2021 Letter to Shareholders
Fellow Shareholders:
As we reflect on fiscal year 2021 (FY21), it is important to first acknowledge the contributions of our global
KLA team. The team’s perseverance and high performance enabled KLA to rise to every challenge in an
extraordinary year for our company and the global community. They faced the continued adversity of the
COVID-19 pandemic head on and delivered on commitments in a period of exceptional growth for KLA and
the semiconductor industry. Through it all, our team grew stronger, and delivered record results.
FY21 Recap – Rising to the Challenge and Setting New Levels of Performance
In FY21, KLA delivered strong growth, profitability, and free cash flow. Addressing record demand across
all our major markets, we met our customer commitments while continuing to innovate and introduce
new products. Adapting to new ways of collaborating and connecting with customers became an essential
part of being indispensable to our customers. Through it all, we never lost focus on meeting customer
needs and delivering strong returns to our shareholders in a dynamic and fast-paced market environment.
KLA revenue grew 19% to $6.9 billion in FY21, marking the sixth consecutive year of growth. Non-GAAP
diluted earnings per share grew 41% to $14.55 per share, and free cash flow grew 20% to $1.95 billion,
both setting new records. Continuing our commitment, we returned $1.5 billion, or 77% of free cash flow
to our shareholders, including $559 million in quarterly dividends and total stock repurchases of $939
million. Additionally, in July 2021, the Board of Directors authorized a 17% increase in our quarterly
dividend level to $1.05 per share, marking KLA’s 12th consecutive annual dividend increase.
Looking at KLA’s segment results, revenue from our Semiconductor Process Control segment grew by 21%
in the year to $5.7 billion, primarily due to a strong demand across our product portfolio, especially for
our market-leading inspection and metrology solutions. Our Specialty Semiconductor Process segment
grew 12% to $369 million in FY21, and our Printed Circuit Board (PCB), Display and Components segments
also grew 12% sequentially in the year, to $813 million. The latter two segments comprise KLA’s
Electronics, Packaging and Components or EPC Group. The increase in revenues from the EPC Group was
primarily driven by growth in automotive, advanced packaging, high-performance computing technologies
and 5G communications.
Our balance sheet remains very strong, with $2.5 billion in total cash, $3.5 billion in debt, and an
attractive bond maturity profile supported by investment-grade ratings from all three agencies. In June,
we received a credit rating upgrade, further underscoring the strength of our balance sheet and the
sustainability of our business and financial performance. We will remain disciplined in executing our
capital management strategy: Investing at a high level to strengthen our competitive advantages,
growing free cash flow, and targeting returns to shareholders of at least 70% of free cash flow over the
long-term.
Service Business Grew 14% in FY21, Outperforming our Long-Term Growth Target
KLA’s subscription-like services business once again delivered excellent revenue growth while
simultaneously generating strong and predictable free cash flow. Boosted by growth throughout our
installed base, and with over 75% of Semiconductor Process Control service revenue now being generated
from subscription-like service contracts, KLA’s total Service revenue grew 14% to $1.7 billion in FY21. This
growth gives us continued confidence that KLA’s Service business can deliver targeted long-term annual
revenue growth rates at least in line with our long-term 9% to 11% targeted growth rate. Several factors
drive growth in our Service business, including our ever-growing installed base, the increasing complexity
of our systems, and expanded demand at the trailing edge nodes. With high fab utilization across the
Page | 1
semiconductor industry, our customers are constantly looking for opportunities to enhance productivity
and extend the life of their installed base.
Secular Trends Driving Sustainable, Long-term Industry Growth. KLA on Track to Exceed 2023 Financial
Targets Well Ahead of Expectations
The semiconductor and electronics industries are witnessing accelerated adoption of several industry
growth drivers that we have been highlighting for the past few years. Technology is transforming how we
live and work, and the data-driven economy is fundamentally changing how businesses operate and
deliver value. This is enabling secular demand drivers such as High-Performance Computing (HPC),
Artificial Intelligence (AI), Machine Learning (ML), and rapid growth in new automotive electronics and 5G
communications markets. Each of these secular trends are driving investments and innovation in
advanced Memory and Logic semiconductor devices, as well as new and increasingly more complex
Advanced Packaging and Printed Circuit Board (PCB) technologies. With our market leadership in Process
Control and growth and expansion to new markets like Specialty Semiconductor Process equipment, PCB,
and finished die inspection in our EPC group, KLA is essential to enabling an increasingly digital world. KLA
is in an admirable position when we look at how the industry demand environment is evolving. We have
many tailwinds and strong secular growth drivers that are creating momentum for our business as well as
our industry. With strong secular semiconductor demand trends continuing, we expect positive industry
dynamics to provide the backdrop for another year of strong growth in fiscal year 2022.
In parallel to the rising demand driven by the accelerating digitization across multiple industries and end-
markets, we are also continuing to invest at a high level to drive innovation. KLA’s products and services,
are on the critical path to supporting our customers’ success. Whether it is through their R&D investments
in leading-edge development, optimizing fab utilization of established production nodes, or the emerging
emphasis on regionalization of semiconductor manufacturing, KLA is helping to enable progress. As
demonstrated by our market leadership, we believe KLA has the best portfolio of products to solve our
customers’ challenges, and we continue to drive innovation and product development to ensure we are
constantly improving and remain indispensable to our customers.
One critical area of R&D investment we prioritize across our product portfolio is AI/ML. In leveraging our
unique capabilities in these advanced software technologies, KLA is enhancing our product and service
offerings, driving market adoption, and differentiating KLA against the competition. KLA benefits from
decades of market leadership and investment in advanced laser, sensor, optics, and data analytics
technologies. We leverage our AI and ML capabilities to identify critical defects in the production process
and deliver ever-increasing precision in measurement around our metrology products. This investment
helps our product and service offerings deliver best-in-class performance and lower process variability,
while driving higher yields, improving time-to-market, and reducing our customers’ cost of ownership.
Our growing R&D investment is happening while Process Control intensity is increasing and KLA’s
leadership in the Process Control market remains at an impressive level of greater than four times the
market share of nearest competitor as reported by Gartner Research in April of 2021. KLA’s broader
position within the electronics ecosystem through the Electronics, Packaging, and Components or EPC
businesses, and the contribution of our large and growing Services business, also contributes to the
company’s sustained outperformance.
For new and long-time KLA shareholders, we would like to highlight that KLA’s market leadership results
from the consistent and focused execution of our differentiated strategy for innovation. Rooted in the KLA
Operating Model and fueled by a high level of investment in research and development, we are
consistently bringing to market a unique portfolio of products and technologies to address the most
critical process control challenges. We are pleased to see this strategy validated on a continuous basis by
our customers’ purchasing decisions, and our gross margin performance, affirming our ongoing growth
and market leadership in the critical KLA focus areas.
With this favorable backdrop and our strong execution, we are on track to achieve our 2023 financial
targets (originally established at our 2019 Investor Day) well ahead of expectations.
Enduring Excellence Guided by Experience: The KLA Operating Model
We have learned from experience that passion alone is not enough to successfully drive our Strategic
Objectives. KLA’s strength is also a function of the unique KLA culture and expertise that has evolved over
the decades into what we define as the KLA Operating Model. First articulated to investors in September
2019, the KLA Operating Model codifies our corporate values and operating principles, providing a
framework for the execution of our long-term Strategic Objectives.
For many years, we have run our business with three disciplines that come together to define the KLA
Operating Model. First, we apply common practices in a disciplined way to drive consistent strategy and
execution. Second, we manage by metrics and operate with an expectation of continuous improvement.
Third and finally, we make sure to always operate the company with financial discipline and rigor that
creates a constant focus on enhancing shareholder value. These disciplines helped guide our strong results
in FY21 against the backdrop of unprecedented challenges and uncertainties from the ongoing COVID-19
pandemic. Our strong results are a further testament to how the KLA Operating Model provides a reliable,
resilient framework to execute our Strategic Objectives.
With the KLA Operating Model as our guide, we are aligned around a consistent strategy, guided by a
work ethic of accountability and continuous improvement, and focused on enhancing shareholder value.
All of this is supported by a foundation of sustainable profitability and growth. United by our values, we
believe that by welcoming diverse cultures, experiences, and opinions, we can develop technologies and
ideas that transform lives and shape the future.
KLA’s Environmental, Social, and Governance Activities are an Integral Part of our Mission to Advance
Humanity
For decades, KLA has built on its global leadership to enable significant technological breakthroughs. We
make a lasting impact by creating solutions that drive technological progress and transform industries.
Our products and services help make tomorrow’s advanced next-generation electronics devices a reality.
Whether it is a driverless car, AR or VR experience, or factory robotics to power automation and Industry
4.0, we help turn theory into possibility.
We are innovators who help create next-generation technologies and ideas that transform our future and
shape lives. KLA is proud to be part of some of the most significant technological breakthroughs in history.
From our ground-breaking mask inspection tool in 1976 that signaled the dawn of in-production line
semiconductor process control, to 1997’s defining acquisition of Tencor Instruments that strengthened
our metrology portfolio, to today’s state-of-the-art broadband plasma optical inspection systems that
discover defects no other systems can, to new breakthrough technology that raises e-beam inspection
performance to a new level, we are passionate about solving the most daunting metrology and inspection
challenges for our customers to help turn their ideas and designs into reality. The passion that helped
start and guide KLA remains very strong today, and the future is ours to create.
KLA’s Environmental, Social and Governance (ESG) activities are an integral part of this mission to
advance humanity through devices and ideas that transform our future and shape our world. Our ESG
activities are also another way in which KLA delivers enduring value and reflect our corporate values.
KLA’s corporate citizenship journey began when we opened our doors in 1976 and has always been an
important part of our work. Today, we are expanding our efforts to be more holistic across the ESG topics
most relevant to our business and broadening our reporting to be more inclusive of our global footprint
and recently acquired companies. Looking ahead, we are building out our long-term ESG strategy with an
eye toward reducing our climate impact, increasing disclosure, and deepening the positive impact we
deliver through our business and community engagement.
A Look Ahead to KLA’s Priorities in this Fast-Paced Demand Environment
KLA’s fiscal year 2021 results demonstrate the critical nature of KLA’s products and services in enabling
the digital transformation of our lives, the resiliency of the KLA Operating Model in navigating the
challenging global conditions and delivering on our commitments, and KLA’s ongoing productive capital
allocation.
KLA is exceptionally well positioned at the forefront of technology innovation, and investment in the long-
term remains a critical priority for us, as we believe it is an important ingredient in the recipe that drives
our lasting long-term success and outperformance. The semiconductor and electronics landscapes are
always changing, and we are seeing broadening customer interest driven by more technology innovation
than ever before at the leading edge.
We expect KLA to continue to benefit from numerous secular factors driving long-term industry demand.
At the same time, our strategy of driving diversified growth with strong long-term operating leverage will
deliver robust cash flow generation and consistent capital returns to our shareholders.
We are proud of the results we are delivering, guided by the KLA Operating Model and reflecting the
extraordinary commitment of our global teams, exemplifying KLA’s core values of Perseverance, Drive to
be Better, High Performance Teams, and Indispensability. On behalf of all of us at KLA, we hope you and
your families remain safe and in good health. Thank you for your ongoing support of our company.
Sincerely,
Richard P. Wallace
President and Chief Executive Officer
Note on Forward-Looking Statements
Statements in this letter other than historical facts, such as statements pertaining to: (i) growing our cash
flows and free cash flow; (ii) the percentage of free cash flow we return in the future to stockholders
through dividends and share repurchases; (iii) the ability of our services business to meet its targeted
annual revenue growth rates; (iv) our ability to meet or exceed our 2023 financial targets ahead of
expectations; (v) our expectation of positive industry dynamics to promote growth in calendar year 2022;
and (vi) our expectation that we will continue to benefit from secular factors driving long-term industry
demand; are forward-looking statements and subject to the Safe Harbor provisions created by the Private
Securities Litigation Reform Act of 1995. These forward-looking statements are based on current
information and expectations and involve a number of risks and uncertainties. Actual results may differ
materially from those projected in such statements due to various factors, including but not limited to: the
future impacts of the COVID-19 pandemic; delays and disruptions in the supply chain; the demand for
semiconductors; the financial condition of the global capital markets and the general macroeconomic
environment; new and enhanced product and technology offerings by competitors; push-out of deliveries
or cancellation of orders by customers; the ability of KLA’s research and development teams to successfully
innovate and develop technologies and products that are responsive to customer demands; KLA’s ability to
successfully manage its costs; market acceptance of KLA’s existing and newly launched products; changing
customer demands; and industry transitions. For other factors that may cause actual results to differ
materially from those projected and anticipated in forward-looking statements in this letter, please refer to
KLA Corporation’s Annual Report on Form 10-K for the year ended June 30, 2021, and other subsequent
filings with the Securities and Exchange Commission (including, but not limited to, the risk factors described
therein). KLA Corporation assumes no obligation to, and does not currently intend to, update these
forward-looking statements.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
☒
☐
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended June 30, 2021
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from to
Commission File Number 000-09992
KLA CORPORATION
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
One Technology Drive,
Milpitas,
California
(Address of Principal Executive Offices)
04-2564110
(I.R.S. Employer
Identification No.)
95035
(Zip Code)
Registrant’s Telephone Number, Including Area Code: (408) 875-3000
Securities Registered Pursuant to Section 12(b) of the Act:
Title of Each Class
Trading Symbol(s)
Name of Each Exchange on Which Registered
Common Stock, $0.001 par value per share
KLAC
The Nasdaq Stock Market, LLC
The NASDAQ Global Select Market
Securities Registered Pursuant to Section 12(g) of the Act:
None
(Title of Class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes x No o
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No x
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of
Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such
files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an
emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company”
in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer x
Non-accelerated filer o
Accelerated filer o
Smaller reporting company ☐
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new
or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal
control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or
issued its audit report. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No x
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, 2020, was approximately $39.86 billion.
The registrant had 152,737,157 shares of common stock outstanding as of July 19, 2021.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the 2021 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, 2021, are incorporated by reference into Part III of this report.
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
Item 9C.
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Item 15.
Item 16.
Special Note Regarding Forward-Looking Statements
INDEX
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
PART I
PART II
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases
of Equity Securities
[Reserved]
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Consolidated Balance Sheets as of June 30, 2021 and June 30, 2020
Consolidated Statements of Operations for each of the three years in the period ended
June 30, 2021
Consolidated Statements of Comprehensive Income for each of the three years in the
period ended June 30, 2021
Consolidated Statements of Stockholders’ Equity for each of the three years in the
period ended June 30, 2021
Consolidated Statements of Cash Flows for each of the three years in the period ended
June 30, 2021
Notes to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
Schedule II Valuation and Qualifying Accounts
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
PART III
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accountant Fees and Services
PART IV
Exhibit and Financial Statement Schedules
Form 10-K Summary
Signatures
i
ii
1
19
37
37
37
37
38
40
40
59
60
61
62
63
64
65
67
113
115
115
115
116
116
116
116
116
117
117
117
119
120
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
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. 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: the future impacts of the COVID-19 pandemic; 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 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; 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) 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) for our
Revolving Credit Facility; the adoption of new accounting pronouncements including Accounting Standards Codification
(“ASC”) 326, Measurement of Credit Losses on Financial Instruments (“ASC 326”) and Income Taxes (“ASC 740”); and our
repayment of our outstanding indebtedness.
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:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
The impact of the COVID-19 pandemic on the global economy and on our business, financial condition and results of
operations, including the supply chain constraints we are experiencing as a result of the pandemic;
Economic, political and social conditions in the countries in which we, our customers and our suppliers operate,
including global trade policies;
Disruption to our manufacturing facilities or other operations, or the operations of our customers, due to natural
catastrophic events, health epidemics or terrorism;
Ongoing changes in the technology industry, and the semiconductor industry in particular, including future growth
rates, pricing trends in end-markets, or changes in customer capital spending patterns;
Our ability to timely develop new technologies and products that successfully anticipate or address changes in the
semiconductor industry;
Our ability to maintain our technology advantage and protect our proprietary rights;
Our ability to compete with new products introduced by our competitors;
Our ability to attract and retain key personnel;
Cybersecurity threats, cyber incidents affecting our and our service providers’ systems and networks and our ability to
access critical information systems for daily business operations;
Liability to our customers under indemnification provisions if our products fail to operate properly or contain defects
or our customers are sued by third parties due to our products;
Exposure to a highly concentrated customer base;
Availability and cost of the wide range of materials used in the production of our products;
Our ability to operate our business in accordance with our business plan;
Legal, regulatory and tax environments in which we perform our operations and conduct our business and our ability
to comply with relevant laws and regulations;
Our ability to pay interest and repay the principal of our current indebtedness is dependent upon our ability to
manage our business operations, our credit rating and the ongoing interest rate environment, among other factors;
Instability in the global credit and financial markets;
ii
•
•
•
Our exposure to currency exchange rate fluctuations, or declining economic conditions in those countries where we
conduct our business;
Changes in our effective tax rate resulting from changes in the tax rates imposed by jurisdictions where our profits are
determined to be earned and taxed, expiration of tax holidays in certain jurisdictions, resolution of issues arising from
tax audits with various authorities or changes in tax laws or the interpretation of such tax laws; and
Our ability to identify suitable acquisition targets and successfully integrate and manage acquired businesses.
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 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, 2022. 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.
iii
ITEM 1. BUSINESS
PART I
Certain industry and technical terms used in this section are defined in the subsection entitled “Glossary” found at the end
of this Item 1.
The Company
KLA Corporation and its majority-owned subsidiaries (“KLA” or the “Company” and also referred to as “we,” “our,”
“us,” or similar references) is a global leader in process control and a supplier of process-enabling solutions for a broad range of
industries, including semiconductors, printed circuit boards (“PCB”) and displays. We provide solutions for manufacturing and
testing wafers and reticles, integrated circuits (“IC” or “chip”), packaging, light-emitting diodes (“LED”), power devices,
compound semiconductor devices, microelectromechanical systems (“MEMS”), data storage, PCBs, flat and flexible panel
displays, and general materials research, as well as providing contracted and comprehensive installation and maintenance
services across our installed base.
KLA was formed as KLA-Tencor 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.
On February 20, 2019 (the “Acquisition Date” relating to this specific acquisition), KLA completed the acquisition of
Orbotech, Ltd. (the “Orbotech Acquisition” and “Orbotech,” respectively ), a global supplier of yield-enhancing and process-
enabling solutions for the manufacture of electronics products, in order to target growth opportunities in new and expanding
end markets. We transformed our organizational structure into four reportable segments: Semiconductor Process Control;
Specialty Semiconductor Process; PCB, Display and Component Inspection; and Other.
Within the Semiconductor Process Control segment, our comprehensive portfolio of inspection, metrology and data
analytics products, and related services, help integrated circuit manufacturers achieve target yield throughout the entire
semiconductor fabrication process, from R&D to final volume production. KLA’s portfolio of differentiated products and
services are designed to provide comprehensive solutions to help customers accelerate development and production ramp
cycles, achieve higher and more stable semiconductor die yields and improve their overall profitability.
In the Specialty Semiconductor Process segment, KLA 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 (“RF”) communication semiconductors, and power semiconductors for automotive and industrial applications.
In the PCB, Display and Component Inspection segment, KLA enables electronic device manufacturers to inspect, test
and measure PCBs, flat panel displays (“FPD”) and ICs to verify their quality, deposit a pattern of desired electronic circuitry
on the relevant substrate and perform three-dimensional shaping of metalized circuits on multiple surfaces.
KLA’s suite of advanced products, coupled with its unique yield management software and services, allow us to deliver
the solutions our semiconductor, PCB and display customers need to achieve their productivity goals by significantly reducing
their risks and costs and improving their overall profitability and return on investment (“ROI”).
Additional information about KLA is available at www.kla.com. The Annual Report 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 of 1934, as amended, are available free of charge on the website as soon as reasonably
practicable after they are electronically filed with or furnished to the SEC. Information contained on KLA’s website is not part
of this Annual Report on Form 10-K or KLA’s 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 KLA announces material financial information to investors using an investor
relations website (ir.kla.com), which includes KLA’s SEC filings, press releases, public earnings calls and conference webcasts.
The investor relations website is used to communicate with the public about the Company, products, services and other matters.
Industry
General Background
KLA’s core focus is enabling technological advances as well as improving manufacturing yields in the semiconductor
industry. The semiconductor fabrication process begins with a bare silicon wafer—a round disk that is typically 200 millimeters
1
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 common 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 of which are performed multiple times. The
majority of chips consist of two main structures: the lower structure, typically consisting of transistors or capacitors which
perform 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. Additionally, FPDs are manufactured using processes similar to ICs (e.g., film deposition, photolithography, etching)
except using glass as the starting substrate.
The semiconductor capital equipment industry is currently 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. Growth of virtual engagement has been driven by
COVID-19 related travel restrictions and quarantines, as well as work from home requirements, 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 node technology investments and capacity expansions. Intertwined in these areas, spurred by the
requirements of big data, is the growth in demand for memory chips. Finally, China continues to emerge as a major region for
the manufacturing of logic and memory chips, adding to its role as the world’s largest consumer of ICs. Government initiatives
are propelling China to expand its domestic manufacturing capacity. China is currently seen as an important long-term growth
region for the semiconductor capital equipment sector.
The semiconductor industry continually introduces numerous technology changes to support this multi-segmented market
growth. KLA’s inspection, metrology and data analytics technologies play key roles in enabling our customers to develop and
manufacture advanced semiconductor devices to support and innovate around these trends.
Companies that anticipate 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 key goals of modern semiconductor manufacturing. Ramping to high-volume
production ahead of competitors can dramatically increase the revenue an IC manufacturer realizes for a given product. Leading
semiconductor manufacturers are investing in simultaneous production integration of multiple new process technologies, some
requiring new substrate and film materials, new geometries, advanced multi-patterning optical and extreme ultraviolet (“EUV”)
lithography, and advanced packaging techniques. While many of these technologies have been adopted at the development and
pilot production stages of semiconductor manufacturing, significant challenges and risks associated with each technology have
affected the adoption of these technologies into full-volume production. For example, 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,
such as photoresists for EUV lithography, 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 wafer 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.
By developing new process control and yield management tools that help chipmakers accelerate the adoption and
production of these new technologies at scale, KLA enables customers to better leverage increasingly expensive facilities and
improve ROI. Once customers’ production lines are operating at high volume, KLA’s systems monitor to ensure yields are
stable and process excursions are identified for quick resolution. In addition, each new generation’s smaller design rules,
coupled with new materials, device innovation and increased in-process variability, require a subsequent increase in inspection
and metrology sampling, which drives demand for KLA’s portfolio of products.
2
KLA systems not only analyze defectivity and metrology issues at critical points in the wafer, reticle and IC
manufacturing processes, but also provide information to our customers so they can identify and address the underlying process
issues. The ability to locate the source of defects and resolve the underlying process issues enables KLA customers to improve
control over their manufacturing processes, increasing their yield of high-performance parts and delivering products to market
faster, thus maximizing profits. With a broad portfolio of application-focused technologies and dedicated yield technology
expertise, KLA is a key supplier of comprehensive yield management solutions for customers’ next-generation products. KLA
helps customers anticipate and respond to the challenges posed by shrinking device sizes, the transition to new production
materials, new device and circuit architectures, more demanding lithography processes and new packaging techniques.
KLA’s business under SPTS Technologies Ltd. (“SPTS”), which KLA acquired through the acquisition of SPTS’s parent
company, Orbotech, develops and sells differentiated custom deposition and etching solutions for fast-growing markets, such as
power and analog devices, RF communication semiconductors, photonics devices and MEMS. These devices, which are often
built on non-traditional substrates like SiC and GaN, have become critical to accelerating some of the secular trends in
automotive, industrial and communication industries. For instance, infrastructure for 5G creates demand for RF components,
sometimes built on GaN substrate. New SiC based power devices are moving into volume production for electric vehicles. In
addition, high-density packaging is growing to support premium smartphones and AI computing chips in data centers.
KLA’s Orbotech business provides a comprehensive portfolio of PCB services and solutions to accelerate technology
transitions and production ramp. Our portfolio includes inline inspection tools to monitor the quality of PCB fabrication,
equipment to repair defective boards, digital imaging technologies to print fine geometry according to the design, and computer
aided manufacturing (“CAM”) software. Growth in the PCB business is driven mainly by investments in 5G technology and its
supporting applications: smartphones, autonomous vehicles, AI and cloud servers/high performance computing. These
applications will be based on several technological segments including flexible printed circuits (“FPC”), high density
interconnect (“HDI”), PCBs, and IC substrates.
KLA’s Orbotech business also provides complete yield management solutions for the FPD market including automated
optical inspection (“AOI”) systems, repair technologies and electrical testers. An accelerated transition to organic light emitting
diode (“OLED”) displays to serve the mobile market, introduction of OLED technology for large size televisions, and a steep
ramp in liquid crystal display (“LCD”) production for televisions in China are driving the FPD business. New technologies,
such as microLED, represent a growth opportunity for KLA in the display market.
Products
KLA develops industry-leading equipment and services that enable innovation throughout the electronics industry. We
provide advanced process control and process-enabling solutions for manufacturing wafers, reticles, ICs, packaging, PCBs, and
flat and flexible panel displays.
KLA’s inspection, metrology and data analytics products and related offerings can be broadly categorized as supporting
customers in the following groups: Chip and Wafer Manufacturing; Reticle Manufacturing; Packaging Manufacturing;
Compound Semiconductor and Hard Disk Drive Manufacturing; and General Purpose/Lab Applications. Orbotech’s inspection,
repair, imaging, additive printing, laser drilling, electrical testing, CAM, and software solutions, support customers in PCB
Manufacturing and Flexible and FPD Manufacturing. SPTS’s wafer processing equipment supports customers in Advanced
Packaging Manufacturing and manufacturing of semiconductor devices such as MEMS and Sensors, high speed RF ICs, power
semiconductors and LED/microLEDs. The Company’s significant product categories are described below, followed by the
broader product table.
Semiconductor Manufacturing:
Chip and Wafer Manufacturing
KLA’s comprehensive portfolio of defect inspection, review, metrology, patterning simulation, in situ process monitoring
and data analytics products, and related service, software and other offerings, helps substrate and chip manufacturers manage
quality throughout the wafer and chip fabrication processes. These offerings are designed to help our customers accelerate their
development and production ramp cycles, achieve higher and more stable semiconductor die yields and improve their overall
profitability.
Defect Inspection and Review
KLA’s wafer defect inspection and review systems cover a broad range of applications for IC and substrate
manufacturers, including R&D, wafer qualification, reticle qualification, and tool, process and line monitoring. Patterned and
unpatterned wafer inspectors find particles, pattern defects and electrical issues on the front surface, back surface and edge of
the wafer, allowing engineers to detect and monitor critical yield and reliability excursions. Our defect review systems capture
3
high resolution images of the defects detected by inspection tools, helping substrate manufacturers and chipmakers identify and
resolve yield issues. Fabs rely on our high sensitivity reticle inspection systems to identify defects on reticles at an early stage
and to prevent reticle defects from printing on production wafers. By implementing our defect inspection and review systems,
chipmakers and substrate manufacturers can take quick corrective action, resulting in faster quality improvement and better
time to market.
Metrology
KLA’s metrology solutions address IC and substrate manufacturing, as well as scientific research and other applications.
Precise metrology and control of pattern dimensions, film thicknesses, layer-to-layer alignment, pattern placement, surface
topography, electro-optical and electromagnetic properties are important in many industries as devices are becoming more
complex with shrinking critical dimensions and narrowing film thicknesses.
Data Analytics
The data generated by our inspection, metrology and in situ process monitoring systems are compiled and reduced to
relevant root cause and yield analysis information with our suite of data analytics and management tools.
In Situ Process Monitoring
KLA’s sensor product portfolio includes advanced wireless and wired wafers and reticles that enable in situ monitoring of
the production process environment for many semiconductor, FPD and reticle fabrication processes, and fab-wide monitoring
of automated wafer handling.
Patterning Simulation
KLA’s computational lithography software is used by researchers at advanced IC manufacturers, lithography hardware
suppliers, track companies and material providers to explore critical feature designs, manufacturability and process-limited
yield of proposed lithographic and patterning technologies without the time and expense of printing hundreds of test wafers
using experimental materials and prototype process equipment.
Reticle Manufacturing
Error-free reticles, or masks, are necessary to achieve high semiconductor device yields, since reticle defects can be
replicated in every die on production wafers. KLA offers high sensitivity reticle inspection, metrology and data analytics
systems for mask blank manufacturers and reticle manufacturers (“mask shops”) to help them manufacture reticle blanks and
patterned reticles that are free of defects and meet pattern placement and critical dimension uniformity specifications.
Packaging Manufacturing
KLA’s extensive portfolio of packaging solutions accelerates the manufacturing process for outsourced semiconductor
assembly and test (“OSAT”) providers, device manufacturers and foundries for a wide range of packaging applications.
Innovations in advanced packaging, such as 2.5D/3D IC integration using through silicon vias (“TSV”), wafer-level chip scale
packaging (“WLCSP”), fan-out wafer-level packaging (“FOWLP”) and heterogeneous integration as well as a wide range of IC
substrates create new and evolving process requirements. KLA offers systems for packaging inspection, metrology, die sorting
and data analytics focused on meeting quality standards and increasing yield before and after singulation. SPTS provides a
broad range of etch and deposition process solutions for advanced packaging applications. Orbotech offers a portfolio of
technologies that includes AOI, automated optical shaping (“AOS”), direct imaging (“DI”), UV laser drilling, inkjet/additive
printing and software solutions to ensure manufacture of the highest quality of IC substrates.
Wafer Inspection and Metrology
KLA’s wafer inspection and metrology systems for advanced wafer-level packaging provide the data required for chip
manufacturers to increase yield by providing traceability throughout their increasingly complex manufacturing processes.
Smaller feature sizes, new integration schemes and the heterogeneous integration of multiple components into single packages
result in tighter process control requirements. Our systems allow engineers to quickly detect, resolve and monitor excursions to
provide greater control of quality for improved device performance.
Die Sorting and Inspection
KLA’s die sorting and inspection system provides inspection before die assembly to help engineers quickly identify any
issues during the dicing process of wafer-level packages. The evolution of wafer-level packaging technologies has introduced
new materials into the process that can be susceptible to cracking during dicing such as low-k materials in fan-in wafer-level
4
packages. Our system assists chip manufacturers to decrease production risk by identifying defects quickly during die sorting to
ensure higher outgoing quality to the next step in the assembly process.
IC Component Inspection and Metrology
KLA’s packaged component inspection and metrology systems characterize key features of advanced and traditional
package types with varying size and interconnect styles. Our systems provide sensitivity to a variety of defect types as well as
accurate and repeatable 3D metrology measurements, which together provide packaging manufacturers the data required to
improve their yield while effectively sorting components so that defective parts are quickly removed. By providing flexible
systems capable of handling a large variety of package types, engineers can further increase overall operational effectiveness in
a dynamic manufacturing environment.
Wafer Processing Systems
SPTS offers a range of plasma etch and deposition process technologies for advanced packaging schemes – from High
Density FOWLP to the most advanced 3D packages where two or more die, potentially for different functions, are stacked and
connected in the vertical direction with TSVs filled with metal. Leveraging decades of expertise in silicon etching, SPTS also
offers the most advanced plasma dicing solutions for dicing before grind (“DBG”) or dicing after grind (“DAG”) of wafers up
to 300mm in diameter. SPTS’s production-proven processes and precise process control allow chip manufacturers to lower
production costs and improve reliability, performance and multi-function integration.
IC Substrate Production Processes
Based on decades of experience, Orbotech's portfolio of technologies for IC substrates includes a variety of DI, AOI,
AOS of defects, UV laser drilling, inkjet/additive printing and software solutions. Orbotech's advanced solutions for IC
substrates enable manufacturers to build high capacity, high quality, high precision interconnection products for advanced IC
packaging while optimizing their productivity and cost efficiency.
