may be more successful in their artificial intelligence strategy and develop superior products and services with the aid of AI
Additionally AI algorithms or training methodologies may be flawed and datasets may contain irrelevant insufficient or biased information which can cause errors in outputs This may give rise to legal liability damage our reputation and materially harm our business The use of AI in the development of our products and services and our customers use of AI in relation to our products and services could also cause loss of IP as well as subject us to risks including third party claims related to IP infringement or misappropriation data privacy and cybersecurity Additionally concerns over the use of AI for purposes contrary to public interests could impair public acceptance of AI and impair demand for our products and services Furthermore the United States and other countries may adopt laws and regulations related to AI Such laws and regulations could cause us to incur greater compliance costs and limit the use of AI in the development of our products and services Any failure or perceived failure by us to comply with such regulatory requirements could subject us to legal liabilities damage our reputation or otherwise have a material and adverse impact on our business
Success in the industries in which we serve including the semiconductor and PCB industries depends in part on the continual improvement of existing technologies and rapid innovation of new solutions The primary driver of technology advancement in the semiconductor industry has been to shrink the lithography that prints the circuit design on semiconductor chips To the extent that driver slows semiconductor manufacturers may delay investments in equipment investigate more complex device architectures use new materials and develop innovative fabrication processes These and other evolving customer plans and needs require us to respond with continued development programs and cut back or discontinue older programs which may no longer have industry wide support Technical innovations are inherently complex and require long development cycles and appropriate staffing of highly qualified employees Our competitive advantage and future business success depend on our ability to accurately predict evolving industry standards develop and introduce new products and solutions that successfully address changing customer needs win market acceptance of these new products and solutions and manufacture these new products in a timely and cost effective manner Our failure to accurately predict evolving industry standards and develop as well as offer competitive technology solutions in a timely manner with cost effective products could result in loss of market share unanticipated costs and inventory obsolescence which would adversely impact our business operating results and financial condition
We must continue to make significant investments in R D in order to enhance the performance features and functionality of our products to keep pace with competitive products and to satisfy customer demands Substantial R D costs
typically are incurred before we confirm the technical feasibility and commercial viability of a new product and not all development activities result in commercially viable products There can be no assurance that revenues from future products or product enhancements will be sufficient to recover the development costs associated with such products or enhancements In addition we cannot be sure that these products or enhancements will receive market acceptance nor that we will be able to sell these products at prices that are favorable to us Our business will be seriously harmed if we are unable to sell our products at favorable prices or if the market in which we operate does not accept our products
In addition the complexity of our products exposes us to other risks We regularly recognize revenue from a sale upon shipment of the applicable product to the customer even before receiving the customer s formal acceptance of that product in certain situations including sales of products for which installation is considered perfunctory transactions in which the product is sold to an independent distributor and we have no installation obligations and sales of products where we have previously delivered the same product to the same customer location and that prior delivery has been accepted However our products are very technologically complex and rely on the interconnection of numerous subcomponents all of which must perform to their respective specifications so it is conceivable that a product for which we recognize revenue upon shipment may ultimately fail to meet the overall product s required specifications In such a situation the customer may be entitled to certain remedies which could materially and adversely affect our operating results for various periods and as a result our stock price
We derive a substantial percentage of our revenues from sales of inspection products As a result any delay or reduction of sales of these products could have a material adverse effect on our business financial condition and operating results The continued customer demand for these products and the development introduction and market acceptance of new products and technologies are critical to our future success
Our success is dependent in part on our technology and other proprietary rights We own various U S and international patents and have additional pending patent applications relating to some of our products and technologies The process of seeking patent protection is lengthy and expensive and we cannot be certain that pending or future applications will actually result in issued patents or that issued patents will be of sufficient scope or strength to provide meaningful protection or commercial advantage to us Other companies and individuals including our larger competitors may develop technologies and obtain patents relating to our business that are similar or superior to our technology or may design around the patents we own which may adversely affect our business In addition we at times engage in collaborative technology development efforts with our customers and suppliers and these collaborations may constitute a key component of certain of our ongoing technology and product R D projects The termination of any such collaboration or delays caused by disputes or other unanticipated challenges that may arise in connection with any such collaboration could significantly impair our R D efforts which could have a material adverse impact on our business and operations
We also maintain trademarks on certain of our products and services and claim copyright protection for certain proprietary software and documentation However we can give no assurance that our trademarks and copyrights will be upheld or successfully deter infringement by third parties
While patent copyright and trademark protection for our IP is important we believe our future success in highly dynamic markets is most dependent upon the technical competence and creative skills of our personnel We attempt to protect our trade secrets and other proprietary information through confidentiality and other agreements with our customers suppliers employees and consultants and through other security measures We also maintain exclusive and non exclusive licenses with third parties for strategic technology used in certain products However these employees consultants and third parties may breach these agreements and we may not have adequate remedies for wrongdoing We also try to control access to and distribution of our technology and proprietary information Despite our efforts internal or external parties may attempt to copy disclose obtain or misappropriate our IP or technology In addition former employees may seek employment with our customers suppliers or competitors and there can be no assurance that the confidential nature of our proprietary information will be maintained in the course of such future employment In addition the laws of certain territories in which we develop manufacture or sell our products may not protect our IP rights to the same extent as the laws of the U S In any event the extent to which we can protect our trade secrets through the use of confidentiality agreements is limited and our success will depend to a significant extent on our ability to innovate ahead of our competitors
Our industry includes large manufacturers with substantial resources to support customers worldwide Some of our competitors are diversified companies with greater financial resources and more extensive research engineering manufacturing marketing and customer service and support capabilities than we possess We face competition from companies whose strategy is to provide a broad array of products and services some of which compete with the products and services we
offer These competitors may bundle their products in a manner that may discourage customers from purchasing our products including pricing such competitive tools significantly below our product offerings In addition we face competition from smaller emerging companies whose strategy is to provide a portion of the products and services that we offer using innovative technology to sell products into specialized markets The strength of our competitive positions in many of our existing markets is largely due to our leading technology which is the result of continuing significant investments in product R D However we may enter new markets whether through acquisitions or new internal product development in which competition is based primarily on product pricing not technological superiority Further some new growth markets that emerge may not require leading technologies Loss of competitive position in any of the markets we serve or an inability to sell our products on favorable commercial terms in new markets we may enter could negatively affect our prices customer orders revenues gross margins and market share any of which would negatively affect our operating results and financial condition
We use a wide range of materials in the production of our products including custom electronic and mechanical components and we use numerous suppliers to supply these materials Generally we do not have guaranteed supply arrangements with our suppliers Because of the variability and uniqueness of customers orders we do not maintain an extensive inventory of materials for manufacturing Through our business interruption planning we seek to minimize the risk of production and service interruptions and or shortages of key parts by among other things monitoring the financial stability of key suppliers identifying but not necessarily qualifying possible alternative suppliers and maintaining appropriate inventories of key parts Although we make reasonable efforts to ensure that parts are available from multiple suppliers certain key parts are available only from a single supplier or a limited group of suppliers Also key parts we obtain from some of our suppliers incorporate the suppliers proprietary IP in those cases we are increasingly reliant on third parties for high performance high technology components which reduces the amount of control we have over the availability and protection of the technology and IP that is used in our products In addition if certain of our key suppliers experience liquidity issues and are forced to discontinue operations which is a heightened risk especially during economic downturns it could affect their ability to deliver parts and could result in delays for our products Similarly especially with respect to suppliers of high technology components our suppliers themselves have increasingly complex supply chains and delays or disruptions at any stage of their supply chains may prevent us from obtaining parts in a timely manner and result in delays for our products or our suppliers might pass on the cost of inflation to us while we are unable to adjust pricing with our own customers Our operating results and business may be adversely impacted if we are unable to obtain parts to meet our production requirements and product specifications or if we are able to do so only on unfavorable terms Furthermore a supplier may discontinue production of a particular part for any number of reasons including the supplier s financial condition or business operational decisions which would require us to purchase in a single transaction a large number of such discontinued parts in order to ensure that a continuous supply of such parts remains available to our customers Such end of life parts purchases could result in significant expenditures by us in a particular period and ultimately any unused parts may result in a significant inventory write off either of which could have an adverse impact on our financial condition and results of operations for the applicable periods
We attempt to operate our business in accordance with a business plan that is established annually revised frequently generally quarterly and reviewed by management even more frequently at least monthly Our business plan is developed based on a number of factors many of which require estimates and assumptions such as our expectations of the economic environment future business levels our customers willingness and ability to place orders lead times and future revenue and cash flow Our budgeted operating expenses for example are based in part on our future revenue expectations However our ability to achieve our anticipated revenue levels is a function of numerous factors including the volatile and historically cyclical nature of our primary industry customer order cancellations macroeconomic changes operational matters regarding particular agreements our ability to manage customer deliveries the availability of resources for the installation of our products delays or accelerations by customers in taking deliveries and the acceptance of our products for products where customer acceptance is required before we can recognize revenue from such sales our ability to operate our business and sales processes effectively and a number of the other risk factors set forth in this Item 1A
Because our expenses are in most cases relatively fixed in the short term any revenue shortfall below expectations could have an immediate and significant adverse effect on our operating results Similarly if we fail to manage our expenses effectively or otherwise fail to maintain rigorous cost controls we could experience greater than anticipated expenses during an operating period which would also negatively affect our results of operations If we fail to operate our business consistent with our business plan our operating results in any period may be significantly and adversely impacted Such an outcome could cause customers suppliers or investors to view us as less stable or could cause us to fail to meet financial analysts revenue or earnings estimates any of which could have an adverse impact on our stock price
In addition our management is constantly striving to balance the requirements and demands of our customers with the availability of resources the need to manage our operating model and other factors In furtherance of those efforts we often must exercise discretion and judgment as to the timing and prioritization of manufacturing deliveries installations and payment scheduling Any such decisions may impact our ability to recognize revenue including the fiscal period during which such revenue may be recognized with respect to such products which could have a material adverse effect on our business results of operations or stock price
As of June 30 2024 we had 6 70 billion aggregate principal amount of outstanding indebtedness consisting of 5 95 billion aggregate principal amount of senior unsecured long term notes the Senior Notes We have 750 0 million principal of our senior unsecured long term notes due during the second quarter of fiscal 2025 This includes an issuance in February 2024 of 750 0 million aggregate principal amount of senior unsecured notes consisting of 500 0 million of 4 700 senior unsecured notes due February 1 2034 and an additional 250 0 million of 4 950 senior unsecured notes due July 15 2052 which was originally issued in June 2022 We have a Credit Agreement the Credit Agreement and a Revolving Credit Facility the Revolving Credit Facility with a maturity date of June 8 2027 with two one year extension options that allow us to borrow up to 1 50 billion Subject to the terms of the Credit Agreement the Revolving Credit Facility may be increased by an amount up to 250 0 million in the aggregate As of June 30 2024 we had no outstanding borrowings under our Revolving Credit Facility We may incur additional indebtedness in the future by accessing the unfunded portion of our Revolving Credit Facility and or entering into new financing arrangements We also announced a stock repurchase program under which the remaining available for repurchases was 2 18 billion as of June 30 2024 A portion of the remaining repurchases may be financed with new indebtedness Our ability to pay interest and repay the principal amount of our current indebtedness is dependent upon our ability to manage our business operations our credit rating the ongoing interest rate environment and the other risk factors discussed in this Item 1A There can be no assurance that we will be able to manage any of these risks successfully
In certain circumstances involving a change of control followed by a downgrade of the rating of a series of our Senior Notes by at least two of Moody s Investors Service Moody s S P Global Ratings S P and Fitch Inc Fitch 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 At that time 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 We cannot make any assurance that we will have sufficient financial resources at such time nor that we will be able to arrange financing to pay the repurchase price of that series of Senior Notes Our ability to repurchase that series of Senior Notes in such event may be limited by law by the relevant indenture associated with that series of Senior Notes or by the terms of other agreements to which we may be a party at such time If we fail to repurchase that series of Senior Notes as required by the terms of such Senior Notes it would constitute an event of default under the relevant indenture governing that series of Senior Notes which in turn may also constitute an event of default under our other obligations
Borrowings under our Revolving Credit Facility bear interest at a floating rate and an increase in interest rates particularly in the current environment of rising interest rates would require us to pay additional interest on any borrowings which may have an adverse effect on the value and liquidity of our debt and the market price of our common stock could decline The interest rate under our Revolving Credit Facility is also subject to i an adjustment in conjunction with our credit rating downgrades or upgrades and ii an adjustment based on our performance against certain sustainability key performance indicators KPI related to GHG emissions and renewable electricity usage Additionally under our Revolving Credit Facility we are required to comply with affirmative and negative covenants which include the maintenance of certain financial ratios the details of which can be found in Note 8 Debt to our Consolidated Financial Statements
If we fail to comply with these covenants we will be in default and our borrowings may become immediately due and payable There can be no assurance that we will have sufficient financial resources nor that we will be able to arrange financing to repay our borrowings at such time In addition certain of our domestic subsidiaries are required to guarantee our borrowings under our Revolving Credit Facility In the event we default on our borrowings these domestic subsidiaries shall be liable for our borrowings which could disrupt our operations and result in a material adverse impact on our business financial condition or stock price
An increase in the portion of our cash flows that may have to be dedicated to interest and principal payments that may not be available for operations working capital capital expenditures acquisitions investments dividends stock repurchases general corporate or other purposes
Our ability to satisfy our future expenses as well as our debt obligations will depend on our future performance which will be affected by financial business economic regulatory and other factors Furthermore our future operations may not generate sufficient cash flows to enable us to meet our future expenses and service our debt obligations which may impact our ability to manage our capital structure to preserve and maintain our investment grade rating If our future operations do not generate sufficient cash flows we may need to access the money available for borrowing under our Revolving Credit Facility or enter into new financing arrangements to obtain necessary funds If we determine it is necessary to seek additional funding for any reason we may not be able to obtain such funding or if funding is available we may not be able to obtain it on acceptable terms Any borrowings under our Revolving Credit Facility will place further pressure on us to comply with the financial covenants If we fail to make a payment associated with our debt obligations we could be in default on such debt and such a default could cause us to be in default on our other obligations
We intend to continue to pay quarterly dividends subject to capital availability and periodic determinations by our Board of Directors that cash dividends are in the best interest of our stockholders and are in compliance with all laws and agreements applicable to the declaration and payment of cash dividends by us However future dividends may be affected by among other factors our views on potential future capital requirements for investments in acquisitions and the funding of our R D legal risks stock repurchase programs changes in federal and state income tax laws or corporate laws changes to our business model and our increased interest and principal payments required by our outstanding indebtedness and any additional indebtedness that we may incur in the future Our dividend payments may change from time to time and we cannot provide assurance that we will continue to declare dividends at all or in any particular amounts A reduction in our dividend payments could have a negative effect on our stock price
Although our standard commercial documentation sets forth the terms and conditions that we intend to apply to commercial transactions with our business partners counterparties to such transactions may not explicitly agree to our terms and conditions In situations where we engage in business with a third party without an explicit master agreement regarding the applicable terms and conditions or where the commercial documentation applicable to the transaction is subject to varying interpretations we may have disputes with those third parties regarding the applicable terms and conditions of our business relationship with them Such disputes could lead to a deterioration of our commercial relationship with those parties costly and time consuming litigation or additional concessions or obligations being offered by us to resolve such disputes or could impact our revenue or cost recognition Any of these outcomes could materially and adversely affect our business financial condition and results of operations
In addition in our commercial agreements from time to time in the normal course of business we indemnify third parties with whom we enter into contractual relationships including customers suppliers and lessors with respect to certain matters We have agreed under certain conditions to hold these third parties harmless against specified losses such as those arising from a breach of representations or covenants third party claims that our products when used for their intended purposes infringe the IP rights of such third parties or other claims made against certain parties We may be compelled to enter into or accrue for probable settlements of alleged indemnification obligations or we may be subject to potential liability arising from our customers involvements in legal disputes In addition notwithstanding the provisions related to limitations on our liability that we seek to include in our business agreements the counterparties to such agreements may dispute our interpretation or application of such provisions and a court of law may not interpret or apply such provisions in our favor any of which could result in an obligation for us to pay material damages to third parties and engage in costly legal proceedings It is difficult to determine the maximum potential amount of liability under any indemnification obligations whether or not asserted due to our
limited history of prior indemnification claims and the unique facts and circumstances that are likely to be involved in any particular claim Our business financial condition and results of operations in a reported fiscal period could be materially and adversely affected if we expend significant amounts in defending or settling any purported claims regardless of their merit or outcomes
We are also exposed to potential costs associated with unexpected product performance issues Our products and production processes are extremely complex and thus could contain unexpected product defects especially when products are first introduced Unexpected product performance issues could result in significant costs being incurred by us including increased service or warranty costs providing product replacements for or modifications to defective products litigation related to defective products reimbursement for damages caused by our products product recalls or product write offs or disposal costs These costs could be substantial and could have an adverse impact upon our business financial condition and operating results In addition our reputation with our customers could be damaged as a result of such product defects which could reduce demand for our products and negatively impact our business