Compound Semiconductor, Power Device, LED, MEMS and Data Storage Media/Head Manufacturing
KLA has a comprehensive portfolio of inspection, metrology, and data analytics systems to support power devices, RF
communications, LED, photonics, MEMS, concentrator photovoltaic (“CPV”) solar and display manufacturing. With the
adoption of high brightness LEDs for solid-state lighting and automotive applications, LED device makers are targeting
aggressive cost and performance improvements, requiring more emphasis on improved process control and yield. Similarly,
leading power device manufacturers are targeting faster development and ramp times, high product yields and lower device
costs, and are implementing solutions for characterizing yield-limiting defects and processes. KLA’s inspection, metrology and
data analytics systems help these manufacturers control their processes and increase yield.
General Purpose/Lab Applications
A range of industries, including general scientific and materials research and optoelectronics, require measurements of
surface topography and film thickness to either control their processes or research new material characteristics. Offered under
the KLA Instruments brand, the typical surface metrology parameters that our tools address include flatness, roughness,
curvature, peak-to-valley, asperity, waviness, texture, volume, sphericity, slope, density, stress, hardness, bearing ratio and step
height (mainly in the micron to nanometer range). Film thickness measurements can also include determination of refractive
index. We also offer a portfolio of high-throughput nanomechanical testers for material characterization, including hardness,
modulus and adhesion.
Previous-Generation KLA Systems
Our KLA Pro business provides fully refurbished systems, remanufactured legacy systems, and enhancements and
upgrades for previous-generation KLA systems. When a customer needs to move to the next manufacturing node, or improve
their manufacturing productivity, KLA’s Pro offerings can help maximize the value of the customer’s existing assets.
Specialty Semiconductor Process:
Our SPTS business designs, manufactures and markets wafer processing solutions for the global semiconductor and
related industries. It provides etch and deposition processes on a range of single wafer handling platforms for wafer sizes up to
330mm, as well as 400mm taped frame assemblies. These products include etch and deposition equipment designed to address
advanced IC packaging manufacturing, and also manufacturing of semiconductor, compound semiconductor and
microelectronic devices such as MEMS and Sensors, high speed RF IC, power semiconductors, and LED/MicroLEDs. The
technology and products of SPTS are used by universities, research institutes, and full-scale production companies.
5
PCB and Display Manufacturing:
Printed Circuit Board Manufacturing
PCBs are the basic interconnect platforms for the electronic components that comprise all electronic equipment. An
assembly of one or more PCBs on which desired components have been mounted forms an essential part of most electronic
products. PCBs are manufactured in a series of complex steps, generally starting with a sheet of epoxy-fiberglass (or other
material with electric insulating qualities), laminated with a conducting material such as copper. The conductor pattern is
subsequently transferred to a photo-imageable layer which is coated over the conductive layer substrate either through a DI or
masked based photolithographic process followed by a chemical development and etching removal process of excess
conducting material, leaving the desired conducting metal pattern printed on the layer.
Because of the complexity of each step in the process of PCB manufacturing, sophisticated equipment is required in order
to enable manufacturing, especially of high complexity boards where high accuracy is required. Dimensions of PCB boards
change during the manufacturing process and digital printing is required in order to compensate for these changes and meet
demand for high accuracy. PCBs are susceptible to various defects (electrical shorts, open circuits and insufficient or off-
measure conductor widths), inspection is required throughout PCB production to identify such defects, which are then repaired,
if possible. Early detection of these defects increases the possibility of successful repair and reduces the number of unusable
boards, thereby reducing the overall cost to the manufacturer. Early detection and repair are particularly valuable in cases of
multilayered and “build-up” boards, wherein PCB layers are embedded inside the finished board.
The Orbotech PCB businesses offer several solutions intended for use by manufacturers of PCBs to streamline and
increase the efficiency and yield of PCB production, including the integrated pre-production software solutions that automate
the entire process from quotation to the production floor.
Display Manufacturing
FPDs, which include LCDs, OLED displays and other types of displays, are currently used for laptop and desktop
computers, tablets, televisions, smartphones, public electronic signs, automotive displays, digital and video cameras, augmented
reality/virtual reality (“AR/VR”), wearable devices and a variety of other devices for technical, medical, aerospace and
consumer electronics applications. LCDs and OLEDs are susceptible to various defects, many of which result from the
deposition, photolithography and etching processes used in their production. Detection and repair of these defects during the
production process allow manufacturers to improve monitoring of their production processes, avoid the expense of further
costly material and improve their yields.
The Orbotech FPD businesses provide AOI and electrical testing systems to identify and classify defects that may impact
the performance of the display panel, while our repair systems are designed to enable customers to repair defects, thereby
further improving the manufacturer’s yield and grade (quality) of displays. MicroLED, a new emerging technology, is evolving
for high-end applications such as smartwatches and televisions that will enable revolutionary interactive products.
KLA Services:
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, display
or PCB products, our highly trained service teams collaborate with customers to determine the best products and services to
meet technology and business requirements.
6
Product Table
MARKETS APPLICATIONS
Chip and Wafer Manufacturing
Defect Inspection | Review
PRODUCTS
Patterned Wafer
High Productivity and All
Surface
Unpatterned Wafer/Surface
Electron-beam Review
39xx, 29xx Series
eSL10™
C205
Puma™ Series
Voyager® Series
CIRCL™ with 8 Series, CV350i, BDR300™ and Micro300 modules
8 Series
Surfscan® SPx
Surfscan® SP Ax Series
eDR7xxx™ Series
Metrology
Overlay
Optical CD and Shape
Film Thickness/Index
Wafer Geometry and
Topography
Edge Bead Removal
Ion Implant and Anneal
Resistivity
Magnetic Metrology
Surface Metrology
Data Analytics
Inspection and Metrology Data
Analysis
In Situ Process Management
Lithography, Plasma Etch,
Deposition, Chemical
Mechanical Planarization/
Polishing, Ion Implant, Wet
Processing, e-beam Mask Write,
Reticle Processing, Wafer
Handling
In Situ Data Analytics
Lithography, Plasma Etch,
Deposition, Chemical
Mechanical Planarization/
Polishing, Ion Implant, Wet
Processing
Archer™ Series
ATL™ Series
SpectraShape™ Series
SpectraFilm™ Series
Aleris® Series
Filmetrics® F Series products
WaferSight™ Series
PWG™ Series
MicroSense UltraMap® Series
CIRCL™
Therma-Probe® 680XP
OmniMap® RS product family
CAPRES CIPTech®
CAPRES microHall® Series
CAPRES microRSP® Series
MicroSense PKMRAM
MicroSense KerrMapper
HRP® Series
Tencor™ P Series
Zeta™ Series
Klarity® product family
5D Analyzer®
SPOT™
RDC
FabVision®
ProDATA™
Qoniac OVALiS
I-PAT®
SensArray® product family
SensArray® PlasmaSuite, LithoSuite, ThermalSuite
7
Patterning Simulation
Lithography and Patterning
Simulation
PROLITH™
Metal Deposition
Physical Vapor Deposition
Sigma® fxP PVD
Reticle Manufacturing and Quality Control
Defect Inspection (mask shop)
Defect Inspection (wafer fab)
Teron™ 600 Series
TeraScan™ 500XR
Teron™ SL6xx Series
X5.3™
Defect Inspection (mask blanks) FlashScan®
Pattern Placement Metrology
LMS IPRO Series
RDC
Klarity® product family
Data Analytics
Packaging Manufacturing
Wafer Inspection and Metrology
CIRCL™-AP
Kronos™ Series
8 Series
Zeta™-5xx/6xx,
WI-2280
Die Sorting and Inspection
ICOS™ F16x
IC Component Inspection and
Metrology
Data Analytics
Wafer Processing Systems
ICOS™ T3/T7/T8 Series
MV9xxx™ Series
Klarity® product family
Omega® Series
Mosaic™ Series
Sigma® Series
Delta™ Series
IC Substrate Production
Processes
Paragon™ Series
Ultra Fusion™ Series
Ultra PerFix™ Series
Emerald™ 160 Series
Orbotech Magna™ Series, Orbotech Jetext™ Series
Compound Semiconductor | Hard Disk Drive Manufacturing
LED, Photonics, RF
Communications
Power Devices
MEMS
8 Series
WI-2280
Candela® 8720
Zeta™-388
MicroXAM Series
Tencor™ P Series
HRP® Series
MicroSense UltraMap® Series
8 Series
WI-2280
Candela® 8520
MicroXAM Series
Tencor™ P Series
HRP® Series
8 Series
Tencor™ P Series
HRP®Series
MicroXAM Series
Zeta™-20
Zeta™-300
Zeta™-388
Nano Indenter® G200X
8
CPV Solar
Display
Data Storage Media | Head
Manufacturing
ZetaScan Series
Zeta™-20
Zeta™-300
MicroSense PV-6060
UltraMap® Series
ZetaScan Series
SensArray® Process Probe 2070
Zeta™-300
Tencor™ P-17 OF
Nano Indenter® G200X
8 Series
Candela® 71xx
Candela® 63xx
HRP® Series
Tencor™ P Series
Zeta™-20,
MicroXAM Series
MicroSense Polar Kerr
MicroSense DiskMapper
Data Analytics
Klarity® product family
General Purpose/Lab Applications
Surface Metrology: Stylus
Profilometer
Surface Metrology: Optical
Profilometer
Nanomechanical and
Micromechanical Testers
Tencor™ P Series
Alpha-Step® product family
HRP® Series
MicroXAM Series, Zeta™ Series, Filmetrics® Profilm3D Series
Nano Indenter® G200X, T150 UTM, uNano™
iMicro, iNano®
Thin Film Reflectometers
Filmetrics® F Series
Sheet Resistance Measurement
Tools
Semiconductor Manufacturing
Filmetrics® R Series
Etch
Plasma Dicing
Deposition
Printed Circuit Boards
Direct Imaging
Automated Optical Inspection
Automated Optical Shaping
Inkjet / Additive Printing
Omega® Series
Primaxx® Series
Xactix® Series
Mosaic™ Series
Sigma® Series
Delta™ Series
MVD® Series
Nuvogo™ Series
Paragon™ Series
Orbotech Diamond™ Series
Orbotech Infinitum™ Series
Ultra Dimension™ Series
Ultra Fusion™/ Fusion™ Series
Discovery™ II Series
Precise™ Series
Ultra PerFix™/ PerFix™ Series
Sprint™ Series
9
UV Laser Drilling
Computer Aided Manufacturing
and Engineering
Industry 4.0
Display
Inspection
Electrical Testing
Repair
Software Platform
Emerald™ 160 Series
Frontline InCAM® Pro, InFlow™, InPlan® and InPlan® Flex
InShop®
Orbotech Quantum™ Series
Array Checker™ Series
Accelon Series
Orbotech Prism™ Series
Orbotech OASIS (Orbotech Advanced Software Integrated
Solution)
10
Customers
To support our growing global customer base, we maintain a significant presence throughout Asia, the United States and
Europe, staffed with local sales and applications engineers, customer and field service engineers and yield management
consultants. We count among our largest customers the leading semiconductor, semiconductor-related and electronic device
manufacturers in each of these regions.
For the fiscal years ended June 30, 2021, 2020 and 2019, the following customers each accounted for more than 10% of
total revenues, primarily in the Semiconductor Process Control segment:
2021
Taiwan Semiconductor Manufacturing
Company Limited
Samsung Electronics Co., Ltd.
2020
Taiwan Semiconductor Manufacturing
Company Limited
Samsung Electronics Co., Ltd.
2019
Taiwan Semiconductor Manufacturing
Company Limited
Year Ended June 30,
Our business depends upon the capital expenditures of semiconductor, semiconductor-related and electronic device
manufacturers, which in turn 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 in nature, but it 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.
Sales, Service and Marketing
Our sales, service and marketing efforts are aimed at building 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, ICs, packaging, LEDs, power devices, compound semiconductor devices,
MEMS, data storage, PCBs and flat and flexible panel displays, as well as general materials research. Our customers benefit
from the simplified planning and coordination, as well as the increased equipment compatibility, that are realized as a result of
dealing with a single supplier for multiple products and services. 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 and applications engineering, and marketing organizations
represent a competitive advantage in our served markets. We have direct sales forces in Asia, the United States and Europe. We
maintain an export compliance program that is designed to meet the requirements of the United States Departments of
Commerce (“Commerce”) and State.
In addition to sales and service offices in the United States, we conduct sales, marketing and services out of subsidiaries
or branches in other countries, including China, Germany, Israel, United Kingdom, Japan, Singapore, Korea and Taiwan.
International revenues accounted for approximately 89%, 89%, and 87% of our total revenues in the fiscal years ended June 30,
2021, 2020 and 2019, 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.
We believe that sales outside the United States will continue to be a significant percentage of our total revenues. 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 is dependent upon the continuation of favorable trading relationships
between countries in the region and the United States, and our continuing ability to maintain satisfactory relationships with
leading semiconductor companies in the region.
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, and 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.
11
Backlog
Our backlog, which represents our performance obligation to deliver products and services, totaled $4.69 billion and
$2.13 billion as of June 30, 2021 and 2020, respectively, and primarily consists of sales orders where written customer requests
have been received and a majority of the delivery is anticipated within the next 12 months. Orders for service contracts and
unreleased products are included in the backlog. All orders are subject to risk of delays, pushouts, and cancellation by the
customer, usually with limited or no penalties.
Because customers can potentially change delivery schedules or delay or cancel orders, and because some orders are
received and shipped within the same quarter, our shipment backlog at any particular date is not necessarily indicative of
business volumes or actual sales for any succeeding periods. The historical cyclicality of the semiconductor industry combined
with the lead times from our suppliers sometimes result in timing disparities between, on the one hand, our ability to
manufacture, deliver and install products and, on the other, the requirements of our customers. In our efforts to balance the
requirements of our customers with the availability of resources, management of our operating model and other factors, we
often must exercise discretion and judgment as to the timing and prioritization of manufacturing, deliveries and installations of
products, which may impact the timing of revenue recognition with respect to such products.
Research and Development
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. In addition, we may enter certain strategic development and engineering programs whereby certain government agencies
or other third parties fund a portion of our R&D costs.
Our key R&D activities during the fiscal year ended June 30, 2021 involved the development of process control and
process-enabling solutions for a broad range of industries including semiconductors, PCBs and displays. 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 largely 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 in order to enhance our competitive position. New product introductions, however, may contribute to fluctuations
in operating results, since customers may defer ordering existing products, and, if new products have reliability or quality
problems, those problems may result in reduced orders, higher manufacturing costs, delays in acceptance of and payment for
new products, and additional service and warranty expenses. There can be no assurance that we will successfully develop and
manufacture new products, or that new products introduced by us will be accepted in the marketplace. If we do not successfully
introduce new products, our results of operations will be adversely affected.
Manufacturing, Raw Materials and Supplies
We perform system design, assembly and testing in-house and utilize an outsourcing strategy for the manufacture of
components and major subassemblies. Our in-house manufacturing activities consist primarily of assembling and testing
components and subassemblies that are acquired through third-party vendors and integrating those subassemblies into our
finished products. Our principal manufacturing activities take place in the United States, Singapore, Israel, Germany, United
Kingdom, Italy and China.
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 for the manufacture and support of 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,
and 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, 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
12
deliveries to customers, damage customer relationships and have a material adverse effect on our results of operations.
Competition
The worldwide market for technologically advanced process control, process-enabling and yield management solutions
used by semiconductor and electronics manufacturers is highly competitive. 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 may also face future competition from new market entrants from
other overseas and domestic sources. We expect our competitors to continue to improve the design and performance of their
current products and to introduce new products with improved price and performance characteristics. We believe that, to remain
competitive, we will require 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.
We believe that, while price and delivery are important competitive factors, 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. Significant competitive factors in the market for process
control and process-enabling systems include system performance, ease of use, reliability, interoperability with the existing
installed base and technical service and support, as well as overall cost of ownership.
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.
Patents and Other Proprietary Rights
We protect our proprietary technology through reliance on a variety of intellectual property laws, including patent,
copyright and trade secret. We have filed and obtained a number of patents in the United States and abroad and intend to
continue pursuing the legal protection of our technology through intellectual property laws. In addition, from time to time we
acquire license rights under United States 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.
Although we consider patents and other intellectual property significant to our business, no single patent, copyright or
trade secret is essential to us as a whole or to any of our business segments.
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.
Government Regulations
We are subject to a variety of federal, state and local governmental laws and regulations worldwide, including laws and
regulations related to anti-corruption, antitrust, data privacy, employment, environmental, foreign exchange controls, health and
safety, immigration, import/export, intellectual property and tax. Compliance with these laws and regulations did not have in
fiscal 2021, and is not expected to have in fiscal 2022, a material effect on our capital expenditures, financial condition, results
of operations or competitive position.
However, 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 and regulations could subject us to future liabilities.
13
Human Capital Management
Our employees are our greatest asset, and our key management, engineering and other employees are difficult to replace.
In order to compete and succeed in highly competitive markets and industries that are subject to rapid technological change, we
believe it is critical to attract, motivate and retain a dedicated, talented and innovative team of employees who exhibit our core
values.
Our Core Values
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:
Our Workforce
As of June 30, 2021, we had approximately 11,300 regular full-time employees and approximately 250 part-time and
temporary employees in facilities located in 19 countries. Approximately 30% of our regular full-time employees are located in
the United States, 23% in Europe and Middle Eastern countries and 47% in Asia Pacific and Japan, with approximately 19%
engaged in manufacturing, 27% in R&D, 31% in customer service, 4% in sales and marketing, and 19% 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 business unit (who are represented by employee works council), none of our employees are represented
by a labor union. We have not experienced work stoppages and believe that our employee relations are good.
In fiscal year 2021, our overall turnover rate was 5.6%.
Compensation and Benefits
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 enable employees to share in the success of the Company
through various programs including an Employee Stock Purchase Plan (“ESPP”), equity compensation, profit sharing and
bonus plans. We seek competitiveness and fairness in total compensation with reference to peer comparisons and internal
equity. In addition to providing our employees with competitive compensation packages, we offer benefits designed to meet
the needs of employees and their families, including paid time off, parental leave, bereavement leave, health insurance
coverage, flexible work arrangements, contributions to retirement savings, and access to employee assistance and work-life
programs.
Inclusion and Diversity
We believe in fostering a diverse workforce and an equitable and inclusive culture in order to build a stronger and more
resilient company for our customers, our employees and our communities. We have established programs for recruiting and
hiring candidates from diverse backgrounds and experiences. We have conducted audits in the United States and Israel on
gender pay equity that have shown no significant pay equity exist in the employee populations tested. We are an equal
opportunity/affirmative action employer and have increased our efforts to recruit, develop, and retain a more diverse workforce
with a focus on those historically underrepresented in the technology field, including women, Black, and Hispanic candidates.
In fiscal year 2021, we created the role of Chief Inclusion & Diversity Officer to provide additional focus to this area.
We have promoted several Employee Resource Groups to further our diversity initiatives. These include a women’s
group, as well as groups based on race and ethnicity such as the Black and Hispanic resource groups.
We have a tradition of amplifying the charitable actions of our employees and responding to the needs of the
communities where we work. In 2020, in order to show support for effecting positive change in society, we joined countless
others to donate to organizations fighting for social justice and racial equality.
As of June 30, 2021, our global workforce was 82% male and 18% female, and 8% of our workforce in the United States
was composed of Black or African American, and Hispanic or Latino employees.
Learning and Development
We offer our employees opportunities to advance their careers at KLA. We emphasize experimentation, stretch
assignments and on-the job learning and development. 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 learning management
platform offers robust training and development programs, as well as learning resources. Our Employee Educational Assistance
14
Program provides financial and management support to eligible employees, allowing them to pursue academic degrees related
to their field of work. Employees may also participate in a tuition reimbursement program and distance learning degree
programs with major universities. Our performance management process includes performance feedback and career
development discussions that are dynamic and actionable throughout the year.
Many of our employees are 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 also have leadership
development programs available to employees, including the New Manager Training Program, Corporate Values Training
Program, and Executive Leadership Programs.
Employee Engagement
We conduct regular employee surveys to check in with our global workforce and obtain input on a number of 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 weekly and quarterly webcasts.
These global webcasts enable all employees to engage with senior leaders and ask questions in an open Q&A session.
Health and Safety and Pandemic Response
KLA is 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.
KLA’s top priority during the ongoing COVID-19 pandemic has been and continues to be protecting the health and safety
of our employees and their families, our customers, and our community. The commitment to this effort is evidenced by the
extensive planning and numerous actions KLA swiftly took to respond to the pandemic, including the development and
implementation of an infectious disease playbook, a work from home program, health check protocols, screenings for all
employees working on site, new process workflows at physical sites to ensure reduced contact for employees working on site,
contact tracing processes and protocols, quarantining and testing protocols for exposure and positive tests, on-site vaccination
clinics and travel guidelines and protocols to ensure employees who must travel for work can do so safely, and phased return-
to-work plans and approval processes to enable non-manufacturing employees to return-to-work when permitted by local
government regulations. KLA continues to maintain workplace flexibility such as working remotely where possible to reduce
the number of people who are on site each day. In April 2020, KLA launched a worldwide survey of its people to better
understand how remote workers were doing during the pandemic. The results of this survey have informed our continued
response to the COVID-19 pandemic and were shared with all of our employees.
15
Glossary
This section provides definitions for certain industry and technical terms commonly used in our business, that are used
elsewhere in this this Annual Report on Form 10-K:
active matrix
A technology used in FPDs to control the imaging-produced active areas where the display
pixels are located.
broadband
Of an illumination source, having a wide spectral bandwidth.
compound semiconductor
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).
computer-aided
manufacturing (“CAM”)
An application technology that uses computer software and machinery to facilitate and
automate manufacturing processes.
critical dimension (“CD”)
The dimension of a specified geometry (such as the width of a patterned line or the
distance between two lines) that must be within design tolerances in order to maintain
semiconductor device performance consistency.
design rules
Rules that set forth the allowable dimensions of particular features used in the design and
layout of ICs.
design technology co-
optimization (“DTCO”)
The methodology of optimizing semiconductor design and process simultaneously during
the technology definition phase.
die
dice
A single semiconductor chip on a wafer.
The process of cutting through a wafer to separate the individual die from each other.
electron-beam
An illumination source comprised of a stream of electrons emitted by a single source.
epitaxial silicon (“epi”)
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.
etching
excursion
fab
finFET
A process step in which layers of material are removed from a semiconductor wafer in a
specific pattern.
For a manufacturing step or process, a deviation from normal operating conditions that can
lead to decreased performance or yield of the final product.
The main manufacturing facility for processing semiconductor wafers.
A type of field-effect transistor (FET), often with source and drain geometries that
resemble fins.
flat panel display (“FPD”)
A display appliance that uses a thin panel design. Also includes flexible displays.
flexible printed circuit
(“FPC”)
Flexible circuits provide mechanical support and connect various electrical and mechanical
components together using material that can be shaped, bent, twisted or folded.
front end
geometry
The processes that make up the first half of the semiconductor manufacturing process,
from wafer start through final contact window processing.
The surface shape of an object, such as the 3D shape of a semiconductor device structure
or the shape of base or patterned wafers
16
high-density interconnect
(“HDI”)
HDI PCBs have a higher wiring density per unit area, finer lines and spaces, smaller vias,
smaller capture pads and higher connection pad density than conventional PCBs.
in situ
ingot
interconnect
Of processing steps or tests, done without moving the wafer. Latin for “in original
position.”
A piece of pure metal intended to be processed. In semiconductors, a silicon ingot is
typically created in such a way that slicing cross-sections creates bare wafers.
A highly conductive material, usually copper or aluminum, which carries electrical signals
to different parts of a die.
internet of things (“IoT”)
A network of devices with the ability to transfer data without human interaction.
light emitting diode
(“LED”)
A semiconductor device that releases electromagnetic radiation (light) when current flows
through it. The bandgap of the semiconductor material determines the wavelength (color)
of the light emitted.
liquid crystal display
(“LCD”)
A FPD technology that uses a backlight to provide light to individual pixels arranged in a
grid.
lithography
mask shop
metrology
A process in which a masked pattern is projected onto a photosensitive coating that covers
a substrate.
A manufacturer that produces the reticles used by semiconductor manufacturers.
The science of measurement to determine dimensions, quantity or capacity. In the
semiconductor industry, typical measurements include critical dimension, overlay and film
thickness.
microelectromechanical
systems (“MEMS”)
Micron-sized mechanical devices powered by electricity, created using processes similar
to those used to manufacture IC devices.
microLED
micron
Moore’s Law
multi-layer boards
(“MLB”)
A FPD technology wherein an array of microscopic LEDs act as the pixels.
A metric unit of linear measure that equals 1/1,000,000 meter (10-6m), or 10,000
angstroms (the diameter of a human hair is approximately 75 microns).
An observation made by Gordon Moore in 1965 and revised in 1975 that the number of
transistors on a typical integrated circuit doubles approximately every two years.
A PCB made up of three or more conductive layers that are pressed together.
nanometer (“nm”)
One billionth (10-9) of a meter.
organic light emitting
diode (“OLED”)
A FPD technology containing thin flexible sheets of an organic electroluminescent
material, used for visual displays.
patterned
photoresist
photovoltaic
For semiconductor manufacturing and industries using similar processing technologies,
substrates that have electronic circuits (transistors, interconnects, etc.) fabricated on the
surface.
A radiation-sensitive material that, when properly applied to a variety of substrates and
then properly exposed and developed, masks portions of the substrate with a high degree
of integrity.
The property of semiconductor devices to create electric current through exposure to
sunlight.
printed circuit board
(“PCB”)
A board used to mechanically support and electrically connect various electrical and
mechanical components.
17
process control
The ability to maintain specifications of products and equipment during manufacturing
operations.
reticle
A very flat glass plate that contains the patterns to be reproduced on a wafer.
silicon on insulator
(“SOI”)
Substrate-like PCB/
modified semi-additive
process (“SLP/mSAP”)
substrate
unpatterned
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.
An advanced manufacturing process or technique that enables fine line and space patterns
with higher manufacturing precision that maximizes circuit density.
A wafer or other material on which layers of various materials are added during the
process of manufacturing semiconductor devices (circuits), FPDs or PCBs.
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.
yield management
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 definitions above are from internal sources, as well as online semiconductor dictionaries such as https://
www.semiconductors.org/semiconductors-101/frequently asked questions/.
18
ITEM 1A.
RISK FACTORS
A description of factors that could materially affect our business, financial condition or operating results is provided
below.
Risk Factors Summary
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.
COVID-19 Pandemic Risks
shortages or disruption in the supply chain could affect our ability to timely process components for our products;
travel bans or quarantine requirements could delay our ability to install or service our products;
governmental orders or employee exposure could cause manufacturing stoppages for us or our customers or suppliers;
reduced demand for our products, delivery pushouts or cancellations of orders by our customers;
increased costs or inability to acquire components necessary for the manufacture of our products;
absence of liquidity at customers and suppliers; and
loss of efficiencies due to remote working requirements for our employees..
Commercial, Operational, Financial and Regulatory Risks
laws, regulations or other orders may limit our ability to sell our products to certain customers or to provide service on
products previously sold to those customers;
we may be exposed to tariffs or similar trade impairments;
international sales may expose us to longer payment cycles or collection difficulties;
intellectual property disputes can be expensive and could result in an inability to sell our products in certain
jurisdictions;
we may be unable to attract or retain key personnel;
reliance on third-party service providers could result in disruptions if such third parties cannot perform services for us
in a timely manner;
cybersecurity incidents could result in the loss of valuable information or assets or subject us to costly disruption,
remediation, regulatory investigations, litigation and reputational damage;
we may face disruptions if we cannot access critical information in a timely manner due to system failures;
we may not find suitable acquisition candidates or fail to successfully integrate our acquisitions;
natural disasters, health epidemics, acts of terrorism or war or other catastrophic events could significantly disrupt our
operations for lengthy periods of time;
we are exposed to fluctuations in foreign currency exchange rates, interest rates and the market values of our portfolio
investments;
we are subject to exposure from tax and regulatory compliance audits;
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; and
changes in accounting pronouncements and laws could have unforeseen effects.
Industry Risks
we may not be able to keep pace with technological changes in the industries in which we operate;
we have a highly concentrated customer base; and
prevailing local and global economic conditions may negatively affect the purchasing decisions of our customers or
the value of our investment portfolio.
Business Model and Capital Structure Risks
we may not be able to maintain our technology advantage or protect our proprietary rights;
we may not be able to compete with new products introduced by our competitors;
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
19
•
•
•
•
•
•
•
we may not receive components necessary to build our products in a timely manner;
we may fail to operate our business in a manner consistent with our business plan;
we may not have sufficient financial resources to repay our indebtedness when it becomes due;
we may fail to comply with the covenants in our Revolving Credit Facility (as defined below), which could impair our
ability to borrow needed funds under the facility, or require us to repay it sooner than we planned;
if our products fail to operate properly or contain defects or our customers are sued by third parties due to our
products, we may be liable under indemnification provisions with our customers;
we may incur significant restructuring charges or other asset impairment charges or inventory write-offs; and
we are subject to risks related to receivables factoring arrangements, and compliance risk of certain settlement
agreements with the government.
For a more complete discussion of the material risks facing our business, see below.
Risks Related to the COVID-19 Pandemic
The current COVID-19 pandemic and the potential aftereffects from it could materially harm our business, financial
condition and results of operations.
The COVID-19 pandemic has caused substantial global disruptions, including in the jurisdictions where we conduct
business and may cause additional disruptions in the future, which are impossible to predict. Local, regional and national
authorities in numerous jurisdictions have implemented a variety of measures designed to slow the spread of the virus,
including social distancing guidelines, quarantines, banning of non-essential travel and requiring the cessation of non-essential
activities on the premises of businesses. While all of our global sites are currently operational, any local pandemic outbreaks
could require us to temporarily curtail production levels or temporarily cease operations based on government mandates.
COVID-19 vaccines have been approved and become available for use in the United States and certain other countries.
However, given our global operations, we are unable to predict how widely utilized the vaccines ultimately will be and whether
they will be effective in preventing the spread of COVID-19 (including its variant strains). In addition, although economic
activity has begun to improve in recent months from the global reduction in economic activity in calendar year 2020 caused by
the COVID-19 pandemic, the pace of economic recovery remains uneven in various geographies, and the resumption of growth
has caused us to experience new constraints in our supply chain as discussed below.
Some of the risks associated with the pandemic or a worsening of the pandemic in the future include:
•
•
•
•
•
•
•
•
cancellation or reduction of routes available from common carriers, which may cause delays in our ability to deliver or
service our products or receive components from suppliers necessary to manufacture or service our products;
shortages or disruption in the supply chain could affect our ability to procure components for our products on a timely
basis or at all, or could require us to commit to increased purchases and provide longer lead times to secure critical
components, which could increase inventory obsolescence risk (refer to the Executive Summary in Part II, Item 7
“Management's Discussion and Analysis of Financial Condition and Results of Operations,” for additional information
on supply constraints related to the COVID-19 pandemic);
travel bans or the requirement to quarantine for a lengthy period after entering a jurisdiction, which may delay our
ability to install the products we sell or service those products following installation;
governmental orders or employee exposure requiring us, our customers or our suppliers to discontinue manufacturing
products at our respective facilities for a period of time;
reduced demand for our products, delivery pushouts or cancellation of orders by our customers caused by a global
recession resulting from the pandemic and the measures implemented by authorities to slow the spread of COVID-19;
increased costs or inability to acquire components necessary for the manufacture of our products due to reduced
availability;
absence of liquidity at customers and suppliers caused by disruptions from the pandemic, which may hamper the
ability of customers to pay for the products they purchase on time or at all, or hamper the ability of our suppliers to
continue to supply components to us in a timely manner or at all; and
loss of efficiencies due to remote working requirements for our employees.
If any of the foregoing risks occur or intensify during this pandemic, our business, financial condition and results of
operations could be materially adversely affected.
20
Commercial, Operational, Financial and Regulatory Risks
A majority of our annual revenues are derived from outside the United States, and we maintain significant operations
outside the United States. We are exposed to numerous risks as a result of the international nature of our business and
operations.
A majority of our annual revenues are derived from outside the United States, and we maintain significant operations
outside the United States. We expect that these conditions will continue in the foreseeable future. Managing global operations
and sites located throughout the world presents a number of challenges, including but not limited to:
•
•
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;
•
ineffective or inadequate legal protection of intellectual property rights in certain countries;
• managing cultural diversity and organizational alignment;
•
•
•
•
•
•
•
•
•
•
•
exposure to the unique characteristics of each region in the global market, which can cause capital equipment
investment patterns to vary significantly from period to period;
periodic local or international economic downturns;
potential adverse tax consequences, including withholding tax rules that may limit the repatriation of our earnings, and
higher effective income tax rates in foreign countries where we do business;
compliance with customs regulations in the countries in which we do business;
existing and potentially new tariffs or other trade restrictions and barriers (including those applied to our products,
spare parts and services, or to parts and supplies that we purchase);
political instability, natural disasters, legal or regulatory changes, acts of war or terrorism in regions where we have
operations or where we do business;
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.
longer payment cycles and difficulties in collecting accounts receivable outside of the United States;
difficulties in managing foreign distributors (including monitoring and ensuring our distributors’ compliance with
applicable laws); and
inadequate protection or enforcement of our intellectual property and other legal rights in foreign jurisdictions.
In addition, government controls, either by the United States or other countries, that restrict our business overseas or
restrict our ability to import or export our products and services or increase the cost of our operations through the imposition of
tariffs, new controls, outright bans, or otherwise, could harm our business. For example, Commerce has added numerous China-
based entities to the U.S. Entity List, including Fujian Jinhua Integrated Circuit Company, Ltd., Huawei, and Semiconductor
Manufacturing International Corporation, restricting our ability to provide products and services to such entities without an
export license. Even if we apply for licenses to sell our products or provide services to companies on Commerce’s U.S. Entity
List, there can be no assurance that licenses will be granted. In addition, Commerce has imposed new export licensing
requirements on China-based customers engaged in military end uses or where Commerce has determined there is a risk of
diversion to a military end use, 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 Huawei or its affiliates. To
date, these new rules have not significantly impacted our operations, but we are continually monitoring their impact. If
additional companies are added to Commerce’s U.S. Entity List, or other licensing requirements or restrictions are imposed,
thereby limiting our ability to sell our products or services to other customers in China, our business could be significantly
harmed. Similar actions by the U.S. government or another country could impact our ability to provide our products and
services to existing and potential customers.
21
Any of the factors above could have a significant negative impact on our business and results of operations.
We are exposed to risks associated with a weakening in the condition of the financial markets and the global economy.
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 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 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.
We might be involved in claims or disputes related to intellectual property 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 intellectual property 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 intellectual property claims made
against such customers by third parties. With respect to intellectual property 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 can be obtained or, if obtained, 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 intellectual property or confidential information. Legal proceedings and claims, regardless
of their merit, and associated internal investigations with respect to intellectual property 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.
22
We are exposed to various risks related to the legal, regulatory and tax environments in which we perform our
operations and conduct our business.
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 law, but there can be no assurance our policies and procedures
will prove completely effective in ensuring compliance by all our personnel as well as our 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. 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.
Our properties and many aspects of our business operations 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. 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. In addition, changes in environmental regulations (including regulations relating to climate
change and greenhouse gas emissions) could require us to invest in potentially costly pollution control equipment, alter our
manufacturing processes or use substitute (potentially more expensive and/or rarer) materials. Further, we use hazardous and
other regulated materials that subject us to risks of strict liability for damages caused by any release, regardless of fault. We also
face increasing complexity in our manufacturing, product design and procurement operations as we adjust to new and
prospective requirements relating to the materials composition of our products, including restrictions on lead and other
substances and requirements to track the sources of certain metals and other materials. The cost of complying, or of failing to
comply, with these and other regulatory restrictions or contractual obligations could adversely affect our operating results,
financial condition and ability to conduct our business.
In addition, we may from time to time be involved in legal proceedings or claims regarding employment, immigration,
contracts, product performance, product liability, antitrust, environmental regulations, 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.
We depend on key personnel to manage our business effectively, and if we are unable to attract, retain and motivate
our key employees, our sales and product development could be harmed.
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 on 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. In addition, current or
future immigration laws, policies or regulations may limit our ability to attract, hire and retain qualified personnel. If we are
unable to attract and retain key personnel, or if we are unable to attract, assimilate and retain additional highly qualified
employees to meet our current and future needs, our business and operations could be harmed.
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, 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
23
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, employ cloud computing technology for
such storage. These providers’ cloud computing systems may be susceptible to “cyber incidents,” such as intentional cyber-
attacks aimed at theft of sensitive data or inadvertent cyber-security compromises, 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 do not perform as anticipated, or do not adequately 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 intellectual property 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.
We depend on secure information technology for our business and are exposed to risks related to cybersecurity threats
and cyber incidents affecting our and our service providers’ systems and networks.
In the conduct of our business, we collect, use, transmit and store data on information systems and networks, including
systems and networks owned and maintained by KLA and/or by third-party providers. This data includes confidential
information, transactional information and intellectual property belonging to us, our customers and our business partners, as
well as personally identifiable information of individuals. Despite network security measures, our and our third-party providers’
information systems and networks are susceptible to computer viruses, ransomware, cyber-related security breaches and similar
disruptions from unauthorized intrusions, tampering, misuse, or criminal acts made directly against, or through our third-party
providers in the supply chain, and against, our systems and networks, including phishing, or other events or developments that
we may be unable to anticipate or fail to mitigate, which are subject to the inherent vulnerabilities of network security
measures. We have experienced cyber-related attacks in the past, and are likely to experience cyber-related attacks in the future.
Our security measures may also be breached due to employee errors, malfeasance, or otherwise. Third parties may also attempt
to influence employees, users, suppliers or customers to disclose sensitive information in order to gain access to our, our
customers’ or business partners’ data. Because the techniques used to obtain unauthorized access to the information systems
change frequently, may not be recognized until launched against a target, and are increasingly designed to circumvent controls,
to avoid detection and to remove or obfuscate forensic artifacts, we may be unable to anticipate these techniques, to implement
adequate preventative measures, or to adequately identify and investigate cybersecurity incidents..
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, including intellectual property and other critical data, of KLA, our customers and other business partners;
misappropriation of funds and Company assets; reduced value of our investments in research, development and engineering;
litigation with, or payment of damages to, third parties; reputational damage; costs to comply with regulatory inquiries or
actions; data privacy issues; costs to rebuild our information systems and networks; and increased cybersecurity protection and
remediation costs.
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 that 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 relationship management system, 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) could adversely affect our ability to complete important business
processes, such as the evaluation of our internal control 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.
24
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. As part of this effort, in February 2019, we announced that we
had consummated our Orbotech Acquisition. 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 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 business 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 that 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 lose
key employees of the acquired companies. Risks associated with acquisition transactions may lead to a material adverse effect
on our business and financial results for an additional number of reasons, including:
• we may have to devote unanticipated financial and management resources to acquired businesses;
•
the combination of businesses may result in the loss of key personnel or an interruption of, or loss of momentum in,
the activities of our Company and/or the acquired business;
• we may not be able to realize expected operating efficiencies or product integration benefits from our acquisitions;
• we may experience challenges in entering into new market segments for which we have not previously manufactured
and sold products;
• we may face difficulties in coordinating geographically separated organizations, systems and facilities;
•
the customers, distributors, suppliers, employees and others with whom the companies we acquire have business
dealings may have a potentially adverse reaction to the acquisition;
• we may have difficulty implementing a cohesive framework of internal controls over the entire organization;
• we may have to write-off goodwill or other intangible assets; and
• we may incur unforeseen obligations or liabilities in connection with acquisitions.
At times, we may also enter into strategic alliances with customers, suppliers or other business partners with respect to
development of technology and intellectual property. 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 in the operations of our customers, due to
earthquake, flood, other natural catastrophic events, health epidemics 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 United States, 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 located in numerous countries throughout the world. Operations at our manufacturing facilities and our assembly
subcontractors, 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, health epidemics and pandemics, fire, earthquake, volcanic eruptions, energy
shortages, flooding or other natural disasters. Such disruption could cause delays in, among other things, shipments of products
to our customers, our ability to perform services requested by our customers, or the installation and acceptance of our products
at customer sites. 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.
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.
25
We are predominantly uninsured for losses and interruptions caused by terrorist acts and acts of war. If international
political instability continues or increases, 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 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 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. We cannot assess the impact that emergency conditions in Israel in the future may have on our business,
operations, financial condition or results of operations, but it could be material. 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 the region could also have the same effects on our suppliers and their ability to timely deliver their
products. If international political instability continues or increases in any region in which we do business, our business and
results of operations could be harmed. We are predominantly uninsured for losses and interruptions caused by terrorist acts and
acts of war.
We self-insure certain risks including earthquake risk. If one or more of the uninsured events occurs, we could suffer
major financial loss.
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 Israeli new 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 United States, 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.
26
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 exposed to risks in connection with tax and regulatory compliance audits in various jurisdictions.
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. In addition to and in connection with the
Israel Tax Authority (“ITA”) Assessment described in more detail in Note 14 “Income Taxes” to our Consolidated Financial
Statements, there is an ongoing criminal investigation against our Orbotech subsidiary, certain of its employees and its tax
consultant that began prior to the Acquisition Date. We can make no assurances that an indictment will not result from the
criminal investigation. 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.
A change in our effective tax rate can have a significant adverse impact on our business.
We earn profits in, and are therefore potentially subject to taxes in, the U.S. and numerous foreign jurisdictions, including
Singapore, Israel and the Cayman Islands, 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 (“IPR&D”) 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. However, 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 IRS. 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 tax liability is paid in full.
Numerous countries are evaluating their existing tax laws due in part, to recommendations made by the Organization for
Economic Co-operation and Development’s Base Erosion and Profit Shifting project. Furthermore, President Biden put forth
several corporate income tax proposals during his campaign, including a significant increase in the corporate income tax rate
and changes in the taxation of non-U.S. income. While it is too early to predict the outcome of these proposals, if enacted, they
could have a material impact on our income tax liability.
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.
27
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.
Risks Associated with Our Industry
Ongoing changes in the technology industry, as well as the semiconductor industry in particular, could expose our
business to significant risks.
The industries that we serve, including the semiconductor, FPD and PCB industries, are constantly developing and
changing over time. 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),
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. Some of the trends
that 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 increasing cost of building and operating fabrication facilities and the impact of such increases on our customers’
capital equipment investment decisions;
differing market growth rates and capital requirements for different applications, such as memory and foundry/logic;
lower level of process control adoption by our memory customers compared to our foundry/logic customers;
our customers’ reuse of existing and installed products, which may decrease their need to purchase new products or
solutions at more advanced technology nodes;
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;
the possible introduction of integrated products by our larger competitors that offer inspection and metrology
functionality in addition to managing other semiconductor manufacturing processes;
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 of,
ownership of and profitability from the products and technologies developed through those programs; and
28
•
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.
We are exposed to risks associated with a highly concentrated customer base.
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 exposes 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
management products are configured to each customer’s specifications, any changes, delays or cancellations of orders
may result in significant, non-recoverable costs.
• 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, intellectual property-related or other commercial terms that may have an
adverse impact on our business. 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.
• 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.
Any of these factors could have a material adverse effect on our business, financial condition and operating results.
29
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 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, then 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.
In addition, our management typically provides quarterly forecasts for certain financial metrics, which, when made, are
based on business and operational forecasts that are believed to be reasonable at the time. However, largely due to the historical
cyclicality of our business and the industries in which we operate, and the fact that business conditions in our industries can
change very rapidly as part of these cycles, our actual results may vary (and have varied in the past) from forecasted results.
These variations can occur for any number of reasons, including, but not limited to, unexpected changes in the volume or
timing of customer orders, product shipments or product acceptance; an inability to adjust our operations rapidly enough to
adapt to changing business conditions; or a different than anticipated effective tax rate. The impact on our business of delays or
cancellations of customer orders may be exacerbated by the short lead times that our customers expect between order placement
and product shipment. This is because order delays and cancellations may lead not only to lower revenues, but also, due to the
advance work we must do in anticipation of receiving a product order to meet the expected lead times, to significant inventory
write-offs and manufacturing inefficiencies that decrease our gross margin. Any of these factors could materially and adversely
affect our financial results for a particular quarter and could cause those results to differ materially from financial forecasts we
have previously provided. We provide these forecasts with the intent of giving investors and analysts a better understanding of
management’s expectations for the future, but those reviewing such forecasts must recognize that such forecasts are comprised
of, and are themselves, forward-looking statements subject to the risks and uncertainties described in this Item 1A and
elsewhere in this report and in our other public filings and public statements. If our operating or financial results for a particular
period differ from our forecasts or the expectations of investment analysts, or if we revise our forecasts, the market price of our
common stock could decline.
Risks Related to Our Business Model and Capital Structure
If we do not develop and introduce new products and technologies in a timely manner in response to changing market
conditions or customer requirements, our business could be seriously harmed.
Success in the industries in which we serve, including the semiconductor, FPD and PCB industries depends, in part, on
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. That driver appears to be slowing, which may cause semiconductor manufacturers to 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
30
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 or 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. If we are unable to maintain our lead
or protect our proprietary technology, we may lose valuable assets.
Our success is dependent in part on our technology and other proprietary rights. We own various United States 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 intellectual property 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. In addition, the laws of certain
territories in which we develop, manufacture or sell our products may not protect our intellectual property rights to the same
extent as do the laws of the United States. 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.
31
Our future performance depends, in part, upon our ability to continue to compete successfully worldwide.
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 that
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.
Our business would be harmed if we do not receive parts sufficient in number and performance to meet our
production requirements and product specifications in a timely and cost-effective manner.
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. We generally 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 intellectual property; 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 intellectual property 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. 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 only able to do so 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. Refer to the Executive Summary in Part II, Item 7 “Management's Discussion and
Analysis of Financial Condition and Results of Operations,” for additional information on supply constraints related to the
COVID-19 pandemic.
If we fail to operate our business in accordance with our business plan, our operating results, business and stock price
may be significantly and adversely impacted.
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.
32
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.
We have a leveraged capital structure.
As of June 30, 2021, we had $3.47 billion aggregate principal amount of outstanding indebtedness, consisting of $3.45
billion aggregate principal amount of senior, unsecured long-term notes. In November 2017, we entered into a Credit
Agreement (the “Credit Agreement”) providing for a $750.0 million five-year unsecured Revolving Credit Facility (the
“Revolving Credit Facility”), which replaced our prior Credit Facility. 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. We have no borrowings under
our Revolving Credit Facility, and an additional $1.00 billion in unfunded commitments. 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. For example, at the same time we announced our intention to acquire Orbotech, we also announced a new stock
repurchase program authorizing the repurchase up to $3.00 billion of our common stock, a large portion of which 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 (as defined below) 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 right 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. 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 indenture
associated with that series of Senior Notes, or by the terms of other agreements to which we may be 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 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 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
an adjustment in conjunction with our credit rating downgrades or upgrades. 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 will 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.
33
Our leveraged capital structure may adversely affect our financial condition, results of operations and net income per
share.
Our substantial amount of indebtedness could have adverse consequences including, but not limited to:
•
•
•
•
a negative impact on our ability to satisfy our future obligations;
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;
an impairment of our ability to obtain additional financing in the future; and
obligations to comply with restrictive and financial covenants as noted in the above risk factor and Note 8 “Debt” to
our Consolidated Financial Statements.
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.
There can be no assurance that we will continue to declare cash dividends at all or in any particular amounts.
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.
We are exposed to risks related to our commercial terms and conditions, including our indemnification of third
parties, as well as the performance of our products.
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.
34
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 intellectual property 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. 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.
35
There are risks associated with our receipt of government funding for research and development.
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.
We have recorded significant restructuring, inventory write-off and asset impairment charges and may do so again in
the future, which could have a material negative impact on our results of operations.
Historically, we have recorded material restructuring charges related to our prior global workforce reductions, large
excess inventory write-offs, and material impairment charges related to our goodwill and purchased intangible assets.
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 usage of service inventory decline. Also, as our lead
times from suppliers increase (due to the increasing complexity of the parts and components they provide) and the lead times
demanded by our customers decrease (due to 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 are exposed to risks related to our financial arrangements with respect to receivables factoring and banking
arrangements.
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 bank accounts with several domestic and foreign financial
institutions, any of which may prove not to be financially viable. 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 entering into these arrangements, and by engaging these financial institutions for banking services, we
are exposed to additional risks. 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
36
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.
We are subject to the risks of additional government actions in the event we were to breach the terms of any settlement
arrangement into which we have entered.
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.
ITEM 1B.
UNRESOLVED STAFF COMMENTS
None.
ITEM 2.
PROPERTIES
Our headquarters are located in Milpitas, California. As of June 30, 2021, we owned or leased a total of
approximately 4 million square feet of space for research, engineering, marketing, service, sales and administration worldwide
primarily in U.S., Israel, Singapore, China, Germany, and Taiwan. Our operating leases expire at various times through January
4, 2037, subject to renewal, with some of the leases containing renewal option clauses at the fair market value, for additional
periods up to six 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.
Information regarding our principal properties as of June 30, 2021 is set forth below:
(Square Feet)
Owned(1)
Leased
Total
United States
Other Countries
Total
727,302
408,174
1,135,476
695,048
1,674,276
2,369,324
1,422,350
2,082,450
3,504,800
(1)
__________________
Includes 248,155 square feet of property owned at our location in Serangoon, Singapore, where the land on which this
building resides is leased.
ITEM 3.
LEGAL PROCEEDINGS
The information set forth below under Note 15 “Litigation and Other Legal Matters” to our Consolidated Financial
Statements is incorporated herein by reference.
ITEM 4.
MINE SAFETY DISCLOSURES
Not applicable.
37
PART II
ITEM 5.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES
Our common stock is listed and traded on the NASDAQ Global Select Market under the symbol “KLAC.”
On August 5, 2021, we announced that our Board of Directors had declared a quarterly cash dividend of $1.05 per share
to be paid on September 1, 2021 to stockholders of record as of the close of business on August 16, 2021.
As of July 19, 2021, there were 386 holders of record of our common stock.
Equity Repurchase Plans
The following is a summary of stock repurchases for each month during the fourth quarter of the fiscal year ended June
30, 2021.
Period
April 1, 2021 to April 30, 2021
May 1, 2021 to May 31, 2021
June 1, 2021 to June 30, 2021
Total
__________________
Total Number of
Shares
Purchased(1)
Average Price Paid
per Share
Approximate Dollar Value that
May Yet Be Purchased Under
the Plans or Programs(1)(2)
187,324 $
451,806 $
311,123 $
950,253 $
336.30 $
306.12 $
316.51 $
315.47
329,783,026
191,476,678
93,001,941
(1) Our Board of Directors has authorized a program that permits us to repurchase up to $3.00 billion of our common stock. As
of June 30, 2021, approximately $93 million remained available for repurchases under this repurchase program.
(2) The stock repurchase program has no expiration date and may be suspended at any time. Future repurchases of our
common stock under our repurchase program may be effected through various different repurchase transaction structures,
including isolated open market transactions or systematic repurchase plans.
38
Stock Performance Graph and Cumulative Total Return
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 Commission under the
Securities Exchange Act of 1934 and shall not be incorporated by reference into any such filings.
The following graph compares the cumulative 5-year total return attained by stockholders on our common stock relative
to the cumulative total returns of the S&P 500 Index 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, 2016 to June 30, 2021.
KLA Corporation
S&P 500
PHLX Semiconductor
June 2016
June 2017
June 2018
June 2019
June 2020
June 2021
$100.00
$100.00
$100.00
$128.28
$117.90
$152.21
$147.27
$134.84
$196.53
$174.63
$148.89
$222.68
$293.31
$160.06
$310.27
$495.74
$225.36
$526.91
Our fiscal year ends June 30. The comparisons in the graph above are based upon historical data and are not necessarily
indicative of, nor intended to forecast, future stock price performance.
39
ITEM 6.
[RESERVED]
ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
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 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 2020 as compared against
fiscal year 2019 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, 2020, filed with the SEC.
EXECUTIVE SUMMARY
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 drives demand for our process control and yield management
solutions. Other demand trends include the growth of end-market drivers such as AI, the deployment of 5G telecommunications
technology and associated high-end mobile devices, the electrification and digitalization 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 Internet of Things (“IoT”). The favorable end market dynamics are driving our customers
to make increased investments in our process control and yield management solutions as part of their overall capital investment
plans. These trends also drive demand for our other products such as those used in the PCB, FPD and Specialty Semiconductor
manufacturing, where the increase in technology complexity is expected to continue and further accelerate as more devices
become interconnected and dependent on other electronic devices. As a result of these factors, we saw a general strengthening
of demand for our products throughout fiscal 2021. Our customer base, particularly in the semiconductor industry, has become
increasingly concentrated, so large orders from a relatively limited number of customers account for a substantial portion of our
sales, which potentially exposes us to more earnings volatility.
We are organized into four reportable segments:
•
•
•
•
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.
Specialty Semiconductor Process: Advanced vacuum deposition and etching process tools used by a broad range of
specialty semiconductor customers.
PCB, Display and Component Inspection: a range of inspection, testing and measurement, and DI for patterning
products used by manufacturers of PCBs, FPDs, advanced packaging, MEMS, and other electronic components.
Other: products that do not fall into the three segments above.
A majority of our revenues are derived from outside the United States, and include geographic regions such as Taiwan,
China, Korea, Japan, Europe and Israel, and Rest of Asia. China is emerging as a major region for manufacturing of logic and
memory chips, adding to its role as the world’s largest consumer of ICs. Additionally, a significant portion of global FPD and
PCB manufacturing has migrated to China. Government initiatives are propelling China to expand its domestic manufacturing
capacity and attracting investment from semiconductor manufacturers from Taiwan, Korea, Japan and the United States.
Although China is currently seen as an important long-term growth region for the semiconductor and electronics capital
equipment sector, Commerce has added certain China-based entities to the U.S. Entity List, restricting our ability to provide
products and services to such entities without a license. In addition, Commerce has imposed new export licensing requirements
40
on China-based customers 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 Huawei or its
affiliates. While these new rules have not significantly impacted our operations to date, such actions by the U.S. government or
another country could impact our ability to provide our products and services to existing and potential customers and adversely
affect our business.
The following table sets forth some of our key consolidated financial information for each of our last three fiscal years(1):
(Dollar amounts in thousands, except diluted net income per share)
Total revenues
Costs of revenues
Gross margin
Net income attributable to KLA(2)
Diluted net income per share attributable to KLA
__________________
2021
Year Ended June 30,
2020
2019
$ 6,918,734
$ 5,806,424
$ 4,568,904
$ 2,772,165
$ 2,449,561
$ 1,869,377
60 %
58 %
59 %
$ 2,078,292
$ 1,216,785
$ 1,175,617
$
13.37
$
7.70
$
7.49
(1)
(2)
On February 20, 2019, we completed the Orbotech Acquisition for total consideration of approximately $3 billion. The
operating results of Orbotech have been included in our Consolidated Financial Statements from the Acquisition Date.
For additional details, refer to Note 6 “Business Combinations” to our Consolidated Financial Statements.
Our net income attributable to KLA for the year ended June 30, 2020 includes a pre-tax goodwill impairment charge of
$256.6 million and a pre-tax charge of $22.5 million as a result of the extinguishment of debt. For additional details,
refer to Note 7 “Goodwill and Purchased Intangible Assets” and Note 8 “Debt” to our Consolidated Financial
Statements.
Impact of COVID-19
Events surrounding the COVID-19 pandemic had resulted in a reduction in economic activity across the globe in calendar
year 2020. Vaccinations and pandemic containment measures have now created an environment that is driving economic
growth, even as pace of economic recovery remains uneven in various geographies. The resumption of growth has caused us to
experience new constraints in our supply chain. Supply lead times are extended and shortages have sometimes required us to
increase our purchase commitments to secure critical components on a timely basis.
While all of our global sites are currently operational, any local pandemic outbreaks could require us to temporarily
curtail production levels or temporarily cease operations based on government mandates. We remain committed to the health
and safety of our employees, contractors, suppliers, customers, and communities, and are following government policies and
recommendations designed to slow the spread of COVID-19.
Our efforts to respond to the COVID-19 pandemic have included health screenings, social distancing, employee
separation protocols at our facilities, suspension of non-essential business travel and work from home to the extent possible. We
are working with government authorities in the jurisdictions where we operate, and continuing to monitor our operations in an
effort to ensure we follow government requirements, relevant regulations, industry standards, and best practices to help
safeguard our team members, while safely continuing operations to the extent possible at our sites across the globe.
We believe these actions are appropriate and prudent to safeguard our employees, contractors, suppliers, customers, and
communities, while allowing us to safely continue operations. We will continue to actively monitor the situation and may take
further actions altering our business operations that we determine are in the best interests of our employees, customers, partners,
suppliers, and stakeholders, or as required by federal, state, or local authorities.
CRITICAL ACCOUNTING ESTIMATES AND POLICIES
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. We discuss the
development and selection of the critical accounting estimates with the Audit Committee of our Board of Directors on a
quarterly basis, and the Audit Committee has reviewed our related disclosure in this Annual Report on Form 10-K. The
accounting policies that reflect our more significant estimates, judgments and assumptions and which we believe are the most
critical to aid in fully understanding and evaluating our reported financial results include the following:
41
Revenue Recognition. We primarily derive revenue from the sale of process control and yield management solutions for
the semiconductor and related nanoelectronics industries, maintenance and support of all these products, installation and
training services, and the sale of spare parts. Our portfolio also includes yield enhancement and production solutions used by
manufacturers of PCBs, FPDs, advanced packaging, MEMS and other electronic components. Our solutions are generally not
sold with a right of return, nor have we experienced significant returns from or refunds to our customers.
We account for a contract with a customer when there is approval and commitment from both parties, the rights of the
parties are identified, payment terms are identified, the contract has commercial substance and 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 prices (“SSP”) for each distinct product or service.
Management considers a variety of factors to determine the SSP, such as historical stand-alone sales of products and services,
discounting strategies and other observable data. From time to time, our contracts are modified to account for additional, or to
change existing, performance obligations. Our contract modifications are generally accounted for prospectively.
Product Revenue
We recognize revenue from product sales at a point in time when we have satisfied our performance obligation by
transferring control of the product to the customer. We use judgment to evaluate whether control has transferred by considering
several indicators, including whether:
•
•
•
•
•
we have a present right to payment;
the customer has legal title;
the customer has physical possession;
the customer has significant risk and rewards of ownership; and
the customer has accepted the product, or whether customer acceptance is considered a formality based on history of
acceptance of similar products (for example, when the customer has previously accepted the same tool, with the
same specifications, and when we can objectively demonstrate that the tool meets all of the required acceptance
criteria, and when the installation of the system is deemed perfunctory).
Not all of the indicators need to be met for us to conclude that control has transferred to the customer. In circumstances in
which revenue is recognized prior to the product acceptance, the portion of revenue associated with our performance
obligations to install product is deferred and recognized upon acceptance.
We enter into volume purchase agreements with some of our customers. We adjust the transaction consideration for
estimated credits earned by our customers for such incentives. These credits are estimated based upon the forecasted and actual
product sales for any given period and agreed-upon incentive rate. The estimate is updated at each reporting period.
We offer perpetual and term licenses for software products. The primary difference between perpetual and term licenses
is the duration over which the customer can benefit from the use of the software, while the functionality and the features of the
software are the same. Software is generally bundled with post-contract customer support (“PCS”), which includes unspecified
software updates that are made available throughout the entire term of the arrangement. Revenue from software licenses is
recognized at a point in time, when the software is made available to the customer. Revenue from PCS is deferred at contract
inception and recognized ratably over the service period, or as services are performed.
Services and Spare Parts Revenue
The majority of product sales include a standard six to 12-month warranty that is not separately paid for by the customers.
The customers may also purchase extended warranties for periods beyond the initial year 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.
42
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.
Installation services include connecting and validating configuration of the product. In addition, several testing protocols
are completed to confirm the equipment is performing to customer specifications. Revenues from product installation are
deferred and recognized at a point in time, once installation is complete.
Significant Judgments
Our contracts with our customers often include promises to transfer multiple products and services. Each product and
service is generally capable of being distinct within the context of the contract and represents a separate performance obligation.
Determining the SSP for each distinct performance obligation and allocation of consideration from an arrangement to the
individual performance obligations and the appropriate timing of revenue recognition are significant judgments with respect to
these arrangements. We typically estimate the SSP of products and services based on observable transactions when the products
and services are sold on a stand-alone basis and those prices fall within a reasonable range. We typically have more than one
SSP for individual products and services due to the stratification of these products by customers and circumstances. In these
instances, we use information such as the size of the customer, geographic region, as well as customization of the products in
determining the SSP. In instances where the SSP is not directly observable, we determine the SSP using information that
includes market conditions, entity-specific factors, including discounting strategies, information about the customer or class of
customer that is reasonably available and other observable inputs. While changes in the allocation of SSP between performance
obligations will not affect the amount of total revenue recognized for a particular contract, any material changes could impact
the timing of revenue recognition, which could have a material effect on our financial position and results of operations.
Although the products are generally not sold with a right of return, we may provide other credits or sales incentives,
which are accounted for either as variable consideration or material right, depending on the specific terms and conditions of the
arrangement. These credits and incentives are estimated at contract inception and updated at the end of each reporting period if
and when additional information becomes available.
As outlined above, we use judgments to evaluate whether or not the customer has obtained control of the product and
consider several indicators in evaluating whether or not control has transferred to the customer. Not all of the indicators need to
be met for us to conclude that control has transferred to the customer.
Contract Assets/Liabilities
The timing of revenue recognition, billings and cash collections may result in accounts receivable, contract assets, and
contract liabilities (deferred revenue) on our Consolidated Balance Sheets. A receivable is recorded in the period we deliver
products or provide services when we have an unconditional right to payment. Contract assets primarily relate to the value of
products and services transferred to the customer for which the right to payment is not just dependent on the passage of time.
Contract assets are transferred to accounts receivable when rights to payment become unconditional.
A contract liability is recognized when we receive payment or have an unconditional right to payment in advance of the
satisfaction of performance. The contract liabilities represent (1) deferred product revenue related to the value of products that
have been shipped and billed to customers and for which control has not been transferred to the customers, and (2) deferred
service revenue, which is recorded when we receive consideration, or such consideration is unconditionally due, from a
customer prior to transferring services to the customer under the terms of a contract. Deferred service revenue typically results
from warranty services, and maintenance and other service contracts.
Contract assets and liabilities related to rights and obligations in a contract are recorded net in the Consolidated Balance
Sheets.
Business Combinations. Accounting for business combinations requires management to make significant estimates and
assumptions to determine the fair values of assets acquired and liabilities assumed at the acquisition date. Although we believe
the assumptions and estimates we have made in the past have been reasonable and appropriate, they are based, in part, on
historical experience and information obtained from management of the acquired companies, and are inherently uncertain.
Critical estimates in valuing certain acquired intangible assets include, but are not limited to, future expected cash flows
including revenue growth rate assumptions from product sales, customer contracts and acquired technologies, expected costs to
develop IPR&D into commercially viable products, estimated cash flows from the projects when completed, including
43
assumptions associated with the technology migration curve, estimated royalty rates used in valuing technology related
intangible assets, and discount rates. The discount rates used to discount expected future cash flows to present value are
typically derived from a weighted-average cost of capital analysis and adjusted to reflect inherent risks. Unanticipated events
and circumstances may occur that could affect either the accuracy or validity of such assumptions, estimates or actual results.
We allocate the fair value of the purchase price of our acquisitions to the tangible assets acquired, liabilities assumed, and
intangible assets acquired, including 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. Upon the conclusion of the measurement period or final determination of the fair value of the purchase price of our
acquisitions, whichever comes first, any subsequent adjustments are recorded to our Consolidated Statements of Operations.
The fair value of IPR&D is initially capitalized as an intangible asset with an indefinite life and assessed for impairment
thereafter whenever events or changes in circumstances indicate that the carrying value of the IPR&D assets may not be
recoverable. Impairment of IPR&D is recorded to R&D expenses. When an IPR&D project is completed, the IPR&D is
reclassified as an amortizable purchased intangible asset and amortized to costs of revenues over the asset’s estimated useful
life.
Acquisition-related expenses are recognized separately from the business combination and are expensed as incurred.
Inventories. Inventories are stated at the lower of cost (on a first-in, first-out basis) or net realizable value. Net realizable
value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal
and transportation. Demonstration units are stated at their manufacturing cost and written down to their net realizable value. We
review and set standard costs semi-annually at current manufacturing costs in order to approximate actual costs. 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. We write down product inventory based on forecasted
demand and technological obsolescence and service spare parts inventory based on forecasted usage. These factors are impacted
by market and economic conditions, technology changes, new product introductions and changes in strategic direction and
require estimates that may include uncertain elements. Actual demand may differ from forecasted demand, and such differences
may have a material effect on recorded inventory values.