Furthermore we occasionally enter into volume purchase agreements with our larger customers and these agreements may provide for certain volume purchase incentives such as credits toward future purchases We believe that these arrangements are beneficial to our long term business as they are designed to encourage our customers to purchase larger volumes of our products However these arrangements could require us to recognize a reduced level of revenue for the products that are initially purchased to account for the potential future credits or other volume purchase incentives Our volume purchase agreements require significant estimation for the amounts to be accrued depending upon the estimate of volume of future purchases As such we are required to update our estimates of the accruals on a periodic basis Until the earnings process is complete our estimates could differ in comparison to actual results As a result these volume purchase arrangements while expected to be beneficial to our business over time could materially and adversely affect our results of operations in near term periods including the revenue we can recognize on product sales and therefore our gross margins
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 and we may be unable to adjust pricing with our customers despite rising inflation in our supply chain Furthermore we may give these customers limited audit or inspection rights to enable them to confirm that we are complying with these commitments If a customer elects to exercise its audit or inspection rights we may be required to expend significant resources to support the audit or inspection as well as to defend or settle any dispute with a customer that could potentially arise out of such audit or inspection To date we have made no significant accruals in our Consolidated Financial Statements for this contingency While we have not in the past incurred significant expenses for resolving disputes regarding these types of commitments we cannot make any assurance that we will not incur any such liabilities in the future Our business financial condition and results of operations in a reported fiscal period could be materially and adversely affected if we expend significant amounts in supporting an audit or inspection or defending or settling any purported claims regardless of their merit or outcomes
We are exposed to additional risks related to our receipt of external funding for certain strategic development programs from various governments and government agencies both domestically and internationally Governments and government agencies typically have the right to terminate funding programs at any time in their sole discretion or a project may be terminated by mutual agreement if the parties determine that the project s goals or milestones are not being achieved so there is no assurance that these sources of external funding will continue to be available to us in the future In addition under the terms of these government grants the applicable granting agency typically has the right to audit the costs that we incur directly and indirectly in connection with such programs Any such audit could result in modifications to or even termination of the applicable government funding program For example if an audit were to identify any costs as being improperly allocated to the applicable program those costs would not be reimbursed and any such costs that had already been reimbursed would have to be refunded We do not know the outcome of any future audits Any adverse finding resulting from any such audit could lead to penalties financial or otherwise termination of funding programs suspension of payments fines and suspension or prohibition from receiving future government funding from the applicable government or government agency any of which could adversely impact our operating results financial condition and ability to operate our business
Historically we have recorded restructuring charges related to our prior global workforce reductions large excess inventory write offs and material impairment charges related to our goodwill and purchased intangible assets such as the goodwill impairment charge recorded in the third quarter of fiscal 2024 and the goodwill and purchased intangible asset impairment charges recorded in the second quarter of fiscal 2024 Workforce changes can also temporarily reduce workforce
productivity which could be disruptive to our business and adversely affect our results of operations In addition we may not achieve or sustain the expected cost savings or other benefits of our restructuring plans or do so within the expected time frame If we again restructure our organization and business processes implement additional cost reduction actions or discontinue certain business operations we may take additional potentially material restructuring charges related to among other things employee terminations or exit costs We may also be required to write off additional inventory if our product build plans or demand for service inventory decline Also in the event that our lead times from suppliers increase possibly due to the increasing complexity of the parts and components they provide and the lead times demanded by our customers decrease which may be due to many factors including the time pressures they face when introducing new products or technology or bringing new facilities into production we may be compelled to increase our commitments and therefore our risk exposure to inventory purchases to meet our customers demands in a timely manner and that inventory may need to be written off if demand for the underlying product declines for any reason Such additional write offs could result in material charges
We have recorded material charges related to the impairment of our goodwill and purchased intangible assets Goodwill represents the excess of costs over the net fair value of net assets acquired in a business combination Goodwill is not amortized but is instead tested for impairment at least annually in accordance with authoritative guidance for goodwill Purchased intangible assets with estimable useful lives are amortized over their respective estimated useful lives based on economic benefit if known or using the straight line method and are reviewed for impairment in accordance with authoritative guidance for long lived assets The valuation of goodwill and intangible assets requires assumptions and estimates of many critical factors including but not limited to declines in our operating cash flows declines in our stock price or market capitalization declines in our market share and declines in revenues or profits A substantial decline in our stock price or any other adverse change in market conditions particularly if such change has the effect of changing one of the critical assumptions or estimates we previously used to calculate the value of our goodwill or intangible assets and as applicable the amount of any previous impairment charge could result in a change to the estimation of fair value that could result in an additional impairment charge
Any such additional material charges whether related to restructuring or goodwill or purchased intangible asset impairment may have a material negative impact on our operating results and related financial statements
We enter into factoring arrangements with financial institutions to sell certain of our trade receivables and promissory notes from customers without recourse In addition we maintain cash and cash equivalents with several domestic and foreign financial institutions in excess of the Federal Deposit Insurance Corporation insurance limit If we were to stop entering into these factoring arrangements our operating results financial condition and cash flows could be adversely impacted by delays or failures in collecting trade receivables However by engaging these financial institutions for factoring arrangements and for banking services we are exposed to additional risks that any of such financial institutions may prove to be not financially viable If any of these financial institutions experiences financial difficulties or is otherwise unable to honor the terms of our factoring or deposit arrangements we may experience material financial losses due to the failure of such arrangements or a lack of access to our funds any of which could have an adverse impact upon our operating results financial condition and cash flows
In connection with the settlement of certain government actions and other legal proceedings related to our historical stock option practices we have explicitly agreed as a condition to such settlements that we will comply with certain laws such as the books and records provisions of the federal securities laws If we were to violate any such law we might not only be subject to the significant penalties applicable to such violation but our past settlements may also be impacted by such violation which could give rise to additional government actions or other legal proceedings Any such additional actions or proceedings may require us to expend significant management time and incur significant accounting legal and other expenses and may divert attention and resources from the operation of our business These expenditures and diversions as well as an adverse resolution of any such action or proceeding could have a material adverse effect on our business financial condition and results of operations
Our Bylaws designate the Court of Chancery of the State of Delaware as the sole and exclusive forum for certain actions and proceedings which could limit the ability of our stockholders to obtain a judicial forum of their choice for disputes with the Company or its directors officers or employees
Our Bylaws provide that unless we consent in writing to the selection of an alternative forum the Court of Chancery of the State of Delaware generally shall be the sole and exclusive forum for i any derivative action or proceeding brought on behalf of the Company ii any action asserting a claim of breach of a fiduciary duty owed by any director officer or employee
of the Company to the Company or its stockholders iii any action asserting a claim arising pursuant to any provision of the General Corporation Law of the State of Delaware our Certificate of Incorporation or Bylaws or iv any other action asserting a claim arising under in connection with and governed by the internal affairs doctrine This choice of forum provision does not waive our compliance with our obligations under the federal securities laws and the rules and regulations thereunder Moreover the provision does not apply to suits brought to enforce a duty or liability created by the Securities Exchange Act or by the Securities Act of 1933 as amended
This choice of forum provision may increase costs to bring a claim discourage claims or limit a stockholder s ability to bring a claim in a judicial forum that the stockholder finds favorable for disputes with the Company or our directors officers or employees which may discourage such lawsuits against the Company and its directors officers and employees even though an action if successful might benefit our stockholders Alternatively if a court were to find the choice of forum provision to be inapplicable or unenforceable in an action we may incur additional costs associated with resolving such matters in other jurisdictions which could increase our costs of litigation and adversely affect our business and financial condition
We have a cybersecurity risk management process intended to protect the confidentiality integrity and availability of our critical systems and information We design and assess our process based on the National Institute of Standards and Technology Cybersecurity Framework NIST CSF This does not imply that we meet any particular technical standards specifications or requirements only that we use the NIST CSF as a guide to help us identify assess and manage cybersecurity risks relevant to our business
Our cybersecurity risk management process is integrated into our overall risk management process and shares common methodologies reporting channels and governance processes that apply across the risk management process to other legal compliance strategic operational and financial risk areas
We face risks from cybersecurity threats that if realized are reasonably likely to materially affect us including our operations business strategy results of operations or financial condition See Part I Item 1A Risk Factors
We depend on information technology for our business and are exposed to risks related to cybersecurity threats and cyber incidents affecting our our customers suppliers and other service providers systems and networks
Our Board considers cybersecurity risk as part of its risk oversight function and has delegated to the Audit Committee the Committee oversight of cybersecurity risks including oversight of management s implementation of our cybersecurity risk management process
The Committee receives quarterly reports from management on our cybersecurity risks In addition management updates the Committee where it deems appropriate regarding cybersecurity incidents it considers to be significant or potentially significant
The Committee reports to the full Board regarding its activities including those related to cybersecurity The full Board also regularly receives briefings from management on our cyber risk management process Board members receive presentations on cybersecurity topics from management or external experts as part of the Board s continuing education on topics that impact public companies
Our management team including our Chief Legal Officer and Chief Information Security Officer CISO is responsible for assessing and managing our material risks from cybersecurity threats The team has primary responsibility for our overall cybersecurity risk management process and supervises both our internal cybersecurity personnel and our retained external cybersecurity consultants Our CISO has a degree with a focus on information technology and is a Certified Information Systems Auditor with over 20 years of experience in information technology related roles including building and leading cybersecurity risk management and information protection teams Our CISO reports to our Chief Legal Officer who oversees cybersecurity and holds a Carnegie Mellon University Software Engineering Institute CERT Certificate for Cybersecurity Oversight The other members of the operational cybersecurity team collectively have decades of relevant education and experience and maintain a wide range of industry certifications We invest in regular ongoing cybersecurity training for the cybersecurity team
Our management team takes steps to stay informed about and monitor efforts to prevent detect mitigate and remediate cybersecurity risks and incidents through various means which may include briefings from internal security personnel threat intelligence and other information obtained from governmental public or private sources including external consultants engaged by us and alerts and reports produced by security tools deployed in our information technology environment
Our headquarters are located in Milpitas California As of June 30 2024 we owned or leased a total of approximately 5 million square feet of space for research engineering marketing service sales and administration worldwide primarily in the U S Singapore Israel India China and Belgium Our operating leases expire at various times through April 1 2052 subject to renewal with some of the leases containing renewal option clauses at the fair market value for additional periods up to five years Additional information regarding these leases is incorporated herein by reference to Note 9 Leases to our Consolidated Financial Statements We believe our properties are adequately maintained and suitable for their intended use and that our production facilities have capacity adequate for our current needs We do not identify or allocate assets by operating segment
On August 1 2024 we announced that our Board of Directors had declared a quarterly cash dividend of 1 45 per share to be paid on September 3 2024 to stockholders of record as of the close of business on August 15 2024
Our Board of Directors has authorized a program that permits us to repurchase our common stock including a 2 00 billion increase approved by the Board in the first quarter of fiscal 2024 As of June 30 2024 approximately 2 18 billion remained available for repurchases under our repurchase program All shares in the table were purchased pursuant to our publicly announced repurchase program
Our stock repurchase program has no expiration date and may be suspended at any time Future repurchases of shares of our common stock under our repurchase program may be effected through various different repurchase transaction structures including isolated open market transactions accelerated share repurchase agreements or systematic repurchase plans subject to market conditions applicable legal requirements and other factors
Average price paid per share and approximate dollar value of shares that may yet be purchased under the plans or programs exclude the excise tax imposed on certain stock repurchases as part of the IRA or other fees costs or expenses that may be applicable to the repurchases
Notwithstanding any statement to the contrary in any of our previous or future filings with the SEC the following information relating to the price performance of our common stock shall not be deemed filed with the SEC under the Securities Exchange Act and shall not be incorporated by reference into any such filings
The following graph compares the cumulative five year total return attained by stockholders on our common stock relative to the cumulative total returns of the S P 500 Index and the Philadelphia Semiconductor Index PHLX The graph tracks the performance of a 100 investment in our common stock and in each of the indices with the reinvestment of all dividends from June 30 2019 to June 30 2024
The following discussion of our financial condition and results of operations should be read in conjunction with our Consolidated Financial Statements and the related notes included in Item 8 Financial Statements and Supplementary Data in this Annual Report on Form 10 K This discussion contains forward looking statements which involve risks and uncertainties Our actual results could differ materially from those anticipated in the forward looking statements as a result of certain factors including but not limited to those discussed in Part I Item 1A Risk Factors and elsewhere in this Annual Report on Form 10 K see Special Note Regarding Forward Looking Statements Discussions and analysis of fiscal year 2023 as compared against fiscal year 2022 have been omitted and can be found in Item 7 of our Annual Report on Form 10 K for the fiscal year ended June 30 2023 filed with the SEC
We are a leading supplier of process control and yield management solutions and services for the semiconductor and related electronics industries Our broad portfolio of inspection and metrology products and related service software and other offerings support R D and manufacturing of ICs wafers and reticles Our products services and expertise are used by our customers to measure detect analyze and resolve critical and nanometric level product defects helping them to manage manufacturing process challenges and to obtain higher finish product yields at lower cost We also offer advanced technology solutions to address various manufacturing needs of PCBs FPDs specialty semiconductor devices and other electronic components including advanced packaging LED power devices compound semiconductor and data storage industries as well as general materials research
Our semiconductor customers generally operate in one or both of the major semiconductor device manufacturing markets memory and foundry logic The pervasive and increasing needs for semiconductors in many consumer and industrial products the rapid proliferation of new applications for more advanced semiconductor devices and the increasing complexity associated with leading edge semiconductor manufacturing drive demand for our process control and yield management solutions Continuing advancement of innovation spurred by the performance power and price benefits of being at the leading edge increasing involvement in legacy nodes as semiconductor content increases and innovation and growth of new enabling technologies are fueling long term growth for the semiconductor equipment industry End market demand drivers that are expected to continue in the long term are related to high performance computing AI including 2 nanometer chip technology the deployment of 5G telecommunications technology and associated high end mobile devices the electrification and digitization of the automotive industry the revival of personal computer demand and associated innovations to support remote work virtual collaboration remote learning and entertainment and the growth of the IoT
Recently the semiconductor industry environment has improved as the emergence of disruptive technologies such as AI and continuing advancement of innovation as well as rising semiconductor content across end markets and strategic investments in legacy nodes fuel growth Our foundry logic customers are slowly increasing their capital intensity as they continue to scale and incorporate new technologies Additionally technology development investments supporting AI and high bandwidth memory are improving the environment for memory device manufacturers While we continue to invest in technological innovation factors such as delays from customers in adopting new chips and technology methods could impact process control capital intensity Push out or cancellation of deliveries to our customers could still cause earnings volatility due to the timing of revenue recognition as well as increased risk of inventory related charges
Semiconductor Process Control a comprehensive portfolio of inspection metrology and data analytics products as well as related service offerings that help IC manufacturers achieve target yields throughout the semiconductor fabrication process from R D to final volume production
PCB and Component Inspection a range of inspection testing and measurement and direct imaging for patterning products used by manufacturers of PCBs FPDs advanced packaging MEMS and other electronic components In March 2024 we made the decision to exit the Display business by announcing the end of manufacturing of most Display products by December 31 2024 but we will continue to provide services to the installed base of Display products for existing customers
A majority of our revenues are derived from outside the U S and include geographic regions such as China Taiwan Korea Japan Europe and Israel and Rest of Asia China remains a major region for manufacturing of legacy node logic and memory chips adding to its role as the world s largest consumer of ICs Additionally a significant portion of global FPD and PCB manufacturing has migrated to China Chinese government initiatives around self sustainability are propelling China to expand its domestic manufacturing capacity and attracting investment from semiconductor manufacturers from Taiwan Korea Japan and the U S Although China is currently seen as an important long term growth region for the semiconductor and electronics capital equipment sector Commerce has adopted regulations and added certain China based entities to the U S Entity List a list of parties that are generally ineligible to receive U S regulated items without prior licensing from BIS restricting our ability to provide products and services to such entities without a license In addition Commerce has imposed export licensing requirements on China based customers that are military end users or engaged in military end uses as well as requiring our customers to obtain an export license when they use certain semiconductor capital equipment based on U S technology to manufacture products connected to certain entities on the U S Entity List
In addition in October 2022 BIS issued the 2022 BIS Rules which imposed export licensing requirements for certain U S semiconductor and high performance computing technology including wafer fab equipment for the use of such
technology for certain end uses in China and for the provision of support by U S Persons to certain advanced IC fabs located in China In particular the 2022 BIS Rules impose export license requirements effectively on all KLA products and services to customers located in China that fabricate
In October 2023 BIS issued additional rules that went into effect in November 2023 These 2023 BIS Rules are designed to update export controls on advanced computing semiconductors and semiconductor manufacturing equipment as well as items that support supercomputing applications and end uses to arms embargoed countries including China The 2023 BIS Rules adjust the parameters included in the 2022 BIS Rules that determine whether an advanced computing chip is restricted and impose new measures to address risks of circumvention of the controls established by the 2022 BIS Rules The 2023 BIS Rules are very complex and in January 2024 KLA among other companies submitted comments to the BIS on the 2023 BIS Rules We are taking appropriate measures to comply with all BIS Rules and will continue to apply for export licenses when required to avoid disruption to our customers operations While some export licenses have been obtained by us or our customers there can be no assurance that export licenses applied for by either us or our customers now or in the future will be granted
The possible negative effects on our future business of export licenses not being granted could be material and could disrupt our supply chain and product shipment and impair our ability to complete product development in a timely manner or our ability to support existing customers of covered products or supply customers of covered products outside the impacted regions and may require us to transition certain operations out of one or more of the identified countries Failure to obtain export licenses could also result in a substantial reduction to our RPO or require us to return substantial deposits received from customers in China for purchase orders We are continuously assessing the aggregate potential impact of government regulations on our financial results and operations See Part I Item 1A Risk Factors in this report for more information regarding how such actions by the U S government or another country could significantly impact our ability to provide our products and services to existing and potential customers especially in China and adversely affect our business financial condition and results of operations
The preparation of our Consolidated Financial Statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions in applying our accounting policies that affect the reported amounts of assets liabilities revenues and expenses and related disclosure of contingent assets and liabilities We base these estimates and assumptions on historical experience and evaluate them on an ongoing basis to ensure that they remain reasonable under current conditions Actual results could differ from those estimates In accordance with SEC guidance the estimates within our accounting policies that we believe are the most critical to an investor s understanding of our financial condition and results of operations including those requiring more complex management judgment are discussed below