Allowance for Credit Losses. A majority of our accounts receivable are derived from sales to large multinational
semiconductor and electronics manufacturers throughout the world. We maintain an allowance for credit losses for expected
uncollectible accounts receivable and 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. However, volatility in market conditions and evolving credit trends are difficult to predict and may
cause variability that may have a material impact on our allowance for credit losses in future periods.
Accounting for Stock-Based Compensation Plans. Compensation expense for restricted stock units (“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 fair value
model requires the use of highly subjective and complex assumptions, including the award’s expected life, the price volatility of
the underlying stock, as well as the potential outcomes of the market condition on the grant date of each award.
Contingencies and Litigation. We are subject to the possibility of losses from various contingencies. Considerable
judgment is necessary to estimate the probability and amount of any loss from such contingencies. An accrual is made when it
is probable that a liability has been incurred or an asset has been impaired and the amount of loss can be reasonably estimated.
We accrue a liability and recognize as expense the estimated costs incurred to defend or settle asserted and unasserted claims
existing as of the balance sheet date. See Note 16 “Commitments and Contingencies” and Note 15 “Litigation and Other Legal
Matters” to our Consolidated Financial Statements for additional details.
Goodwill and Purchased Intangible Assets - Impairment Assessments. We review goodwill for impairment annually
during our third fiscal quarter as well as whenever events or changes in circumstances indicate the carrying value may not be
fully recoverable. Pursuant to the authoritative guidance, we make certain judgments and assumptions to determine our
reporting units and allocate shared assets and liabilities to those reporting units, which determines the carrying values for each
reporting unit. When assessing goodwill for impairment, an initial assessment of qualitative factors determines whether the
44
existence of events and circumstances indicates it is more likely than not that the fair value of a reporting unit is less than its
carrying value. Judgments related to qualitative factors include macroeconomic conditions, industry and market considerations,
cost factors, overall financial performance, relevant entity-specific events, a sustained decrease in share price and other events
affecting the reporting units. If we determine it is more likely than not that the fair value of a reporting unit is less than its
carrying value, a quantitative test is then performed by estimating the fair value of the reporting unit and comparing it to its
carrying value including goodwill. If the former is lower, goodwill is written down by the excess amount, limited to the amount
of goodwill allocated to that reporting unit. See Note 7 “Goodwill and Purchased Intangible Assets” to our Consolidated
Financial Statements for additional information.
We determine the fair value of a reporting unit using the market approach when deemed appropriate and the necessary
information is available, or the income approach which uses discounted cash flow (“DCF”) analysis, or a combination of both.
If multiple valuation methodologies are used, the results are weighted. Determining fair value requires the exercise of
significant judgment, including judgments about appropriate discount rates, revenue growth rates and the amount and timing of
expected future cash flows. Discount rates are based on a weighted-average cost of capital (“WACC”), which represents the
average rate a business must pay its providers of debt and equity, plus a risk premium. The WACC used to test goodwill is
derived from a group of comparable companies. The cash flows employed in the DCF analysis are derived from internal
forecasts and external market forecasts. The market approach estimates the fair value of the reporting unit by utilizing the
market comparable method which is based on revenue and earnings multiples from comparable companies.
We review purchased finite-lived intangible assets for impairment whenever events or changes in business circumstances
indicate that the carrying amount of the assets may not be fully recoverable or that the useful lives of the assets are shorter than
initially expected. We determine whether finite-lived intangible assets are recoverable based on the forecasted undiscounted
future cash flows that are expected to be generated by the lowest-level associated asset grouping. Assumptions and estimates
about future values and remaining useful lives of our intangible assets are complex and subjective. 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 review indefinite-lived intangible assets for impairment whenever events or changes in business circumstances
indicate that the carrying value of the assets may not be fully recoverable. The authoritative accounting guidance allows a
qualitative approach for testing indefinite-lived intangible assets for impairment, similar to the impairment testing guidance for
goodwill. It allows the option to first assess qualitative factors (events and circumstances) that could have affected the
significant inputs used in determining the fair value of the indefinite-lived intangible asset. The qualitative factors assist in
determining whether it is more-likely-than-not that the indefinite-lived intangible asset is impaired. An organization may
choose to bypass the qualitative assessment for any indefinite-lived intangible asset in any period and proceed directly to
calculating its fair value. Our indefinite-lived intangible assets are IPR&D intangible assets.
Any impairment charges could have a material adverse effect on our operating results and net asset value in the quarter in
which we recognize the impairment charge. See Note 7 “Goodwill and Purchased Intangible Assets” to our Consolidated
Financial Statements for additional information.
Income Taxes. We account for income taxes in accordance with the authoritative guidance, which requires income tax
effects for changes in tax laws to be recognized in the period in which the law is enacted.
Deferred tax assets and liabilities are recognized using enacted tax rates for the effect of temporary differences between
the book and tax bases of recorded assets and liabilities. The guidance also requires that deferred tax assets be reduced by a
valuation allowance if it is more likely than not that a portion of the deferred tax asset will not be realized. We have determined
that a valuation allowance is necessary against a portion of the deferred tax assets, but we anticipate that our future taxable
income will be sufficient to recover the remainder of our deferred tax assets. However, should there be a change in our ability to
recover our deferred tax assets that are not subject to a valuation allowance, we could be required to record an additional
valuation allowance against such deferred tax assets. This would result in an increase to our tax provision in the period in which
we determine that the recovery is not probable.
On a quarterly basis, we provide for income taxes based upon an estimated annual effective income tax rate. The effective
tax rate is highly dependent upon the geographic composition of worldwide earnings, tax regulations governing each region,
availability of tax credits and the effectiveness of our tax planning strategies. We carefully monitor the changes in many factors
and adjust our effective income tax rate on a timely basis. If actual results differ from these estimates, this could have a material
effect on our financial condition and results of operations.
The calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax regulations. In
accordance with the authoritative guidance on accounting for uncertainty in income taxes, we recognize liabilities for uncertain
tax positions based on the two-step process. The first step is to evaluate the tax position for recognition by determining if the
45
weight of available evidence indicates that it is more likely than not that the position will be sustained in audit, including
resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount
that is more than 50% likely of being realized upon ultimate settlement. We reevaluate these uncertain tax positions on a
quarterly basis. This evaluation is based on factors including, but not limited to, changes in facts or circumstances, changes in
tax law, effectively settled issues under audit and new audit activities. Any change in these factors could result in the
recognition of a tax benefit or an additional charge to the tax provision.
We record income taxes on the undistributed earnings of foreign subsidiaries unless the subsidiaries’ earnings are
considered indefinitely reinvested outside the U.S. Our effective tax rate would be adversely affected if we change our intent or
if such undistributed earnings are needed for U.S. operations because we would be required to provide or pay income taxes on
some or all of these undistributed earnings.
Global Intangible Low-Taxed Income. The Tax Act includes provisions for Global Intangible Low-Taxed Income
(“GILTI”) wherein taxes on foreign income are imposed in excess of a deemed return on tangible assets of foreign corporations.
This income will effectively be taxed at a 10.5% tax rate in general. As a result, our deferred tax assets and liabilities were
evaluated to determine if the deferred tax assets and liabilities should be recognized for the basis differences expected to reverse
as a result of GILTI provisions that are effective for us after the fiscal year ending June 30, 2018, or if the tax on GILTI
provisions should be recognized as period costs in each year incurred. We elected to account for GILTI as a component of
current period tax expense starting from the first quarter of the fiscal year ending June 30, 2019.
Recent Accounting Pronouncements
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.
RESULTS OF OPERATIONS
Revenues and Gross Margin
(Dollar amounts in thousands)
Revenues:
Product
Service
Total revenues
Costs of revenues
Gross margin
Product revenues
Year Ended June 30,
2021
2020
2019
FY21 vs. FY20
FY20 vs. FY19
$ 5,240,316 $ 4,328,725 $ 3,392,243 $
911,591
21 % $
936,482
1,678,418
1,477,699
1,176,661
200,719
14 %
301,038
$ 6,918,734 $ 5,806,424 $ 4,568,904 $ 1,112,310
19 % $ 1,237,520
$ 2,772,165 $ 2,449,561 $ 1,869,377 $
322,604
13 % $
580,184
28 %
26 %
27 %
31 %
60%
58%
59%
2%
(1)%
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 significantly 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 period.
The increase in product revenues by 21% in the fiscal year ended June 30, 2021 compared to the prior year is primarily
attributable to strong demand for many of our products, especially our inspection and metrology portfolios, due to the continued
growth in the 5G market and increased demand for high-performance computing and advanced packaging. These increases
were partially offset by softer demand and oversupply in the display markets.
Service revenues
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.
The increase in service revenues by 14% in the fiscal year ended June 30, 2021 compared to the prior year is primarily
attributable to an increase in the number of systems installed at our customers’ sites.
46
Revenues by segment(1)
(Dollar amounts in thousands)
Revenues:
Semiconductor Process Control
Specialty Semiconductor Process(2)
PCB, Display and Component
Inspection(2)
Other(2)
Total revenues
__________
Year Ended June 30,
2021
2020
2019
FY21 vs. FY20
FY20 vs. FY19
$ 5,734,825 $ 4,745,446 $ 4,080,822 $ 989,379
21 % $ 664,624
16 %
369,216
329,700
151,164
39,516
12 % 178,536
118 %
812,620
727,451
332,810
85,169
12 % 394,641
119 %
739
3,614
4,676
(2,875)
(80) %
(1,062)
(23) %
$ 6,917,400 $ 5,806,211 $ 4,569,472 $ 1,111,189
19 % $ 1,236,739
27 %
(1)
Segment revenues exclude corporate allocations and the effects of foreign currency exchange rates. For additional
details, refer to Note 19 “Segment Reporting and Geographic Information” to our Consolidated Financial Statements.
(2)
Orbotech was acquired on February 20, 2019.
Revenue from our Semiconductor Process Control segment increased by 21% in the fiscal year ended June 30, 2021
compared to the prior year primarily due to a strong demand for many of our products, especially from our inspection and
metrology portfolios. The increase in revenues from our Specialty Semiconductor Process and PCB, Display and Component
Inspection segments is primarily driven by continued growth in advanced packaging, high-performance computing technologies
and 5G infrastructure, partially offset by softer demand and oversupply in the FPD market.
Revenues - Top Customers
The following customers each accounted for more than 10% of our total revenues primarily in our Semiconductor Process
Control segment for the indicated periods:
Year Ended June 30,
2021
Taiwan Semiconductor Manufacturing
Company Limited
Samsung Electronics Co., Ltd.
2020
Taiwan Semiconductor Manufacturing
Company Limited
Samsung Electronics Co., Ltd.
2019
Taiwan Semiconductor Manufacturing
Company Limited
47
Revenues by region
We have revised the fiscal 2020 revenue by geographic regions as presented below as well as in Note 19 “Segment
Reporting and Geographic Information.” The revisions were to correct the amount of revenue allocated to each geographic
region. These revisions had no impact on the previously issued Consolidated Balance Sheet, Statements of Operations,
Statements of Cash Flows, Statements of Comprehensive Income (Loss) or Statements of Stockholders’ Equity as of and for the
year-ended June 30, 2020 and we determined that the impact of the revisions was not material to our previously issued
Consolidated Financial Statements.
Revenues by region for the periods indicated were as follows:
(Dollar amounts in thousands)
Taiwan
China
Korea
Japan
United States
Europe and Israel
Rest of Asia
Total
2021
Year Ended June 30,
2020
2019
$ 1,690,558
25 % $ 1,598,201
27 % $ 1,105,726
1,831,446
26 %
1,495,977
26 %
1,215,807
1,343,473
19 %
639,381
765,974
396,422
251,480
9 %
11 %
6 %
4 %
911,848
660,772
651,328
322,085
166,213
16 %
11 %
11 %
6 %
3 %
584,091
581,529
596,452
305,924
179,375
24 %
27 %
13 %
13 %
13 %
7 %
3 %
$ 6,918,734
100 % $ 5,806,424
100 % $ 4,568,904
100 %
A significant portion of our revenues continues to be generated in Asia, where a substantial portion of the world’s
semiconductor manufacturing capacity is located, and we expect that trend to continue.
Gross margin
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.
The following table summarizes the major factors that contributed to the changes in gross margin percentage:
Fiscal Year Ended June 30, 2019
Revenue volume of products and services
Mix of products and services sold
Manufacturing labor, overhead and efficiencies
Intangible amortization
Other service and manufacturing costs
Fiscal Year Ended June 30, 2020
Revenue volume of products and services
Mix of products and services sold
Other service and manufacturing costs
Fiscal Year Ended June 30, 2021
Gross Margin
Percentage
59.1 %
1.5 %
(0.8) %
0.5 %
(1.6) %
(0.8) %
57.9 %
1.3 %
1.2 %
(0.5) %
59.9 %
Changes in gross margin percentage, which are driven by the revenue volume of products and services, reflect our ability
to leverage existing infrastructure to generate higher revenues. Revenue is impacted by average customer pricing, customer
revenue deferrals associated with volume purchase agreements and the effect of fluctuations in foreign currency exchange rates.
Changes in gross margin percentage from the mix of products and services sold reflect the impact of changes within the
composition of product and service offerings, and amortization of inventory fair value adjustments from business combinations.
Changes in gross margin percentage 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 percentage from other service and manufacturing costs include the impact of customer support
48
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 57.9% to 59.9% during the fiscal year ended June 30, 2021 is primarily
attributable to a higher revenue volume of products and services sold and a more profitable mix of products and services sold,
partially offset by an increase in service and manufacturing costs.
Segment gross margin(1)
(Dollar amounts in thousands)
Segment gross margin:
Year Ended June 30,
2020
2021
2019
FY21 vs. FY20
FY20 vs. FY19
Semiconductor Process Control
Specialty Semiconductor Process(2)
PCB, Display and Component
Inspection(2)
Other(2)
$ 3,705,222 $ 3,028,167 $ 2,590,434 $ 677,055
22 % $ 437,733
17 %
206,706
183,641
78,800
23,065
13 % 104,841
133 %
390,571
315,723
155,765
74,848
24 % 159,958
103 %
(68)
(63)
1,102
(5)
(8) %
(1,165)
(106) %
$ 4,302,431 $ 3,527,468 $ 2,826,101 $ 774,963
22 % $ 701,367
25 %
_________________
(1)
Segment gross margin is calculated as segment revenues less segment cost of revenues and excludes corporate
allocations and the effects of foreign currency exchange rates, amortization of intangible assets, inventory fair value
adjustments, and acquisition-related costs. For additional details, refer to Note 19 “Segment Reporting and Geographic
Information” to our Consolidated Financial Statements.
(2) Orbotech was acquired on February 20, 2019.
The primary factors impacting the performance of our segment gross margins for fiscal year 2021 compared to fiscal year
2020 are summarized as follows:
•
•
Semiconductor Process Control segment gross margin increased due to a more profitable mix of products and
services sold, partially offset by an increase in service and manufacturing costs.
The changes in the segment gross margins of the Specialty Semiconductor Process, PCB, Display and Component
Inspection and Other segments increased primarily due to a more favorable mix of products and services sold as well
as a higher revenue volume of products and services sold.
Research and Development (“R&D”)
(Dollar amounts in thousands)
R&D expenses
R&D expenses as a percentage of
total revenues
Year Ended June 30,
2020
2021
2019
FY21 vs. FY20
FY20 vs. FY19
$ 928,487
$ 863,864
$ 711,030
$ 64,623
7 % $ 152,834
21 %
13 %
15 %
16 %
(2) %
(1) %
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, 2021 increased compared to the fiscal year ended June 30, 2020,
primarily due to an increase in employee-related expenses of $54.5 million as a result of additional engineering headcount,
higher employee benefit costs, and higher variable compensation and an increase in engineering project materials expenses of
$22.6 million. This is partially offset by a decrease in travel-related expense of $11.3 million.
Our future operating results will depend significantly on our ability to produce 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.
49
Selling, General and Administrative (“SG&A”)
(Dollar amounts in thousands)
SG&A expenses
SG&A expenses as a percentage of
total revenues
Year Ended June 30,
2020
2021
2019
FY21 vs. FY20
FY20 vs. FY19
$ 729,602
$ 734,149
$ 599,124
$ (4,547)
(1) % $ 135,025
23 %
11 %
13 %
13 %
(2) %
— %
SG&A expenses during the fiscal year ended June 30, 2021 decreased compared to the fiscal year ended June 30, 2020,
primarily due to a decrease in travel-related expenses of $25.4 million and a decrease in depreciation and intangible
amortization expense of $19.3 million. These decreases were partially offset by an increase in employee-related expenses of
$19.5 million as the result of additional headcount, higher employee benefit costs and variable compensation, an increase in
facility and office expense of $9.7 million, and higher consulting costs of $6.6 million.
Goodwill Impairment
We performed our annual impairment assessment of goodwill as of February 28, 2021 and concluded that goodwill was
not impaired.
For the fiscal year ended June 30, 2020, as a result of our annual goodwill impairment testing for all reporting units, we
recorded $144.2 million and $112.5 million in impairment charges in the Specialty Semiconductor Process and PCB and
Display reporting units, respectively, in the three months ended March 31, 2020.
Restructuring Charges
In September 2019, management approved a plan to streamline our organization and business processes that included the
reduction of workforce, primarily in our PCB, Display and Component Inspection segment.
Restructuring charges were $12.4 million for the year ended June 30, 2021 and included $3.9 million of non-cash charges
for accelerated depreciation related to certain right-of-use (“ROU”) assets and fixed assets to be abandoned. Restructuring
charges were $7.7 million for the year ended June 30, 2020.
For additional information refer to Note 20 “Restructuring Charges” to our Consolidated Financial Statements.
Interest Expense and Other Expense (Income), Net
(Dollar amounts in thousands)
Interest expense
Year Ended June 30,
2020
2021
2019
FY21 vs. FY20
FY20 vs. FY19
$ 157,328
$ 160,274
$ 124,604
$
(2,946)
(2) % $ 35,670
29 %
Other expense (income), net
$ (29,302)
$
2,678
$ (31,462)
(31,980) (1,194) % $ 34,140
109 %
Interest expense as a percentage of
total revenues
Other expense (income), net as a
percentage of total revenues
2 %
— %
3 %
— %
3 %
1 %
The decrease in interest expense during the fiscal year ended June 30, 2021 compared to the fiscal year ended June 30,
2020 was primarily due to lower interest expense on our Revolving Credit Facility, which is described further in the "Liquidity
and Capital Resources" section below.
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 decrease in other expense (income), net during the fiscal year ended June 30, 2021 compared to the fiscal year ended
June 30, 2020 was primarily due to an initial fair value adjustment of $26.7 million from an equity security becoming
marketable.
Loss on Extinguishment of Debt
We had no loss on extinguishment of debt in the year ended June 30, 2021.
50
For the fiscal year ended June 30, 2020, loss on extinguishment of debt reflected a pre-tax net loss of $22.5
million associated with the redemption of our $500.0 million of Senior Notes due 2021, including associated redemption
premiums, accrued interest and other fees and expenses.
Provision for Income Taxes
The following table provides details of income taxes:
(Dollar amounts in thousands)
Income before income taxes
Provision for income taxes
Effective tax rate
2021
Year Ended June 30,
2020
2019
$ 2,360,454
$ 1,316,711
$ 1,296,231
$
283,101
$
101,686
$
121,214
12.0 %
7.7 %
9.4 %
Tax expense was higher as a percentage of income before taxes during the fiscal year ended June 30, 2021 compared to
the fiscal year ended June 30, 2020 primarily due to the impact of the following items:
•
•
•
•
•
Tax expense increased by $107.2 million relating to the impact of a decrease in the proportion of KLA's earnings
generated in jurisdictions with tax rates lower than the U.S. statutory rate during the fiscal year ended June 30, 2021;
Tax expense increased by $41.1 million during the fiscal year ending June 30, 2021 relating to an increase in our
deferred tax liability on purchased intangibles due to an increase in the United Kingdom statutory income tax rate
effective April 2023; and
Tax expense decreased by $34.3 million relating to the impact of an internal restructuring during the fiscal year
ended June 30, 2020; partially offset by
Tax expense decreased by $44.3 million relating to a decrease in our unrecognized tax benefit during the fiscal year
ended June 30, 2021; and
Tax expense increased by $53.9 million relating to a $256.6 million goodwill impairment charge, which is non-
deductible for income tax, during the fiscal year ended June 30, 2020.
Our effective tax rate during the fiscal year ended June 30, 2019 was impacted by the Tax Act, which was enacted into
law on December 22, 2017. The following items are the tax impacts as a result of the Tax Act:
• Tax expense decreased by $49.9 million relating to the reduction of the U.S. federal corporate tax rate from 28.1%
to 21.0% for the fiscal year ended June 30, 2019; and
•
Tax expense decreased by $19.3 million relating to the transition tax liability during the fiscal year ended June 30,
2019.
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, the tax effects of employee stock activity and the
effectiveness of our tax planning strategies.
In the normal course of business, we are subject to examination by tax authorities throughout the world. We are subject to
federal income tax examinations for all years beginning from the fiscal year ended June 30, 2018 and are under U.S. income tax
examination for the fiscal year ended June 30, 2018. We are subject to U.S. state income tax examinations for all years
beginning from the fiscal year ended June 30, 2017. We are also subject to examinations in other major foreign jurisdictions,
including Singapore and Israel, for all years beginning from the calendar year ended December 31, 2012. We are under audit in
Germany related to Orbotech for the calendar years ended December 31, 2013 to December 31, 2015. We have concluded our
audit in Israel related to KLA for the fiscal years ended June 30, 2017 to June 30, 2020. Although we believe our tax estimates
are reasonable, the final determination of tax audits and any related litigation could be materially different from our historical
income tax provisions and accruals. The results of an audit or litigation could have a material adverse effect on our results of
operations or cash flows in the period or periods for which that determination is made.
In May 2017, Orbotech received an assessment from the ITA with respect to its fiscal years 2012 through 2014 (the
“Assessment” and the “Audit Period,” respectively), for an aggregate amount of tax, after offsetting all net operating losses
(“NOL”) available through the end of 2014, of approximately NIS 229 million (equivalent to approximately $66 million which
includes related interest and linkage differentials to the Israeli consumer price index as of date of the issuance of the Tax
Decrees).
51
On August 31, 2018, Orbotech filed an objection in respect of the tax assessment (the “Objection”). The ITA completed
the second stage of the audit, in which the claims Orbotech raised in the Objection were examined by different personnel at the
ITA. In addition, the ITA examined additional items during this second stage of the audit. As Orbotech and the ITA did not
reach an agreement during the second stage, the ITA issued Tax Decrees to Orbotech on August 28, 2019 (“Tax Decrees”) for
an aggregate amount of tax, after offsetting all NOLs available through the end of 2014, of approximately NIS 257 million
(equivalent to approximately $73 million which includes related interest and linkage differentials to the Israeli consumer price
index as of the date of the issuance of the Tax Decrees). These Tax Decrees replaced the Assessment. We believe that our
recorded unrecognized tax benefits are sufficient to cover the resolution of these Tax Decrees.
Orbotech filed a notice of appeal with respect to the above Tax Decrees with the District Court of Tel Aviv on September
26, 2019. On February 27, 2020 the ITA filed its arguments in support of the Tax Decrees. Orbotech filed the grounds of appeal
with respect to the above Tax Decrees on July 30, 2020. We are currently in the pre-trial hearing stage of the process. The ITA
and Orbotech are continuing discussions in an effort to resolve this matter in a mutually agreeable manner.
In connection with the above, there is an ongoing criminal investigation in Israel against Orbotech, certain of its
employees and its tax consultant. On April 11, 2018, Orbotech received a “suspect notification letter” (dated March 28, 2018)
from the Tel Aviv District Attorney’s Office (Fiscal and Financial). In the letter, it was noted that the investigation file was
transferred from the Assessment Investigation Officer to the District Attorney’s Office. The letter further states that the District
Attorney’s Office has not yet made a decision regarding submission of an indictment against Orbotech; and that if after
studying the case, a decision is made to consider prosecuting Orbotech, Orbotech will receive an additional letter, and within 30
days, Orbotech may present its arguments to the District Attorney’s Office as to why it should not be indicted. On October 27,
2019, we received a request for additional information from the District Attorney's Office. We will continue to monitor the
progress of the District Attorney’s Office investigation; however, we cannot anticipate when the review of the case will be
completed and what will be the results thereof. We intend to cooperate with the District Attorney’s Office to enable them to
conclude their investigation.
In December 2020, Orbotech received an assessment from the ITA with respect to its fiscal years 2015 through 2018 (the
“Second Assessment”), for an aggregate amount of tax, after offsetting all NOLs available through the end of 2018, of
approximately NIS 227 million (equivalent to approximately $68 million which includes related interest and linkage
differentials to the Israeli consumer price index as of date of the issuance of the Second Assessment). We filed an objection to
the Second Assessment with the ITA in March 2021. The objection moved the 2015-2018 audit to the second stage, in which
the ITA will review the objections. We believe that our recorded unrecognized tax benefits are sufficient to cover the resolution
of the Second Assessment.
On March 27, 2020, The Coronavirus Aid, Relief, and Economic Security (“CARES Act”), which includes several tax
relief provisions, was signed into law. As a result of the CARES Act, we have deferred payment of certain payroll taxes to the
U.S. federal government through December 31, 2022 and accelerated the tax deduction of qualified improvement property. The
provisions of the CARES Act do not have a material impact to our liquidity and we are not expecting a material tax refund.
Liquidity and Capital Resources
(Dollar amounts in thousands)
Cash and cash equivalents
Marketable securities
2021
As of June 30,
2020
2019
$ 1,434,610
$ 1,234,409
$ 1,015,994
1,059,912
746,063
723,391
Total cash, cash equivalents and marketable securities
$ 2,494,522
$ 1,980,472
$ 1,739,385
Percentage of total assets
24 %
21 %
19 %
(In thousands)
Cash flows:
Net cash provided by operating activities
Net cash used in investing activities
Net cash used in financing activities
Effect of exchange rate changes on cash and cash equivalents
Net (decrease) increase in cash and cash equivalents
Cash and Cash Equivalents and Marketable Securities:
52
2021
Year Ended June 30,
2020
2019
$ 2,185,026
$ 1,778,850
$ 1,152,632
(500,404)
(1,497,881)
13,460
200,201
$
(258,874)
(1,299,635)
(1,926)
218,415
$
(1,180,982)
(360,005)
(33)
(388,388)
$
As of June 30, 2021, our cash, cash equivalents and marketable securities totaled $2.49 billion, which represents an
increase of $514.1 million from June 30, 2020. The increase is mainly due to net cash provided by operating activities of $2.19
billion, partially offset by stock repurchases of $938.6 million, cash used for payments of dividends and dividend equivalents
of $559.4 million, net cash usage of $288.1 million related to the purchases, sales and maturities of available-for-sale and
trading securities and capital expenditures of $231.6 million.
As of June 30, 2021, $0.96 billion of our $2.49 billion of cash, cash equivalents, and marketable securities were held by
our foreign subsidiaries and branch offices. We currently intend to indefinitely reinvest $0.60 billion 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 United States, 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 $0.36 billion of the $0.96 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.
Cash Dividends and Special Cash Dividend:
The total amounts of regular quarterly cash dividends and dividends equivalents paid during the fiscal years ended
June 30, 2021, 2020 and 2019 were $559.4 million, $522.4 million and $469.4 million, respectively. The increase in the amount
of regular quarterly cash dividends and dividends equivalents paid during the fiscal year ended June 30, 2021 reflected the
increase in the level of our regular quarterly cash dividend from $0.85 to $0.90 per share that was instituted during the three
months ended September 30, 2020. The amounts of accrued dividend equivalents payable for regular quarterly cash dividends
on unvested RSUs with dividend equivalent rights were $10.3 million and $8.3 million as of June 30, 2021 and 2020,
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 5, 2021, we announced that our Board of Directors had declared a quarterly cash dividend of $1.05 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, 2021.
On November 19, 2014, our Board of Directors declared a special cash dividend of $16.50 per share on our outstanding
common stock. The total amount of the special cash dividend accrued by us at the declaration date was substantially paid out
during the three months ended December 31, 2014, and the final payment was made during the fiscal year ended June 30,
2019. Other than the special cash dividend declared during the three months ended December 31, 2014, we historically have not
declared any special cash dividends.
Stock Repurchases:
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, 2021 and 2020. The stock repurchase program is intended, in part, to offset the
dilution from our equity incentive plans, shares issued in connection with the purchases under our ESPP and the issuance of
shares in the Orbotech Acquisition, as well as to return excess cash to our stockholders.
Cash Flows from Operating Activities:
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, 2021 increased by $0.41 billion compared to the fiscal year ended
June 30, 2020, from $1.78 billion to $2.19 billion, primarily as a result of the following factors:
•
•
•
•
•
An increase in collections of approximately $1 billion mainly driven by higher shipments during the fiscal year
ended June 30, 2021 compared to the fiscal year ended June 30, 2020; partially offset by the following:
A decrease in interest income of approximately $14 million mainly due to lower interest rates during the fiscal year
ended June 30, 2021 compared to the fiscal year ended June 30, 2020;
An increase in accounts payable payments of approximately $445 million during the fiscal year ended June 30, 2021
compared to the fiscal year ended June 30, 2020;
An increase in employee-related payments of approximately $119 million during the fiscal year ended June 30, 2021
compared to the fiscal year ended June 30, 2020;
An increase of long-term incentive payments of approximately $12 million during the fiscal year ended June 30,
2021 compared to the fiscal year ended June 30, 2020;
53
•
An increase in income tax payments of $131.4 million during the fiscal year ended June 30, 2021 compared to the
fiscal year ended June 30, 2020
Net cash used in investing activities during the fiscal year ended June 30, 2021 was $500.4 million compared to net cash
used in investing activities of $258.9 million during the fiscal year ended June 30, 2020. This increase in cash used was mainly
due to an increase in net purchases of available for sale and trading securities of $270.9 million and an increase in cash paid to
purchase fixed assets of $79.0 million, partially offset by a decrease in cash paid for a business acquisition of $90.1 million and
an increase in cash received from sale of a business of $16.8 million.
Cash Flows from Financing Activities:
Net cash used in financing activities during the fiscal year ended June 30, 2021 increased compared to the fiscal year
ended June 30, 2020, from $1.30 billion to $1.50 billion. This increase was mainly due to an increase in cash used for stock
repurchases of $109.5 million, an increase in net debt repayments of $50.5 million and cash paid for dividends and dividend
equivalents of $36.9 million.
Senior Notes:
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 the “Senior
Notes”), aggregate principal amount of senior, unsecured long-term notes. In February 2020 and October 2019, we repaid
$500.0 million and $250.0 million of Senior Notes, respectively.
In February 2020, S&P upgraded its credit rating of the Company to “BBB+” and revised its outlook to stable, which
permanently removed interest rate adjustments and the interest rate on the 2014 Senior Notes became fixed. The interest rates
for each series of the 2020 Senior Notes and 2019 Senior Notes are not subject to adjustments.
In January 2020, we entered into a series of forward contracts (“2020 Rate Lock Agreements”) to lock the 30-year
treasury rate (the “benchmark interest rate” with respect to the 2020 Rate Lock Agreements) on a portion of the 2020 Senior
Notes. The 2020 Rate Lock Agreements had a notional amount of $350.0 million in aggregate and matured in the same quarter.
The 2020 Rate Lock Agreements were terminated on the date of the pricing of the $750.0 million of 3.300% Senior Notes due
in 2050 and we recorded the fair value of $21.5 million as a loss within Accumulated Other Comprehensive Income (Loss)
(“AOCI”) as of March 31, 2020, which is being amortized over the life of the debt. During the fiscal year ended June 30, 2018,
we entered into a series of forward contracts (the “2018 Rate Lock Agreements”) to lock the benchmark interest rate with
notional amount of $500.0 million in aggregate. In October 2014, we entered into a series of forward contracts to lock the 10-
year treasury rate (the “benchmark interest rate” with respect to the 2014 Rate Lock Agreements) on a portion of the 2014
Senior Notes with a notional amount of $1.00 billion in aggregate. For additional details, refer to Note 17 “Derivative
Instruments and Hedging Activities” and Note 8 “Debt” to our Consolidated Financial Statements.