We recognize revenue from sales at a point in time when we have satisfied our performance obligation by transferring control of the goods or services to the customer To determine when to recognize revenue we
perform the following five steps 1 identify the contract with customers 2 identify the performance obligations in the contract 3 determine the transaction consideration 4 allocate the transaction consideration to the performance obligations in the contract and 5 recognize revenue when or as a performance obligation is satisfied Management uses judgments in identifying performance obligations determining the stand alone selling price SSP for each distinct performance obligation and allocating consideration from an arrangement to the individual performance obligations based on the SSP We typically estimate the SSP of products and services based on observable transactions when the products and services are sold on a stand alone basis and those prices fall within a reasonable range We typically have established SSP ranges for individual products and services due to the stratification of these products by customers and circumstances In these instances we use information such as the size of the customer geographic region as well as customization of the products in determining the SSP ranges In instances where the SSP is not directly observable we determine the SSP using information that includes market conditions entity specific factors including discounting strategies information about the customer or class of customer that is reasonably available and other observable inputs While changes in the allocation of SSP between performance obligations will not affect the amount of total revenue recognized for a particular contract any material changes could impact the timing of revenue recognition which could have a material effect on our financial position and results of operations Additionally management also uses judgments to evaluate whether or not the customer has obtained control of the product and consider several indicators in evaluating whether or not control has transferred to the customer which could also impact the timing of revenue recognition and could have a material effect on our financial position and results of operations
Inventories are stated at the lower of cost or net realizable value using standard costs that approximate actual costs on a first in first out basis The carrying value of inventory is reduced for estimated obsolescence equal to the difference between its cost and the estimated net realizable value based on assumptions about future demand for meeting our product manufacturing plans and our customers support requirements The estimate of net realizable value of inventory is impacted by assumptions regarding general semiconductor market conditions manufacturing schedules technology changes new product introductions and possible alternative uses and requires us to use significant judgment that may include uncertain elements Actual demand may differ from forecasted demand and such differences may have a material effect on recorded inventory values If in any period we anticipate an adverse change in assumptions such as future demand or market conditions to be less favorable than our previous estimates additional inventory write downs may be required and would be reflected in cost of revenues resulting in a negative impact to our gross margin in that period On the other hand if in any period we are able to sell inventories that had been written down in a previous period to a level below the ultimate realized selling price related revenue would be recorded with a lower or no offsetting charge to cost of revenues resulting in a net benefit to our gross margin in that period
We assess goodwill for impairment annually as well as whenever events or changes in circumstances indicate that the carrying value of a reporting unit may not be recoverable Events or changes in circumstances that could affect the likelihood that we will be required to recognize an impairment charge for goodwill include but are not limited to declines in our stock price or market capitalization declines in our market share and declines in revenues or profits at our reporting units If the fair value of a reporting unit is less than its carrying value a goodwill impairment charge is recorded for the difference
We determine the fair value of a reporting unit using the income approach or market approach or a combination of both If multiple valuation methodologies are used the results are judgmentally weighted The income approach is estimated through discounted cash flow analysis The estimated fair value of a reporting unit is computed by adding the present value of the estimated annual discounted cash flows over a discrete projection period to the residual value of the business at the end of the projection period This valuation technique requires us to use significant estimates and assumptions including long term growth rates discount rates and other inputs The estimated growth rates for the projection period are based on our internal forecasts of anticipated future performance of the business The residual value is estimated using a perpetual nominal growth rate which is based on projected long range inflation and long term industry projections The discount rates are calculated as the weighted average cost of capital of comparable peer companies adjusted for company specific risk The market approach estimates the fair value of a reporting unit by utilizing the market comparable method which uses revenue and earnings multiples from comparable companies
Due to the downward revision of financial outlook for our PCB and Display businesses we performed a quantitative goodwill impairment assessment and recorded impairment losses related to goodwill of 192 6 million in the second quarter of fiscal 2024
In March 2024 we made the decision to exit the Display business but continue to provide services to the installed base for the discontinued product lines This decision triggered a quantitative impairment assessment for the Display reporting unit as of March 31 2024 which resulted in a total goodwill impairment charge of 70 5 million in the third quarter of fiscal 2024
Long lived assets including both tangible and purchased intangible assets are tested for impairment whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable Events or changes in circumstances that could affect the likelihood that we will be required to recognize an impairment charge for long lived assets primarily include declines in our operating cash flows from the use of these assets
For finite lived purchased intangible assets we determine whether the assets are recoverable based on the forecasted undiscounted future cash flows that are expected to be generated by the lowest level associated asset grouping If the undiscounted cash flows used in the recoverability test are less than the assets carrying value we recognize an impairment loss for the amount that the carrying value exceeds the fair value
We determine the fair value of purchased intangible assets using the income approach primarily by applying the relief from royalty or multi period excess earnings methods In connection with the downward revision of financial outlook for our PCB and Display businesses noted above we recorded impairment losses related to purchased intangible assets of 26 4 million during the second quarter of fiscal 2024 As a result of the Company s decision to exit the Display business also described above an immaterial purchased intangible asset impairment charge was recorded in the third quarter of fiscal 2024
There can be no assurance that the estimates and assumptions used in our fair value calculations will prove to be an accurate prediction of the future If our assumptions are not realized or if there are future changes in any of the assumptions due to a change in economic conditions or otherwise it is possible that a further impairment charge may need to be recorded in the future
The calculation of our effective tax rate involves significant judgment in the application of complex tax laws among various tax jurisdictions worldwide identifying uncertain tax positions and estimating the amount of deferred tax assets that will be realized in the future We believe that our tax positions and judgments are reasonable but actual results may differ If one or more taxing authorities were to successfully overturn our tax positions it could have a material adverse effect on our effective tax rate results of operations or cash flows
Unrecognized tax benefits are recorded for uncertain tax positions on the largest amount that is more than 50 likely of being realized upon ultimate settlement We recorded unrecognized tax benefits of 245 7 million and 213 1 million for the years ended June 30 2024 and June 30 2023 respectively We reevaluate these uncertain tax positions on a quarterly basis based on certain factors including but not limited to changes in facts or circumstances changes in tax law audit settlements new audit activities and changes in accounting standards Any changes to these factors can result in a material change to tax expense
Our calculations of deferred tax assets and liabilities are based on estimates and judgments related to uncertainties in the application of complex tax laws and projections of future taxable income The guidance requires that deferred tax assets be reduced by a valuation allowance if we determine it is more likely than not that a portion of the deferred tax asset will not be realized in the foreseeable future We have determined that a valuation allowance is necessary against a portion of the deferred tax assets but we anticipate that our future taxable income will be sufficient to recover the remainder of our deferred tax assets We recorded a valuation allowance of 289 5 million and 259 2 million for the years ended June 30 2024 and June 30 2023 respectively primarily related to California credit carry forwards Based on the enacted income apportionment rules in California our future California income tax liability will not be sufficient to fully utilize the credit carry forwards We assess on a quarterly basis whether there should be a change to the valuation allowance for some portion or all of the deferred tax assets If there is a change in our ability to recover our deferred tax assets that are not subject to a valuation allowance we will be required to record an additional valuation allowance against such deferred tax assets which may materially increase our tax expense If there is a change in our ability to utilize the California credit carry forwards we will be required to reduce our valuation allowance against such deferred tax assets which may materially decrease our tax expense
For a description of recent accounting pronouncements including those recently adopted and the expected dates of adoption as well as estimated effects if any on our Consolidated Financial Statements of those not yet adopted see Note 1 Description of Business and Summary of Significant Accounting Policies to our Consolidated Financial Statements
Our business is affected by the concentration of our customer base and our customers capital equipment procurement schedules as a result of their investment plans Our product revenues in any particular period are impacted by the amount of new orders that we receive during that period and depending upon the duration of manufacturing and installation cycles in the preceding periods Revenue is also impacted by average customer pricing customer revenue deferrals associated with volume purchase agreements the effect of fluctuations in foreign currency exchange rates and increased trade restrictions as discussed in the Executive Summary section above
The decrease in product revenues by 11 in the fiscal year ended June 30 2024 compared to the prior fiscal year is primarily due to the broad macro driven slowdown that has impacted semiconductor demand overall causing the semiconductor industry to rebalance its supply chain and reduce inventory levels and memory device manufacturers and foundry logic customers to reduce their capacity expansion focused capital expenditure plans
Service revenues are generated from product maintenance and support services as well as billable time and material service calls made to our customers The amount of our service revenues is typically a function of the number of systems installed at our customers sites and the utilization of those systems but it is also impacted by other factors such as our rate of service contract renewals the types of systems being serviced and fluctuations in foreign currency exchange rates
Segment revenues exclude corporate allocations and the effects of changes in foreign currency exchange rates For additional details refer to Note 19 Segment Reporting and Geographic Information to our Consolidated Financial Statements
Revenue from our Semiconductor Process Control segment decreased in fiscal 2024 compared to fiscal 2023 primarily due to the broad macro driven slowdown that has impacted semiconductor demand overall causing the semiconductor industry to rebalance its supply chain and reduce inventory levels and memory device manufacturers and foundry logic customers to reduce their capacity expansion focused capital expenditure plans
Revenue from our Specialty Semiconductor Process segment which comprises etching and deposition solutions for advanced packaging and specialty semiconductor markets remained relatively flat in fiscal 2024 compared to fiscal 2023
Our gross margin fluctuates with revenue levels and product mix and is affected by variations in costs related to manufacturing and servicing our products including our ability to scale our operations efficiently and effectively in response to prevailing business conditions
Changes in gross margin from revenue volume of products and services reflect our ability to leverage existing infrastructure to generate higher revenues Changes in gross margin from the mix of products and services sold reflect the impact of changes within the composition of product and service offerings Changes in gross margin from manufacturing labor overhead and efficiencies reflect our ability to manage costs and drive productivity as we scale our manufacturing activity to respond to customer requirements and amortization of intangible assets Changes in gross margin from other service and manufacturing costs include the impact of customer support costs including the efficiencies with which we deliver services to our customers and the effectiveness with which we manage our production plans and inventory risk
The increase in our gross margin from 59 8 to 60 0 during the fiscal year ended June 30 2024 is primarily attributable to a decrease in other service and manufacturing costs and a more profitable mix of products and services sold partially offset by a lower revenue volume of products and services sold
1 Segment gross profit is calculated as segment revenues less segment costs of revenues and excludes corporate allocations amortization of intangible assets and the effects of changes in foreign currency exchange rates For additional details refer to Note 19 Segment Reporting and Geographic Information to our Consolidated Financial Statements
R D expenses may fluctuate with product development phases and project timing as well as our R D efforts As technological innovation is essential to our success we may incur significant costs associated with R D projects including compensation for engineering talent engineering material costs and other expenses
R D expenses during the fiscal year ended June 30 2024 decreased compared to the fiscal year ended June 30 2023 primarily due to a decrease in engineering project material costs of 36 5 million a decrease in consulting costs of 7 1 million and a decrease in restructuring expense of 5 8 million These decreases were partially offset by an increase in employee related expenses of 31 1 million
Our future operating results will depend significantly on our ability to make products and provide services that have a competitive advantage in our marketplace To do this we believe that we must continue to make substantial and focused investments in our R D We remain committed to product development in new and emerging technologies
SG A expenses during the fiscal year ended June 30 2024 decreased compared to the fiscal year ended June 30 2023 primarily due to 16 8 million of compensation related expense from the sale of Orbograph Ltd Orbograph recorded in the fiscal year ended June 30 2023 a decrease in allowance for credit losses of 13 9 million a decrease in depreciation expense of 11 5 million a decrease in restructuring expense of 6 6 million and a decrease in promotional expenses of 5 9 million These decreases were partially offset by an increase in facility related expenses of 25 3 million and an increase in consulting costs of 12 5 million
During the second quarter of fiscal 2024 we noted a significant deterioration of the long term forecast for our PCB and Display businesses As a result we recorded a 219 0 million goodwill and purchased intangible asset impairment charge for the PCB and Display reporting unit in the second quarter of fiscal 2024 In March 2024 we made the decision to exit the Display business but continue to provide services to the installed base for the discontinued product lines As a result we recorded a 70 5 million goodwill impairment charge and an immaterial amount of purchased intangible assets were abandoned in the third quarter of fiscal 2024 See Note 7 Goodwill and Purchased Intangible Assets to our Consolidated Financial Statements for further details
Restructuring charges were 21 6 million for the year ended June 30 2024 primarily due to severance and related charges for the restructuring of the PCB and Display operating segment as described further in Note 7 Goodwill and Purchased Intangible Assets as well as writedowns of certain right of use ROU assets and fixed assets that were abandoned Restructuring charges were 44 0 million for the year ended June 30 2023 primarily due to workforce reductions announced and substantially completed in the third and fourth fiscal quarters
The increase in interest expense during the fiscal year ended June 30 2024 compared to the fiscal year ended June 30 2023 was primarily due to additional interest expense on our 750 0 million Senior Notes issued in February 2024
Other expense income net is comprised primarily of fair value adjustments and realized gains or losses on sales of marketable and non marketable securities gains or losses from revaluations of certain foreign currency denominated assets and liabilities as well as foreign currency contracts interest related accruals such as interest and penalty accruals related to our tax obligations and interest income earned on our invested cash cash equivalents and marketable securities
The change in Other expense income net during the fiscal year ended June 30 2024 compared to the fiscal year ended June 30 2023 was primarily due to the following higher interest income of 87 8 million due to higher rates partially offset by the following a pre tax gain of 29 7 million from the sale of our interest in Orbograph to a portfolio company of a private equity firm in fiscal year 2023 and a higher net fair value loss of 17 3 million from an equity security compared to the prior fiscal year
For the fiscal years ended June 30 2024 and 2022 we had no loss on extinguishment of debt For the fiscal year ended June 30 2023 loss on extinguishment of debt reflected a pre tax net loss of 13 3 million associated with the redemption of 500 0 million of our Senior Notes due 2024 including associated redemption premiums accrued interest and other fees and expenses
Tax expense was higher as a percentage of income before taxes during the fiscal year ended June 30 2024 compared to the fiscal year ended June 30 2023 primarily due to the impact of the following items
Our future effective income tax rate depends on various factors such as tax legislation the geographic composition of our pre tax income the amount of our pre tax income as business activities fluctuate non deductible expenses incurred in connection with acquisitions R D credits as a percentage of aggregate pre tax income non taxable or non deductible increases or decreases in the assets held within our Executive Deferred Savings Plan EDSP the tax effects of employee stock activity and the effectiveness of our tax planning strategies We also continue to monitor the adoption of Pillar Two relating to the global minimum tax in each of our tax jurisdictions to evaluate its impact on our effective income tax rate
As of June 30 2024 our cash cash equivalents and marketable securities totaled 4 50 billion which represents an increase of 1 26 billion from June 30 2023 The increase is mainly due to net cash provided by operating activities of 3 31 billion and net proceeds from debt issuance of 735 0 million partially offset by stock repurchases of 1 74 billion cash used for payments of dividends and dividend equivalents of 773 0 million and capital expenditures of 277 4 million
As of June 30 2024 1 13 billion of our 4 50 billion of cash cash equivalents and marketable securities were held by our foreign subsidiaries and branch offices We currently intend to indefinitely reinvest 122 1 million of the cash cash equivalents and marketable securities held by our foreign subsidiaries for which we assert that earnings are permanently reinvested If however a portion of these funds were to be repatriated to the U S we would be required to accrue and pay state and foreign taxes of approximately 1 22 of the funds repatriated The amount of taxes due will depend on the amount and manner of the repatriation as well as the location from which the funds are repatriated We have accrued state and foreign tax on the remaining cash of 1 01 billion of the 1 13 billion held by our foreign subsidiaries and branch offices As such these funds can be returned to the U S without accruing any additional U S tax expense
The total amounts of regular quarterly cash dividends and dividend equivalents paid during the fiscal years ended June 30 2024 2023 and 2022 were 773 0 million 732 6 million and 638 5 million respectively The increase in the amount of regular quarterly cash dividends and dividends equivalents paid during the fiscal year ended June 30 2024 as compared to the fiscal year ended June 30 2023 reflected the increase in the level of our regular quarterly cash dividend from 1 30 to 1 45 per share that was announced during the three months ended September 30 2023 The amounts of accrued dividend equivalents payable for regular quarterly cash dividends on unvested RSUs with dividend equivalent rights were 11 8 million and 12 2 million as of June 30 2024 and 2023 respectively These amounts will be paid upon vesting of the underlying unvested RSUs as described in Note 10 Equity Long term Incentive Compensation Plans and Non Controlling Interest to our Consolidated Financial Statements
On August 1 2024 we announced that our Board of Directors had declared a quarterly cash dividend of 1 45 per share Refer to Note 21 Subsequent Events to our Consolidated Financial Statements for additional information regarding the declaration of our quarterly cash dividend announced subsequent to June 30 2024
The shares repurchased under our stock repurchase program have reduced our basic and diluted weighted average shares outstanding for the fiscal years ended June 30 2024 and 2023 Our stock repurchase program is intended in part to mitigate the potential dilutive impact related to our equity incentive plans and shares issued in connection with our ESPP as well as to return excess cash to our stockholders As of June 30 2024 an aggregate of 2 18 billion was available for repurchase under our stock repurchase program which reflects an increase in the authorized repurchase amount of 2 00 billion in the first quarter of fiscal 2024
We have historically financed our liquidity requirements through cash generated from operations Net cash provided by operating activities during the fiscal year ended June 30 2024 decreased by 361 2 million compared to the fiscal year ended June 30 2023 from 3 67 billion to 3 31 billion primarily as a result of the following factors
Net cash used in investing activities during the fiscal year ended June 30 2024 was 1 48 billion compared to 482 6 million during the fiscal year ended June 30 2023 This increase in cash used was mainly due to an increase in net purchases of available for sale equity and trading securities of 1 01 billion and a decrease in proceeds from the sale of a business of 75 4 million partially offset by a decrease in capital expenditures of 64 2 million and a decrease in cash used in business acquisitions of 23 5 million
Net cash used in financing activities during the fiscal year ended June 30 2024 was 1 78 billion compared to 2 83 billion during the fiscal year ended June 30 2023 This decrease was mainly due to a net increase in debt related proceeds of 1 53 billion partially offset by an increase in cash used for common stock repurchases of 423 9 million and an increase in cash paid for dividends and dividend equivalents of 40 5 million
As of June 30 2024 we had an aggregate principal amount of senior unsecured notes totaling 6 70 billion with due dates ranging from fiscal 2025 through fiscal 2063 For additional information on these senior notes see Note 8 Debt in the Notes to the Consolidated Financial Statements As of June 30 2024 we were in compliance with all of our covenants under the relevant indentures associated with the Senior Notes
We have in place a Credit Agreement for an unsecured Revolving Credit Facility with a maturity of June 8 2027 that allows us to borrow up to 1 50 billion Subject to the terms of the Credit Agreement the Revolving Credit Facility may be increased by an amount up to 250 0 million in the aggregate As of June 30 2024 and 2023 we had no outstanding borrowings under the Revolving Credit Facility We were in compliance with all covenants under the Credit Agreement as of June 30 2024 the leverage ratio was 1 51 to 1 00 and our then maximum allowed leverage ratio was 3 50 to 1 00 Considering our current liquidity position short term financial forecasts and ability to prepay the Revolving Credit Facility if necessary we expect to continue to be in compliance with our financial covenants at the end of our fiscal year ending June 30 2025 For additional information on the Revolving Credit Facility see Note 8 Debt in the Notes to the Consolidated Financial Statements