The original discounts on the 2020 Senior Notes, the 2019 Senior Notes and the 2014 Senior Notes amounted to $0.3
million, $6.7 million and $4.0 million, respectively, and are being amortized over the life of the debt. Interest is payable as
follows: semi-annually on March 1 and September 1 of each year for the 2020 Senior Notes; semi-annually on March 15 and
September 15 of each year for the 2019 Senior Notes; and semi-annually on May 1 and November 1 of each year for the 2014
Senior Notes. The indenture for the Senior Notes (the “Indenture”) includes covenants that limit our ability to grant liens on
our facilities and enter into sale and leaseback transactions, subject to certain allowances under which certain sale and leaseback
transactions are not restricted.
In certain circumstances involving a change of control followed by a downgrade of the rating of a series of Senior Notes
by at least two of Moody’s, S&P and Fitch, 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.
As of June 30, 2021, we were in compliance with all of our covenants under the Indenture associated with the Senior
Notes.
Revolving Credit Facility:
In November 2017, we entered into a Credit Agreement (the “Credit Agreement”) providing for a $750.0 million five-
year unsecured Revolving Credit Facility (the “Revolving Credit Facility”), which replaced our prior Credit Facility. 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
54
aggregate. In November 2018, we entered into an Incremental Facility, Extension and Amendment Agreement (the
“Amendment”), which amended the Credit Agreement to (a) extend the Maturity Date (the “Maturity Date”)
from November 30, 2022 to November 30, 2023, (b) increase the total commitment by $250.0 million and (c) effect certain
other amendments to the Credit Agreement as set forth in the Amendment. After giving effect to the Amendment, the total
commitments under the Credit Agreement amount to $1.00 billion. During the fiscal year ended June 30, 2021, we made a
principal payment of $50.0 million. As of June 30, 2021, we had no outstanding aggregate principal amount of borrowings
under the Revolving Credit Facility.
We may borrow, repay and reborrow funds under the Revolving Credit Facility until the Maturity Date, at which time
such Revolving Credit Facility will terminate, and all outstanding loans under such facility, together with all accrued and
unpaid interest, must be repaid. We may prepay outstanding borrowings under the Revolving Credit Facility at any time without
a prepayment penalty.
Borrowings under the Revolving Credit Facility will bear interest, at our option, at either: (i) the Alternative Base Rate
(“ABR”) plus a spread, which ranges from 0 bps to 75 bps, or (ii) the London Interbank Offered Rate (“LIBOR”) plus a spread,
which ranges from 100 bps to 175 bps. The spreads under ABR and LIBOR are subject to adjustment in conjunction with credit
rating downgrades or upgrades. We are also obligated to pay an annual commitment fee on the daily undrawn balance of the
Revolving Credit Facility, which ranges from 10 bps to 25 bps, subject to an adjustment in conjunction with changes to our
credit rating. As of June 30, 2021, we elected to pay interest on the borrowed amount under the Revolving Credit Facility at
LIBOR plus a spread of 100.0 bps and we pay an annual commitment fee of 10 bps on the daily undrawn balance of the
Revolving Credit Facility.
The Revolving Credit Facility requires us to maintain an interest expense coverage ratio as described in the Credit
Agreement, on a quarterly basis, covering the trailing four consecutive fiscal quarters of no less than 3.50 to 1.00. In addition,
we are required to maintain the maximum leverage ratio as described in the Credit Agreement, on a quarterly basis of 3.00 to
1.00, covering the trailing four consecutive fiscal quarters for each fiscal quarter, which can be increased to 4.00 to 1.00 for a
period of time in connection with a material acquisition or a series of material acquisitions. As of June 30, 2021, our maximum
allowed leverage ratio was 3.00 to 1.00.
We were in compliance with all covenants under the Credit Agreement as of June 30, 2021 (the interest expense coverage
ratio was 18.70 to 1.00 and the leverage ratio was 1.18 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, 2022.
55
Contractual Obligations
The following is a schedule summarizing our significant obligations to make future payments under contractual
obligations as of June 30, 2021:
Total
2022
2023
2024
2025
2026
2027 and
thereafter
Other
$ 3,470,000 $
20,000 $
— $
— $ 1,250,000 $
— $ 2,200,000 $
—
Fiscal Year Ending June 30,
1,933,811
150,814
150,231
149,806
120,738
91,675
1,270,547
1,545,701
1,503,960
34,117
988
5,436
752
448
—
—
154,034
107,557
247,979
49,386
268,028
248,356
47,079
10,334
—
—
—
—
33,759
24,326
15,501
12,104
88,946
2,983
74,115
54,887
3,049
4,141
30,031
3,753
—
9,168
—
3,612
—
154,034
12,699
—
31,848
—
—
—
—
—
—
—
—
26,143
26,143
49,018
65,357
81,695
—
4,649
—
3,288
—
2,101
—
296
—
—
—
—
—
—
268,028
—
47,079
—
$ 8,082,265 $ 1,831,254 $ 315,269 $ 276,442 $ 1,487,715 $ 186,902 $ 3,515,542 $ 469,141
(In thousands)
Debt obligations(1)
Interest payments
associated with all
debt obligations(2)
Purchase commitments(3)
Income taxes
payable(4)
Operating leases(5)
Cash long-term incentive
program(6)
Pension obligations(7)
Executive Deferred
Savings Plan(8)
Transition tax payable(9)
Liability for employee
rights upon retirement(10)
Other(11)
Total obligations
__________________
(1)
(2)
(3)
(4)
(5)
(6)
Represents $3.45 billion aggregate principal amount of Senior Notes due from fiscal year 2025 to fiscal year 2050 and
$20.0 million principal amount of Notes Payable due in fiscal year 2022.
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. Our future interest payments are subject
to change if our then effective credit rating is below investment grade as discussed above. The interest payment under the
Revolving Credit Facility for the undrawn balance is payable at 10 bps as a commitment fee based on the daily undrawn
balance, and we utilized the existing 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 any upgrades or downgrades to our then
effective credit rating.
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.
Operating lease obligations represent the undiscounted lease payments under non-cancelable leases, but exclude non-
lease components.
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 $209 million. For additional details,
refer to Note 10 “Equity, Long-term Incentive Compensation Plans and Non-Controlling Interest” to our Consolidated
Financial Statements.
56
(7)
(8)
Represents an estimate of expected benefit payments up to fiscal year 2031 that was actuarially determined and excludes
the minimum cash required to contribute to the plan. As of June 30, 2021, 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.
(9)
Represents the transition tax liability associated with our deemed repatriation of accumulated foreign earnings resulting
from the enactment of the Tax Act into law on December 22, 2017.
(10) Represents severance payments due upon dismissal of an employee or upon termination of employment in certain other
circumstances as required under Israeli law.
(11) 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.
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.
The following table shows total receivables sold under factoring agreements and proceeds from sales of LC for the
indicated periods:
(In thousands)
Receivables sold under factoring agreements
Proceeds from sales of LC
2021
Year Ended June 30,
2020
$
$
305,565 $
293,006 $
133,679 $
59,036 $
2019
193,089
95,436
Factoring and LC fees for the sale of certain trade receivables were recorded in other expense (income), net and were not
material for the periods presented.
We maintain guarantee arrangements available through various financial institutions for up to $75.2 million, of which
$59.7 million had been issued as of June 30, 2021, primarily to fund guarantees to customs authorities for value-added tax
(“VAT”) and other operating requirements of our subsidiaries in Europe, Israel, and Asia.
Working Capital:
Working capital was $3.59 billion as of June 30, 2021, which represents an increase of $569.3 million compared to our
working capital as of June 30, 2020. As of June 30, 2021, our principal sources of liquidity consisted of $2.49 billion of cash,
cash equivalents and marketable securities. 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 $1.00 billion 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.
Our credit ratings as of June 30, 2021 are summarized below:
Rating Agency
Fitch
Moody’s
S&P
Rating
BBB+
A2
BBB+
In June 2021, Moody's upgraded our senior unsecured credit rating from Baa1 to A2. 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.
57
Off-Balance Sheet Arrangements
As of June 30, 2021, we did not have any off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of SEC
Regulation S-K, that have or are reasonably likely to have a current or future effect on our financial position, changes in
financial condition, revenues and expenses, results of operations, liquidity, capital expenditures, or capital resources that are
material to investors. Refer to Note 16 “Commitments and Contingencies” to our Consolidated Financial Statements for
information related to indemnification obligations.
58
ITEM 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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, 2021. Actual results may differ materially.
As of June 30, 2021, we had an investment portfolio of fixed income securities of $924.7 million. These securities, as
with all fixed income instruments, are subject to interest rate risk and will decline in value if market interest rates increase. If
market interest rates were to increase immediately and uniformly by 100 bps from levels as of June 30, 2021, the fair value of
the portfolio would have declined by $9.6 million.
The fair market value of long-term fixed interest rate 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,
2021, the fair value and the book value of our Senior Notes were $3.98 billion and $3.42 billion, respectively, due in various
fiscal years ranging from 2024 to 2050. The interest expense for the 2014 Senior Notes was subject to interest rate adjustments
following a downgrade of our credit ratings below investment grade by the credit rating agencies. In February 2020, S&P
upgraded its credit rating of the Company to “BBB+” and revised its outlook to stable, which permanently removed interest rate
adjustments and the interest rate on the 2014 Senior Notes became fixed. Unlike the 2014 Senior Notes, the interest rates for
each series of the 2020 Senior Notes and 2019 Senior Notes are not subject to such adjustments.
In November 2017, we entered into a Credit Agreement (the “Credit Agreement”) for a $750.0 million five-year
unsecured Revolving Credit Facility (the “Revolving Credit Facility”), which replaced our prior Credit Agreement. 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. In November 2018, we entered into an Incremental Facility, Extension and Amendment Agreement (the
“Amendment”), which amends the Credit Agreement to (a) extend the Maturity Date from November 30, 2022 to
November 30, 2023, (b) increase the total commitment by $250.0 million and (c) effect certain other amendments to the Credit
Agreement as set forth in the Amendment. After giving effect to the Amendment, the total commitments under the Credit
Agreement amount to $1.00 billion. As of June 30, 2021, we had no outstanding aggregate principal borrowings under the
Revolving Credit Facility. As of June 30, 2020, we elected to pay interest on the borrowed amount under the Revolving Credit
Facility at the LIBOR plus a spread. The spread ranges from 100 bps to 175 bps based on the adjusted credit rating. The fair
value of the borrowings under the Revolving Credit Facility is subject to interest rate risk only to the extent of the fixed spread
portion of the interest rates which does not fluctuate with changes in interest rates. We are also obligated to pay an annual
commitment fee of 10 bps on the daily undrawn balance of the Revolving Credit Facility which is subject to an adjustment in
conjunction with our credit rating downgrades or upgrades. The annual commitment fee ranges from 10 bps to 25 bps on the
daily undrawn balance of the Revolving Credit Facility, depending upon the then-effective credit rating. Additionally as of
June 30, 2021, 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, 2021, the fair value of our investment in the marketable equity
security, which begun publicly trading on the Tokyo Stock Exchange on April 5, 2021, was $29.9 million. Assuming a decline
of 50% in market prices, the aggregate value of our investment in the marketable equity security could decrease by
approximately $15 million, based on the value as of June 30, 2021.
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, 2021.
As of June 30, 2021, we had net forward and option contracts to sell $203.5 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, 2021, the U.S. dollar equivalent would
have been $198.0 million. A 10% adverse move in all currency exchange rates affecting the contracts would decrease the fair
value of the contracts by $54.5 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.
59
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Consolidated Balance Sheets as of June 30, 2021 and 2020
Consolidated Statements of Operations for each of the three years in the period ended June 30, 2021
Consolidated Statements of Comprehensive Income for each of the three years in the period ended June 30, 2021
Consolidated Statements of Stockholders’ Equity for each of the three years in the period ended June 30, 2021
Consolidated Statements of Cash Flows for each of the three years in the period ended June 30, 2021
Notes to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
Schedule II Valuation and Qualifying Accounts
61
62
63
64
65
67
113
115
60
KLA CORPORATION
Consolidated Balance Sheets
(In thousands, except par value)
ASSETS
Current assets:
Cash and cash equivalents
Marketable securities
Accounts receivable, net
Inventories
Other current assets
Total current assets
Land, property and equipment, net
Goodwill
Deferred income taxes
Purchased intangible assets, net
Other non-current assets
Total assets
LIABILITIES, NON-CONTROLLING INTEREST AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable
Deferred system revenue
Deferred service revenue
Short-term debt
Other current liabilities
Total current liabilities
Non-current liabilities:
Long-term debt
Deferred tax liabilities
Deferred service revenue
Other non-current liabilities
Total liabilities
As of June 30,
2021
2020
$
$
$
1,434,610 $
1,059,912
1,305,479
1,575,380
320,867
5,696,248
663,027
2,011,172
270,461
1,185,311
444,905
10,271,124 $
342,083 $
295,192
284,936
20,000
1,161,016
2,103,227
3,422,767
650,623
87,575
631,290
6,895,482
1,234,409
746,063
1,107,413
1,310,985
324,675
4,723,545
519,824
2,045,402
236,797
1,391,413
362,979
9,279,960
264,280
336,237
233,493
—
865,776
1,699,786
3,469,670
660,885
96,325
672,284
6,598,950
Commitments and contingencies (Notes 9, 15 and 16)
Stockholders’ equity:
Preferred stock, $0.001 par value, 1,000 shares authorized, none outstanding
—
—
Common stock, $0.001 par value, 500,000 shares authorized, 278,435 and 277,526
shares issued, 152,776 and 155,461 shares outstanding, as of June 30, 2021 and
June 30, 2020, respectively
Capital in excess of par value
Retained earnings
Accumulated other comprehensive income (loss)
Total KLA stockholders’ equity
Non-controlling interest in consolidated subsidiaries
Total stockholders’ equity
Total liabilities and stockholders’ equity
153
2,175,835
1,277,123
(75,557)
3,377,554
(1,912)
3,375,642
10,271,124 $
$
155
2,090,113
654,930
(79,774)
2,665,424
15,586
2,681,010
9,279,960
See accompanying notes to Consolidated Financial Statements.
61
KLA CORPORATION
Consolidated Statements of Operations
(In thousands, except per share amounts)
Revenues:
Product
Service
Total revenues
Costs and expenses:
Costs of revenues
Research and development
Selling, general and administrative
Goodwill impairment
Interest expense
Loss on extinguishment of debt
Other expense (income), net
Income before income taxes
Provision for income taxes
Net income
Less: Net loss attributable to non-controlling interest
Net income attributable to KLA
Net income per share attributable to KLA
Basic
Diluted
Weighted-average number of shares:
Basic
Diluted
2021
Year Ended June 30,
2020
2019
$
5,240,316 $
4,328,725 $
3,392,243
1,678,418
6,918,734
1,477,699
5,806,424
1,176,661
4,568,904
2,772,165
2,449,561
1,869,377
928,487
729,602
—
157,328
—
(29,302)
2,360,454
283,101
2,077,353
863,864
734,149
256,649
160,274
22,538
2,678
1,316,711
101,686
1,215,025
711,030
599,124
—
124,604
—
(31,462)
1,296,231
121,214
1,175,017
(939)
(1,760)
(600)
2,078,292 $
1,216,785 $
1,175,617
13.49 $
13.37 $
7.76 $
7.70 $
7.53
7.49
154,086
155,437
156,797
158,005
156,053
156,949
$
$
$
See accompanying notes to Consolidated Financial Statements.
62
KLA CORPORATION
Consolidated Statements of Comprehensive Income
(In thousands)
Net income
Other comprehensive income (loss):
Currency translation adjustments:
Year Ended June 30,
2020
2019
2021
$ 2,077,353 $ 1,215,025 $ 1,175,017
Cumulative currency translation adjustments
Income tax (provision) benefit
Net change related to currency translation adjustments
Cash flow hedges:
Net unrealized gains (losses) arising during the period
Reclassification adjustments for net (gains) losses included in net income
Income tax (provision) benefit
Net change related to cash flow hedges
12,236
(26)
(5,190)
(842)
11,394
110
84
3,782
181
(16,739)
(2,072)
(805)
4,286
117
(5,073)
(9,119)
(4,018)
2,033
3,158
(14,525)
(11,104)
Net change related to unrecognized losses and transition obligations in connection
with defined benefit plans
(7,247)
2,397
(1,824)
Available-for-sale securities:
Net unrealized gains (losses) arising during the period
Reclassification adjustments for net (gains) losses included in net income
Income tax (provision) benefit
Net change related to available-for-sale securities
Other comprehensive income (loss)
Less: Comprehensive loss attributable to non-controlling interest
(3,678)
6,029
(253)
843
(297)
(433)
(3,088)
5,299
11,664
1,294
(3,208)
9,750
4,217
(6,745)
(8,251)
(939)
(1,760)
(600)
Total comprehensive income attributable to KLA
$ 2,082,509 $ 1,210,040 $ 1,167,366
See accompanying notes to Consolidated Financial Statements.
63
KLA CORPORATION
Consolidated Statements of Stockholders’ Equity
(In thousands, except per share amounts)
Shares
Amount
Common Stock and
Capital in Excess of
Par Value
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Total
KLA
Stockholders’
Equity
Non-
Controlling
Interest
Total
Stockholders’
Equity
Balances as of June 30, 2018
156,048 $
617,999 $
1,056,445 $
(53,933) $ 1,620,511 $
— $
1,620,511
Adoption of ASC 606
Reclassification of stranded tax effects
Net income attributable to KLA
Net loss attributable to non-controlling interest
Other comprehensive loss
Assumption of stock-based compensation plan
awards in connection with the Orbotech
Acquisition
Common stock issued upon the Orbotech
Acquisition
Net issuance under employee stock plans
—
—
—
—
—
—
—
—
—
—
—
13,281
12,292
1,342
1,330,786
27,321
(21,215)
10,920
1,175,617
—
—
—
—
—
Repurchase of common stock
(10,207)
(66,269)
(1,036,933)
Cash dividends ($3.00 per share) and dividend
equivalents declared
Non-controlling interest in connection with
the Orbotech Acquisition
Stock-based compensation expense
—
—
—
—
—
94,194
(470,009)
—
—
75
(21,140)
(10,920)
—
—
—
1,175,617
—
(8,251)
(8,251)
13,281
1,330,786
27,321
(1,103,202)
(470,009)
—
—
—
—
—
—
—
—
—
—
(600)
—
—
—
—
—
—
(21,140)
—
1,175,617
(600)
(8,251)
13,281
1,330,786
27,321
(1,103,202)
(470,009)
—
19,185
94,194
—
19,185
94,194
Balances as of June 30, 2019
159,475
2,017,312
714,825
(73,029)
2,659,108
18,585
2,677,693
Net income attributable to KLA
Net loss attributable to non-controlling interest
Other comprehensive loss
—
—
—
—
—
—
Net issuance under employee stock plans
Repurchase of common stock
1,313
(5,327)
29,374
(67,799)
Cash dividends ($3.30 per share) and dividend
equivalents declared
Dividend to non-controlling interest
Stock-based compensation expense
—
—
—
—
—
111,381
1,216,785
—
1,216,785
—
1,216,785
—
—
—
(753,284)
(523,396)
—
—
(6,745)
—
—
—
—
—
—
(1,760)
(6,745)
29,374
(821,083)
(523,396)
—
—
—
—
(1,760)
(6,745)
29,374
(821,083)
(523,396)
—
(1,239)
(1,239)
111,381
—
111,381
Balances as of June 30, 2020
155,461
2,090,268
654,930
(79,774)
2,665,424
15,586
2,681,010
Adoption of ASC 326
Net income attributable to KLA
Net loss attributable to non-controlling interest
Other comprehensive income
—
—
—
—
—
—
—
—
Net issuance under employee stock plans
Repurchase of common stock
973
(3,658)
29,736
(55,414)
(5,530)
2,078,292
—
—
—
(889,193)
Cash dividends ($3.60 per share) and dividend
equivalents declared
Dividend to non-controlling interest
Stock-based compensation expense
Net issuance on exercise of option by NCI
Disposal of non-controlling interest
—
—
—
—
—
—
(561,376)
111,398
—
—
—
—
—
—
—
—
—
4,217
—
—
—
—
—
—
—
(5,530)
2,078,292
—
—
(5,530)
2,078,292
—
(939)
(939)
4,217
29,736
(944,607)
(561,376)
—
111,398
—
—
—
—
—
—
—
438
127
4,217
29,736
(944,607)
(561,376)
—
111,836
127
(17,124)
(17,124)
Balances as of June 30, 2021
152,776 $
2,175,988 $
1,277,123 $
(75,557) $ 3,377,554 $
(1,912) $
3,375,642
See accompanying notes to Consolidated Financial Statements.
64
KLA CORPORATION
Consolidated Statements of Cash Flows
(In thousands)
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Goodwill impairment
Depreciation and amortization
Loss on extinguishment of debt
Unrealized foreign exchange (gain) loss and other
Asset impairment charges
Stock-based compensation expense
Deferred income taxes
Gain on sale of business
Gain on fair value adjustment of marketable equity securities
Year Ended June 30,
2021
2020
2019
$ 2,077,353 $ 1,215,025 $ 1,175,017
—
333,335
—
(19,441)
842
256,649
348,049
22,538
13,860
13,341
—
233,224
—
3,830
221
111,836
111,381
94,194
(44,445)
(93,110)
(27,511)
(4,422)
(26,719)
—
—
(21,518)
—
—
—
Settlement of treasury lock agreement
—
Changes in assets and liabilities, net of assets acquired and liabilities assumed in business acquisitions:
Accounts receivable
Inventories
Other assets
Accounts payable
Deferred system revenue
Deferred service revenue
Other liabilities
(203,155)
(118,362)
(146,151)
(270,100)
(96,218)
79,366
(44,674)
45,845
245,623
(74,817)
(11,147)
61,144
57,687
22,779
(59,561)
(47,123)
(21,627)
(15,674)
15,064
(24,649)
(51,271)
Net cash provided by operating activities
2,185,026
1,778,850
1,152,632
Cash flows from investing activities:
Acquisition of non-marketable securities
Proceeds from sale of assets
Proceeds from sale of business
Business acquisitions, net of cash acquired
Capital expenditures
Purchases of available-for-sale securities
Proceeds from sale of available-for-sale securities
Proceeds from maturity of available-for-sale securities
Purchases of trading securities
Proceeds from sale of trading securities
Proceeds from other investments
Net cash used in investing activities
Cash flows from financing activities:
Proceeds from issuance of debt, net of issuance costs
Proceeds from revolving credit facility, net of costs
Repayment of debt
Common stock repurchases
Payment of dividends to stockholders
Payment of dividends to subsidiary’s non-controlling interest holders
Issuance of common stock
Tax withholding payments related to vested and released restricted stock units
Contingent consideration payable and other, net
Net cash used in financing activities
Effect of exchange rate changes on cash and cash equivalents
Net (decrease) increase in cash and cash equivalents
65
—
1,855
16,833
—
—
—
(630)
—
—
—
(90,143)
(1,818,283)
(231,628)
(152,675)
(130,498)
(1,018,744)
(798,493)
(81,533)
145,533
581,679
148,969
626,943
256,395
589,324
(107,867)
(110,241)
(81,022)
111,321
115,680
85,265
614
1,086
—
(500,404)
(258,874)
(1,180,982)
40,343
741,832
1,183,785
—
450,000
900,000
(70,000)
(1,171,033)
(902,474)
(938,607)
(829,084)
(1,095,202)
(559,353)
(522,421)
(472,263)
—
86,098
(1,239)
75,634
—
64,828
(56,362)
(46,260)
(37,517)
—
2,936
(1,162)
(1,497,881)
(1,299,635)
(360,005)
13,460
200,201
(1,926)
(33)
218,415
(388,388)
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
Supplemental cash flow disclosures:
Income taxes paid, net
Interest paid
Non-cash activities:
Issuance of common stock for the Orbotech Acquisition - financing activities
Contingent consideration payable - financing activities
Dividends payable - financing activities
Business acquisition holdback amounts - investing activities
Unsettled common stock repurchase - financing activities
Accrued purchase of land, property and equipment - investing activities
1,234,409
1,015,994
1,404,382
$ 1,434,610 $ 1,234,409 $ 1,015,994
$ 326,002 $ 204,685 $ 180,470
$ 154,196 $ 152,651 $ 107,073
$
$
$
$
$
$
— $
— $ 1,330,786
(7,448) $
5,326 $
6,285 $
5,978 $
— $
6,000 $
— $
— $
30,615 $
15,843 $
6,905
7,340
440
8,000
6,353
See accompanying notes to Consolidated Financial Statements.
66
KLA CORPORATION
Notes to Consolidated Financial Statements
NOTE 1— DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business and Principles of Consolidation. KLA Corporation and its majority-owned subsidiaries
(“KLA” or the “Company” and also referred to as “we,” “our,” “us,” or similar references) is a supplier of process equipment,
process control equipment, and data analytics products for a broad range of industries, including semiconductors, printed circuit
boards (“PCB”) and displays. We provide advanced process control and process-enabling solutions for manufacturing and
testing wafers and reticles, integrated circuits (“IC”), packaging, light-emitting diodes, power devices, compound
semiconductor devices, microelectromechanical systems (“MEMS”), data storage, PCBs and flat and flexible panel displays, as
well as general materials research. We also provide contracted and comprehensive installation and maintenance services across
our installed base. Our comprehensive portfolio of inspection, metrology and data analytics products, and related services, helps
integrated circuit manufacturers achieve target yield throughout the entire semiconductor fabrication process, from research and
development (“R&D”) to final volume production. We develop and sell advanced vacuum deposition and etching process tools,
which are used by a broad range of specialty semiconductor customers. We enable electronic device manufacturers to inspect,
test and measure PCBs and flat panel displays (“FPD”) and ICs to verify their quality, deposit a pattern of desired electronic
circuitry on the relevant substrate and perform three-dimensional shaping of metalized circuits on multiple surfaces. Our
advanced products, coupled with our unique yield management software and services, allow us to deliver the solutions our
semiconductor, PCB and display customers need to achieve their productivity goals by significantly reducing their risks and
costs and improving their overall profitability and return on investment. Headquartered in Milpitas, California, we have
subsidiaries both in the United States and in key markets throughout the world.
The Consolidated Financial Statements include the accounts of KLA and its majority-owned subsidiaries. All significant
intercompany balances and transactions have been eliminated.
Acquisition of Orbotech, Ltd. On February 20, 2019 (“Acquisition Date”), we completed the acquisition of Orbotech
Ltd. (“Orbotech”) for $38.86 in cash and 0.25 of a share of our common stock in exchange for each ordinary share of Orbotech,
for a total consideration of $3.26 billion. The acquisition of Orbotech is referred to as the “Orbotech Acquisition.” The
Orbotech Acquisition was accounted for by applying the acquisition method of accounting for business combinations. The
Consolidated Financial Statements in this report include the financial results of Orbotech prospectively from the Acquisition
Date. For additional details, refer to Note 6 “Business Combinations.”
Comparability. Effective on the first day of fiscal 2021, we adopted Accounting Standards Codification (“ASC”) 326,
Measurement of Credit Losses on Financial Instruments (“ASC 326”). Prior periods were not retrospectively recast and
accordingly, the Consolidated Balance Sheet as of June 30, 2020 and the Consolidated Statement of Operations for the years
ended June 30, 2020 and 2019 were prepared using accounting standards that were different than those in effect as of and for
the year ended June 30, 2021.
Effective on the first day of fiscal 2020, we adopted ASC 842, Leases (“ASC 842”). Prior periods were not
retrospectively restated, and accordingly the Consolidated Statement of Operations for the year ended June 30, 2019 was
prepared using accounting standards that were different than those in effect for the years ended June 30, 2021 and 2020.
Effective on the first day of fiscal 2019, we adopted ASC 606 Revenue from Contracts with Customers (“ASC 606”)
using the modified retrospective adoption method.
Certain reclassifications have been made to the prior year’s Consolidated Financial Statements to conform to the current
year presentation. The reclassifications did not have material effects on the prior year’s Consolidated Balance Sheets,
Statements of Operations, Comprehensive Income and Cash Flows.
Management Estimates. The preparation of the Consolidated Financial Statements in conformity with accounting
principles generally accepted in the United States of America requires management to make estimates and assumptions in
applying our accounting policies that affect the reported amounts of assets and liabilities (and related disclosure of contingent
assets and liabilities) at the date of the Consolidated Financial Statements and the reported amounts of revenues and expenses
during the reporting periods. Actual results could differ from those estimates.
Cash Equivalents and Marketable Securities. All highly liquid debt instruments with original or remaining maturities
of less than three months at the date of purchase are cash equivalents. Marketable securities are generally classified as
available-for-sale for use in current operations, if required, and are reported at fair value, with unrealized gains and non-credit
related unrealized losses, net of tax, presented as a separate component of stockholders’ equity under the caption “Accumulated
other comprehensive income (loss).”All realized gains and losses are recorded in earnings in the period of occurrence. The
67
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, 2021, 2020 and 2019.
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). If we have the intent to sell the security or it is more likely than not
that we will be required to sell the security before recovery of its entire amortized cost basis, we first write off any previously
recognized allowance for credit losses with an offsetting entry to the security’s amortized cost basis. If the allowance has been
fully written off and fair value is less than amortized cost basis, we write down the amortized cost basis of the security to its fair
value with an offsetting entry to net income.
Investments in Equity Securities. We hold equity securities in publicly and privately held companies for the promotion
of business and strategic objectives. Equity securities in publicly held companies, or marketable equity securities, are measured
and recorded at fair value on a recurring basis. Equity securities in privately held companies, or non-marketable equity
securities, are accounted for at cost, less impairment, plus or minus observable price changes in orderly transactions for
identical or similar securities of the same issuer. Non-marketable equity securities are subject to a periodic impairment review;
however, since there are no open-market valuations, the impairment analysis requires significant judgment. This analysis
includes assessment of the investee’s financial condition, the business outlook for its products and technology, its projected
results and cash flow, financing transactions subsequent to the acquisition of the investment, the likelihood of obtaining
subsequent rounds of financing and the impact of any relevant contractual equity preferences held by us or the others. Non-
marketable equity securities are included in “Other non-current assets” on the balance sheet. Realized and unrealized gains and
losses resulting from changes in fair value or the sale of our marketable and non-marketable equity securities are recorded in
“Other expense (income), net.”
Variable Interest Entities. We use a qualitative approach in assessing the consolidation requirement for variable interest
entities. The approach focuses on identifying which enterprise has the power to direct the activities that most significantly
impact the variable interest entity’s economic performance and which enterprise has the obligation to absorb losses or the right
to receive benefits from the variable interest entity. In the event we are the primary beneficiary of a variable interest entity, the
assets, liabilities, and results of operations of the variable interest entity will be included in our Consolidated Financial
Statements. We have concluded that none of our equity investments require consolidation based on our most recent qualitative
assessment.
Inventories. Inventories are stated at the lower of cost (on a first-in, first-out basis) or net realizable value. Net realizable
value is calculated as the estimated selling price in the ordinary course of business, less reasonably predictable costs of
completion, disposal and transportation. Demonstration units are stated at their manufacturing cost and written down to their net
realizable value. We review and set standard costs semi-annually at current manufacturing costs in order to approximate actual
costs. 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. We write down product inventory based on
forecasted demand and technological obsolescence and service spare parts inventory based on forecasted usage. These factors
are impacted by market and economic conditions, technology changes, new product introductions and changes in strategic
direction, and require estimates that may include uncertain elements. Actual demand may differ from forecasted demand, and
such differences may have a material effect on recorded inventory values.