We have agreements with financial institutions to sell certain of our trade receivables and promissory notes from customers without recourse In addition we periodically sell certain letters of credit LC without recourse received from customers as payment for goods and services
We maintain guarantee arrangements available through various financial institutions for up to 83 9 million of which 49 9 million had been issued as of June 30 2024 primarily to fund guarantees to customs authorities for value added tax and other operating requirements of our subsidiaries in Europe Israel and Asia
The interest payments associated with the Senior Notes payable included in the table above are based on the principal amount multiplied by the applicable interest rate for each series of Senior Notes As of July 2 2024 the commitment fee payment under the Revolving Credit Facility for the undrawn balance is payable at 5 5 bps based on the daily undrawn balance and we assumed no borrowings under the Revolving Credit Facility for the future and utilized the existing commitment fee rate for the projected interest payments included in the table above Our future interest payments for the Revolving Credit Facility are subject to change due to our actual borrowings under the Revolving Credit Facility any upgrades or downgrades to our then effective credit rating as well as the Company s performance against certain environmental sustainability KPIs related to GHG emissions and renewable electricity usage
Represents an estimate of significant commitments to purchase inventory from our suppliers as well as an estimate of significant purchase commitments associated with goods services and other assets in the ordinary course of business Our obligation 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 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 the arrangements are renegotiated or canceled Certain agreements provide for potential cancellation penalties
Represents the estimated income tax payable obligation related to uncertain tax positions as well as related accrued interest We are unable to make a reasonably reliable estimate of the timing of payments in individual years due to uncertainties in the timing of tax audit outcomes
As part of our employee compensation program we issue cash based long term incentive Cash LTI awards to many of our employees Cash LTI awards issued to employees under the Cash Long Term Incentive Plan Cash LTI Plan generally vest in three or four equal installments The amounts in the table above are those committed under the Cash LTI Plan the expected total payment after estimated forfeitures is approximately 123 million For additional details refer to Note 10 Equity Long term Incentive Compensation Plans and Non Controlling Interest to our Consolidated Financial Statements
Represents an estimate of expected benefit payments up to fiscal year 2034 that was actuarially determined and excludes the minimum cash required to contribute to our defined benefit pension plans As of June 30 2024 our defined benefit pension plans do not have material required minimum cash contribution obligations
Represents the amount committed under our non qualified executive deferred compensation plan We are unable to make a reasonably reliable estimate of the timing of payments in individual years due to the uncertainties in the timing around participant s separation and any potential changes that participants may decide to make to the previous distribution elections
Represents amounts committed for accrued dividends payable for quarterly cash dividends for unvested RSUs granted with dividend equivalent rights For additional details refer to Note 10 Equity Long term Incentive Compensation Plans and Non Controlling Interest to our Consolidated Financial Statements
Working capital was 5 37 billion as of June 30 2024 which represents an increase of 741 2 million compared to our working capital as of June 30 2023 As of June 30 2024 our principal sources of liquidity consisted of 4 50 billion of cash cash equivalents and marketable securities and availability under our Revolving Credit Facility Our liquidity may be affected by many factors some of which are based on the normal ongoing operations of the business spending for business acquisitions and other factors such as uncertainty in the global and regional economies and the semiconductor semiconductor related and electronic device industries Although cash requirements will fluctuate based on the timing and extent of these factors we believe that cash generated from operations together with the liquidity provided by existing cash and cash equivalents balances and our Revolving Credit Facility will be sufficient to satisfy our liquidity requirements associated with working capital needs capital expenditures cash dividends stock repurchases and other contractual obligations including repayment of outstanding debt for at least the next 12 months
In December 2023 Fitch upgraded our senior unsecured credit rating from A to A Factors that can affect our credit ratings include changes in our operating performance the economic environment conditions in the semiconductor and semiconductor capital equipment industries our financial position material acquisitions and changes in our business strategy
As of June 30 2024 we did not have any off balance sheet arrangements as defined in Item 303 a 4 ii of Regulation S K that have or are reasonably likely to have a current or future effect on our financial condition and results of operations that are material to investors
We are exposed to financial market risks including changes in interest rates foreign currency exchange rates and marketable equity security prices To mitigate these risks we utilize derivative financial instruments such as foreign currency hedges All of the potential changes noted below are based on sensitivity analyses performed on our financial position as of June 30 2024 Actual results may differ materially
As of June 30 2024 we had an investment portfolio of fixed income securities of 1 71 billion These securities as with all fixed income instruments are subject to interest rate risk and will decline in value if market interest rates increase If market interest rates were to increase immediately and uniformly by 100 bps from levels as of June 30 2024 the fair value of the portfolio would have declined by 16 1 million
The fair market value of our long term fixed interest rate Senior Notes is subject to interest rate risk Generally the fair market value of fixed interest rate notes will increase as market interest rates fall and decrease as market interest rates rise As of June 30 2024 the fair value and the book value of our Senior Notes due in various fiscal years ranging from 2025 to 2063 were 6 26 billion and 6 63 billion respectively
We have in place a Revolving Credit Facility that allows us to borrow up to 1 50 billion has a maturity date of June 8 2027 with two one year extension options and may be increased by an amount up to 250 0 million in the aggregate As of June 30 2024 we had no borrowings under the Revolving Credit Facility Each Term SOFR Loan will bear interest at a rate per annum equal to the applicable Adjusted Term SOFR rate which is equal to the applicable Term SOFR rate plus 10 bps that shall not be less than zero plus a spread ranging from 75 bps to 125 bps as determined by our credit ratings at the time The fair value of the borrowings under the Revolving Credit Facility is subject to interest rate and credit risk due to the timing of the rate resets and changes in the market s assessment of risk of default respectively Pursuant to the terms of the Credit Agreement we are also obligated to pay an annual commitment fee on the daily undrawn balance of the Revolving Credit Facility at a rate that ranges from 4 5 bps to 12 5 bps depending upon our then prevailing credit rating As of June 30 2024 the annual commitment fee was 6 bps Additionally as of June 30 2024 if our credit ratings were downgraded to be below investment grade the maximum potential increase to our annual commitment fee for the Revolving Credit Facility using the highest range of the ranges discussed above is estimated to be approximately 1 million
Our equity investment in a publicly traded company is subject to market price risk which we typically do not attempt to reduce or eliminate through hedging activities As of June 30 2024 the fair value of our investment in the marketable equity security which began publicly trading on the Tokyo Stock Exchange on April 5 2021 was 25 6 million Assuming a decline of 50 in market prices the aggregate value of our investment in the marketable equity security could decrease by approximately 13 million based on the value as of June 30 2024
See Note 5 Marketable Securities to our Consolidated Financial Statements in Part II Item 8 Liquidity and Capital Resources in Management s Discussion and Analysis of Financial Condition and Results of Operations in Part II Item 7 and Risk Factors in Part I Item 1A of this Annual Report on Form 10 K for a description of recent market events that may affect the value of the investments in our portfolio that we held as of June 30 2024
As of June 30 2024 we had net forward and option contracts to purchase 254 1 million in foreign currency in order to hedge certain currency exposures see Note 17 Derivative Instruments and Hedging Activities to our Consolidated Financial Statements for additional details If we had entered into these contracts on June 30 2024 the U S dollar equivalent would have been 274 9 million A 10 adverse move in all currency exchange rates affecting the contracts would decrease the fair value of the contracts by 124 1 million However if this occurred the fair value of the underlying exposures hedged by the contracts would increase by a similar amount Accordingly we believe that as a result of the hedging of certain of our foreign currency exposure changes in most relevant foreign currency exchange rates should have no material impact on our results of operations or cash flows
KLA Corporation and its majority owned subsidiaries KLA or the Company and also referred to as we our us or similar references is a supplier of process equipment process control equipment and data analytics products for a broad range of industries including semiconductors and printed circuit boards PCB We provide advanced process control and process enabling solutions for manufacturing and testing wafers and reticles integrated circuits IC advanced packaging light emitting diodes power devices compound semiconductor devices microelectromechanical systems MEMS data storage and PCBs as well as general materials research We also provide comprehensive support and services across our installed base Our extensive portfolio of inspection metrology and data analytics products and related services helps IC manufacturers achieve target yield throughout the entire semiconductor fabrication process from research and development R D to final volume production We develop and sell advanced vacuum deposition and etching process tools which are used by a broad range of specialty semiconductor customers We enable electronic device manufacturers to inspect test and measure PCBs and ICs to verify their quality deposit a pattern of desired electronic circuitry on the relevant substrate and perform three dimensional shaping of metalized circuits on multiple surfaces Our advanced products coupled with our unique yield management software and services allow us to deliver the solutions our semiconductor and PCB customers need to achieve their productivity goals by significantly reducing their risks and costs and improving their overall profitability and return on investment Headquartered in Milpitas California we have subsidiaries both in the U S and key markets throughout the world
Certain reclassifications have been made to the prior year s Consolidated Financial Statements to conform to the current year presentation The reclassifications did not have material effects on the prior year s Consolidated Balance Sheets Statements of Operations Comprehensive Income and Cash Flows
The preparation of the Consolidated Financial Statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions in applying our accounting policies that affect the reported amounts of assets and liabilities and related disclosure of contingent assets and liabilities at the date of the Consolidated Financial Statements and the reported amounts of revenues and expenses during the reporting periods Actual results could differ from those estimates
All highly liquid debt instruments with original or remaining maturities of less than three months at the date of purchase are cash equivalents Fixed income marketable securities are generally classified as available for sale for use in current operations if required and are reported at fair value with unrealized gains and non credit related unrealized losses net of tax presented as a separate component of stockholders equity under the caption Accumulated other comprehensive income loss All realized gains and losses are recorded in earnings in the period of occurrence The specific identification method is used to determine the realized gains and losses on investments
We regularly review the available for sale debt securities in an unrealized loss position and evaluate the current expected credit loss by considering available information relevant to the collectability of the security such as historical experience market data issuer specific factors including credit ratings default and loss rates of the underlying collateral and structure and credit enhancements current economic conditions and reasonable and supportable forecasts There were no credit losses on available for sale debt securities recognized in the years ended June 30 2024 2023 and 2022
If we do not expect to recover the entire amortized cost of the security the amount representing credit losses defined as the difference between the present value of the cash flows expected to be collected and the amortized cost basis of the debt security is recorded as an allowance for credit losses with an offsetting entry to net income and the amount that is not credit related is recognized in other comprehensive income loss OCI If we have the intent to sell the security or it is more likely than not that we will be required to sell the security before recovery of its entire amortized cost basis we first write off any previously recognized allowance for credit losses with an offsetting entry to the security s amortized cost basis If the allowance has been fully written off and fair value is less than amortized cost basis we write down the amortized cost basis of the security to its fair value with an offsetting entry to net income
We hold equity securities in publicly and privately held companies for the promotion of business and strategic objectives Equity securities in publicly held companies or marketable equity securities are measured and recorded at fair value on a recurring basis Equity securities in privately held companies or non marketable equity securities are accounted for at cost less impairment plus or minus observable price changes in orderly transactions for identical or similar securities of the same issuer Non marketable equity securities are subject to a periodic impairment review however since there are no open market valuations the impairment analysis requires significant judgment This analysis includes assessment of the investee s financial condition the business outlook for its products and technology its projected results and cash flow financing transactions subsequent to the acquisition of the investment the likelihood of obtaining subsequent rounds of financing and the impact of any relevant contractual equity preferences held by us or the others Non marketable equity securities are included in Other non current assets on the balance sheet Realized and unrealized gains and losses resulting from changes in fair value or the sale of our marketable and non marketable equity securities are recorded in Other expense income net
We use a qualitative approach in assessing the consolidation requirement for variable interest entities The approach focuses on identifying which enterprise has the power to direct the activities that most significantly impact the variable interest entity s economic performance and which enterprise has the obligation to absorb losses or the right to receive benefits from the variable interest entity In the event we are the primary beneficiary of a variable interest entity the assets liabilities and results of operations of the variable interest entity will be included in our Consolidated Financial Statements We have concluded that none of our equity investments require consolidation based on our most recent qualitative assessment
Inventories are stated at the lower of cost or net realizable value using standard costs that approximate actual costs on a first in first out basis The carrying value of product inventory is reduced for estimated obsolescence equal to the difference between its cost and the estimated net realizable value based on assumptions about future demand for meeting our product manufacturing plans The carrying value of service inventory is reduced for estimated obsolescence equal to the difference between its cost and the estimated net realizable value based on assumptions about future demand to meet our customers support requirements Demonstration units are stated at their manufacturing cost and written down to their net realizable value The Company s policy is to assess the valuation of all inventories including manufacturing raw materials work in process finished goods and spare parts in each reporting period The estimate of net realizable value of inventory is impacted by assumptions regarding general semiconductor market conditions manufacturing schedules technology changes new product introductions and possible alternative uses and require us to use significant judgment that may include uncertain elements Actual demand may differ from forecasted demand and such differences may have a material effect on recorded inventory values Our manufacturing overhead standards for product costs are calculated assuming full absorption of forecasted spending over projected volumes adjusted for excess capacity Abnormal inventory costs such as costs of idle facilities excess freight and handling costs and spoilage are recognized as current period charges
A majority of our accounts receivable are derived from sales to large multinational semiconductor and electronics manufacturers throughout the world We maintain an allowance for credit losses for expected uncollectible accounts receivable which is recorded as an offset to accounts receivable and changes in such are classified as selling general and administrative SG A expense in the Consolidated Statements of Operations We assess collectability by reviewing accounts receivable on a collective basis where similar risk characteristics exist and on an individual basis when we identify specific customers with known disputes or collectability issues The estimate of expected credit losses considers historical credit loss information that is adjusted for current conditions and reasonable and supportable forecasts The allowance for credit losses is reviewed on a quarterly basis to assess the adequacy of the allowance Our assessment considered estimates of expected credit and collectability trends The credit losses recognized on accounts receivable were not significant as of June 30 2024 and 2023
Property and equipment are recorded at cost net of accumulated depreciation Depreciation of property and equipment is based on the straight line method over the estimated useful lives of the assets The following table
Construction in process assets are not depreciated until the assets are placed in service Depreciation expense for the fiscal years ended June 30 2024 2023 and 2022 was 181 7 million 154 2 million and 122 2 million respectively
Under Accounting Standards Codification ASC 842 Leases a contract is or contains a lease when we have the right to control the use of an identified asset for a period of time We determine if an arrangement is a lease at inception of the contract which is the date on which the terms of the contract are agreed to and the agreement creates enforceable rights and obligations The commencement date of the lease is the date that the lessor makes an underlying asset available for our use On the commencement date leases are evaluated for classification and assets and liabilities are recognized based on the present value of lease payments over the lease term
The lease term used to calculate the lease liability includes options to extend or terminate the lease when it is reasonably certain that the option will be exercised The right of use ROU asset is initially measured as the amount of lease liability adjusted for any initial lease costs prepaid lease payments and any lease incentives Variable lease payments consisting primarily of reimbursement of costs incurred by lessors for common area maintenance real estate taxes and insurance are not included in the lease liability and are recognized as they are incurred
As most of our leases do not provide an implicit rate we use our incremental borrowing rate at lease commencement to measure ROU assets and lease liabilities The incremental borrowing rate used by us is based on baseline rates and adjusted by the credit spreads commensurate with our secured borrowing rate over a similar term We used the incremental borrowing rate on June 30 2019 for all leases that commenced on or prior to that date Operating lease expense is generally recognized on a straight line basis over the lease term
We have elected the practical expedient to account for the lease and non lease components as a single lease component for the majority of our asset classes For leases with a term of one year or less we have elected not to record the ROU asset or liability
Goodwill represents the excess of the purchase price in a business combination over the fair value of the net tangible and intangible assets acquired We assess goodwill for impairment annually during our third fiscal quarter or whenever events or changes in circumstances indicate the carrying value may not be fully recoverable We have the option to perform a qualitative assessment prior to necessitating a quantitative impairment test In the qualitative assessment if we determine that it is more likely than not that the fair value of a reporting unit is less than the carrying value a quantitative test is then performed which involves comparing the estimated fair value of a reporting unit to its carrying value including goodwill If goodwill is considered to be impaired the amount of any impairment is measured as the difference between the carrying value and the fair value Refer to Note 7 Goodwill and Purchased Intangible Assets for information related to determining the fair value of a reporting unit
Purchased intangible assets that are not considered to have an indefinite useful life are amortized over their estimated useful lives which generally range from six months to nine years The carrying values of our intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of an asset or asset group may not be recoverable
Long lived assets are tested for impairment whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable Events or changes in circumstances that could affect the likelihood that we will be required to recognize an impairment charge for the long lived assets primarily include declines in our operating cash flows from the use of these assets We determine whether long lived assets are recoverable based on the forecasted undiscounted future cash flows that are expected to be generated by the lowest level associated asset grouping If the undiscounted cash flows used in the recoverability test are less than the long lived assets carrying value we recognize an impairment loss for the amount that the carrying value exceeds the fair value We determine the fair value of long lived assets using the income approach primarily by applying the relief from royalty or multi period excess earnings methods when deemed appropriate
Financial instruments that potentially subject us to significant concentrations of credit risk consist primarily of cash equivalents short term marketable securities trade accounts receivable and derivative financial instruments used in hedging activities We invest in a variety of financial instruments such as but not limited to certificates of deposit corporate debt and municipal securities U S Treasury and Government agency securities and equity securities and by policy we limit the amount of credit exposure with any one financial institution or commercial issuer We have not experienced any material credit losses on our investments
A majority of our accounts receivable are derived from sales to large multinational semiconductor and electronics manufacturers located throughout the world with a majority located in Asia In recent years our customer base has become increasingly concentrated due to corporate consolidations acquisitions and business closures and to the extent that these customers experience liquidity issues in the future we may be required to reserve for potential credit losses with respect to trade receivables We perform ongoing credit evaluations of our customers financial condition and generally require little to no collateral to secure accounts receivable We maintain an allowance for potential credit losses based upon expected collectability risk of all accounts receivable In addition we may utilize letters of credit LC or non recourse factoring to mitigate credit risk when considered appropriate
We are exposed to credit loss in the event of non performance by counterparties on the foreign exchange contracts that we use in hedging activities and in certain factoring transactions These counterparties are large international financial institutions and to date no such counterparty has failed to meet its financial obligations to us under such contracts
The functional currencies of our foreign subsidiaries are primarily the local currencies except as described below Accordingly all assets and liabilities of these foreign operations are translated to U S dollars at current period end exchange rates and revenues and expenses are translated to U S dollars using average exchange rates in effect during the period The gains and losses from foreign currency translation of these subsidiaries financial statements are recorded directly into a separate component of stockholders equity under the caption Accumulated other comprehensive income loss
Our manufacturing subsidiaries in Singapore Israel Germany and the United Kingdom use the U S dollar as their functional currency Accordingly monetary assets and liabilities in non functional currency of these subsidiaries are remeasured using exchange rates in effect at the end of the period Revenues and costs in local currency are remeasured using average exchange rates for the period except for costs related to those balance sheet items that are remeasured using historical exchange rates The resulting remeasurement gains and losses are included in the Consolidated Statements of Operations as incurred
We use financial instruments such as foreign exchange contracts including forward and options transactions to hedge a portion of but not all existing and forecasted foreign currency denominated transactions The purpose of our foreign exchange hedging program is to manage the effect of exchange rate fluctuations on certain foreign currency denominated revenues costs and eventual cash flows The effect of exchange rate changes on foreign exchange contracts is expected to offset the effect of exchange rate changes on the underlying hedged items We also use forward contracts to hedge the risk associated with the variability of cash flows due to changes in the benchmark interest rate of the intended debt financing Rate Lock Agreements We believe these financial instruments do not subject us to speculative risk that would otherwise result from changes in currency exchange rates or interest rates All of our derivative financial instruments are recorded at fair value based upon quoted market prices for comparable instruments adjusted for risk of counterparty non performance
For derivative instruments designated and qualifying as cash flow hedges of forecasted foreign currency denominated transactions or debt financing the effective portion of the gains or losses is reported in Accumulated other comprehensive income loss AOCI and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings We elected to include time value for the assessment of effectiveness on all forward transactions designated as cash flow hedges The change in fair value of the derivative is recorded in AOCI until the hedged transaction is recognized in earnings The assessment of effectiveness of options contracts designated as cash flow hedges excludes time value The initial value of the component excluded from the assessment of effectiveness is recognized in earnings over the life of the derivative contract Any differences between change in the fair value of the excluded components and the amounts recognized in earnings are recorded in AOCI For foreign exchange contracts that are designated and qualify as a net investment hedge in a foreign operation and that meet the effectiveness requirements the net gains or losses attributable to changes in spot exchange rates are recorded in cumulative translation within AOCI The remainder of the change in value of such instruments is recorded in earnings using the mark to market approach Recognition in earnings of amounts previously recorded in cumulative translation is limited to circumstances such as complete or substantially complete liquidation of the net investment in the hedged foreign operations For foreign exchange contracts that are not designated as hedges gains and losses are recognized in Other expense income net We use foreign exchange contracts to hedge certain foreign currency denominated assets or liabilities The gains and losses on these derivative instruments are largely offset by the changes in the fair value of the assets or liabilities being hedged
We primarily derive revenue from the sale of process control and process enabling solutions for the semiconductor and related electronics industries maintenance and support of all these products installation and training services and the sale of spare parts Our portfolio includes yield enhancement and production solutions for manufacturing wafers and reticles ICs packaging PCBs and flat panel displays FPD as well as comprehensive support and services across our installed base
We account for a contract with a customer when there is approval and commitment from both parties the rights of the parties are identified payment terms are identified the contract has commercial substance and collectability of consideration is probable
Our revenues are measured based on consideration stipulated in the arrangement with each customer net of any sales incentives and amounts collected on behalf of third parties such as sales taxes The revenues are recognized as separate performance obligations that are satisfied by transferring control of the product or service to the customer
Our arrangements with our customers include various combinations of products and services which are generally capable of being distinct and accounted for as separate performance obligations A product or service is considered distinct if it is separately identifiable from other deliverables in the arrangement and if a customer can benefit from it on its own or with other resources that are readily available to the customer
The transaction consideration including any sales incentives is allocated between separate performance obligations of an arrangement based on the stand alone selling price SSP for each distinct product or service Management considers a variety of factors to determine the SSP such as historical stand alone sales of products and services discounting strategies and other observable data
We recognize revenue from product sales at a point in time when we have satisfied our performance obligation by transferring control of the product to the customer We use judgment to evaluate whether control has transferred by considering several indicators including whether
The customer has accepted the product or whether customer acceptance is considered a formality based on history of acceptance of similar products for example when the customer has previously accepted the same tool with the same
Not all of the indicators need to be met for us to conclude that control has transferred to the customer In circumstances in which revenue is recognized prior to the product acceptance the fair value of revenue associated with our performance obligations to install the product is deferred and recognized as revenue at a point in time once installation is complete
We enter into volume purchase agreements with some of our customers We adjust the transaction consideration for estimated credits and incentives earned by our customers These credits are estimated based upon the forecasted and actual product sales for any given period and agreed incentive rate The estimate is reviewed for material changes and updated at each reporting period
We offer perpetual and term licenses for software products The primary difference between perpetual and term licenses is the duration over which the customer can benefit from the use of the software while the functionality and the features of the software are the same Software is generally bundled with post contract customer support PCS which includes unspecified software updates that are made available throughout the entire term of the arrangement Revenue from software licenses is recognized at a point in time when the software is made available to the customer Revenue from PCS is deferred at contract inception and recognized ratably over the service period or as services are performed
The majority of product sales include a standard 12 month warranty that is not separately paid for by the customers The customers may also purchase an extended warranty for periods beyond the initial period as part of the initial product sale We have concluded that the standard 12 month warranty as well as any extended warranty periods included in the initial product sales are separate performance obligations for most of our products The estimated fair value of warranty services is deferred and recognized ratably as revenue over the warranty period as the customer simultaneously receives and consumes the benefits of warranty services provided by us
Additionally we offer product maintenance and support services which the customer may purchase separately from the standard and extended warranty offered as part of the initial product sale Revenue from separately negotiated maintenance and support service contracts is also recognized over time based on the terms of the applicable service period Revenue from services performed in the absence of a maintenance contract including training revenue is recognized when the related services are performed We also sell spare parts revenue from which is recognized when control over the spare parts is transferred to the customer
Our contracts with our customers often include promises to transfer multiple products and services Each product and service is generally capable of being distinct within the context of the contract and represents a separate performance obligation Determining the SSP for each distinct performance obligation and allocation of consideration from an arrangement to the individual performance obligations and the appropriate timing of revenue recognition are significant judgments with respect to these arrangements We typically estimate the SSP of products and services based on observable transactions when the products and services are sold on a stand alone basis and those prices fall within a reasonable range We typically have more than one SSP for individual products and services due to the stratification of these products by customers and circumstances In these instances we use information such as the size of the customer geographic region as well as customization of the products in determining the SSP In instances where the SSP is not directly observable we determine the SSP using information that includes market conditions entity specific factors including discounting strategies information about the customer or class of customer that is reasonably available and other observable inputs While changes in the allocation of SSP between performance obligations will not affect the amount of total revenue recognized for a particular contract any material changes could impact the timing of revenue recognition which could have a material effect on our financial position and results of operations
Although our products are generally not sold with a right of return we may provide other credits or sales incentives which are accounted for either as variable consideration or material right depending on the specific terms and conditions of the arrangement These credits and incentives are estimated at contract inception and updated at the end of each reporting period if and when additional information becomes available
As outlined above we use judgments to evaluate whether or not the customer has obtained control of the product and consider several indicators in evaluating whether or not control has transferred to the customer Not all of the indicators need to be met for us to conclude that control has transferred to the customer
The timing of revenue recognition billings and cash collections may result in accounts receivable contract assets and contract liabilities deferred revenue on our Consolidated Balance Sheets A receivable is recorded in the period we deliver products or provide services when we have an unconditional right to payment Contract assets primarily relate to the value of products and services transferred to the customer for which the right to payment is not just dependent on the passage of time Contract assets are transferred to accounts receivable when rights to payment become unconditional
A contract liability is recognized when we receive payment or have an unconditional right to payment in advance of the satisfaction of performance The contract liabilities represent 1 deferred product revenue related to the value of products that have been shipped and billed to customers and for which control has not been transferred to the customers and 2 deferred service revenue which is recorded when we receive consideration or such consideration is unconditionally due from a customer prior to transferring services to the customer under the terms of a contract Deferred service revenue typically results from warranty services and maintenance and other service contracts
We account for stock based awards granted to employees for services based on the fair value of those awards The fair value of stock based awards is measured at the grant date and is recognized as expense over the employee s requisite service period The fair value for restricted stock units RSU granted without dividend equivalent rights is determined using the closing price of our common stock on the grant date adjusted to exclude the present value of dividends which are not accrued on the RSUs The fair value for RSUs granted with dividend equivalent rights is determined using the closing price of our common stock on the grant date The award holder is not entitled to receive payments under dividend equivalent rights unless the associated RSU award vests i e the award holder is entitled to receive credits payable in cash or shares of common stock equal to the cash dividends that would have been received on the shares of our common stock underlying the RSUs had the shares been issued and outstanding on the dividend record date but such dividend equivalents are only paid subject to the recipient satisfying the vesting requirements of the underlying award Compensation expense for RSUs with performance metrics is calculated based upon expected achievement of the metrics specified in the grant or when a grant contains a market condition the grant date fair value using a Monte Carlo simulation The Monte Carlo simulation incorporates estimates of the potential outcomes of the market condition on the grant date fair value of each award Additionally we estimate forfeitures based on historical experience and revise those estimates in subsequent periods if actual forfeitures differ from the estimated amounts The fair value for our Employee Stock Purchase Plan ESPP is determined using a Black Scholes valuation model for purchase rights The Black Scholes option pricing model requires the input of assumptions including the option s expected term and the expected price volatility of the underlying stock The expected stock price volatility assumption is based on the market based historical implied volatility from traded options of our common stock
Cash based long term incentive Cash LTI awards issued to employees under our Cash Long Term Incentive Plan Cash LTI Plan vest in three or four equal installments with one third or one fourth of the aggregate amount of the Cash LTI award vesting on each yearly anniversary of the grant date over a three or four year period In order to receive payments under a Cash LTI award participants must remain employed by us as of the applicable award vesting date Compensation expense related to the Cash LTI awards is recognized over the vesting term and adjusted for the impact of estimated forfeitures
We have a non qualified deferred compensation plan known as the Executive Deferred Savings Plan EDSP under which certain executives and non employee directors may defer a portion of their compensation Participants are credited with returns based on their allocation of their account balances among measurement funds We control the investment of these funds and the participants remain general creditors of ours We invest these funds in certain mutual funds and such investments are classified as trading securities in the Consolidated Balance Sheets Investments in trading securities are measured at fair value in the statement of financial position Unrealized holding gains and losses for trading securities are included in earnings Distributions from the EDSP commence following a participant s retirement or termination of employment or on a specified date allowed per the EDSP provisions except in cases where such distributions are required to be delayed in order to avoid a prohibited distribution under Internal Revenue Code Section 409A Participants can generally elect for the distributions to be paid in a lump sum or quarterly cash payments over a scheduled period for up to 15 years and are allowed to make subsequent changes to their existing elections as permissible under the EDSP provisions The liability associated with the EDSP is included as a component of other current liabilities in the
Consolidated Balance Sheets Changes in the EDSP liability are recorded in SG A expense in the Consolidated Statements of Operations The net expense benefit associated with changes in the liability included in SG A expense was 37 2 million 27 6 million and 44 2 million for the fiscal years ended June 30 2024 2023 and 2022 respectively We also have a deferred compensation asset that corresponds to the liability under the EDSP and it is included as a component of other non current assets in the Consolidated Balance Sheets Changes in the EDSP assets are recorded as gains losses net in SG A expense in the Consolidated Statements of Operations The amount of net gains losses included in SG A expense were 36 6 million 27 6 million and 44 3 million for the fiscal years ended June 30 2024 2023 and 2022 respectively
We account for current and deferred income taxes in accordance with the authoritative guidance which requires that the income tax impact is to be recognized in the period in which the law is enacted Current income tax expense represents taxes paid or payable for the current period Deferred tax assets and liabilities are recognized using enacted tax rates for the future tax impact of temporary differences between the financial statement and tax bases of recorded assets and liabilities A valuation allowance is recorded to reduce deferred tax assets when it is more likely than not that a tax benefit will not be realized based on historical and projected future taxable income over the periods in which the temporary differences are expected to be recovered or settled
We record income taxes on the undistributed earnings of foreign subsidiaries unless the subsidiaries earnings are considered indefinitely reinvested outside the U S Our income taxes will be greater if some or all of the indefinitely reinvested earnings are taxable when distributed to the U S
In accordance with the authoritative guidance on accounting for uncertainty in income taxes we recognize liabilities for uncertain tax positions based on the two step process The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained in audit including resolution of related appeals or litigation processes if any The second step is to measure the tax benefit as the largest amount that is more than 50 likely of being realized upon ultimate settlement
The Tax Cut and Jobs Act includes provisions for Global Intangible Low Taxed Income GILTI wherein U S taxes on foreign income are imposed in excess of a deemed return on tangible assets of foreign corporations This income is effectively taxed at a 10 5 tax rate in general We elect to account for GILTI as a component of current period tax expense and not recognize deferred tax assets and liabilities for the basis differences expected to reverse as a result of GILTI provisions
We allocate the fair value of the purchase price of our acquisitions to the tangible assets acquired liabilities assumed and intangible assets acquired including in process research and development IPR D based on their estimated fair values at acquisition date The excess of the fair value of the purchase price over the fair values of these net tangible and intangible assets acquired is recorded as goodwill Management s estimates of fair value are based upon assumptions believed to be reasonable but our estimates and assumptions are inherently uncertain and subject to refinement As a result during the measurement period which will not exceed one year from the acquisition date we record adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill After the conclusion of the measurement period or final determination of the fair value of the purchase price of our acquisitions whichever comes first any subsequent adjustments are recorded to our Consolidated Statements of Operations
The fair value of IPR D is initially capitalized as an intangible asset with an indefinite life and assessed for impairment thereafter whenever events or changes in circumstances indicate that the carrying value of the IPR D assets may not be recoverable Impairment of IPR D is recorded to R D expenses When an IPR D project is completed the IPR D is reclassified as an amortizable purchased intangible asset and amortized to costs of revenues over the asset s estimated useful life
Basic net income per share is calculated by dividing net income available to common stockholders by the weighted average number of common shares outstanding during the period Diluted net income per share is calculated by using the weighted average number of common shares outstanding during the period increased to include the number of additional shares of common stock that would have been outstanding if the dilutive potential shares of common stock had been issued The dilutive effect of RSUs and options is reflected in diluted net income per share by application of the treasury stock method The dilutive securities are excluded from the computation of diluted net loss per share when a net loss is recorded for the period as their effect would be anti dilutive
We are subject to the possibility of losses from various contingencies Considerable judgment is necessary to estimate the probability and amount of any loss from such contingencies An accrual is made when it is probable that a liability has been incurred or an asset has been impaired and the amount of loss can be reasonably estimated We accrue a liability and recognize as expense the estimated costs to defend or settle asserted and unasserted claims existing as of the balance sheet date See Note 15 Litigation and Other Legal Matters and Note 16 Commitments and Contingencies for additional details
The new guidance requires companies to apply revenue guidance to recognize and measure contract assets and contract liabilities from contracts with customers acquired in a business combination at carrying value Under the prior business combination guidance such assets and liabilities were recognized by the acquirer at fair value on the acquisition date We adopted this update beginning in the first quarter of our fiscal year ending June 30 2024 on a prospective basis The impact of adopting this update will depend on the magnitude of contract assets and contract liabilities acquired in future acquisitions
The new guidance requires enhanced disclosures about significant segment expenses This standard update is effective for our annual reports beginning in the fiscal year ending June 30 2025 and interim period reports beginning in the first quarter of the fiscal year ending June 30 2026 Early adoption is permitted on a retrospective basis We are currently evaluating the impact of this ASU on our segment disclosures
The new guidance requires enhanced disclosures about income tax expenses This standard update is effective for our annual reports beginning in the fiscal year ending June 30 2026 Early adoption is permitted on a prospective basis We are currently evaluating the impact of this ASU on our annual income tax disclosures
Our payment terms and conditions vary by contract type although terms generally include a requirement of payment of 70 to 90 of total contract consideration within 30 to 60 days of shipment with the remainder payable within 30 days of acceptance
The change in contract assets during the fiscal year ended June 30 2024 was mainly due to 104 1 million of contract assets reclassified to net accounts receivable as our right to consideration for these contract assets became unconditional partially offset by 56 8 million of revenue recognized for which the payment is subject to conditions other than the passage of time Contract assets are included in other current assets on our Consolidated Balance Sheets
The change in contract liabilities during the fiscal year ended June 30 2024 was mainly due to the value of products and services billed to customers for which control of the products and services has not transferred to the customers partially offset by the recognition in revenue of 963 5 million that was included in contract liabilities as of June 30 2023 The change in contract liabilities during the fiscal year ended June 30 2023 was mainly due to the value of products and services billed to customers for which control of the products and services has not transferred to the customers partially offset by the recognition in revenue of 819 0 million that was included in contract liabilities as of June 30 2022 Contract liabilities are included in current and non current liabilities on our Consolidated Balance Sheet
As of June 30 2024 we had 9 83 billion of remaining performance obligations RPO which represents our obligation to deliver products and services and primarily consists of sales orders where written customer requests have been received This amount includes customer deposits of 745 7 million as disclosed in Note 4 Financial Statement Components and excludes contract liabilities of 1 78 billion as disclosed above We expect to recognize approximately 59 to 64 of these performance obligations as revenue in the next 12 months 29 to 34 in the subsequent 12 months and the remainder thereafter but this estimate is subject to constant change The timing of revenue recognition of our RPO is evaluated quarterly and is largely driven by multiple variables many of which are beyond our control such as the readiness of customer fabs end market needs for capacity changes in the estimated versus actual start time of customers projects timing of delivery and installation dates supply chain constraints and changes in regulations Our customers are currently purchasing equipment from us with lead times that are longer than our historical experience As customers try to balance the evolution of their technological production or market needs with the timing and content of orders placed with us there is elevated risk of order modifications pushouts or cancellations