Allowance for Credit Losses. A majority of our accounts receivable are derived from sales to large multinational
semiconductor and electronics manufacturers throughout the world. We maintain an allowance for credit losses for expected
uncollectible accounts receivable, which is recorded as an offset to accounts receivable and changes in such are classified as
selling, general and administrative (“SG&A”) expense in the Consolidated Statements of Income. We assess collectability by
reviewing accounts receivable on a collective basis where similar risk characteristics exist and on an individual basis when we
identify specific customers with known disputes or collectability issues. The estimate of expected credit losses considers
historical credit loss information that is adjusted for current conditions and reasonable and supportable forecasts. The allowance
for credit losses is reviewed on a quarterly basis to assess the adequacy of the allowance. For the year ended June 30, 2021, our
assessment considered the impact of COVID-19 and estimates of expected credit and collectability trends. The credit losses
recognized on accounts receivable were not significant as of June 30, 2021 and 2020. Volatility in market conditions and
evolving credit trends are difficult to predict and may cause variability that may have a material impact on our allowance for
68
credit losses in future periods.
Property and Equipment. Property and equipment are recorded at cost, net of accumulated depreciation. Depreciation
of property and equipment is based on the straight-line method over the estimated useful lives of the assets. The following table
sets forth the estimated useful life for various asset categories:
Asset Category
Buildings
Leasehold improvements
Machinery and equipment
Office furniture and fixtures
Range of Useful Lives
30 to 50 years
Shorter of 15 years or lease term
2 to 10 years
7 years
Construction-in-process assets are not depreciated until the assets are placed in service. Depreciation expense for the
fiscal years ended June 30, 2021, 2020 and 2019 was $111.1 million, $101.4 million and $72.6 million, respectively.
Leases. Under ASC 842, a contract is or contains a lease when we have the right to control the use of an identified asset
for a period of time. We determine if an arrangement is a lease at inception of the contract, which is the date on which the terms
of the contract are agreed to, and the agreement creates enforceable rights and obligations. The commencement date of the lease
is the date that the lessor makes an underlying asset available for our use. On the commencement date, leases are evaluated for
classification and assets and liabilities are recognized based on the present value of lease payments over the lease term.
The lease term used to calculate the lease liability includes options to extend or terminate the lease when it is reasonably
certain that the option will be exercised. The right of use (“ROU”) asset is initially measured as the amount of lease liability,
adjusted for any initial lease costs, prepaid lease payments and any lease incentives. Variable lease payments, consisting
primarily of reimbursement of costs incurred by lessors for common area maintenance, real estate taxes and insurance, are not
included in the lease liability and are recognized as they are incurred.
As most of our leases do not provide an implicit rate, we use our incremental borrowing rate at lease commencement to
measure ROU assets and lease liabilities. The incremental borrowing rate used by us is based on baseline rates and adjusted by
the credit spreads commensurate with our secured borrowing rate, over a similar term. We used the incremental borrowing rate
on June 30, 2019 for all leases that commenced on or prior to that date. Operating lease expense is generally recognized on a
straight-line basis over the lease term.
We have elected the practical expedient to account for the lease and non-lease components as a single lease component
for the majority of our asset classes. For leases with a term of one year or less, we have elected not to record the ROU asset or
liability.
Goodwill, Purchased Intangible Assets and Impairment Assessment. Purchased intangible assets that are not
considered to have an indefinite useful life are amortized over their estimated useful lives, which generally range from six
months to nine years. The carrying values of our intangible assets are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying value may not be fully recoverable. Recoverability of finite-lived intangible assets is
measured by comparison of the carrying value of the asset to the future undiscounted cash flows the asset is expected to
generate. Recoverability of indefinite-lived intangible assets is measured by comparison of the carrying value of the asset to its
fair value. If the asset is considered to be impaired, the amount of any impairment is measured as the difference between the
carrying value and the fair value.
Goodwill represents the excess of the purchase price in a business combination over the fair value of the net tangible and
intangible assets acquired. We assess goodwill for impairment annually during our third fiscal quarter and whenever events or
changes in circumstances indicate the carrying value may not be fully recoverable. We have the option to perform an
assessment of qualitative factors of impairment prior to necessitating a quantitative impairment test. The former is performed
when the fair value of a reporting unit historically has significantly exceeded the carrying value of its net assets and, based on
current operations, is expected to continue to do so. In the qualitative assessment, if we determine that it is more likely than not
that the fair value of a reporting unit is less than the carrying value, a quantitative test is then performed, which involves a
comparison of the estimated fair value of a reporting unit to its carrying value including goodwill. We determine the fair value
of a reporting unit using the income approach which uses discounted cash flow analysis, the market approach when deemed
appropriate and the necessary information is available, or a combination of both. If the fair value of a reporting unit is less than
its carrying value, a goodwill impairment charge is recorded for the difference. See Note 7 “Goodwill and Purchased Intangible
Assets” for additional information. Any further impairment charges could have a material adverse effect on our operating
results and net asset value in the quarter and fiscal year in which we recognize the impairment charge.
69
Impairment of Long-Lived Assets. We evaluate the carrying value of our long-lived assets whenever events or changes
in business circumstances indicate that the carrying value of the asset may be impaired. An impairment loss is recognized when
estimated future cash flows expected to result from the use of the asset, including disposition, are less than the carrying value of
the asset. Such an impairment charge would be measured as the excess of the carrying value of the asset over its fair value.
Concentration of Credit Risk. Financial instruments that potentially subject us to significant concentrations of credit
risk consist primarily of cash equivalents, short-term marketable securities, trade accounts receivable and derivative financial
instruments used in hedging activities. We invest in a variety of financial instruments, such as, but not limited to, certificates of
deposit, corporate debt and municipal securities, United States 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”), credit insurance or non-recourse factoring to
mitigate credit risk when considered appropriate.
We are exposed to credit loss in the event of non-performance by counterparties on the foreign exchange contracts that
we use in hedging activities and in certain factoring transactions. These counterparties are large international financial
institutions, and to date no such counterparty has failed to meet its financial obligations to us under such contracts.
The following customers each accounted for more than 10% of total revenues, primarily in the Semiconductor Process
Control (“SPC”) segment for the indicated periods:
2021
Taiwan Semiconductor Manufacturing
Company Limited
Samsung Electronics Co., Ltd.
2020
Taiwan Semiconductor Manufacturing
Company Limited
Samsung Electronics Co., Ltd.
2019
Taiwan Semiconductor Manufacturing
Company Limited
Year Ended June 30,
The following customers each accounted for more than 10% of net accounts receivable as of the dates indicated below:
2021
2020
As of June 30,
Taiwan Semiconductor Manufacturing Company Limited
Taiwan Semiconductor Manufacturing Company Limited
Samsung Electronics Co., Ltd.
Foreign Currency. The functional currencies of our foreign subsidiaries are primarily the local currencies, except as
described below. Accordingly, all assets and liabilities of these foreign operations are translated to U.S. dollars at current period
end exchange rates, and revenues and expenses are translated to U.S. dollars using average exchange rates in effect during the
period. The gains and losses from foreign currency translation of these subsidiaries’ financial statements are recorded directly
into a separate component of stockholders’ equity under the caption “Accumulated other comprehensive income (loss).”
Our manufacturing subsidiaries in Singapore, Israel, Germany, and the United Kingdom use the U.S. dollar as their
functional currency. Accordingly, monetary assets and liabilities in non-functional currency of these subsidiaries are
remeasured using exchange rates in effect at the end of the period. Revenues and costs in local currency are remeasured using
average exchange rates for the period, except for costs related to those balance sheet items that are remeasured using historical
exchange rates. The resulting remeasurement gains and losses are included in the Consolidated Statements of Operations as
incurred.
Derivative Financial Instruments. We use financial instruments, such as forward exchange contracts and currency
options, to hedge a portion of, but not all, existing and forecasted foreign currency denominated transactions. The purpose of
our foreign currency 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 forward exchange contracts is expected to
70
offset the effect of exchange rate changes on the underlying hedged items. We also use interest rate lock agreements to hedge
the risk associated with the variability of cash flows due to changes in the benchmark interest rate of the intended debt
financing. We believe these financial instruments do not subject us to speculative risk that would otherwise result from changes
in currency exchange rates or interest rates. All of our derivative financial instruments are recorded at fair value based upon
quoted market prices for comparable instruments adjusted for risk of counterparty non-performance.
For derivative instruments designated and qualifying as cash flow hedges of forecasted foreign currency denominated
transactions or debt financing expected to occur within 12 to 18 months, 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. In the second quarter of our fiscal year ending June 30, 2019, we early adopted
the new accounting guidance for hedge accounting. Prior to adopting this new accounting guidance, time value was excluded
from the assessment of effectiveness for derivative instruments designated as cash flow hedges. Time value was amortized on a
mark-to-market basis and recognized in earnings over the life of the derivative contract. For derivative contracts executed after
adopting the new accounting guidance, the election to include time value for the assessment of effectiveness is made on all
forward contracts designated as cash flow hedges. The change in fair value of the derivative is recorded in AOCI until the
hedged transaction is recognized in earnings. The assessment of effectiveness of options contracts designated as cash flow
hedges continues to exclude time value after adopting the new accounting guidance. The initial value of the component
excluded from the assessment of effectiveness is recognized in earnings over the life of the derivative contract. Any differences
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 of the net investment in the hedged foreign operations. For derivative instruments that are
not designated as hedges, gains and losses are recognized in other expense (income), net. We use foreign currency forward
contracts to hedge certain foreign currency denominated assets or liabilities. The gains and losses on these derivative
instruments are largely offset by the changes in the fair value of the assets or liabilities being hedged.
Revenue Recognition. We primarily derive revenue from the sale of process control and yield management solutions for
the semiconductor and related nanoelectronics industries, maintenance and support of all these products, installation and
training services and the sale of spare parts. Our portfolio also includes yield enhancement and production solutions used by
manufacturers of PCBs, FPDs, advanced packaging, MEMS and other electronic components.
Our solutions are generally not sold with a right of return, nor have we experienced significant returns from or refunds to
our customers.
We account for a contract with a customer when there is approval and commitment from both parties, the rights of the
parties are identified, payment terms are identified, the contract has commercial substance and collectability of consideration is
probable.
Our revenues are measured based on consideration stipulated in the arrangement with each customer, net of any sales
incentives and amounts collected on behalf of third parties, such as sales taxes. The revenues are recognized as separate
performance obligations that are satisfied by transferring control of the product or service to the customer.
Our arrangements with our customers include various combinations of products and services, which are generally capable
of being distinct and accounted for as separate performance obligations. A product or service is considered distinct if it is
separately identifiable from other deliverables in the arrangement and if a customer can benefit from it on its own or with other
resources that are readily available to the customer.
The transaction consideration, including any sales incentives, is allocated between separate performance obligations of an
arrangement based on the stand-alone selling price (“SSP”) for each distinct product or service. Management considers a
variety of factors to determine the SSP, such as, historical stand-alone sales of products and services, discounting strategies and
other observable data.
From time to time, our contracts are modified to account for additional, or to change existing, performance obligations.
Our contract modifications are generally accounted for prospectively.
71
Product Revenue
We recognize revenue from product sales at a point in time when we have satisfied our performance obligation by
transferring control of the product to the customer. We use judgment to evaluate whether control has transferred by considering
several indicators, including whether:
•
•
•
•
•
we have a present right to payment;
the customer has legal title;
the customer has physical possession;
the customer has significant risk and rewards of ownership; and
the customer has accepted the product, or whether customer acceptance is considered a formality based on history of
acceptance of similar products (for example, when the customer has previously accepted the same tool, with the same
specifications, and when we can objectively demonstrate that the tool meets all of the required acceptance criteria, and
when the installation of the system is deemed perfunctory).
Not all of the indicators need to be met for us to conclude that control has transferred to the customer. In circumstances in
which revenue is recognized prior to the product acceptance, the portion of revenue associated with our performance
obligations to install the product is deferred and recognized upon acceptance.
We enter into volume purchase agreements with some of our customers. We adjust the transaction consideration for
estimated credits earned by our customers for such incentives. These credits are estimated based upon the forecasted and actual
product sales for any given period and agreed-upon incentive rate. The estimate is updated at each reporting period.
We offer perpetual and term licenses for software products. The primary difference between perpetual and term licenses
is the duration over which the customer can benefit from the use of the software, while the functionality and the features of the
software are the same. Software is generally bundled with post-contract customer support (“PCS”), which includes unspecified
software updates that are made available throughout the entire term of the arrangement. Revenue from software licenses is
recognized at a point in time, when the software is made available to the customer. Revenue from PCS is deferred at contract
inception and recognized ratably over the service period, or as services are performed.
Services and Spare Parts Revenue
The majority of product sales include a standard six to 12-month warranty that is not separately paid for by the customers.
The customers may also purchase an extended warranty for periods beyond the initial year 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.
Installation services include connecting and validating configuration of the product. In addition, several testing protocols
are completed to confirm the equipment is performing to customer specifications. Revenues from product installation are
deferred and recognized at a point in time, once installation is complete.
Significant Judgments
Our contracts with our customers often include promises to transfer multiple products and services. Each product and
service is generally capable of being distinct within the context of the contract and represents a separate performance obligation.
Determining the SSP for each distinct performance obligation and allocation of consideration from an arrangement to the
individual performance obligations and the appropriate timing of revenue recognition are significant judgments with respect to
these arrangements. We typically estimate the SSP of products and services based on observable transactions when the products
and services are sold on a stand-alone basis and those prices fall within a reasonable range. We typically have more than one
SSP for individual products and services due to the stratification of these products by customers and circumstances. In these
instances, we use information such as the size of the customer, geographic region, as well as customization of the products in
72
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 the products are generally not sold with a right of return, we may provide other credits or sales incentives,
which are accounted for either as variable consideration or material right, depending on the specific terms and conditions of the
arrangement. These credits and incentives are estimated at contract inception and updated at the end of each reporting period if
and when additional information becomes available.
As outlined above, we use judgments to evaluate whether or not the customer has obtained control of the product and
consider several indicators in evaluating whether or not control has transferred to the customer. Not all of the indicators need to
be met for us to conclude that control has transferred to the customer.
Contract Assets/Liabilities
The timing of revenue recognition, billings and cash collections may result in accounts receivable, contract assets, and
contract liabilities (deferred revenue) on our Consolidated Balance Sheets. A receivable is recorded in the period we deliver
products or provide services when we have an unconditional right to payment. Contract assets primarily relate to the value of
products and services transferred to the customer for which the right to payment is not just dependent on the passage of time.
Contract assets are transferred to accounts receivable when rights to payment become unconditional.
A contract liability is recognized when we receive payment or have an unconditional right to payment in advance of the
satisfaction of performance. The contract liabilities represent (1) deferred product revenue related to the value of products that
have been shipped and billed to customers and for which control has not been transferred to the customers, and (2) deferred
service revenue, which is recorded when we receive consideration, or such consideration is unconditionally due, from a
customer prior to transferring services to the customer under the terms of a contract. Deferred service revenue typically results
from warranty services, and maintenance and other service contracts.
Contract assets and liabilities related to rights and obligations in a contract are recorded net in the Consolidated Balance
Sheets.
Research and Development Costs. R&D costs are expensed as incurred.
Shipping and Handling Costs. Shipping and handling costs are included as a component of cost of sales.
Accounting for Stock-Based Compensation Plans. We account for stock-based awards granted to employees for
services based on the fair value of those awards. The fair value of stock-based awards is measured at the grant date and is
recognized as expense over the employee’s requisite service period. The fair value for restricted stock units (“RSU”) granted
without “dividend equivalent” rights is determined using the closing price of our common stock on the grant date, adjusted to
exclude the present value of dividends which are not accrued on the RSUs. The fair value for RSUs granted with “dividend
equivalent” rights is determined using the closing price of our common stock on the grant date. The award holder is not entitled
to receive payments under dividend equivalent rights unless the associated RSU award vests (i.e., the award holder is entitled to
receive credits, payable in cash or shares of common stock, equal to the cash dividends that would have been received on the
shares of our common stock underlying the RSUs had the shares been issued and outstanding on the dividend record date, but
such dividend equivalents are only paid subject to the recipient satisfying the vesting requirements of the underlying award).
Compensation expense for RSUs with performance metrics is calculated based upon expected achievement of the metrics
specified in the grant, or when a grant contains a market condition, the grant date fair value using a Monte Carlo simulation.
The Monte Carlo simulation incorporates estimates of the potential outcomes of the market condition on the grant date fair
value of each award. Additionally, we estimate forfeitures based on historical experience and revise those estimates in
subsequent periods if actual forfeitures differ from the estimated amounts. The fair value is determined using a Black-Scholes
valuation model for purchase rights under our Employee Stock Purchase Plan (“ESPP”). The Black-Scholes option-pricing
model requires the input of assumptions, including the option’s expected term and the expected price volatility of the
underlying stock. The expected stock price volatility assumption is based on the market-based historical implied volatility from
traded options of our common stock.
Accounting for Cash-Based Long-Term Incentive Compensation. Cash-based long-term incentive (“Cash LTI”)
awards issued to employees under our Cash Long-Term Incentive Plan (“Cash LTI Plan”) vest in three or four equal
installments, with one-third or one-fourth of the aggregate amount of the Cash LTI award vesting on each yearly anniversary of
the grant date over a three- or four-year period. In order to receive payments under a Cash LTI award, participants must remain
73
employed by us as of the applicable award vesting date. Compensation expense related to the Cash LTI awards is recognized
over the vesting term and adjusted for the impact of estimated forfeitures.
Accounting for Non-qualified Deferred Compensation Plan. We have a non-qualified deferred compensation plan
(known as “Executive Deferred Savings Plan”) 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 Executive Deferred Savings Plan commence
following a participant’s retirement or termination of employment or on a specified date allowed per the Executive Deferred
Savings Plan 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 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 Executive Deferred Savings Plan provisions. The liability associated with the
Executive Deferred Savings Plan is included as a component of other current liabilities in the Consolidated Balance Sheets.
Changes in the Executive Deferred Savings Plan liability are recorded in SG&A expense in the Consolidated Statements of
Operations. The expense associated with changes in the liability included in SG&A expense was $56.5 million, $13.3 million
and $13.6 million for the fiscal years ended June 30, 2021, 2020 and 2019, respectively. We also have a deferred compensation
asset that corresponds to the liability under the Executive Deferred Savings Plan and it is included as a component of other non-
current assets in the Consolidated Balance Sheets. Changes in the Executive Deferred Savings Plan assets are recorded as gains
(losses), net in SG&A expense in the Consolidated Statements of Operations. The amount of net gains included in SG&A
expense were $56.8 million, $13.9 million and $14.7 million for the fiscal years ended June 30, 2021, 2020 and 2019,
respectively.
Income Taxes. We account for income taxes in accordance with the authoritative guidance, which requires income tax
effects for changes in tax laws are recognized in the period in which the law is enacted.
Deferred tax assets and liabilities are recognized using enacted tax rates for the effect of temporary differences between
the book and tax bases of recorded assets and liabilities. The guidance also requires that deferred tax assets be reduced by a
valuation allowance if it is more likely than not that a portion of the deferred tax asset will not be realized. We have determined
that a valuation allowance is necessary against a portion of the deferred tax assets, but we anticipate that our future taxable
income will be sufficient to recover the remainder of our deferred tax assets. However, should there be a change in our ability to
recover our deferred tax assets that are not subject to a valuation allowance, we could be required to record an additional
valuation allowance against such deferred tax assets. This would result in an increase to our tax provision in the period in which
we determine that the recovery is not probable.
On a quarterly basis, we provide for income taxes based upon an estimated annual effective income tax rate. The effective
tax rate is highly dependent upon the geographic composition of worldwide earnings, tax regulations governing each region,
availability of tax credits and the effectiveness of our tax planning strategies. We carefully monitor the changes in many factors
and adjust our effective income tax rate on a timely basis. If actual results differ from these estimates, this could have a material
effect on our financial condition and results of operations.
The calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax regulations. In
accordance with the authoritative guidance on accounting for uncertainty in income taxes, we recognize liabilities for uncertain
tax positions based on the two-step process. The first step is to evaluate the tax position for recognition by determining if the
weight of available evidence indicates that it is more likely than not that the position will be sustained in audit, including
resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount
that is more than 50% likely of being realized upon ultimate settlement. We reevaluate these uncertain tax positions on a
quarterly basis. This evaluation is based on factors including, but not limited to, changes in facts or circumstances, changes in
tax law, effectively settled issues under audit and new audit activities. Any change in these factors could result in the
recognition of a tax benefit or an additional charge to the tax provision.
We record income taxes on the undistributed earnings of foreign subsidiaries unless the subsidiaries’ earnings are
considered indefinitely reinvested outside the U.S. Our effective tax rate would be adversely affected if we change our intent or
if such undistributed earnings are needed for U.S. operations because we would be required to provide or pay income taxes on
some or all of these undistributed earnings.
Global Intangible Low-Taxed Income. The Tax Cut and Jobs Act includes provisions for Global Intangible Low-Taxed
Income (“GILTI”) wherein taxes on foreign income are imposed in excess of a deemed return on tangible assets of foreign
74
corporations. We elected to account for GILTI as a component of current period tax expense starting from the first quarter of
the fiscal year ending June 30, 2019.
Business Combinations. We allocate the fair value of the purchase price of our acquisitions to the tangible assets
acquired, liabilities assumed, and intangible assets acquired, including in-process research and development (“IPR&D”), based
on their estimated fair values at acquisition date. The excess of the fair value of the purchase price over the fair values of these
net tangible and intangible assets acquired is recorded as goodwill. Management’s estimates of fair value are based upon
assumptions believed to be reasonable, but our estimates and assumptions are inherently uncertain and subject to refinement. As
a result, during the measurement period, which will not exceed one year from the acquisition date, we record adjustments to the
assets acquired and liabilities assumed with the corresponding offset to goodwill. Upon the conclusion of the measurement
period or final determination of the fair value of the purchase price of our acquisitions, whichever comes first, any subsequent
adjustments are recorded to our Consolidated Statements of Operations.
The fair value of IPR&D is initially capitalized as an intangible asset with an indefinite life and assessed for impairment
thereafter whenever events or changes in circumstances indicate that the carrying value of the IPR&D assets may not be
recoverable. Impairment of IPR&D is recorded to R&D expenses. When an IPR&D project is completed, the IPR&D is
reclassified as an amortizable purchased intangible asset and amortized to costs of revenues over the asset’s estimated useful
life.
Acquisition-related expenses are recognized separately from the business combination and are expensed as incurred.
Net Income Per Share. Basic net income per share is calculated by dividing net income available to common
stockholders by the weighted-average number of common shares outstanding during the period. Diluted net income per share is
calculated by using the weighted-average number of common shares outstanding during the period increased to include the
number of additional shares of common stock that would have been outstanding if the dilutive potential shares of common
stock had been issued. The dilutive effect of RSUs and options is reflected in diluted net income per share by application of the
treasury stock method. The dilutive securities are excluded from the computation of diluted net loss per share when a net loss is
recorded for the period as their effect would be anti-dilutive.
Contingencies and Litigation. We are subject to the possibility of losses from various contingencies. Considerable
judgment is necessary to estimate the probability and amount of any loss from such contingencies. An accrual is made when it
is probable that a liability has been incurred or an asset has been impaired and the amount of loss can be reasonably estimated.
We accrue a liability and recognize as expense the estimated costs to defend or settle asserted and unasserted claims existing as
of the balance sheet date. See Note 16 “Commitments and Contingencies” and Note 15 “Litigation and Other Legal Matters”
for additional details.
Recent Accounting Pronouncements
Recently Adopted
On July 1, 2020 we adopted ASC 326, which was issued by the Financial Accounting Standards Board (“FASB”) in June
2016 as Accounting Standards Update (“ASU”) No. 2016-13 Financial Instruments – Credit Losses (ASC 326): Measurement
of Credit Losses on Financial Instruments. The ASU replaced previous incurred loss impairment guidance and established a
single expected credit losses allowance framework for financial assets carried at amortized cost. It also eliminated the concept
of other-than-temporary impairment and requires credit losses related to certain available-for-sale debt securities to be recorded
through an allowance for credit losses. We adopted ASC 326 using the modified retrospective method, which requires a
cumulative-effect adjustment to the opening balance of retained earnings to be recognized on the date of adoption and,
accordingly, recorded a net decrease of $5.5 million to retained earnings as of July 1, 2020. Please see the “Allowance for
Credit Losses” accounting policy above.
In August 2018, the FASB issued an ASU that modifies the existing accounting standards for fair value measurement
disclosure. This update eliminates the disclosure of the amount of and reasons for transfers between level 1 and level 2 of the
fair value hierarchy, and the policy for the timing of transfers between levels. We adopted this update beginning in the first
quarter of our fiscal year ending June 30, 2021 on a retrospective basis and the adoption had no material impact on our
Consolidated Financial Statements.
In August 2018, the FASB issued an ASU to amend the disclosure requirements related to defined benefit pension and
other post-retirement plans. Some of the changes include adding a disclosure requirement for significant gains and losses
related to changes in the benefit obligation for the period and removing the amounts in AOCI expected to be recognized as
components of net periodic benefit cost over the next fiscal year. We adopted this update beginning in the first quarter of the
fiscal year ending June 30, 2021 on a retrospective basis and the adoption had no material impact on our Consolidated Financial
75
Statements.
In August 2018, the FASB issued an ASU to align the requirements for capitalizing implementation costs incurred in a
cloud computing arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to
develop or obtain internal-use software. The guidance clarifies which costs should be capitalized including the cost to acquire
the license and the related implementation costs. We adopted this update beginning in the first quarter of our fiscal year ending
June 30, 2021 on a prospective basis and the adoption had no material impact on our Consolidated Financial Statements.
Updates Not Yet Effective
In December 2019, the FASB issued an ASU to simplify the accounting for income taxes in ASC 740, Income Taxes
(“ASC 740”). This amendment removes certain exceptions and improves consistent application of accounting principles for
certain areas in ASC 740. The update is effective for us beginning in the first quarter of our fiscal year ending June 30, 2022,
and early adoption is permitted. We do not expect a material impact on our Consolidated Financial Statements upon the
adoption of this accounting standard update.
In August 2020, the FASB issued an ASU to simplify the accounting for certain financial instruments with characteristics
of liabilities and equity, including convertible instruments and contracts on an entity’s own equity. The standard eliminates the
beneficial conversion feature and cash conversion models, resulting in more convertible instruments being accounted for as a
single unit, and modifies the guidance on the computation of earnings per share for convertible instruments and contracts on an
entity’s own equity. The update is effective for us in the first quarter of our fiscal year ending June 30, 2023 and can be adopted
on a fully retrospective basis or modified retrospective basis. Early adoption is permitted from our first quarter of fiscal year
ending June 30, 2022. We are currently evaluating the impact of this ASU on our Consolidated Financial Statements.
NOTE 2 — REVENUE
Contract Balances
The following table represents the opening and closing balances of accounts receivable, contract assets and contract
liabilities for the indicated periods.
(In thousands, except for percentage)
Accounts receivable, net
$ 1,305,479 $ 1,107,413 $
June 30, 2020 June 30, 2019 Change in Fiscal 2021 Change in Fiscal 2020
12 %
990,113 $ 198,066
18 % $ 117,300
As of
June 30, 2021
As of
As of
Contract assets
Contract liabilities
$
$
91,052 $
99,876 $
94,015 $
(8,824)
(9) % $ 5,861
667,703 $
666,055 $
587,789 $
1,648
— % $ 78,266
6 %
13 %
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, 2021 was mainly due to $77.1 million of contract
assets reclassified to net accounts receivable as our right to consideration for these contract assets became unconditional,
partially offset by $68.0 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, 2021 was mainly due to the recognition in revenue
of $526.1 million that was included in contract liabilities as of June 30, 2020, partially offset by the value of products and
services billed to customers for which control of the products and services has not transferred to the customers. The change in
contract liabilities during the fiscal year ended June 30, 2020 was mainly due to the recognition in revenue of $456.0 million
that was included in contract liabilities as of June 30, 2019, partially offset by the value of products and services billed to
customers for which control of the products and services has not transferred to the customers. Contract liabilities are included in
current and non-current liabilities on our Consolidated Balance Sheet.
Remaining Performance Obligations
As of June 30, 2021, we had $4.69 billion of remaining performance obligations, which represents our obligation to
deliver products and services, and consists primarily of sales orders where written customer requests have been received. We
expect to recognize approximately 5% to 15% of these performance obligations as revenue beyond the next 12 months, subject
to risk of delays, pushouts, and cancellation by the customer, usually with limited or no penalties.
76
Practical expedients
• We account for shipping and handling costs as activities to fulfill the promise to transfer goods, instead of a promised
service to our customer.
• We have elected to not adjust the promised amount of consideration for the effects of a significant financing
component as we expect, at contract inception, that the period between when we transfer a promised good or service to
a customer and when the customer pays for that good or service will generally be one year or less.
• We have elected to expense costs to obtain a contract as incurred because the expected amortization period is one year
or less.
Refer to Note 19 “Segment Reporting and Geographic Information” for information related to revenue by geographic
region as well as significant product and service offerings.
NOTE 3 — FAIR VALUE MEASUREMENTS
Our financial assets and liabilities are measured and recorded at fair value, except for our debt and certain equity
investments in privately held companies. Equity investments without a readily available fair value are accounted for using the
measurement alternative. The measurement alternative is calculated as cost minus impairment, if any, plus or minus changes
resulting from observable price changes.
Our non-financial assets, such as goodwill, intangible assets, and land, property and equipment, are assessed for
impairment when an event or circumstance indicates that an other-than-temporary decline in value may have occurred.
Fair Value of Financial Instruments. We have evaluated the estimated fair value of financial instruments using
available market information and valuations as provided by third-party sources. The use of different market assumptions and/or
estimation methodologies could have a significant effect on the estimated fair value amounts. The fair value of our cash
equivalents, accounts receivable, accounts payable and other current assets and liabilities approximate their carrying amounts
due to the relatively short maturity of these items.
Fair Value Hierarchy. The authoritative guidance for fair value measurements establishes a fair value hierarchy that
prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted
quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable
inputs (Level 3 measurements). The three levels of the fair value hierarchy are described below:
Level 1
Valuations based on quoted prices in active markets for identical assets or liabilities that the entity has the
ability to access.
Level 2
Valuations based on quoted prices for similar assets or liabilities, quoted prices in markets that are not
active, or other inputs that are observable or can be corroborated by observable data for substantially the
full term of the assets or liabilities.
Level 3
Valuations based on inputs that are supported by little or no market activity and that are significant to the
fair value of the assets or liabilities.
A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to
the fair value measurement.
As of June 30, 2021, the types of instruments valued based on quoted market prices in active markets included money
market funds, certain U.S. Treasury securities and U.S. Government agency 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, sovereign securities,
municipal securities, certain U.S. Treasury securities, and marketable equity securities subject to security specific restrictions.
The market inputs used to value these instruments generally consist of market yields, reported trades and broker/dealer quotes.
Such instruments are generally classified within Level 2 of the fair value hierarchy.
The principal market in which we execute our foreign currency contracts is the institutional market in an over-the-counter
environment with a relatively high level of price transparency. The market participants generally are large financial institutions.
Our foreign currency contracts’ valuation inputs are based on quoted prices and quoted pricing intervals from public data
sources and do not involve management judgment. These contracts are typically classified within Level 2 of the fair value
hierarchy.
77
The fair values of deferred payments and contingent consideration payable, the majority of which were recorded in
connection with business combinations, were classified as Level 3 and estimated using significant inputs that were not
observable in the market. See Note 6 “Business Combinations” 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:
—
—
—
—
—
—
—
—
—
—
—
—
(4,550)
(8,514)
(13,064)
—
As of June 30, 2021 (In thousands)
Assets
Cash equivalents:
Money market funds and other
Marketable securities:
Corporate debt securities
Municipal securities
Sovereign securities
U.S. Government agency securities
U.S. Treasury securities
Equity securities
Total cash equivalents and marketable securities(1)
Other current assets:
Derivative assets
Other non-current assets:
Quoted Prices
in Active
Markets
for Identical
Assets (Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Little or No
Market
Activity Inputs
(Level 3)
Total
$
691,375 $
691,375 $
— $
468,746
70,228
3,052
145,921
233,064
29,930
—
—
—
145,921
205,055
—
1,642,316
1,042,351
468,746
70,228
3,052
—
28,009
29,930
599,965
8,252
—
8,252
Executive Deferred Savings Plan
266,199
200,925
65,274
Total financial assets(1)
Liabilities
Derivative liabilities
Deferred payments
Contingent consideration payable
Total financial liabilities
__________________
$
1,916,767 $
1,243,276 $
673,491 $
$
(2,807) $
— $
(2,807) $
(4,550)
(8,514)
—
—
—
—
$
(15,871) $
— $
(2,807) $
(1)
Excludes cash of $641.6 million held in operating accounts and time deposits of $210.6 million (of which $101.7 million
were cash equivalents) as of June 30, 2021.