In addition in October 2022 the U S government issued regulations that imposed new export licensing requirements for certain U S semiconductor and high performance computing technology including wafer fab equipment for the use of such technology for certain end uses in the People s Republic of China China and for the provision of support by U S Persons to certain advanced IC fabs located in China The regulations impose export license requirements effectively on all KLA products and services to customers located in China that fabricate certain advanced logic NAND and DRAM ICs KLA is also restricted from providing certain U S origin tools software and technology to certain wafer fab equipment manufacturers located in China absent an export license In October 2023 the U S government issued additional regulations that went into effect in November 2023 These additional rules are designed to update export controls on advanced computing semiconductors and semiconductor manufacturing equipment as well as items that support supercomputing applications and end uses to arms embargoed countries including China They adjust the parameters included in the existing regulations that determine whether an advanced computing chip is restricted and impose new measures to address risks of circumvention of the controls established in October 2022 The regulations are very complex and in January 2024 KLA among other companies submitted comments to the government regarding these regulations We are taking appropriate measures to comply with all government regulations and will continue to apply for export licenses when required to avoid disruption to our customers operations While some export licenses have been obtained by us or our customers there can be no assurance that export licenses applied for by either us or our customers now or in the future will be granted
We have elected to not adjust the promised amount of consideration for the effects of a significant financing component as we expect at contract inception that the period between when we transfer a promised good or service to a customer and when the customer pays for that good or service will generally be one year or less
Our financial assets and liabilities are measured and recorded at fair value except for our debt and certain equity investments in privately held companies Equity investments without a readily available fair value are accounted for using the measurement alternative The measurement alternative is calculated as cost minus impairment if any plus or minus changes resulting from observable price changes See Note 8 Debt for disclosure of the fair value of our Senior Notes as defined in that Note
Our non financial assets such as goodwill intangible assets and land property and equipment are assessed for impairment when an event or circumstance indicates that an other than temporary decline in value may have occurred
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
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
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
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 There were no transfers between Level 1 Level 2 and Level 3 fair value measurements during the years ended June 30 2024 and June 30 2023
The types of instruments valued based on quoted market prices in active markets included money market funds certain U S Treasury securities U S Government agency securities and equity securities Such instruments are generally classified within Level 1 of the fair value hierarchy
The types of instruments valued based on other observable inputs included corporate debt securities municipal securities and certain U S Treasury securities 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 contingent consideration payable the majority of which were recorded in connection with business combinations were classified as Level 3 and estimated using significant inputs that were not observable in the market See Note 6 Business Combinations and Dispositions for additional information
Financial assets excluding cash held in operating accounts and time deposits and liabilities measured at fair value on a recurring basis as of the date indicated below were presented on our Consolidated Balance Sheets as follows
Financial assets excluding cash held in operating accounts and time deposits and liabilities measured at fair value on a recurring basis as of the date indicated below were presented on our Consolidated Balance Sheets as follows
The effects on net income of amounts reclassified from AOCI to the Consolidated Statements of Operations for the indicated periods were as follows in thousands amounts in parentheses indicate debits or reductions to earnings
The amounts reclassified out of AOCI related to our defined benefit pension plans which were recognized as a component of net periodic cost for the fiscal years ended June 30 2024 2023 and 2022 were 1 1 million 1 7 million and 1 4 million respectively For additional details refer to Note 13 Employee Benefit Plans
Our investment portfolio includes both corporate and government securities that have a maximum maturity of three years The longer the duration of these securities the more susceptible they are to changes in market interest rates and bond yields As yields increase those securities with a lower yield at cost show a mark to market unrealized loss Most of our unrealized losses are due to changes in market interest rates and bond yields We believe that we have the ability to realize the full value of all these investments upon maturity As of June 30 2024 we had 409 investments in an unrealized loss position The following table summarizes the fair value and gross unrealized losses of our investments that were in an unrealized loss position as of the dates indicated below
Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties Realized gains and losses on available for sale securities were immaterial for the fiscal years ended June 30 2024 2023 and 2022
The costs for our equity marketable securities were 22 9 million and 3 2 million as of June 30 2024 and June 30 2023 respectively Unrealized gains losses for our equity marketable securities were 12 3 million 7 1 million and 18 9 million during the fiscal years ended June 30 2024 2023 and 2022 respectively
On August 9 2022 we acquired a privately held company primarily to secure the supply of materials for existing products for aggregate purchase consideration of 32 7 million payable in cash We allocated the purchase consideration as follows 30 0 million to identifiable intangible assets 2 3 million to net tangible assets 6 5 million to deferred tax liabilities and 6 8 million to goodwill The goodwill was assigned to the Wafer Inspection and Patterning reporting unit The purchase consideration included a 3 7 million holdback to satisfy general warranties and representations that was paid in full in February 2024
On May 1 2022 we acquired the outstanding shares of a privately held company for total purchase consideration of 8 6 million paid in cash We allocated the purchase price to the tangible and identified intangible assets acquired and liabilities assumed based on their fair values and residual goodwill was allocated to the Wafer Inspection and Patterning reporting unit
On February 28 2022 we completed the acquisition of 100 of the outstanding shares of ECI Technology Inc ECI a privately held company for aggregate purchase consideration of 431 5 million paid in cash ECI is a provider of chemical management systems for semiconductor photovoltaic and PCB industries KLA acquired ECI to extend and enhance our portfolio of products and services We allocated the purchase consideration as follows 208 4 million to identifiable intangible assets 2 9 million to net tangible liabilities 40 5 million to deferred tax liabilities and 266 4 million to goodwill The goodwill was assigned to the Wafer Inspection and Patterning reporting unit
On July 1 2021 we acquired Anchor Semiconductor Inc a privately held company primarily to expand our products and services offerings for a total purchase consideration of 81 7 million including post closing working capital adjustments as well as the fair value of the promise to pay an additional consideration up to 35 0 million contingent on the achievement of certain revenue milestones The total purchase consideration was allocated as follows 31 7 million to identifiable intangible assets 26 4 million to net tangible assets 8 0 million to deferred tax liabilities and 31 5 million to goodwill The goodwill was assigned to the Wafer Inspection and Patterning reporting unit
We have included the financial results of the acquisitions in our Consolidated Financial Statements from their respective acquisition dates and these results were not material to our Consolidated Financial Statements The goodwill recorded as a result of the above acquisitions was not deductible for tax purposes
Refer to Note 1 Description of Business and Summary of Significant Accounting Policies for our policy of allocating the purchase price of an acquisition to tangible and intangible assets as well as goodwill
As of June 30 2022 we owned approximately 94 of the outstanding equity interest in Orbograph Ltd Orbograph a non core business engaged in the development and marketing of character recognition solutions to banks financial and other payment processing institutions and healthcare providers On August 9 2022 we acquired the non controlling interest in Orbograph On August 11 2022 we sold our entire interest in Orbograph to a portfolio company of a private equity firm for total consideration of 110 0 million and net cash proceeds from the transaction of 75 4 million We recognized a pre tax gain from the sale of 29 7 million which was recorded as part of Other expense income net Included in the sale were 26 5 million in tangible assets 30 5 million in liabilities and 61 2 million in goodwill and intangible assets
Our acquisition and disposition related costs are primarily included within SG A expenses in our Consolidated Statements of Operations We incurred immaterial acquisition related costs for fiscal 2023 and fiscal 2022 acquisitions
Goodwill represents the excess of the purchase price over the fair value of the net tangible and identifiable intangible assets acquired in business combinations As of June 30 2024 we have three reportable segments five operating segments and six reporting units
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
During the second quarter of fiscal 2024 we noted a significant deterioration of the long term forecast for our PCB and manufacturing flat and flexible panel displays Display businesses which are a part of our PCB and Display operating segment as the company initiated its annual strategic planning process The downward revision of financial outlook for the PCB and Display businesses triggered a goodwill impairment test In addition in the second quarter of fiscal 2024 we began to evaluate strategic options for our Display business Effective from the second quarter of fiscal 2024 our PCB and Display operating segment is comprised of two reporting units 1 PCB and 2 Display while prior to the change the PCB and Display operating segment represented a single reporting unit As a result of our quantitative assessment we recorded a total goodwill impairment charge of
reporting unit in the quarter ended December 31 2023 The goodwill balances of the new PCB and Display reporting units were determined based on their relative fair values We assessed for impairment subsequent to the reporting unit change and noted no impairment
respectively The income approach is estimated through discounted cash flow analysis The estimated fair value of this reporting unit was computed by adding the present value of the estimated annual discounted cash flows over a discrete projection period to the residual value of the business at the end of the projection period This valuation technique requires us to use significant estimates and assumptions including long term growth rates discount rates and other inputs The estimated growth rates for the projection period are based on our internal forecasts of anticipated future performance of the business The residual value is estimated using a perpetual nominal growth rate which is based on projected long range inflation and long term industry projections The discount rates are calculated as the weighted average cost of capital of comparable peer companies adjusted for company specific risk The market approach estimates the fair value of the reporting unit by utilizing the market comparable method which uses revenue and earnings multiples from comparable companies
We performed the required annual goodwill impairment testing for all reporting units as of February 29 2024 and concluded that goodwill was not impaired except for the Display reporting unit As a result of this qualitative assessment we determined that it was not necessary to perform a quantitative assessment for the reporting units subject to testing other than Display In March 2024 we made the decision to exit the Display business by announcing the end of manufacturing of most Display products by December 31 2024 but we will continue to provide services to the installed base of Display products for existing customers The exit of the business does not qualify as a discontinued operation under the relevant accounting guidance but the decision triggered a quantitative impairment assessment for the Display reporting unit which resulted in a total goodwill impairment charge of 70 5 million in the quarter ended March 31 2024
To determine the fair value of the reporting unit we utilized an income approach estimated through a discounted cash flow analysis by adding the present value of the estimated annual discounted cash flows over a discrete projection period This valuation technique requires us to use significant estimates and assumptions including discount rates and internal forecasts of the anticipated future performance of the business The discount rates are calculated as the weighted average cost of capital of comparable peer companies adjusted for company specific risk There can be no assurance that these estimates and assumptions will prove to be an accurate prediction of the future
We performed the required annual goodwill impairment test as of February 28 2023 and concluded that goodwill was not impaired As a result of our qualitative assessments we determined that it was not necessary to perform a quantitative assessment at that time
There have been no significant events or circumstances affecting the valuation of goodwill subsequent to the assessment performed in the third quarter of the fiscal year ended June 30 2024 The next annual assessment of goodwill by reporting unit is scheduled to be performed in the third quarter of the fiscal year ending June 30 2025
connection with the evaluation of the goodwill impairment in the PCB and Display reporting unit during the second quarter of fiscal 2024 due to the downward revision of financial outlook for the businesses as noted above the Company assessed tangible and intangible assets for impairment prior to performing the goodwill impairment test The Company first performed a recoverability test for each asset group identified in the PCB and Display
ment by comparing projected undiscounted cash flows from the use and eventual disposition of each asset group to its carrying value This test indicated that the undiscounted cash flows were not sufficient to recover the carrying value of the asset groups We then compared the carrying value of the individual long lived assets within those asset groups against their fair value in order to measure the impairment loss As a result of this assessment we recorded a total purchased intangible asset impairment charge of
In February 2024 we issued 750 0 million aggregate principal amount of senior unsecured notes as follows 500 0 million of 4 700 senior unsecured notes the 2024 Senior Notes due February 1 2034 and an additional 250 0 million of 4 950 senior unsecured notes due July 15 2052 which was originally issued in June 2022 resulting in an aggregate principal amount of 1 45 billion The net proceeds will be used for general corporate purposes including repayment of outstanding indebtedness at or prior to maturity
In June 2022 we issued 3 00 billion aggregate principal amount of senior unsecured notes the 2022 Senior Notes as follows 1 00 billion of 4 650 senior unsecured notes due July 15 2032 1 20 billion of 4 950 senior unsecured notes due July 15 2052 and 800 0 million of 5 250 senior unsecured notes due July 15 2062 A portion of the net proceeds of the 2022 Senior Notes was used to complete a tender offer in July 2022 for 500 0 million of our 2014 Senior Notes due 2024 including associated redemption premiums accrued interest and other fees and expenses The redemption resulted in a pre tax net loss on extinguishment of debt of 13 3 million for the fiscal year ended June 30 2023 The remainder of the net proceeds was used for share repurchases and for general corporate purposes
In February 2020 March 2019 and November 2014 we issued 750 0 million 1 20 billion and 2 50 billion respectively the 2020 Senior Notes 2019 Senior Notes and 2014 Senior Notes respectively and collectively with the 2024 and 2022 Senior Notes the Senior Notes aggregate principal amount of senior unsecured notes In July 2022 February 2020 October 2019 and November 2017 we repaid 500 0 million 500 0 million 250 0 million and 250 0 million of the Senior Notes respectively
The original discounts on the Senior Notes are being amortized over the life of the debt Interest is payable as follows semi annually on February 1 and August 1 of each year for the 2024 Senior Notes semi annually on January 15 and July 15 of each year for the 2022 Senior Notes semi annually on March 1 and September 1 of each year for the 2020 Senior Notes semi annually on March 15 and September 15 of each year for the 2019 Senior Notes and semi annually on May 1 and November 1 of each year for the 2014 Senior Notes The relevant indentures for the Senior Notes collectively the Indenture include covenants that limit our ability to grant liens on our facilities and enter into sale and leaseback transactions
In certain circumstances involving a change of control followed by a downgrade of the rating of a series of Senior Notes by at least two of Moody s Investors Service S P Global Ratings and Fitch Inc unless we have exercised our rights to redeem the Senior Notes of such series we will be required to make an offer to repurchase all or at the holder s option any part of each holder s Senior Notes of that series pursuant to the offer described below the Change of Control Offer In the Change
of Control Offer we will be required to offer payment in cash equal to 101 of the aggregate principal amount of Senior Notes repurchased plus accrued and unpaid interest if any on the Senior Notes repurchased up to but not including the date of repurchase
The fair value of the Senior Notes as of June 30 2024 and 2023 was 6 26 billion and 5 69 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
We have in place a Credit Agreement Credit Agreement for an unsecured Revolving Credit Facility Revolving Credit Facility having a maturity date of June 8 2027 that allows us to borrow up to 1 50 billion Subject to the terms of the Credit Agreement the Revolving Credit Facility may be increased by an amount up to 250 0 million in the aggregate As of June 30 2024 and 2023 there were no borrowings under the Revolving Credit Facility
We may borrow repay and reborrow funds under the Revolving Credit Facility until the maturity date at which time may exercise two one year extension options with the consent of the lenders We may prepay outstanding borrowings under the Revolving Credit Facility at any time without a prepayment penalty
Borrowings under the Revolving Credit Facility can be made as Term Secured Overnight Financing SOFR Loans or Alternate Base Rate ABR Loans at the Company s option In the event that Term SOFR is unavailable any Term SOFR elections will be converted to Daily Simple SOFR as long as it is available Each Term SOFR Loan will bear interest at a rate per annum equal to the applicable Adjusted Term SOFR rate which is equal to the applicable Term SOFR rate plus 10 bps that shall not be less than zero plus a spread ranging from 75 bps to 125 bps as determined by the Company s credit ratings at the time Each ABR Loan will bear interest at a rate per annum equal to the ABR plus a spread ranging from 0 bps to 25 bps as determined by the Company s credit ratings at the time We are also obligated to pay an annual commitment fee on the daily undrawn balance of the Revolving Credit Facility which ranges from 4 5 bps to 12 5 bps subject to an adjustment in conjunction with changes to our credit rating The applicable interest rates and commitment fees are also subject to adjustment based on the Company s performance against certain environmental sustainability key performance indicators related to greenhouse gas emissions and renewable electricity usage Our performance against these key performance indicators in calendar year 2022 resulted in reductions to the fees associated with our Revolving Credit Facility As of June 30 2024 we elected to pay interest on borrowings under the Revolving Credit Facility at the applicable Adjusted Term SOFR plus a spread of 85 bps and the applicable commitment fee on the daily undrawn balance of the Revolving Credit Facility was 6 bps
Under the Credit Agreement the maximum leverage ratio as described in the Credit Agreement on a quarterly basis is 3 50 to 1 00 covering the trailing four consecutive fiscal quarters for each fiscal quarter which may be increased to 4 00 to 1 00 for a period of time in connection with a material acquisition or a series of material acquisitions As of June 30 2024 our maximum allowed leverage ratio was 3 50 to 1 00
We have operating leases for facilities vehicles and other equipment Our facility leases are primarily used for administrative functions R D manufacturing and storage and distribution Our finance leases are not material
Our existing leases do not contain significant restrictive provisions or residual value guarantees however certain leases contain provisions for the payment of maintenance real estate taxes or insurance costs by us Our leases have remaining lease terms ranging from less than one year to 28 years including periods covered by options to extend the lease when it is reasonably certain that the option will be exercised
Lease expense was 54 6 million 41 8 million and 36 6 million for the fiscal years ended June 30 2024 2023 and 2022 respectively Expense related to short term leases which are not recorded on the Consolidated Balance Sheets was not material for the fiscal years ended June 30 2024 and 2023 As of both June 30 2024 and 2023 the weighted average remaining lease term was 6 7 years and the weighted average discount rate was 4 30 and 3 36 as of June 30 2024 and 2023 respectively
On August 3 2023 our Board of Directors adopted the KLA Corporation 2023 Incentive Award Plan the 2023 Plan which replaced our 2004 Equity Incentive Plan the 2004 Plan for grants of equity awards occurring on or after November 1 2023 The new plan was approved by our stockholders at the annual meeting of stockholders held on November 1 2023 As of June 30 2024 we were able to issue new equity incentive awards such as RSUs and stock options to our employees consultants and members of our Board of Directors under our 2023 Plan with 10 2 million shares available for issuance
Any 2004 Plan and 2023 Plan awards of RSUs performance shares performance units or deferred stock units are counted against the total number of shares issuable under the 2023 Plan share reserve or previously under the 2004 Plan reserve as two shares for every one share subject thereto
In addition the plan administrator has the ability to grant dividend equivalent rights in connection with awards of RSUs performance shares performance units and deferred stock units before they are fully vested The plan administrator at its discretion may grant a right to receive dividends on the aforementioned awards which may be settled in cash or our stock subject to meeting the vesting requirement of the underlying awards All grants during the fiscal years ended June 30 2024 2023 and 2022 included dividend equivalent rights
As of the Orbotech Ltd Orbotech Acquisition on February 20 2019 Acquisition Date we assumed outstanding equity incentive awards under Orbotech equity incentive plans the Assumed Equity Plans The awards under the Assumed Equity Plans previously issued in the form of stock options and RSUs were generally settled as follows
Each award of Orbotech s stock options and RSUs that was outstanding and vested immediately prior to the Acquisition Date collectively the Vested Equity Awards was canceled and terminated and converted into the right to receive the purchase consideration in respect of such Vested Equity Awards as of the Acquisition Date and in the case of stock options less the exercise price
Each award of Orbotech s stock options and RSUs that was outstanding and unvested immediately prior to the Acquisition Date was assumed by us each an Assumed Option and Assumed RSU and collectively the Assumed Equity Awards and converted to stock options and RSUs exercisable for the number of shares of our common stock based on the exchange ratio defined in the acquisition agreement The Assumed Equity Awards generally retain all of the rights terms and conditions of the respective plans under which they were originally granted including the same service based vesting schedule applicable thereto
As of the Acquisition Date the estimated fair value of the Assumed Equity Awards was 55 0 million of which 13 3 million was recognized as goodwill and the balance of 41 7 million was recognized as stock based compensation SBC expense over the remaining service period of the Assumed Equity Awards The fair value of the Assumed Equity Awards for services rendered through the Acquisition Date was recognized as a component of the merger consideration with the remaining fair value related to the post combination services being recorded as SBC over the remaining vesting period At the Acquisition Date a total of 14 558 and 518 971 shares of our common stock underlay the Assumed Options and RSUs respectively and had an estimated weighted average fair value of 53 3 and 104 5 per share respectively All Assumed Options were fully exercised as of June 30 2020 and all Assumed RSUs were fully vested as of June 30 2023
Includes RSUs granted to senior management with performance based vesting criteria in addition to service based vesting criteria for any of such RSUs that are deemed to have been earned performance based RSU As of June 30 2024 it had not yet been determined the extent to which if at all the performance based vesting criteria had been satisfied Therefore this line item includes all such performance based RSUs granted during the fiscal year reported at the maximum possible number of shares that may ultimately be issuable if all applicable performance based criteria are achieved at their maximum levels and all applicable service based criteria are fully satisfied 0 2 million shares 0 6 million shares and 0 2 million shares for the fiscal years ended June 30 2024 2023 and 2022 respectively reflecting the application of the 2 0x multiplier described above
Represents the portion of RSUs granted with performance based vesting criteria and reported at the actual number of shares issued upon achievement of the performance vesting criteria during the fiscal years ended June 30 2024 2023 and 2022
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 The fair value for RSUs granted with dividend equivalent rights is determined using the closing price of our common stock on the grant date The fair value for market based RSUs is estimated on the grant date using a Monte Carlo simulation model with the following assumptions expected volatilities ranging from 27 8 to 28 1 based on a combination of implied volatility from traded options on our common stock and the historical volatility of our common stock dividend yield ranging from 2 4 to 2 5 based on our current expectations for our anticipated dividend policy risk free interest rate ranging from 2 3 to 2 4 based on the implied yield available on U S Treasury zero coupon issues with terms equal to the contractual terms of each tranche and an expected term that takes into consideration the vesting term and the contractual term of the market based award The awards are amortized over service periods of three four and five years which is the longer of the explicit service period or the period in which the market target is expected to be met The fair value for purchase rights under our ESPP is determined using a Black Scholes model
Share numbers reflect actual shares subject to awarded RSUs Under the terms of the 2004 Plan for grants prior to November 1 2023 or the terms of the 2023 Plan for grants on or after November 1 2023 the number of shares subject to each award reflected in this number is multiplied by 2 0x to calculate the impact of the award on the share reserve under the respective plan
Includes performance based RSUs As of June 30 2024 it had not yet been determined the extent to which if at all the performance based criteria had been satisfied Therefore this line item includes all such RSUs reported at the maximum possible number of shares i e 0 1 million shares for the fiscal year ended June 30 2024 that may ultimately be issuable if all applicable performance based criteria are achieved at their maximum
The RSUs granted by us generally vest a with respect to awards with only service based vesting criteria over periods ranging from two to four years and b with respect to awards with both performance based and service based vesting criteria over periods ranging from three to four years and c with respect to awards with both market based and service based vesting criteria in three equal installments on the third fourth and fifth anniversaries of the grant date in each case subject to the recipient remaining employed by us as of the applicable vesting date The RSUs granted to the independent members of the Board of Directors vest annually
The following table shows the weighted average grant date fair value per unit for the RSUs granted aggregate grant date fair value of RSUs vested and tax benefits realized by us in connection with vested and released RSUs for the indicated periods
As of June 30 2024 the unrecognized SBC expense balance related to RSUs was 428 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 June 30 2024 was 1 21 billion
As part of our employee compensation program we issue Cash LTI awards to many of our employees Executives and non employee members of the Board of Directors do not participate in the Cash LTI Plan During the fiscal years ended June 30 2024 and 2023 we approved Cash LTI awards of 51 4 million and 67 1 million respectively Cash LTI awards issued to employees under the Cash LTI Plan will vest in three or four equal installments with one third or one fourth of the aggregate amount of the Cash LTI award vesting on each anniversary of the grant date over a three or four year period In order to receive payments under a Cash LTI award participants must remain employed by us as of the applicable award vesting date During the fiscal years ended June 30 2024 2023 and 2022 we recognized 70 3 million 76 4 million and 85 3 million respectively in compensation expense under the Cash LTI Plan As of June 30 2024 the unrecognized compensation balance excluding the impact of estimated forfeitures related to the Cash LTI Plan was 126 8 million
Our ESPP provides that eligible employees may contribute up to 15 of their eligible earnings toward the semi annual purchase of our common stock The ESPP is qualified under Section 423 of the Internal Revenue Code The employee s purchase price is derived from a formula based on the closing price of the common stock on the first day of the offering period versus the closing price on the date of purchase or if not a trading day on the immediately preceding trading day
The offering period or length of the look back period under the ESPP has a duration of six months and the purchase price with respect to each offering period beginning on or after such date is until otherwise amended equal to 85 of the lesser of i the fair market value of our common stock at the commencement of the applicable six month offering period or ii the fair market value of our common stock on the purchase date We estimate the fair value of purchase rights under the ESPP using a Black Scholes model
The fair value of each purchase right under the ESPP was estimated on the date of grant using the Black Scholes model and the straight line attribution approach with the following weighted average assumptions
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
The ESPP shares are replenished annually on the first day of each fiscal year by virtue of an evergreen provision The provision allows for share replenishment equal to the lesser of 2 0 million shares or the number of shares that we estimate will be required to be issued under the ESPP during the forthcoming fiscal year As of June 30 2024 a total of 2 3 million shares were reserved and available for issuance under the ESPP
On May 31 2024 we paid a quarterly cash dividend of 1 45 per share on the outstanding shares of our common stock to stockholders of record as of the close of business on May 15 2024 The total amount of regular quarterly cash dividends and dividend equivalents paid during the fiscal years ended June 30 2024 and 2023 was 773 0 million and 732 6 million respectively The amount of accrued dividend equivalents payable related to unvested RSUs with dividend equivalent rights
was 11 8 million and 12 2 million as of June 30 2024 and 2023 respectively These amounts will be paid upon vesting of the underlying RSUs Refer to Note 21 Subsequent Events to the Consolidated Financial Statements for additional information regarding the declaration of our quarterly cash dividend announced subsequent to June 30 2024
As of June 30 2022 we owned approximately 94 of the outstanding equity interest of Orbograph which was a non core business engaged in the development and marketing of character recognition solutions to banks financial and other payment processing institutions and healthcare providers On August 11 2022 we sold our interest in Orbograph for further details refer to Note 6 Business Combinations and Dispositions to our Consolidated Financial Statements
Our Board of Directors has authorized a program that permits us to repurchase our common stock including increases in the authorized repurchase amount of 2 00 billion in the first quarter of fiscal 2022 6 00 billion in the fourth quarter of fiscal 2022 and 2 00 billion in the first quarter of fiscal 2024 The stock repurchase program has no expiration date and may be suspended at any time The intent of the program is in part to mitigate the potential dilutive impact related to our equity incentive plans and shares issued in connection with our ESPP as well as to return excess cash to our stockholders Any and all share repurchase transactions are subject to market conditions and applicable legal requirements
On June 23 2022 the Company executed accelerated share repurchase agreements ASR Agreements with two financial institutions to repurchase shares of our common stock in exchange for an upfront payment of 3 00 billion The Company received initial deliveries totaling approximately 6 5 million shares of common stock in the fourth quarter of fiscal 2022 which represented 70 of the prepayment amount at the then prevailing market price of the Company s shares of common stock The initial shares delivered were retired immediately upon settlement and treated as repurchases of the Company s common stock for purposes of earnings per share calculations The total number of shares received under the ASR Agreements was based on the volume weighted average price of the Company s common stock during the term of the ASR Agreements less an agreed upon discount Final settlement of the ASR Agreements occurred during the three months ended December 31 2022 resulting in the delivery of 2 4 million additional shares which yielded an average share price of 333 88 for the entire transaction
Under the authoritative guidance share repurchases are recognized as a reduction to retained earnings to the extent available with any excess recognized as a reduction of capital in excess of par value In addition as explained further in Note 14 Income Taxes the Inflation Reduction Act of 2022 IRA introduced a 1 excise tax imposed on certain stock repurchases by publicly traded companies made after December 31 2022 The excise tax is recorded as part of the cost basis of treasury stock repurchased after December 31 2022 and as such is included in stockholders equity
Share repurchase transactions for the indicated periods based on the trade date of the applicable repurchase with fiscal 2022 excluding the 0 90 billion portion of the ASR upfront payment that was recorded as an unsettled forward contract in fiscal 2022 were as follows
Basic net income per share is calculated by dividing net income available to common stockholders by the weighted average number of common shares outstanding during the period Diluted net income per share is calculated by using the weighted average number of common shares outstanding during the period increased to include the number of additional shares of common stock that would have been outstanding if the shares of common stock underlying our outstanding dilutive RSUs had been issued The dilutive effect of outstanding RSUs is reflected in diluted net income per share by application of the treasury stock method In addition the shares delivered under the ASR Agreements discussed in Note 11 Stock Repurchase Program in the fourth quarter of fiscal 2022 and second quarter of fiscal 2023 resulted in a reduction of outstanding shares used to determine our weighted average common shares outstanding for purposes of calculating basic and diluted earnings per share for those respective fiscal years
We have a profit sharing program for eligible employees which distributes a percentage of our pre tax profits on a quarterly basis In addition we have an employee savings plan that qualifies as a deferred salary arrangement under Section 401 k of the Internal Revenue Code Since January 1 2019 the employer match is the greater of 50 of the first 8 000 of an eligible employee s contributions or 50 of the first 5 of eligible compensation contributed plus 25 of the next 5 of compensation contributed
The total expenses under the profit sharing and 401 k programs amounted to 39 4 million 37 3 million and 33 3 million in the fiscal years ended June 30 2024 2023 and 2022 respectively We have no defined benefit plans in the U S In addition to the profit sharing plan and the U S 401 k several of our foreign subsidiaries have retirement plans for their full time employees several of which are defined benefit plans Consistent with the requirements of local law our deposited funds for certain of these plans are held with insurance companies with third party trustees or in government managed accounts The assumptions used in calculating the obligation for the foreign plans depend on the local economic environment
We apply authoritative guidance that requires an employer to recognize the funded status of each of our defined benefit pension and post retirement benefit plans as a net asset or liability on its balance sheets Additionally the authoritative guidance requires an employer to measure the funded status of each of its plans as of the date of its year end statement of financial position The benefit obligations and related assets under our plans have been measured as of June 30 2024 and 2023
The assumptions for expected rate of return on assets were developed by considering the historical returns and expectations of future returns relevant to the country in which each plan is in effect and the investments applicable to the corresponding plan The discount rate for each plan was derived by reference to appropriate benchmark yields on high quality corporate bonds allowing for the approximate duration of both plan obligations and the relevant benchmark index
Service cost is reported in Cost of revenues R D and SG A expenses All other components of net periodic pension cost are reported in Other expense income net in the Consolidated Statements of Operations
Fair value is the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date The three levels of inputs used to measure fair value of plan assets are described in Note 3 Fair Value Measurements
The foreign plans investments are managed by third party trustees consistent with the regulations or market practice of the country where the assets are invested We are not actively involved in the investment strategy nor do we have control over the target allocation of these investments These investments made up 100 of total foreign plan assets in the fiscal years ended June 30 2024 and 2023
We manage a variety of risks including market credit and liquidity risks across our plan assets through our investment managers We define a concentration of risk as an undiversified exposure to one of the above mentioned risks that increases the exposure of the loss of plan assets unnecessarily We monitor exposure to such risks in the foreign plans by monitoring the magnitude of the risk in each plan and diversifying our exposure to such risks across a variety of instruments markets and counterparties As of June 30 2024 we did not have concentrations of plan asset investment risk in any single entity manager counterparty sector industry or country
Our deferred tax assets for the years ended June 30 2024 and 2023 reflect the impact of the mandatory capitalization of research and experimental expenditures as required by the 2017 Tax Cuts and Jobs Act This provision was first effective for the Company in the year ending June 30 2023
As of June 30 2024 we had U S federal state and foreign net operating loss NOL carry forwards of 6 5 million 11 8 million and 221 5 million respectively We also had foreign capital loss carry forwards of 8 6 million as of June 30 2024 The U S federal NOL carry forwards will expire at various dates beginning in 2025 through 2042 The utilization of NOLs created by acquired companies is subject to annual limitations under Section 382 of the Internal Revenue Code However it is not expected that such annual limitation will significantly impair the realization of these NOLs The state NOLs will expire at various dates beginning in 2028 through 2036 Foreign NOLs and capital loss carry forwards will be carried forward indefinitely State credits of 366 6 million will also be carried forward indefinitely
The net deferred tax asset valuation allowance was 289 5 million and 259 2 million as of June 30 2024 and 2023 respectively The change was primarily due to an increase in the valuation allowance related to state credit carry forwards generated in the fiscal year ended June 30 2024 The valuation allowance is based on our assessment that it is more likely than not that certain deferred tax assets will not be realized in the foreseeable future Of the valuation allowance as of June 30 2024 285 4 million was related to federal and state credit carry forwards The remainder of the valuation allowance was related to state and foreign NOL carry forwards
As of June 30 2024 we intend to indefinitely reinvest 185 9 million of cumulative undistributed earnings held by certain non U S subsidiaries If these undistributed earnings were repatriated to the U S the potential deferred tax liability associated with the undistributed earnings would be approximately 39 million
We benefit from tax holidays in Singapore where we manufacture certain of our products These tax holidays are on approved investments The tax holidays in Singapore are scheduled to expire in five to eight years We were in compliance with all the terms and conditions of the tax holidays as of June 30 2024 The net impact of these tax holidays was to decrease our tax expense by 159 4 million 161 5 million and 543 7 million in the fiscal years ended June 30 2024 2023 and 2022 respectively The benefits of the tax holidays on diluted net income per share were 1 19 1 18 and 3 83 for the fiscal years ended June 30 2024 2023 and 2022 respectively The benefits during the fiscal year ended June 30 2022 include a one time deferred tax benefit of approximately 398 million due to a tax basis step up from a restructuring
The amounts of unrecognized tax benefits that would impact the effective tax rate were 244 6 million 199 0 million and 205 0 million as of June 30 2024 2023 and 2022 respectively The amounts of interest and penalties recognized during the years ended June 30 2024 2023 and 2022 were expenses benefits of 8 3 million 20 2 million and 11 5 million respectively Our policy is to include interest and penalties related to unrecognized tax benefits within Other expense income net The amounts of interest and penalties accrued as of June 30 2024 and 2023 were 41 1 million and 32 6 million respectively
In the normal course of business we are subject to examination by tax authorities throughout the world We are subject to U S federal income tax examinations for all years beginning from the fiscal year ended June 30 2018 and are under U S federal income tax examination for the fiscal years ended June 30 2018 2019 and 2020 We are subject to state income tax examinations for all years beginning from the fiscal year ended June 30 2020 We are also subject to examinations in other major foreign jurisdictions including Singapore and Israel for all years beginning from the calendar year ended December 31 2019 and are under audit in Israel for the period from January 1 2019 to June 30 2022 We have changed our year end in Israel to a fiscal year ending June 30
In August 2022 Orbotech executed a settlement agreement with the Israel Tax Authority ITA in resolution of tax examinations for fiscal years 2012 through 2014 and 2015 through 2018 The settlement agreement included a payment of approximately 25 7 million including interest to the ITA In addition Orbotech paid approximately 16 2 million to the ITA related to previous tax exempt earnings under the historical Approved or Beneficial Enterprises regimes The current year election to pay tax on the previous exempt earnings was made under the Temporary Order issued in the Israel Budget which allows for a reduced tax rate on such earnings Approximately 5 7 million of the settlement payment related to the amount of R D expenses eligible for deduction during the above referenced years was refunded to Orbotech in January 2023
We believe that we may recognize up to 16 5 million of our existing unrecognized tax benefits within the next 12 months as a result of the lapse of statutes of limitations It is possible that certain income tax examinations may be concluded in the next 12 months Given the uncertainty around the timing of the resolution of these ongoing examinations we are unable to estimate the full range of possible adjustments to our unrecognized tax benefits within the next 12 months
President Biden signed into law the CHIPS and Science Act of 2022 CHIPS Act where CHIPS stands for Creating Helpful Incentives to Produce Semiconductors on August 9 2022 The CHIPS Act provides for various incentives and tax credits among other items including the Advanced Manufacturing Investment Credit AMIC which equals 25 of qualified investments in an advanced manufacturing facility that is placed in service after December 31 2022 There was no material impact to our financial statements from the AMIC provision
President Biden also signed into law the IRA on August 16 2022 The IRA has several provisions including a 15 corporate alternative minimum tax CAMT for certain large corporations that have at least an average of 1 0 billion of adjusted financial statement income over a consecutive three tax year period The CAMT was effective for us beginning in our fiscal year ending June 30 2024 and there was no tax impact to our financial statements from the CAMT provision
The IRA also introduced a 1 excise tax imposed on certain stock repurchases by publicly traded companies made after December 31 2022 We began recording the excise tax as part of the cost basis of treasury stock repurchased after December 31 2022
Other than the AMIC and the excise tax imposed on certain stock repurchases as mentioned above we are currently evaluating the applicability and impact of the other provisions in the IRA and the CHIPS Act on our Consolidated Financial Statements including our future cash flows
California Governor Newsom approved the 2024 25 California State Budget on June 27 2024 which includes a provision to suspend the use of all net operating losses and limits the use of R D tax credits to 5 million for tax years 2024 through 2026 This provision will be effective in our fiscal years ending June 30 2025 through June 30 2027 We do not expect these modifications to have any impact to our Consolidated Financial Statements
We are named from time to time as a party to lawsuits and other types of legal proceedings and claims in the normal course of our business Actions filed against us include commercial intellectual property IP customer and labor and employment related claims including complaints of alleged wrongful termination and potential class action lawsuits regarding alleged violations of federal and state wage and hour and other laws In general legal proceedings and claims regardless of their merit and associated internal investigations especially those relating to IP or confidential information disputes are often expensive to prosecute defend or conduct and may divert management s attention and other company resources Moreover the results of legal proceedings are difficult to predict and the costs incurred in litigation can be substantial regardless of outcome We believe the amounts provided in our Consolidated Financial Statements are adequate in light of the probable and estimated liabilities However because such matters are subject to many uncertainties and the ultimate outcomes are not predictable there can be no assurances that the actual amounts required to satisfy alleged liabilities from the matters described above will not exceed the amounts reflected in our Consolidated Financial Statements or will not have a material adverse effect on our results of operations financial condition or cash flows
We have factoring agreements with financial institutions to sell certain of our trade receivables and promissory notes from customers without recourse We do not believe we are at risk for any material losses as a result of these agreements In addition we periodically sell certain LC without recourse received from customers in payment for goods and services
We maintain commitments to purchase inventory from our suppliers as well as goods services and other assets in the ordinary course of business Our liability under these purchase commitments is generally
restricted to a forecasted time horizon as mutually agreed between the parties This forecasted time horizon can vary among different suppliers Our estimate of our significant purchase commitments primarily for material services supplies and asset purchases is 2 17 billion as of June 30 2024 a majority of which will be due within the next 12 months Actual expenditures will vary based upon the volume of the transactions and length of contractual service provided In addition the amounts paid under these arrangements may be less in the event that the arrangements are renegotiated or canceled Certain agreements provide for potential cancellation penalties
As of June 30 2024 we have committed 143 1 million for future payment obligations under our Cash LTI Plan Cash LTI awards issued to employees under the Cash LTI Plan vest in three or four equal installments with one third or one fourth of the aggregate amount of the Cash LTI award vesting on each anniversary of the grant date over a three or four year period In order to receive payments under a Cash LTI award participants must be employed by us as of the applicable award vesting date
We maintain guarantee arrangements available through various financial institutions for up to 83 9 million of which 49 9 million had been issued as of June 30 2024 primarily to fund guarantees to customs authorities for value added tax and other operating requirements of our consolidated subsidiaries in Europe Israel and Asia
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 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 IP rights and a breach of warranties representations and covenants related to matters such as title to assets sold validity of certain IP 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 IP representations or covenants to control the defense or settlement of any third party claims brought against the other party Further our obligations under these agreements may be limited in terms of amounts activity typically at our option to replace or correct the products or terminate the agreement with a refund to the other party and duration In some instances we may have recourse against third parties and or insurance covering certain payments made by us