78
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:
Quoted Prices in
Active Markets
for Identical
Assets (Level 1)
Significant Other
Observable Inputs
(Level 2)
Little or No
Market Activity
Inputs (Level 3)
Total
As of June 30, 2020 (In thousands)
Assets
Cash equivalents:
Money market funds and other
Marketable securities:
$
694,950 $
694,950 $
— $
Corporate debt securities
Municipal securities
Sovereign securities
U.S. Government agency securities
U.S. Treasury securities
Total cash equivalents and marketable securities(1)
381,957
29,110
2,017
106,336
181,193
1,395,563
—
—
—
106,336
151,210
952,496
381,957
29,110
2,017
—
29,983
443,067
Other current assets:
Derivative assets
Other non-current assets:
Executive Deferred Savings Plan
Total financial assets(1)
Liabilities
Derivative liabilities
Deferred payments
Contingent consideration payable
Total financial liabilities
__________________
2,077
—
2,077
213,487
166,000
47,487
1,611,127 $
1,118,496 $
492,631 $
(1,410) $
— $
(1,410) $
(6,750)
(15,513)
—
—
—
—
$
$
$
(23,673) $
— $
(1,410) $
—
—
—
—
—
—
—
—
—
—
—
(6,750)
(15,513)
(22,263)
(1)
Excludes cash of $460.8 million held in operating accounts and time deposits of $124.2 million (of which $78.7 million
were cash equivalents) as of June 30, 2020.
There were no transfers between Level 1 and Level 2 fair value measurements during the fiscal years ended June 30,
2021 or 2020. See Note 8 “Debt” for disclosure of the fair value of our Senior Notes.
79
NOTE 4 — FINANCIAL STATEMENT COMPONENTS
Consolidated Balance Sheets
(In thousands)
Accounts receivable, net:
Accounts receivable, gross
Allowance for credit losses
Inventories:
Customer service parts
Raw materials
Work-in-process
Finished goods
Other current assets:
Contract assets
Deferred costs of revenue
Prepaid expenses
Prepaid income and other taxes
Other current assets
Land, property and equipment, net:
Land
Buildings and leasehold improvements
Machinery and equipment
Office furniture and fixtures
Construction-in-process
Less: accumulated depreciation
Other non-current assets:
Executive Deferred Savings Plan
Operating lease right of use assets
Other non-current assets
Other current liabilities:
Executive Deferred Savings Plan
Compensation and benefits
Other accrued expenses
Customer credits and advances
Income taxes payable
Interest payable
Operating lease liabilities
Other non-current liabilities:
Pension liabilities
Income taxes payable
Operating lease liabilities
Other non-current liabilities
80
As of June 30,
2021
2020
$ 1,323,515 $ 1,119,235
(11,822)
$ 1,305,479 $ 1,107,413
(18,036)
$
349,743 $ 338,608
478,594
595,151
334,965
453,432
158,818
177,054
$ 1,575,380 $ 1,310,985
$
$
$
$
$
$
91,052 $
59,953
76,649
68,847
99,876
77,219
74,955
56,809
24,366
15,816
320,867 $ 324,675
67,858
67,862 $
405,238
458,605
677,627
743,710
29,964
32,856
93,736
182,320
1,274,423
1,485,353
(822,326)
(754,599)
663,027 $ 519,824
266,199 $ 213,487
100,790
102,883
48,702
75,823
444,905 $ 362,979
$
268,028 $ 215,167
251,379
305,445
183,435
180,982
114,896
250,784
35,640
87,320
36,265
36,135
28,994
32,322
$ 1,161,016 $ 865,776
$
$
87,602 $
78,911
333,866
383,447
70,739
70,885
139,041
139,083
631,290 $ 672,284
Accumulated Other Comprehensive Income (Loss)
The components of AOCI as of the dates indicated below were as follows:
(In thousands)
Balance as of June 30, 2021
Balance as of June 30, 2020
Currency
Translation
Adjustments
Unrealized Gains
(Losses) on
Available-for-Sale
Securities
Unrealized Gains
(Losses) on Cash
Flow Hedges
Unrealized
Gains (Losses)
on Defined
Benefit Plans
Total
$
$
(32,563) $
595 $
(20,092) $
(23,497) $ (75,557)
(43,957) $
3,683 $
(23,250) $
(16,250) $ (79,774)
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):
AOCI Components
Unrealized gains (losses) on cash flow hedges
from foreign exchange and interest rate contracts(1) Revenues
Location in the Consolidated
Statements of Operations
Year Ended June 30,
2020
2019
2021
$
384 $
4,086 $
4,329
Costs of revenues and
operating expenses
Interest expense
Other expense (income), net
Net gains (losses)
reclassified from AOCI
551
(1,116)
—
(1,377)
(637)
—
(739)
424
4
$
(181) $
2,072 $
4,018
Other expense (income), net
$
253 $
297 $
(1,294)
Unrealized gains (losses) on available-for-sale
securities
________________
(1)
Reflects the adoption of the new accounting guidance for hedge accounting in the second quarter of fiscal year 2019. For
additional details, refer to Note 17 “Derivative Instruments and Hedging Activities.”
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, 2021, 2020 and 2019 were $1.2 million, $1.2 million and
$1.1 million, respectively. For additional details, refer to Note 13 “Employee Benefit Plans.”
Consolidated Statements of Operations
The following table shows other expense (income), net for the indicated periods:
(In thousands)
Other expense (income), net:
Interest income
Foreign exchange (gains) losses, net
Net realized losses (gains) on sale of investments
Other
Year Ended June 30,
2020
2019
2021
$
(8,929) $
(21,646) $
(40,367)
5,005
(253)
4,236
(297)
(25,125)
20,385
(322)
1,294
7,933
$
(29,302) $
2,678 $
(31,462)
81
NOTE 5 — MARKETABLE SECURITIES
The amortized cost and fair value of marketable securities as of the dates indicated below were as follows:
As of June 30, 2021 (In thousands)
Corporate debt securities
Money market funds and other
Municipal securities
Sovereign securities
U.S. Government agency securities
U.S. Treasury securities
Equity securities(1)
Subtotal
Add: Time deposits(2)
Less: Cash equivalents
Marketable securities
As of June 30, 2020 (In thousands)
Corporate debt securities
Money market funds and other
Municipal securities
Sovereign securities
U.S. Government agency securities
U.S. Treasury securities
Subtotal
Add: Time deposits(2)
Less: Cash equivalents
Marketable securities
__________________
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair Value
$
468,192 $
689 $
(135) $
468,746
691,375
70,155
3,045
145,810
233,052
3,211
1,614,840
210,636
793,040
—
106
7
160
129
26,719
27,810
—
—
—
(33)
—
(49)
(117)
—
691,375
70,228
3,052
145,921
233,064
29,930
(334)
1,642,316
—
—
210,636
793,040
$ 1,032,436 $
27,810 $
(334) $ 1,059,912
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair Value
$
379,334 $
2,673 $
(50) $
381,957
694,950
28,859
2,009
106,091
179,631
1,390,874
124,153
773,653
—
251
8
252
1,564
4,748
—
—
—
—
—
(7)
(2)
(59)
—
—
694,950
29,110
2,017
106,336
181,193
1,395,563
124,153
773,653
$
741,374 $
4,748 $
(59) $
746,063
(1)
Unrealized gains on equity securities included in our portfolio consist of the initial fair value adjustment recorded upon a
security becoming marketable.
(2)
Time deposits excluded from fair value measurements.
Our investment portfolio includes both corporate and government securities that have a maximum maturity of three years.
The longer the duration of these securities, the more susceptible they are to changes in market interest rates and bond yields. As
yields increase, those securities with a lower yield-at-cost show a mark-to-market unrealized loss. Most of our unrealized losses
are due to changes in market interest rates, and bond yields. We believe that we have the ability to realize the full value of all of
these investments upon maturity. As of June 30, 2021, we had 208 investments in an unrealized loss position. The following
table summarizes the fair value and gross unrealized losses of our investments that were in an unrealized loss position as of the
date indicated below, none of which were in a continuous loss position for 12 months or more:
As of June 30, 2021 (In thousands)
Corporate debt securities
Municipal securities
U.S. Government agency securities
U.S. Treasury securities
Total
82
Fair Value
$
161,012 $
21,605
38,904
117,761
339,282 $
$
Gross
Unrealized
Losses
(135)
(33)
(49)
(117)
(334)
The contractual maturities of securities classified as available-for-sale, regardless of their classification on our
Consolidated Balance Sheets, as of the date indicated below were as follows:
As of June 30, 2021 (In thousands)
Due within one year
Due after one year through three years
Amortized
Cost
Fair Value
$
$
519,815 $
512,621
547,291
512,621
1,032,436 $
1,059,912
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 on available for sale securities were immaterial for the
fiscal years ended June 30, 2021, 2020 and 2019. Realized losses on available for sale securities were $1.4 million for the fiscal
year ended June 30, 2019 and were immaterial for the fiscal years ended June 30, 2021 and June 30, 2020.
NOTE 6 - BUSINESS COMBINATIONS
Fiscal 2020 Acquisitions
On April 24, 2020, we acquired a product line from a public company for total purchase consideration of $11.4 million,
of which $2.2 million was allocated to goodwill. Goodwill recognized was assigned to the Wafer Inspection and Patterning
reporting unit, and was deductible for income tax purposes.
On August 22, 2019, we acquired the outstanding shares of a privately held company, primarily to expand our products
and services offerings, for a total purchase consideration of $94.0 million inclusive of measurement period adjustments of
$0.2 million as well as the fair value of the promise to pay an additional consideration up to $60.0 million contingent on the
achievement of certain revenue milestones. As of June 30, 2021, the estimated fair value of the additional consideration was
zero. The $54.2 million of goodwill was assigned to the Wafer Inspection and Patterning reporting unit and was not deductible
for income tax purposes.
We have included the financial results of the fiscal 2020 acquisitions in our Consolidated Financial Statements from their
respective acquisition dates, and these results were not material to our Consolidated Financial Statements.
Fiscal 2019 Acquisitions
Orbotech Acquisition
On February 20, 2019, we completed the Orbotech Acquisition. We acquired Orbotech to extend and enhance our
portfolio of products to address market opportunities in the PCB, FPD, advanced packaging and semiconductor manufacturing
areas.
The total purchase price for Orbotech was approximately $3 billion, which consisted of (1) approximately $2 billion in
cash net of $216 million cash acquired; (2) 12 billion shares of KLA’s common stock valued at approximately $1 billion and
(3) $13 million for the fair value of stock options and RSUs assumed. The Orbotech Acquisition was accounted for as a
business combination and we have included the financial results of Orbotech in our Consolidated Financial Statements since the
Acquisition Date. Our Consolidated Statements of Operations included revenue of $388.9 million and a net loss of
$61.6 million from Orbotech for the year ended June 30, 2019.
During the quarter ended December 31, 2019, we finalized the allocation of the purchase price to the estimated fair value
of the assets acquired and liabilities assumed. The measurement period adjustments recorded in fiscal 2019 primarily related to
the valuation of acquired intangible assets of $75.5 million, trade accounts receivable of $21.5 million, non-controlling interest
of $17.4 million, other immaterial adjustments of $6.1 million and related impacts on the deferred income tax liabilities of
$47.5 million. The measurement period adjustments recorded in fiscal 2020 included the valuation of individually insignificant
net tangible assets of $2.1 million, the additional reserves for uncertain tax positions of $16.9 million, other individually
insignificant items of $10.4 million and related impacts on the deferred income tax liabilities of $8.8 million. These adjustments
resulted in corresponding increases to goodwill of $34.0 million and $38.2 million in the fiscal years ended June 30, 2020 and
2019, respectively. The purchase price was allocated to tangible and identified intangible assets acquired and liabilities assumed
based on their estimated fair values, which were determined using generally accepted valuation techniques on the basis of
inputs and assumptions made by management at the time of the Orbotech Acquisition.
83
The allocation of the purchase price to the estimated fair value of the assets acquired and liabilities assumed at the
Acquisition Date, including all measurement period adjustments, was as follows:
(In thousands)
Assets
Accounts receivable, net
Inventories
Contract assets
Other current assets
Property, plant, and equipment, net
Intangible assets
Other non-current assets
Total assets acquired
Liabilities
Accounts payable
Accrued liabilities
Other current liabilities
Deferred tax liabilities
Other non-current liabilities
Non-controlling interest
Total liabilities assumed
Total identifiable net assets acquired
Goodwill
Total purchase price
Purchase Price
Allocation
197,873
330,325
63,181
70,622
97,664
1,553,570
73,179
2,386,414
53,015
173,507
73,057
786,671
86,789
19,185
1,192,224
1,194,190
1,845,728
3,039,918
$
$
$
$
$
$
On December 24, 2018, Orbotech acquired the remaining 50% of the shares of Frontline for $85.0 million in cash and
agreed to pay an additional $10.0 million in cash over four years plus a cash earn-out of not less than $5.0 million and up to
$20.0 million. As of June 30, 2021, the estimated fair market values of the four-year cash payment and the earn-out were
$4.6 million and $2.5 million, respectively, and these amounts have been included in current and non-current liabilities at
$2.4 million and $4.7 million, respectively.
The goodwill was primarily attributable to the assembled workforce of Orbotech, planned growth in new markets and
synergies expected to be achieved from the combined operations of KLA and Orbotech. None of the goodwill is deductible for
income tax purposes. Goodwill arising from the Orbotech Acquisition was allocated to the Specialty Semiconductor Process
and the PCB and Display reporting units during the fiscal year ended June 30, 2019. For additional details, refer to Note 7
“Goodwill and Purchased Intangible Assets.”
We believe the amounts of purchased intangible assets represent the fair values of and approximate the amounts a market
participant would pay for these intangible assets as of the Acquisition Date.
Other Fiscal 2019 Acquisitions
During the fiscal year ended June 30, 2019, we acquired five privately held companies primarily to expand our products
and services offerings. These acquisitions were not individually significant. We have included the financial results of the
acquired companies in our Consolidated Financial Statements from their respective acquisition dates, and the results from each
of these companies were not individually material to our consolidated financial statements.
In the aggregate, the total purchase price for these acquisitions was approximately $134 million, including a post-closing
working capital adjustment, and the fair value of the promise to pay additional consideration of up to $19.0 million contingent
on the achievement of certain milestones. As of June 30, 2021, the estimated fair value of the additional consideration was
84
$6.0 million, of which $1.6 million was classified as a current liability and $4.4 million was classified as a non-current liability
on the Consolidated Balance Sheets.
Based on their estimated fair values, we recorded $13.2 million of net tangible assets, $75.1 million of identifiable
intangible assets and $45.4 million of goodwill related to our other fiscal 2019 acquisitions, $26.3 million of which was
allocated to our Wafer Inspection and Patterning reporting unit, $17.9 million was allocated to our Global Service and Support
("GSS") reporting unit and $1.2 million was allocated to our Component Inspection reporting unit.
The goodwill was primarily attributable to the assembled workforce and planned growth in new markets. A portion of the
goodwill is deductible for income tax purposes.
Acquisition-related Costs
Our acquisition-related costs are primarily included within SG&A expenses in our Consolidated Statements of
Operations. We incurred insignificant acquisition-related costs for the fiscal 2021 and fiscal 2020 acquisitions. We incurred
$40.2 million of acquisition-related costs in the aggregate for the Orbotech and other fiscal 2019 acquisitions.
Supplemental Unaudited Pro Forma Information:
The following unaudited pro forma financial information summarizes the combined results of operations for KLA,
Orbotech, and the three acquisitions completed in the third quarter of fiscal 2019 as if the companies were combined as of the
beginning of fiscal 2018. The unaudited pro forma information includes adjustments to amortization and depreciation for
intangible assets and property, plant and equipment acquired, adjustments to stock-based compensation expense, the purchase
accounting effect on inventory acquired, the purchase accounting effect on deferred revenue, interest expense and amortization
of debt issuance costs associated with the Senior Notes financing, and transaction costs. Two of the fiscal 2019 acquisitions and
the fiscal 2020 acquisitions do not have a material impact on our consolidated financial statements; therefore, the pro forma
financial information has not been presented for these acquisitions.
The table below reflects the impact of material and nonrecurring adjustments to the unaudited pro forma results for the
indicated periods that are directly attributable to the acquisitions:
Non-recurring Adjustments (In thousands)
Increase to expense as a result of inventory fair value adjustment
(Decrease)/increase to expense as a result of transaction costs
Increase to expense as a result of compensation costs
Year Ended June 30,
2019
$
$
$
1,029
(64,343)
7,201
The unaudited pro forma information presented below is for informational purposes only and is not necessarily indicative
of our consolidated results of operations of the combined business had the acquisitions actually occurred at the beginning of
fiscal year 2018 or of the results of our future operations of the combined businesses.
(In thousands)
Revenues
Net income attributable to KLA
Year Ended June 30,
2019
$
$
5,154,823
1,288,467
NOTE 7 — GOODWILL AND PURCHASED INTANGIBLE ASSETS
Goodwill
Goodwill represents the excess of the purchase price over the fair value of the net tangible and identifiable intangible
assets acquired in prior business combinations. We have four reportable segments and six operating segments. The operating
segments are determined to be the same as reporting units. The following table presents goodwill carrying value and the
movements by reporting unit during the fiscal years ended June 30, 2021 and 2020(1):
85
(In thousands)
Balance as of June 30, 2019
Acquired goodwill
Goodwill adjustments
Goodwill impairment
Foreign currency adjustment
Balance as of June 30, 2020
Goodwill disposal from sale of business(2)
Foreign currency adjustment
Balance as of June 30, 2021
_________________
Wafer
Inspection and
Patterning
Global Service
and Support
(“GSS”)
Specialty
Semiconductor
Process
PCB and
Display
Component
Inspection
Total
$
360,615
$
25,908
$
821,842
$
989,918
$
13,575
$
2,211,858
56,180
166
—
(121)
—
—
—
—
—
4,195
—
29,773
(144,179)
(112,470)
—
416,840
25,908
681,858
—
20
—
—
—
—
—
907,221
(34,250)
—
—
—
—
—
56,180
34,134
(256,649)
(121)
13,575
2,045,402
—
—
(34,250)
20
$
416,860
$
25,908
$
681,858
$
872,971
$
13,575
$
2,011,172
(1)
(2)
No goodwill was assigned to the Other reporting unit, and accordingly is not disclosed in the table above.
Refer to the Non-controlling Interest section of Note 10 “Equity, Long-term Incentive Compensation Plans and Non-
Controlling Interest” for more information on the sale of PixCell Medical Technologies Ltd. (“PixCell”).
Goodwill is not subject to amortization but is tested for impairment annually during the third fiscal quarter, as well as
whenever events or changes in circumstances indicate that the carrying value may not be recoverable.
We performed the required annual goodwill impairment test as of February 28, 2021, and concluded that goodwill was
not impaired. As a result of our qualitative assessment, we determined that it was not necessary to perform the quantitative
assessment at this time.
The required annual goodwill impairment tests for our fiscal year ended June 30, 2020 were performed as of February 28,
2020. We completed qualitative assessments for all reporting units and concluded that goodwill was not impaired for the Wafer
Inspection and Patterning, Global Service and Support, and Component Inspection reporting units. However, due to the
downward revision of the financial outlook for the Specialty Semiconductor Process and PCB and Display reporting units as
well as the impact of the elevated risk and macroeconomic slowdown driven by the COVID-19 pandemic, we performed a
quantitative goodwill impairment assessment for these two reporting units. As a result of the assessment, we recorded
$144.2 million and $112.5 million in impairment charges in the Specialty Semiconductor Process and PCB and Display
reporting units, respectively, during the quarter ended March 31, 2020.
Goodwill as of June 30, 2021 and 2020 is net of accumulated impairment losses of $534.2 million, of which
$277.6 million was included in the Wafer Inspection and Patterning reporting unit, $144.2 million was included in the Specialty
Semiconductor Process reporting unit, and $112.5 million was included in the PCB and Display reporting unit.
Goodwill as of June 30, 2019, is net of accumulated impairment loss of $277.6 million, which was included in the Wafer
Inspection and Patterning reporting unit.
There have been no significant events or circumstances affecting the valuation of goodwill subsequent to the assessment
performed in the third quarter of the fiscal year ended June 30, 2021. 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, 2022.
86
Purchased Intangible Assets
The components of purchased intangible assets as of the dates indicated below were as follows:
(In thousands)
As of June 30, 2021
As of June 30, 2020
Category
Existing technology
Customer relationships
Trade name/trademark
Backlog and other
Range of
Useful Lives
(in years)
Gross
Carrying
Amount
Accumulated
Amortization
and
Impairment
Net
Amount
Gross
Carrying
Amount
Accumulated
Amortization
and
Impairment
Net
Amount
4-8
4-9
4-7
<1-9
$ 1,382,612 $
499,219 $ 883,393 $ 1,269,883 $
342,623 $ 927,260
305,817
131,386
174,431
305,817
98,754
207,063
117,383
50,403
53,493
49,962
63,890
117,383
441
50,404
39,216
47,215
78,167
3,189
Intangible assets subject to amortization
1,856,215
734,060
1,122,155
1,743,487
527,808
1,215,679
In-process research and development
63,256
100
63,156
175,834
100
175,734
Total
$ 1,919,471 $
734,160 $ 1,185,311 $ 1,919,321 $
527,908 $ 1,391,413
Purchased intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset or asset group may not be fully recoverable. The impairment indicator primarily includes the
declines in our operating cash flows from the use of these assets. If the impairment indicators are present, we are required to
perform a recoverability test by comparing the sum of the estimated undiscounted future cash flows attributable to these long-
lived assets to their carrying value.
As of February 28, 2021, there were no impairment indicators for purchased intangible assets. As of February 28, 2020,
no impairment indicators were present except for intangible assets acquired from the Orbotech Acquisition due to the
downward revision of its financial outlook and the impact of the elevated risk and macroeconomic slowdown driven by the
COVID- 19 pandemic. We performed the required recoverability test and concluded that there was no impairment based on the
assessment.
Amortization expense for purchased intangible assets for the periods indicated below was as follows:
(In thousands)
Amortization expense - Cost of revenues
Amortization expense - Selling, general and administrative
Amortization expense - Research and development
Total
2021
Year Ended June 30,
2020
2019
$
156,596 $
145,823 $
49,531
125
74,532
224
52,387
34,992
13
$
206,252 $
220,579 $
87,392
Based on the purchased intangible assets’ gross carrying value recorded as of June 30, 2021, the remaining estimated
annual amortization expense is expected to be as follows:
Fiscal Year Ending June 30:
2022
2023
2024
2025
2026
Thereafter
Total
$
Amortization
(In thousands)
209,349
208,257
205,740
193,521
178,346
126,942
$
1,122,155
87
NOTE 8 — DEBT
The following table summarizes our debt as of June 30, 2021 and June 30, 2020:
Fixed-rate 4.650% Senior Notes due on November 1, 2024
Fixed-rate 5.650% Senior Notes due on November 1, 2034
Fixed-rate 4.100% Senior Notes due on March 15, 2029
Fixed-rate 5.000% Senior Notes due on March 15, 2049
Fixed-rate 3.300% Senior Notes due on March 1, 2050
Revolving Credit Facility
Fixed-rate 3.590% Note Payable due on February 20, 2022
Total
Unamortized discount/premium, net
Unamortized debt issuance costs
Total
Reported as:
Short-term debt
Long-term debt
Total
As of June 30, 2021
As of June 30, 2020
Amount
(In thousands)
Effective
Interest Rate
Amount
(In thousands)
Effective
Interest Rate
4.682 %
5.670 %
4.159 %
5.047 %
3.302 %
1.310 %
— %
$
$
$
1,250,000
250,000
800,000
400,000
750,000
—
20,000
3,470,000
(7,168)
(20,065)
3,442,767
20,000
3,422,767
3,442,767
4.682 % $ 1,250,000
250,000
5.670 %
800,000
4.159 %
400,000
5.047 %
750,000
3.302 %
50,000
— %
—
2.300 %
3,500,000
(8,167)
(22,163)
$ 3,469,670
—
3,469,670
$ 3,469,670
As of June 30, 2021, future principal payments for our debt are $20.0 million in fiscal year 2022, $1.25 billion in fiscal
year 2025 and $2.20 billion after fiscal year 2026.
Senior Notes and Debt Redemption:
In February 2020, we issued $750.0 million 2020 Senior Notes aggregate principal amount of senior, unsecured long-
term notes and used the proceeds to redeem $500.0 million of Senior Notes due 2021, including associated redemption
premiums, accrued interest and other fees and expenses, to repay borrowings of $200.0 million under the Revolving Credit
Facility, and for other general corporate purposes. The redemption resulted in a pre-tax net loss on extinguishment of debt
of $22.5 million for the fiscal year ended June 30, 2020.
In March 2019 and November 2014, we issued $1.20 billion and $2.50 billion, respectively (the “2019 Senior Notes” and
“2014 Senior Notes,” respectively, and, together with the 2020 Senior Notes, the “Senior Notes”), aggregate principal amount
of senior, unsecured long-term notes. In October 2019, we repaid $250.0 million of Senior Notes.
In February 2020, S&P upgraded its credit rating of the Company to “BBB+” and revised its outlook to stable, which
permanently removed interest rate adjustments and the interest rate on the 2014 Senior Notes became fixed. The interest rates
for each series of the 2020 Senior Notes and 2019 Senior Notes are not subject to adjustments.
In January 2020, we entered into a series of forward contracts (“2020 Rate Lock Agreements”) to lock the 30-year
treasury rate (the “benchmark interest rate” with respect to the 2020 Rate Lock Agreements) on a portion of the 2020 Senior
Notes. The 2020 Rate Lock Agreements had a notional amount of $350.0 million in aggregate and matured in the same quarter.
The 2020 Rate Lock Agreements were terminated on the date of the pricing of the $750.0 million of 3.300% Senior Notes due
in 2050 and we recorded the fair value of $21.5 million as a loss within AOCI as of March 31, 2020, which is being amortized
over the life of the debt. During the fiscal year ended June 30, 2018, we entered into a series of forward contracts (the “2018
Rate Lock Agreements”) to lock the benchmark interest rate with a notional amount of $500.0 million in aggregate. In October
2014, we entered into a series of forward contracts to lock the 10-year treasury rate (the “benchmark interest rate” with respect
to the 2014 Rate Lock Agreements) on a portion of the 2014 Senior Notes with a notional amount of $1.00 billion in aggregate.
For additional details on the forward contracts, refer to Note 17 “Derivative Instruments and Hedging Activities.”
The original discounts on the 2020 Senior Notes, the 2019 Senior Notes and the 2014 Senior Notes amounted to
$0.3 million, $6.7 million and $4.0 million, respectively and are being amortized over the life of the debt. Interest is payable as
follows: semi-annually on March 1 and September 1 of each year for the 2020 Senior Notes; semi-annually on March 15 and
September 15 of each year for the 2019 Senior Notes; and semi-annually on May 1 and November 1 of each year for the 2014
88
Senior Notes. The Indenture includes covenants that limit our ability to grant liens on our facilities and enter into sale and
leaseback transactions, subject to certain allowances under which certain sale and leaseback transactions are not restricted.
In certain circumstances involving a change of control followed by a downgrade of the rating of a series of Senior Notes
by at least two of Moody’s, S&P and Fitch, unless we have exercised our rights to redeem the Senior Notes of such series, we
will be required to make an offer to repurchase all or, at the holder’s option, any part, of each holder’s Senior Notes of that
series pursuant to the offer described below (the “Change of Control Offer”). In the Change of Control Offer, we will be
required to offer payment in cash equal to 101% of the aggregate principal amount of Senior Notes repurchased plus accrued
and unpaid interest, if any, on the Senior Notes repurchased, up to, but not including, the date of repurchase.
Based on the trading prices of the Senior Notes on the applicable dates, the fair value of the Senior Notes was
approximately $4 billion as of June 30, 2021 and 2020. While the Senior Notes are recorded at cost, the fair value of the long-
term debt was determined based on quoted prices in markets that are not active; accordingly, the long-term debt is categorized
as Level 2 for purposes of the fair value measurement hierarchy.
As of June 30, 2021, we were in compliance with all of our covenants under the Indenture associated with the Senior
Notes.
Revolving Credit Facility:
In November 2017, we entered into a Credit Agreement (the “Credit Agreement”) providing for a $750.0 million five-
year unsecured Revolving Credit Facility (the “Revolving Credit Facility”), which replaced our prior Credit Facility. 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. In November 2018, we entered into an Incremental Facility, Extension and Amendment Agreement (the
“Amendment”), which amends the Credit Agreement to (a) extend the Maturity Date from November 30, 2022 to November
30, 2023, (b) increase the total commitment by $250.0 million and (c) effect certain other amendments to the Credit Agreement
as set forth in the Amendment. After giving effect to the Amendment, the total commitments under the Credit Agreement
amount to $1.00 billion. During the fiscal year ended June 30, 2021, we made a principal payment on the Revolving Credit
Facility of $50.0 million. As of June 30, 2021, we had no outstanding aggregate principal amount of borrowings under the
Revolving Credit Facility.
We may borrow, repay and reborrow funds under the Revolving Credit Facility until the Maturity Date, at which time
such Revolving Credit Facility will terminate, and all outstanding loans under such facility, together with all accrued and
unpaid interest, must be repaid. We may prepay outstanding borrowings under the Revolving Credit Facility at any time without
a prepayment penalty.
Borrowings under the Revolving Credit Facility will bear interest, at our option, at either: (i) the ABR plus a spread,
which ranges from 0 bps to 75 bps, or (ii) LIBOR plus a spread, which ranges from 100 bps to 175 bps. The spreads under ABR
and LIBOR are subject to adjustment in conjunction with credit rating downgrades or upgrades. We are also obligated to pay an
annual commitment fee on the daily undrawn balance of the Revolving Credit Facility, which ranges from 10 bps to 25 bps,
subject to an adjustment in conjunction with changes to our credit rating. As of June 30, 2021, we elected to pay interest on the
borrowed amount under the Revolving Credit Facility at LIBOR plus a spread of 100.0 bps, and we pay an annual commitment
fee of 10 bps on the daily undrawn balance of the Revolving Credit Facility.
The Revolving Credit Facility requires us to maintain an interest expense coverage ratio as described in the Credit
Agreement, on a quarterly basis, covering the trailing four consecutive fiscal quarters of no less than 3.50 to 1.00. In addition,
we are required to maintain the maximum leverage ratio as described in the Credit Agreement on a quarterly basis of 3.00 to
1.00, covering the trailing four consecutive fiscal quarters for each fiscal quarter, which can be increased to 4.00 to 1.00 for a
period of time in connection with a material acquisition or a series of material acquisitions. As of June 30, 2021, our maximum
allowed leverage ratio to 3.00 to 1.00.
We were in compliance with all covenants under the Credit Agreement as of June 30, 2021.
Notes Payable:
In December 2020 we sold promissory notes to a financial institution, borrowing an aggregate of $40.0 million (“Notes
Payable”). Of the aggregate amount borrowed, $20.0 million matured and was paid on February 20, 2021 and the balance of
$20.0 million matures on February 20, 2022. The premium of $0.3 million from the sale of the Notes Payable is being
amortized over the life of the debt. The net proceeds from the sale of the Notes Payable were used for general corporate
purposes.
89
NOTE 9 — LEASES
We have operating leases for facilities, vehicles and other equipment. Our facility leases are primarily used for
administrative functions, R&D, manufacturing, and storage and distribution. Our finance leases are not material.
Our existing leases do not contain significant restrictive provisions or residual value guarantees; however, certain leases
contain provisions for the payment of maintenance, real estate taxes, or insurance costs by us. Our leases have remaining lease
terms ranging from less than one year to 16 years, including periods covered by options to extend the lease when it is
reasonably certain that the option will be exercised.
Lease expense was $38.9 million and $35.1 million for the fiscal years ended June 30, 2021 and 2020, 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, 2021 and 2020. As of June 30, 2021 and 2020, the weighted-average remaining lease term was 4.6 years
and 5.1 years, respectively and the weighted-average discount rate was 1.64% and 1.99%, respectively.