In addition we may in limited circumstances enter into agreements that contain customer specific commitments on pricing tool reliability spare parts stocking levels response time and other commitments Furthermore we may give these customers limited audit or inspection rights to enable them to confirm that we are complying with these commitments If a customer elects to exercise its audit or inspection rights we may be required to expend significant resources to support the audit or inspection as well as to defend or settle any dispute with a customer that could potentially arise out of such audit or inspection To date we have made no significant accruals in our Consolidated Financial Statements for this contingency While we have not in the past incurred significant expenses for resolving disputes regarding these types of commitments we cannot make any assurance that it will not incur any such liabilities in the future
It is not possible to predict the maximum potential amount of future payments under these or similar agreements due to the conditional nature of our obligations and the unique facts and circumstances involved in each particular agreement Historically payments made by us under these agreements have not had a material effect on our business financial condition results of operations or cash flows
The authoritative guidance requires companies to recognize all derivative instruments including foreign exchange contracts and rate lock agreements collectively derivatives as either assets or liabilities at fair value on the Consolidated
Balance Sheets In accordance with the accounting guidance we designate foreign currency forward transactions and options contracts and interest rate forward transactions as cash flow hedges In accordance with the accounting guidance we also designate certain foreign currency exchange contracts as net investment hedge transactions intended to mitigate the variability of the value of certain investments in foreign subsidiaries
Our foreign subsidiaries operate and sell our products in various global markets As a result we are exposed to risks relating to changes in foreign currency exchange rates We utilize foreign exchange contracts to hedge against future movements in foreign currency exchange rates that affect certain existing and forecasted foreign currency denominated sales and purchase transactions such as the Japanese yen the euro the pound sterling and the new Israeli shekel
We routinely hedge our exposures to certain foreign currencies with various financial institutions in an effort to minimize the impact of certain currency exchange rate fluctuations These foreign exchange contracts designated as cash flow hedges generally have maturities of less than 18 months Cash flow hedges are evaluated for effectiveness monthly based on changes in total fair value of the derivatives If a financial counterparty to any of our hedging arrangements experiences financial difficulties or is otherwise unable to honor the terms of the foreign currency hedge we may experience material losses
Since fiscal 2015 we have entered into five sets of Rate Lock Agreements to hedge the benchmark interest rate on portions of our Senior Notes prior to issuance Upon issuance of the associated debt the Rate Lock Agreements were settled and their fair values were recorded within AOCI The resulting gains and losses from these transactions are amortized to interest expense over the lives of the associated debt As of June 30 2024 the aggregate unamortized portion of the fair value of the Rate Lock Agreements was a 47 7 million net gain
For derivatives that are designated and qualify as cash flow hedges the effective portion of the gains or losses is reported in AOCI and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings For derivative contracts executed after adopting the new accounting guidance in fiscal 2019 the election to include time value for the assessment of effectiveness is made on all forward contracts designated as cash flow hedges The change in fair value of the derivative is recorded in AOCI until the hedged item is recognized in earnings The assessment of effectiveness of options contracts designated as cash flow hedges exclude time value The initial value of the component excluded from the assessment of effectiveness is recognized in earnings over the life of the derivative contract Any difference between change in the fair value of the excluded components and the amounts recognized in earnings are recorded in AOCI
For derivatives that are designated and qualify as a net investment hedge in a foreign operation and that meet the effectiveness requirements the net gains or losses attributable to changes in spot exchange rates are recorded in cumulative translation within AOCI The remainder of the change in value of such instruments is recorded in earnings using the mark to market approach Recognition in earnings of amounts previously recorded in cumulative translation is limited to circumstances such as complete or substantially complete liquidation or sale of the net investment in the hedged foreign operations
For derivatives that are not designated as hedges gains and losses are recognized in Other expense income net We use foreign exchange contracts to hedge certain foreign currency denominated assets or liabilities The gains and losses on these derivative instruments are largely offset by the changes in the fair value of the assets or liabilities being hedged
The U S dollar equivalent of all outstanding notional amounts of foreign currency hedge contracts with maximum remaining maturities of approximately 12 months as of June 30 2024 and 11 months as of June 30 2023 were as follows
We present derivatives at gross fair values in the Consolidated Balance Sheets We have entered into arrangements with each of our counterparties which reduce credit risk by permitting net settlement of transactions with the same counterparty under certain conditions The information related to the offsetting arrangements for the periods indicated was as follows
During the fiscal years ended June 30 2024 2023 and 2022 we purchased from or sold to several entities where one or more of our executive officers or members of our Board of Directors were during the periods presented an executive officer or a board member including Advanced Micro Devices Inc Agilent Technologies Inc Ansys Inc HP Inc Keysight Technologies Inc Microchip Technology Incorporated Splunk Inc and Tenneco Inc Citrix Systems Inc was a related party only during the fiscal year ended June 30 2022 The following table provides the transactions with these parties for the indicated periods for the portion of such period that they were considered related
Our receivable balances were immaterial and 1 0 million and payable balances were immaterial from these parties as of June 30 2024 and 2023 respectively All of the related party transactions were made at current market rates
ASC 280 Segment Reporting establishes standards for reporting information about operating segments Operating segments are defined as components of an enterprise about which separate financial information is evaluated regularly by the chief operating decision maker CODM in deciding how to allocate resources and in assessing performance Our CODM is our Chief Executive Officer
We have three reportable segments Semiconductor Process Control Specialty Semiconductor Process and PCB and Component Inspection The reportable segments are determined based on several factors including but not limited to customer base homogeneity of products technology delivery channels and similar economic characteristics
The Semiconductor Process Control segment offers a comprehensive portfolio of inspection metrology and data analytics products and related services which helps IC manufacturers achieve target yield throughout the entire semiconductor fabrication process from R D to final volume production Our differentiated products and services are designed to provide comprehensive solutions that help our customers accelerate development and production ramp cycles achieve higher and more stable semiconductor die yields and improve their overall profitability This reportable segment is comprised of two operating segments Wafer Inspection and Patterning and GSS
The Specialty Semiconductor Process segment develops and sells advanced vacuum deposition and etching process tools which are used by a broad range of specialty semiconductor customers including manufacturers of MEMS radio frequency communication chips and power semiconductors for automotive and industrial applications This reportable segment is comprised of one operating segment
The PCB and Component Inspection segment enables electronic device manufacturers to inspect test and measure PCBs FPDs and ICs to verify their quality pattern the desired electronic circuitry on the relevant substrate and perform three dimensional shaping of metalized circuits on multiple surfaces This reportable segment is comprised of two operating segments PCB and Component Inspection In March 2024 we made the decision to exit the Display business by announcing
The CODM assesses the performance of each operating segment and allocates resources to those segments based on total revenues and segment gross profit and does not evaluate the segments using discrete asset information Segment gross profit excludes corporate allocations and effects of changes in foreign currency exchange rates amortization of intangible assets amortization of inventory fair value adjustments and transaction costs associated with our acquisitions related to costs of revenues
Our significant operations outside the U S include manufacturing facilities in China Germany Israel and Singapore and sales marketing and service offices in Japan the rest of the Asia Pacific region and Europe For geographical revenue reporting revenues are attributed to the geographic location in which the customer is located Long lived assets consist of land property and equipment net and are attributed to the geographic region in which they are located
Wafer Inspection and Patterning products are offered in the Semiconductor Process Control segment Services are offered in multiple segments Other includes primarily refurbished systems remanufactured legacy systems and enhancements and upgrades for previous generation products that are part of the Semiconductor Process Control segment
In the fiscal year ended June 30 2024 one customer accounted for approximately 13 of total revenues In the fiscal year ended June 30 2023 two customers accounted for approximately 18 and 15 of total revenues In the fiscal year ended June 30 2022 two customers accounted for approximately 20 and 12 of total revenues
Restructuring charges were 21 6 million for fiscal year ended June 30 2024 primarily due to severance and related charges for the restructuring of the PCB and Display operating segment as described further in Note 7 Goodwill and Purchased Intangible Assets as well as writedowns of certain ROU assets and fixed assets that were abandoned Restructuring charges were 44 0 million for the year ended June 30 2023 primarily due to workforce reductions announced and substantially completed in the third and fourth fiscal quarters Restructuring charges were 1 0 million for the year ended June 30 2022 The amounts of restructuring charges accrued were 6 5 million and 11 0 million as of June 30 2024 and 2023 respectively
On August 1 2024 we announced that our Board of Directors had declared a quarterly cash dividend of 1 45 per share to be paid on September 3 2024 to stockholders of record as of the close of business on August 15 2024
We have audited the accompanying consolidated balance sheets of KLA Corporation and its subsidiaries the Company as of June 30 2024 and 2023 and the related consolidated statements of operations comprehensive income stockholders equity and cash flows for each of the three years in the period ended June 30 2024 including the related notes and financial statement schedule listed in the accompanying index under item 15 a 2 collectively referred to as the consolidated financial statements We also have audited the Company s internal control over financial reporting as of June 30 2024 based on criteria established in Internal Control Integrated Framework 2013 issued by the Committee of Sponsoring Organizations of the Treadway Commission COSO
In our opinion the consolidated financial statements referred to above present fairly in all material respects the financial position of the Company as of June 30 2024 and 2023 and the results of its operations and its cash flows for each of the three years in the period ended June 30 2024 in conformity with accounting principles generally accepted in the United States of America Also in our opinion the Company maintained in all material respects effective internal control over financial reporting as of June 30 2024 based on criteria established in Internal Control Integrated Framework 2013 issued by the COSO
The Company s management is responsible for these consolidated financial statements for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in Management s Report on Internal Control over Financial Reporting appearing under Item 9A Our responsibility is to express opinions on the Company s consolidated financial statements and on the Company s internal control over financial reporting based on our audits We are a public accounting firm registered with the Public Company Accounting Oversight Board United States PCAOB and are required to be independent with respect to the Company in accordance with the U S federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB
We conducted our audits in accordance with the standards of the PCAOB Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement whether due to error or fraud and whether effective internal control over financial reporting was maintained in all material respects
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements whether due to error or fraud and performing procedures that respond to those risks Such procedures included examining on a test basis evidence regarding the amounts and disclosures in the consolidated financial statements Our audits also included evaluating the accounting principles used and significant estimates made by management as well as evaluating the overall presentation of the consolidated financial statements Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting assessing the risk that a material weakness exists and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk Our audits also included performing such other procedures as we considered necessary in the circumstances We believe that our audits provide a reasonable basis for our opinions
A company s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles A company s internal control over financial reporting includes those policies and procedures that i pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the company ii provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company and iii provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition use or disposition of the company s assets that could have a material effect on the financial statements
Because of its inherent limitations internal control over financial reporting may not prevent or detect misstatements Also projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that i relates to accounts or disclosures that are material to the consolidated financial statements and ii involved our especially challenging subjective or complex judgments The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements taken as a whole and we are not by communicating the critical audit matter below providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates
As described in Note 1 to the consolidated financial statements the Company s arrangements with its customers include various combinations of products and services which are generally capable of being distinct and accounted for as separate performance obligations The transaction consideration including any sales incentives is allocated between separate performance obligations of an arrangement based on the stand alone selling price for each distinct product or service Revenues are measured based on consideration stipulated in the arrangement with each customer Revenue is recognized from product sales at a point in time when the performance obligation has been satisfied by transferring control of the product to the customer Services revenue is recognized ratably over the period the customer simultaneously receives and consumes the benefits of the services provided or when the related service is performed The Company s total revenues were 9 812 2 million for the year ended June 30 2024
The principal consideration for our determination that performing procedures relating to revenue recognition is a critical audit matter is a high degree of auditor effort in performing procedures related to the Company s revenue recognition
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements These procedures included testing the effectiveness of controls relating to the revenue recognition process including controls over the recording of product and services revenue at the transaction consideration once control passes to the customer These procedures also included among others i testing the completeness accuracy and occurrence of revenue recognized for a sample of product revenue transactions by obtaining and inspecting source documents such as purchase orders sales orders and proof of shipment ii testing the completeness accuracy and occurrence of a sample of service revenue transactions by obtaining and inspecting source documents such as purchase orders sales orders and other evidence supporting the service period and iii confirming a sample of outstanding customer invoice balances as of June 30 2024 and for confirmations not returned obtaining and inspecting source documents such as invoices proof of shipment and subsequent cash receipts
We conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as defined in Rules 13a 15 e and 15d 15 e under the Securities Exchange Act Disclosure Controls as of the end of the period covered by this Annual Report on Form 10 K this Report required by Securities Exchange Act Rules 13a 15 b or 15d 15 b The evaluation of our disclosure controls and procedures was conducted under the supervision and with the participation of our management including our Chief Executive Officer CEO and Chief Financial Officer CFO Based on this evaluation the CEO and CFO have concluded that as of June 30 2024 the end of the period covered by this Report our Disclosure Controls were effective at a reasonable assurance level
Attached as exhibits to this Report are certifications of the CEO and CFO which are required in accordance with Rule 13a 14 of the Securities Exchange Act This Controls and Procedures section includes the information concerning the controls evaluation referred to in the certifications and it should be read in conjunction with the certifications for a more complete understanding of the topics presented
Disclosure Controls are controls and procedures designed to reasonably assure that information required to be disclosed in our reports filed or submitted under the Securities Exchange Act such as this Report is recorded processed summarized and reported within the time periods specified in the Securities and Exchange Commission s rules and forms Disclosure Controls are also designed to reasonably assure that such information is accumulated and communicated to our management including our CEO and CFO as appropriate to allow timely decisions regarding required disclosure Our Disclosure Controls include components of our internal control over financial reporting which consists of control processes designed to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements in accordance with generally accepted accounting principles in the United States To the extent that components of our internal control over financial reporting are included within our Disclosure Controls they are included in the scope of our annual controls evaluation
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a 15 f and 15d 15 f under the Securities Exchange Act Under the supervision and with the participation of our management including our CEO and CFO we conducted an evaluation of the effectiveness of our internal control over financial reporting based on criteria established in the framework in
issued by the Committee of Sponsoring Organizations of the Treadway Commission Based on this evaluation our management concluded that our internal control over financial reporting was effective as of June 30 2024
The effectiveness of our internal control over financial reporting as of June 30 2024 has been audited by PricewaterhouseCoopers LLP an independent registered public accounting firm as stated in their report which appears in Item 8 Financial Statements and Supplementary Data in this Annual Report on Form 10 K
Our management including our CEO and CFO does not expect that our Disclosure Controls or internal control over financial reporting will prevent all error and all fraud A control system no matter how well designed and operated can provide only reasonable not absolute assurance that the control system s objectives will be met Further the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs Because of the inherent limitations in all control systems no evaluation of controls can provide absolute assurance that all control issues and instances of fraud if any within the Company have been detected These inherent limitations include the realities that judgments in decision making can be faulty and that breakdowns can occur because of simple error or mistake Controls can also be circumvented by the individual acts of some persons by collusion of two or more people or by management override of the controls The design of any system of controls is based in part on certain assumptions about the likelihood of future events and there can be no assurance that any design will succeed in achieving our stated goals under all potential future conditions Over time controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures Because of the inherent limitations in a cost effective control system misstatements due to error or fraud may occur and not be detected
There were no changes in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a 15 d and 15d 15 d of the Securities Exchange Act that occurred during the fourth quarter of the fiscal year ended June 30 2024 that have materially affected or is reasonably likely to materially affect our internal control over financial reporting
During the three months ended June 30 2024 the following officers of the Company adopted trading plans to sell and or gift shares of our common stock that have been or will be issued upon the vesting of RSUs or purchased in our Employee Stock Purchase Plan that are intended to satisfy the affirmative defense conditions set forth in Rule 10b5 1 c under the Securities Exchange Act The material terms of the trading plans other than pricing conditions are set forth in the table below
Shares sold under plans upon the vesting of PRSUs where the performance conditions have not been met at the time of plan adoption or are to be purchased in the future under our employee stock purchase plan are calculated at the maximum number of shares that may be issued with fractional shares disregarded
Mr Higgins trading plan terminates when the last trade is placed under the plan The last scheduled trade is on May 22 2025 provided that if any scheduled trades are not placed because of trading conditions set forth in the plan the trading plan will terminate on June 30 2025
For the information required by this Item see Information About the Board of Directors and its Committees Information About Executive Officers Our Corporate Governance Practices Standards of Business Conduct Whistleblower Hotline and Website Our Corporate Governance Practices Insider Trading Policy Report of the Audit Committee and if applicable Security Ownership of Certain Beneficial Owners and Management Delinquent Section 16 a Reports in the Proxy Statement which is incorporated herein by reference
For the information required by this Item see Executive Compensation and Other Matters Information About the Board of Directors and Its Committees Director Compensation Our Corporate Governance Practices Compensation and Talent Committee Interlocks and Insider Participation Compensation and Talent Committee Report and Information About the Board of Directors and Its Committees Compensation and Talent Committee Risk Considerations in Our Compensation Programs in the Proxy Statement which is incorporated herein by reference
For the information required by this Item see Security Ownership of Certain Beneficial Owners and Management and Equity Compensation Plan Information in the Proxy Statement which is incorporated herein by reference
For the information required by this Item see Certain Relationships and Related Transactions and Information About the Board of Directors and Its Committees The Board of Directors in the Proxy Statement which is incorporated herein by reference
For the information required by this Item see Proposal Two Ratification of Appointment of PricewaterhouseCoopers LLP as Our Independent Registered Public Accounting Firm for the Fiscal Year Ending June 30 2025 in the Proxy Statement which is incorporated herein by reference
Pursuant to the requirements of Section 13 or 15 d of the Securities Exchange Act of 1934 the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized
Each person whose signature appears below constitutes and appoints Richard P Wallace and Bren D Higgins and each or any of them his or her true and lawful attorney in fact and agent each acting alone with full power of substitution and resubstitution for him or her and in his or her name place and stead in any and all capacities to sign any or all amendments or supplements including post effective amendments to this Report and to file the same with all exhibits thereto and all documents in connection therewith with the Securities and Exchange Commission granting unto said attorney in fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises as fully to all intents and purposes as he or she might or could do in person hereby ratifying and confirming all that said attorney in fact and agent or his or her substitute or substitutes may lawfully do or cause to be done by virtue hereof
Pursuant to the requirements of the Securities Exchange Act of 1934 this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated

Company Name	KLA CORP Vist SEC web-site
Category	OPTICAL INSTRUMENTS & LENSES
Trading Symbol	KLAC