Supplemental cash flow information related to leases was as follows:
(In thousands)
Operating cash outflows from operating leases
ROU assets obtained in exchange for new operating lease liabilities
Maturities of lease liabilities as of June 30, 2021 were as follows:
Year Ended June 30,
2021
2020
$
$
38,118 $
39,292 $
34,702
24,549
Fiscal Year Ending June 30:
2022
2023
2024
2025
2026
2027 and thereafter
Total lease payments
Less imputed interest
Total
Amount
(In thousands)
$
$
33,759
24,326
15,501
12,104
9,168
12,699
107,557
(4,496)
103,061
As of June 30, 2021, we did not have any material leases that had not yet commenced.
Facilities rent expense under the previous lease accounting guidance of ASC 840 was $13.5 million for the fiscal year
ended June 30, 2019.
NOTE 10 — EQUITY, LONG-TERM INCENTIVE COMPENSATION PLANS AND NON-CONTROLLING
INTEREST
Equity Incentive Program
As of June 30, 2021, we were able to issue new equity incentive awards, such as RSUs and stock options, to our
employees, consultants and members of our Board of Directors under our 2004 Equity Incentive Plan (the “2004 Plan”) with
10.3 million shares available for issuance.
Any 2004 Plan awards of RSUs, performance shares, performance units or deferred stock units are counted against the
total number of shares issuable under the 2004 Plan share reserve as 2.0 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 at
the discretion of the plan administrator subject to meeting the vesting requirement of the underlying awards.
Assumed Equity Plans
90
As of the Orbotech Acquisition Date, we assumed outstanding equity incentive awards under Orbotech equity incentive
plans (the “Assumed Equity Plans”). The awards under the Assumed Equity Plans, previously issued in the form of stock
options and RSUs, were generally settled as follows:
a) Each award of Orbotech’s stock options and RSUs that was outstanding and vested immediately prior to the Acquisition
Date (collectively, the “Vested Equity Awards”) was canceled and terminated and converted into the right to receive the
purchase consideration in respect of such Vested Equity Awards as of the Acquisition Date, and in the case of stock
options, less the exercise price.
b) Each award of Orbotech’s stock options and RSUs that was outstanding and unvested immediately prior to the
Acquisition Date was assumed by us (each, an “Assumed Option” and “Assumed RSU,” and collectively the “Assumed
Equity Awards”) and converted to stock options and RSUs exercisable for the number of shares of our common stock
based on the exchange ratio defined in the Acquisition Agreement. The Assumed Equity Awards generally retain all of
the rights, terms and conditions of the respective plans under which they were originally granted, including the same
service-based vesting schedule, applicable thereto.
As of the Acquisition Date, the estimated fair value of the Assumed Equity Awards was $55.0 million, of which $13.3
million was recognized as goodwill and the balance of $41.7 million is being recognized as stock-based compensation 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 stock-based compensation over the remaining vesting period.
A total of 14,558 and 518,971 shares of our common stock underlie the Assumed Options and RSUs and had an
estimated weighted-average fair value at the Acquisition Date of $53.3 and $104.5 per share, respectively. All Assumed
Options were fully exercised as of June 30, 2020. As of June 30, 2021, there were 76,266 shares of our common stock
underlying the outstanding Assumed RSUs under the Assumed Equity Plans.
Equity Incentive Plans - General Information
The following table summarizes the combined activity under our equity incentive plans:
(In thousands)
Balances as of June 30, 2018
Plan shares increased
Restricted stock units granted(2)(3)
Restricted stock units granted adjustment(4)
Restricted stock units canceled
Plan shares expired (1998 Director Plan)
Balances as of June 30, 2019
Restricted stock units granted(2)
Restricted stock units granted adjustment(4)
Restricted stock units canceled
Balances as of June 30, 2020
Restricted stock units granted(2)
Restricted stock units granted adjustment(4)
Restricted stock units canceled
Balances as of June 30, 2021
__________________
Available
For Grant(1)(5)
3,680
12,000
(2,463)
5
51
(1,660)
11,613
(1,174)
103
218
10,760
(761)
102
152
10,253
(1)
(2)
The number of RSUs reflects the application of the award multiplier of 2.0x as described above.
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,
2021, 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,
0.4 million shares and 0.7 million shares for the fiscal years ended June 30, 2021, 2020 and 2019, respectively,
reflecting the application of the 2.0x multiplier described above).
91
(3)
Includes RSUs granted to executive management during the fiscal year ended June 30, 2019 with both a market
condition and a service condition (“market-based RSU”). Under the award agreements, the vesting of the market-based
RSUs is contingent on achieving total stockholder return (including stock price appreciation and cash dividends)
objectives on a per share basis of equal to or greater than 150%, 175% and 200% multiplied by the measurement price
of $116.39 during the five-year period ending March 20, 2024. The awards are split into three tranches and, to the extent
that total stockholder return targets have been met, one-third of the maximum number of shares available under these
awards will vest on each of the third, fourth, and fifth anniversaries of the grant date. As of June 30, 2021, the market
conditions were met, resulting in all three tranches being eligible to vest, subject to the service condition.
(4)
Represents the portion of RSUs granted with performance-based vesting criteria and reported at the actual number of
shares issued upon achievement of the performance vesting criteria during the fiscal years ended June 30, 2021, 2020,
and 2019.
(5)
No additional stock options, RSUs or other awards will be granted under the Assumed Equity Plans.
The fair value of stock-based awards is measured at the grant date and is recognized as an expense over the employee’s
requisite service period. For RSUs granted without “dividend equivalent” rights, fair value is calculated using the closing price
of our common stock on the grant date, adjusted to exclude the present value of dividends which are not accrued on those
RSUs. The fair value for RSUs granted with “dividend equivalent” rights is determined using the closing price of our common
stock on the grant date. 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 which takes into consideration the vesting term and the contractual term of the
market-based award. The awards are amortized over service periods of three, four, and five years, which is the longer of the
explicit service period or the period in which the market target is expected to be met. The fair value for purchase rights under
our ESPP is determined using a Black-Scholes model.
The following table shows stock-based compensation expense for the indicated periods:
(In thousands)
Stock-based compensation expense by:
Costs of revenues
Research and development
Selling, general and administrative
Total stock-based compensation expense
__________________
2021
Year Ended June 30,
2020
2019(1)
$
17,355 $
14,680 $
23,337
71,144
23,530
73,171
$
111,836 $
111,381 $
10,384
16,225
67,585
94,194
(1)
Includes $10.9 million of stock-based compensation expense acceleration for certain equity awards for Orbotech
employees.
Stock-based compensation capitalized as inventory as of June 30, 2021 and 2020 was $8.0 million and $6.8 million,
respectively.
92
Restricted Stock Units
The following table shows the activity and weighted-average grant date fair value for RSUs during the fiscal year ended
June 30, 2021:
Outstanding restricted stock units as of June 30, 2020(2)
Granted(2)
Granted adjustments(3)
Vested and released
Withheld for taxes
Forfeited
Outstanding restricted stock units as of June 30, 2021(2)
__________________
Shares
(In thousands) (1)
Weighted-Average
Grant Date
Fair Value
2,253 $
380 $
(51) $
(542) $
(237) $
(93) $
1,710 $
107.33
222.86
80.27
103.83
103.83
127.40
133.76
(1)
(2)
Share numbers reflect actual shares subject to awarded RSUs. Under the terms of the 2004 Plan, the number of shares
subject to each award reflected in this number is multiplied by 2.0x to calculate the impact of the award on the share
reserve under the 2004 Plan.
Includes performance-based RSUs. As of June 30, 2021, 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, 2021) that may ultimately be issuable
if all applicable performance-based criteria are achieved at their maximum.
(3)
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 year ended June 30, 2021.
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,
in two equal installments on the third and fourth anniversaries of the grant date, 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, vested, and tax
benefits realized by us in connection with vested and released RSUs for the indicated periods:
(In thousands, except for weighted-average grant date fair value)
Weighted-average grant date fair value per unit
Weighted-average fair value per unit assumed upon Orbotech
Acquisition
Grant date fair value of vested restricted stock units
Tax benefits realized by us in connection with vested and released
restricted stock units
$
$
$
$
2021
Year Ended June 30,
2020
2019
222.86 $
146.94 $
99.53
— $
80,887 $
— $
91,812 $
104.49
60,749
26,416 $
21,960 $
15,053
As of June 30, 2021, the unrecognized stock-based compensation expense balance related to RSUs was $138.9 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 1.4 years. The intrinsic value of outstanding RSUs as of June 30, 2021
was $554.4 million.
93
Cash LTI Compensation
As part of our employee compensation program, we issue Cash LTI awards to many of our employees. Executives and
non-employee members of the Board of Directors do not participate in the Cash LTI Plan. During the fiscal years ended
June 30, 2021 and 2020, we approved Cash LTI awards of $136.5 million and $94.0 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, 2021, 2020 and 2019, we recognized $75.8 million, $64.0 million and $55.5 million,
respectively, in compensation expense under the Cash LTI Plan. As of June 30, 2021, the unrecognized compensation balance
(excluding the impact of estimated forfeitures) related to the Cash LTI Plan was $225.4 million.
Employee Stock Purchase Plan
Our ESPP provides that eligible employees may contribute up to 15% of their eligible earnings toward the semi-annual
purchase of our common stock. The ESPP is qualified under Section 423 of the Internal Revenue Code. The employee’s
purchase price is derived from a formula based on the closing price of the common stock on the first day of the offering period
versus the closing price on the date of purchase (or, if not a trading day, on the immediately preceding trading day).
The offering period (or length of the look-back period) under the ESPP has a duration of six months, and the purchase
price with respect to each offering period beginning on or after such date is, until otherwise amended, equal to 85% of the lesser
of (i) the fair market value of our common stock at the commencement of the applicable six-month offering period or (ii) the
fair market value of our common stock on the purchase date. We estimate the fair value of purchase rights under the ESPP
using a Black-Scholes model.
The fair value of each purchase right under the ESPP was estimated on the date of grant using the Black-Scholes model
and the straight-line attribution approach with the following weighted-average assumptions:
Stock purchase plan:
Expected stock price volatility
Risk-free interest rate
Dividend yield
Expected life (in years)
2021
Year Ended June 30,
2020
2019
47.0 %
0.4 %
1.6 %
0.50
34.3 %
2.1 %
2.2 %
0.50
33.2 %
2.1 %
3.1 %
0.50
The following table shows total cash received from employees for the issuance of shares under the ESPP, the number of
shares purchased by employees through the ESPP, the tax benefits realized by us in connection with the disqualifying
dispositions of shares purchased under the ESPP and the weighted-average fair value per share for the indicated periods:
(In thousands, except for weighted-average fair value per share)
Total cash received from employees for the issuance of shares under the
ESPP
Number of shares purchased by employees through the ESPP
Tax benefits realized by us in connection with the disqualifying
dispositions of shares purchased under the ESPP
Weighted-average fair value per share based on Black-Scholes model
2021
Year Ended June 30,
2020
2019
$
$
$
86,098 $
74,849 $
431
561
1,972 $
59.84 $
3,237 $
36.61 $
64,828
843
1,133
21.72
The ESPP shares are replenished annually on the first day of each fiscal year by virtue of an evergreen provision. The
provision allows for share replenishment equal to the lesser of 2.0 million shares or the number of shares which we estimate
will be required to be issued under the ESPP during the forthcoming fiscal year. As of June 30, 2021, a total of 2.2 million
shares were reserved and available for issuance under the ESPP.
94
Quarterly cash dividends
On May 6, 2021, our Board of Directors declared a regular quarterly cash dividend of $0.90 per share on the outstanding
shares of our common stock, which was paid on June 1, 2021 to the stockholders of record as of the close of business on May
17, 2021. The total amount of regular quarterly cash dividends and dividend equivalents paid during the fiscal years ended
June 30, 2021 and 2020 was $559.4 million and $522.4 million, respectively. The amount of accrued dividends equivalents
payable related to unvested RSUs with dividend equivalent rights was $10.3 million and $8.3 million as of June 30, 2021 and
2020, 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, 2021.
Special cash dividend
On November 19, 2014, our Board of Directors declared a special cash dividend of $16.50 per share on our outstanding
common stock. As of the declaration date, the total amount of the special cash dividend accrued by us was approximately $3
billion, substantially all of which was paid out during the three months ended December 31, 2014, with the final payment made
during the fiscal year ended June 30, 2019. Other than the special cash dividend declared during the three months ended
December 31, 2014, we historically have not declared any special cash dividends.
Non-controlling Interests
We have consolidated the results of Orbograph Ltd. (“Orbograph”), in which we own approximately 94% of the
outstanding equity interest. Orbograph is engaged in the development and marketing of character recognition solutions to
banks, financial and other payment processing institutions and healthcare providers.
During the fourth quarter of fiscal 2020, we entered into an Asset Purchase Agreement to sell certain core assets of
Orbotech LT Solar, LLC (“OLTS”), which was engaged in the research, development and marketing of products for the
deposition of thin film coating of various materials on crystalline silicon photovoltaic wafers for solar energy panels through
plasma-enhanced chemical vapor deposition. The sale was completed in the first quarter of fiscal 2021 and the proceeds were
not material. We consolidate the results of OLTS, which is considered a non-strategic business, of which we own 97% of the
outstanding equity interest.
In December 2020, we entered into a Share Purchase Agreement to sell our entire interest in PixCell, an Israeli company
that is engaged in the development, marketing and sales of diagnostic equipment for point-of-care hematology applications, to a
South Korean company. The sale was completed in February 2021 for total consideration of $20.2 million. We recognized a
$4.4 million gain from the sale, which was recorded as part of other expense (income), net. Prior to the sale, we owned
approximately 52% of PixCell’s outstanding equity interests.
NOTE 11 — STOCK REPURCHASE PROGRAM
Our Board of Directors has authorized a program that permits us to repurchase up to $3.00 billion of our common stock,
reflecting an increase of $1.00 billion authorized by our Board of Directors during fiscal year ended June 30, 2020. The intent
of this program is to offset the dilution from our equity incentive plans, shares issued in connection with the purchases under
our ESPP and the issuance of shares in the Orbotech Acquisition, as well as to return excess cash to our stockholders. Subject to
market conditions, applicable legal requirements and other factors, the repurchases were made in the open market in compliance
with applicable securities laws, including the Securities Exchange Act of 1934 and the rules promulgated thereunder, such as
Rule 10b-18 and Rule 10b5-1. This stock repurchase program has no expiration date and may be suspended at any time. As of
June 30, 2021, an aggregate of approximately $93 million was available for repurchase under our stock repurchase program.
Share repurchases for the indicated periods (based on the trade date of the applicable repurchase) were as follows:
(In thousands)
Number of shares of common stock repurchased
Total cost of repurchases
NOTE 12 — NET INCOME PER SHARE
Year Ended June 30,
2020
2019
2021
3,658
5,327
10,207
$ 944,607 $ 821,083 $ 1,103,202
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
95
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.
The following table sets forth the computation of basic and diluted net income per share attributable to KLA:
Year Ended June 30,
2020
2021
(In thousands, except per share amounts)
Numerator:
2019
Net income attributable to KLA
Denominator:
$ 2,078,292 $ 1,216,785 $ 1,175,617
Weighted-average shares-basic, excluding unvested restricted stock units
Effect of dilutive restricted stock units and options
Weighted-average shares-diluted
Basic net income per share attributable to KLA
Diluted net income per share attributable to KLA
Anti-dilutive securities excluded from the computation of diluted net income per
share
154,086
1,351
155,437
156,797
1,208
158,005
$
$
13.49 $
13.37 $
7.76 $
7.70 $
11
22
156,053
896
156,949
7.53
7.49
227
NOTE 13 — EMPLOYEE BENEFIT PLANS
We have a profit sharing program for eligible employees, which distributes a percentage of our pre-tax profits on a
quarterly basis. In addition, we have an employee savings plan that qualifies as a deferred salary arrangement under
Section 401(k) of the Internal Revenue Code. Since April 1, 2011, the employer match amount was 50% of the first $8,000 of
an eligible employee’s contribution (i.e., a maximum of $4,000) during each fiscal year until January 1, 2019, when the
employer match was changed to 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 aggregated $27.0 million, $24.6 million, and $18.6
million in the fiscal years ended June 30, 2021, 2020 and 2019, respectively. We have no defined benefit plans in the United
States. In addition to the profit sharing plan and the United States 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 its 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, 2021 and 2020.
Summary data relating to our foreign defined benefit pension plans, including key weighted-average assumptions used, is
provided in the following tables:
96
(In thousands)
Change in projected benefit obligation:
Year Ended June 30,
2021
2020
Projected benefit obligation as of the beginning of the fiscal year
$
119,870 $
115,490
Service cost
Interest cost
Contributions by plan participants
Actuarial (gain) loss
Benefit payments
Foreign currency exchange rate changes and others, net
Projected benefit obligation as of the end of the fiscal year
(In thousands)
Change in fair value of plan assets:
Fair value of plan assets as of the beginning of the fiscal year
Actual return on plan assets
Employer contributions
Benefit and expense payments
Foreign currency exchange rate changes and others, net
Fair value of plan assets as of the end of the fiscal year
(In thousands)
Underfunded status
(In thousands)
Plans with accumulated benefit obligations in excess of plan assets:
Accumulated benefit obligation
Projected benefit obligation
Plan assets at fair value
Weighted-average assumptions(1):
Discount rate
Expected rate of return on assets
Rate of compensation increases
__________________
4,649
1,187
72
7,912
(2,629)
3,244
4,823
1,084
78
(496)
(3,119)
2,010
$
134,305 $
119,870
Year Ended June 30,
2021
2020
$
37,928 $
1,074
6,103
(2,626)
2,247
$
44,726 $
33,555
1,264
5,271
(3,115)
953
37,928
As of June 30,
2021
2020
$
89,579 $
81,942
As of June 30,
2021
2020
$
$
$
81,924 $
134,305 $
44,726 $
75,550
119,870
37,928
2021
Year Ended June 30,
2020
2019
0.5%-1.7%
0.6%-2.9%
2.3%-5.0%
0.6%-1.7%
0.8%-2.9%
1.8%-4.5%
0.3%-1.7%
1.0%-2.9%
1.8%-4.5%
(1)
Represents the weighted-average assumptions used to determine the benefit obligation.
The assumptions for expected rate of return on assets were developed by considering the historical returns and
expectations of future returns relevant to the country in which each plan is in effect and the investments applicable to the
corresponding plan. The discount rate for each plan was derived by reference to appropriate benchmark yields on high quality
corporate bonds, allowing for the approximate duration of both plan obligations and the relevant benchmark index.
97
The following table presents losses recognized in AOCI before tax related to our foreign defined benefit pension plans:
(In thousands)
Unrecognized transition obligation
Unrealized net loss
Amount of losses recognized
As of June 30,
2021
2020
$
$
— $
30,375
30,375 $
310
23,157
23,467
The components of our net periodic cost relating to our foreign subsidiaries’ defined benefit pension plans are as follows:
(In thousands)
Components of net periodic pension cost:
Service cost(1)
Interest cost
Return on plan assets
Amortization of prior service cost
Amortization of net loss
Loss due to settlement/curtailment
Net periodic pension cost
__________________
2021
Year Ended June 30,
2020
2019
$
4,649 $
1,187
(549)
—
1,071
130
4,823 $
1,086
(475)
3
1,214
—
$
6,488 $
6,651 $
4,220
1,132
(476)
21
1,047
—
5,944
(1)
Service cost is reported in cost of revenues, R&D and SG&A expenses. All other components of net periodic pension
cost are reported in other expense (income), net in the Consolidated Statements of Operations.
Fair Value of Plan Assets
Fair value is the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date. The three levels of inputs used to measure fair value of plan assets are
described in Note 3 “Fair Value Measurements.”
The foreign plans’ investments are managed by third-party trustees consistent with the regulations or market practice of
the country where the assets are invested. We are not actively involved in the investment strategy, nor do we have control over
the target allocation of these investments. These investments made up 100% of total foreign plan assets in the fiscal years ended
June 30, 2021 and 2020.
The expected aggregate employer contribution for the foreign plans during the fiscal year ending June 30, 2022 is $4.7
million.
The total benefits to be paid from the foreign pension plans are not expected to exceed $6.4 million in any year through
the fiscal year ending June 30, 2031.
98
Foreign plan assets measured at fair value on a recurring basis consisted of the following investment categories as of
June 30, 2021 and 2020, respectively:
As of June 30, 2021 (In thousands)
Cash and cash equivalents
Bonds, equity securities and other investments
Total assets measured at fair value
As of June 30, 2020 (In thousands)
Cash and cash equivalents
Bonds, equity securities and other investments
Total assets measured at fair value
Concentration of Risk
Quoted Prices in
Active Markets
for Identical
Assets (Level 1)
Significant Other
Observable Inputs
(Level 2)
Total
25,458 $
25,458 $
19,268
—
44,726 $
25,458 $
—
19,268
19,268
Quoted Prices in
Active Markets
for Identical
Assets (Level 1)
Significant Other
Observable Inputs
(Level 2)
Total
21,420 $
21,420 $
16,508
—
37,928 $
21,420 $
—
16,508
16,508
$
$
$
$
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, 2021, we did not have concentrations of plan asset investment risk in any single entity, manager,
counterparty, sector, industry or country.
NOTE 14 — INCOME TAXES
The components of income before income taxes were as follows:
(In thousands)
Domestic income before income taxes
Foreign income before income taxes
Total income before income taxes
The provision for income taxes was comprised of the following:
(In thousands)
Current:
Federal
State
Foreign
Deferred:
Federal
State
Foreign
Provision for income taxes
$
99
2021
Year Ended June 30,
2020
1,251,820 $
752,844 $
1,108,634
563,867
2019
545,401
750,830
2,360,454 $
1,316,711 $
1,296,231
$
$
2021
Year Ended June 30,
2020
2019
$
201,413 $
108,136 $
6,164
121,146
328,723
518
86,374
195,028
(31,989)
(1,155)
(12,478)
(45,622)
283,101 $
(26,743)
(1,174)
(65,425)
(93,342)
101,686 $
82,460
5,665
59,274
147,399
1,636
2,118
(29,939)
(26,185)
121,214
The significant components of deferred income tax assets and liabilities were as follows:
(In thousands)
Deferred tax assets:
As of June 30,
2021
2020
Tax credits and net operating losses
$
237,480 $
214,305
Employee benefits accrual
Stock-based compensation
Inventory reserves
Non-deductible reserves
Unearned revenue
Unrealized loss on investments
Other
Gross deferred tax assets
Valuation allowance
Net deferred tax assets
Deferred tax liabilities:
Unremitted earnings of foreign subsidiaries not indefinitely reinvested
Deferred profit
Depreciation and amortization
Total deferred tax liabilities
Total net deferred tax assets (liabilities)
82,055
7,284
81,224
36,267
15,712
5,384
54,615
67,729
8,871
73,939
20,526
15,786
5,345
66,667
$
$
520,021
473,168
(204,433)
(181,846)
315,588 $
291,322
(278,014) $
(10,044)
(407,692)
(695,750)
(257,757)
(18,111)
(439,685)
(715,553)
$
(380,162) $
(424,231)
As of June 30, 2021, we, excluding Orbotech, had U.S. federal, state and foreign net operating loss (“NOL”) carry-
forwards of approximately $14 million, $9 million and $22 million, respectively. Orbotech had U.S. federal, state, and foreign
NOLs of approximately $24 million, $9 million and $176 million, respectively. Orbotech also had capital loss carry-forwards of
approximately $34 million as of June 30, 2021. The U.S. federal NOL carry-forwards will expire at various dates beginning in
2023 through 2033. 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 began to expire in 2021. Foreign NOLs and capital loss carry-forwards will be carried forward
indefinitely. State credits of $271.1 million for us, including Orbotech, will also be carried forward indefinitely.
The net deferred tax asset valuation allowance was $204.4 million and $181.8 million as of June 30, 2021 and June 30,
2020, respectively. The change was primarily due to an increase in the valuation allowance related to U.S. federal and state
credit carry-forwards generated in the fiscal year ended June 30, 2021. 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, 2021, $203.6 million related to federal and state credit carry-forwards. The remainder of the valuation allowance
related to state NOL carry-forwards.
As of June 30, 2021, we intend to indefinitely reinvest $3.25 billion 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 $108 million.
We benefit from tax holidays in Singapore where we manufacture certain of our products. These tax holidays are on
approved investments and are scheduled to expire at varying times in the next one to seven years. We are in compliance with all
the terms and conditions of the tax holidays as of June 30, 2021. The net impact of these tax holidays was to decrease our tax
expense by approximately $12 million, $33 million and $32 million in the fiscal years ended June 30, 2021, 2020 and 2019,
respectively. The benefits of the tax holidays on diluted net income per share were $0.08, $0.21 and $0.20 for the fiscal years
ended June 30, 2021, 2020 and 2019, respectively. We have a new tax holiday in Singapore on approved investments starting
September 1, 2021 with a ten-year term.
100
The reconciliation of the U.S. federal statutory income tax rate to our effective income tax rate was as follows:
Federal statutory rate
State income taxes, net of federal benefit
Effect of foreign operations taxed at various rates
Tax rate change on deferred tax liability on purchased intangibles
Tax Cuts and Jobs Act of 2017 - Transition tax and deferred tax effects
Global intangible low-taxed income
Foreign derived intangible income
Research and development tax credit
Net change in tax reserves
Non-deductible impairment of goodwill
Effect of stock-based compensation
Restructuring
Other
Effective income tax rate
A reconciliation of gross unrecognized tax benefits was as follows:
(In thousands)
Unrecognized tax benefits at the beginning of the year
Increases for tax positions from acquisitions
Increases for tax positions taken in prior years
Decreases for tax positions taken in prior years
Increases for tax positions taken in current year
Decreases for settlements with taxing authorities
Decreases for lapsing of statutes of limitations
Unrecognized tax benefits at the end of the year
2021
Year ended June 30,
2020
2019
21.0 %
0.2 %
(6.6) %
1.7 %
— %
2.6 %
(4.3) %
(1.1) %
(1.1) %
— %
(0.3) %
— %
(0.1) %
12.0 %
21.0 %
0.2 %
(12.1) %
— %
— %
3.0 %
(5.0) %
(1.8) %
1.5 %
4.1 %
(0.3) %
(2.6) %
(0.3) %
7.7 %
21.0 %
0.5 %
(10.5) %
— %
(1.5) %
3.5 %
(4.0) %
(1.8) %
1.4 %
— %
0.4 %
— %
0.4 %
9.4 %
2021
Year Ended June 30,
2020
2019
$
172,443 $
146,426 $
—
6,557
(19,360)
31,113
(28,651)
(12,460)
—
6,826
(518)
34,278
—
63,994
60,753
13,001
(1,304)
26,178
—
$
149,642 $
172,443 $
146,426
(14,569)
(16,196)
The amounts of unrecognized tax benefits that would impact the effective tax rate were $137.8 million, $161.5 million
and $136.1 million as of June 30, 2021, 2020 and 2019, respectively. The amounts of interest and penalties recognized during
the years ended June 30, 2021, 2020 and 2019 were expenses of $2.8 million, $4.6 million and $2.9 million, respectively, as a
result of a release of unrecognized tax benefits. 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, 2021 and 2020 were
approximately $42 million and $38 million, respectively.
We are subject to examination by tax authorities throughout the world. We are subject to U.S. federal income tax
examinations for all years beginning from the fiscal year ended June 30, 2018 and are under United States federal income tax
examination for the fiscal year ended June 30, 2018. We are subject to state income tax examinations for all years beginning
from the fiscal year ended June 30, 2017. We are also subject to examinations in other major foreign jurisdictions, including
Singapore and Israel, for all years beginning from the calendar year ended December 31, 2012. We are under audit in Germany
related to Orbotech for the years ended December 31, 2013 to December 31, 2015. We have concluded our audit in Israel
related to KLA for the fiscal years ended June 30, 2017 to June 30, 2020.
In May 2017, Orbotech received an assessment from the Israel Tax Authority (“ITA”) with respect to its fiscal years 2012
through 2014 (the “Assessment”, and the “Audit Period”, respectively), for an aggregate amount of tax, after offsetting all
NOLs available through the end of 2014, of approximately NIS 229 million (equivalent to approximately $66 million which
includes related interest and linkage differentials to the Israeli consumer price index as of date of issuance of the Tax Decrees).
We believe our recorded unrecognized tax benefits are sufficient to cover the resolution of the Assessment.
On August 31, 2018, Orbotech filed an objection in respect of the tax assessment (the “Objection”). The ITA completed
the second stage of the audit, in which the claims Orbotech raised in the Objection were examined by different personnel at the
101
ITA. In addition, the ITA examined additional items during this second stage of the audit. As Orbotech and the ITA did not
reach an agreement during the second stage, the ITA issued Tax Decrees to Orbotech on August 28, 2019 (“Tax Decrees”) for
an aggregate amount of tax, after offsetting all NOLs available through the end of 2014, of approximately NIS 257 million
(equivalent to approximately $73 million which includes related interest and linkage differentials to the Israeli consumer price
index as of the date of the issuance of the Tax Decrees). These Tax Decrees replaced the Assessment. We believe that our
recorded unrecognized tax benefits are sufficient to cover the resolution of these Tax Decrees.
Orbotech filed a notice of appeal with respect to the above Tax Decrees with the District Court of Tel Aviv on September
26, 2019. On February 27, 2020 the ITA filed its arguments in support of the Tax Decrees. Orbotech filed the grounds of appeal
with respect to the above Tax Decrees on July 30, 2020. We are currently in the pre-trial hearing stage of the process. The ITA
and Orbotech are continuing discussions in an effort to resolve this matter in a mutually agreeable manner.
In connection with the above, there is an ongoing criminal investigation in Israel against Orbotech, which became our
wholly owned subsidiary as of the Acquisition Date, and certain of its employees and its tax consultant. On April 11, 2018,
Orbotech received a “suspect notification letter” (dated March 28, 2018) from the Tel Aviv District Attorney’s Office (Fiscal
and Financial). In the letter, it was noted that the investigation file was transferred from the Assessment Investigation Officer to
the District Attorney’s Office. The letter further states that the District Attorney’s Office has not yet made a decision regarding
submission of an indictment against Orbotech; and that if after studying the case, a decision is made to consider prosecuting
Orbotech, Orbotech will receive an additional letter, and within 30 days, Orbotech may present its arguments to the District
Attorney’s Office as to why it should not be indicted. On October 27, 2019, we received a request for additional information
from the District Attorney’s Office. We will continue to monitor the progress of the District Attorney’s Office investigation;
however, we cannot anticipate when the review of the case will be completed and what will be the results thereof. We intend to
cooperate with the District Attorney’s Office to enable them to conclude their investigation.
In December 2020, Orbotech received an assessment from the ITA with respect to its fiscal years 2015 through 2018 (the
“Second Assessment”), for an aggregate amount of tax, after offsetting all NOLs available through the end of 2018, of
approximately NIS 227 million (equivalent to approximately $68 million which includes related interest and linkage
differentials to the Israeli consumer price index as of date of the issuance of the Second Assessment). We filed an objection to
the Second Assessment with the ITA in March 2021. The objection moved the 2015-2018 audit to the second stage, in which
the ITA will review the objections. We believe that our recorded unrecognized tax benefits are sufficient to cover the resolution
of the Second Assessment.
We believe that we may recognize up to $2.2 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.
NOTE 15 — LITIGATION AND OTHER LEGAL MATTERS
We are named from time to time as a party to lawsuits and other types of legal proceedings and claims in the normal
course of our business. Actions filed against us include commercial, intellectual property, customer, and labor and employment
related claims, including complaints of alleged wrongful termination and potential class action lawsuits regarding
alleged violations of federal and state wage and hour and other laws. In general, legal proceedings and claims, regardless of
their merit, and associated internal investigations (especially those relating to intellectual property or confidential information
disputes) are often expensive to prosecute, defend or conduct and may divert management’s attention and other company
resources. Moreover, the results of legal proceedings are difficult to predict, and the costs incurred in litigation can be
substantial, regardless of outcome. We believe the amounts provided in our Consolidated Financial Statements are adequate in
light of the probable and estimated liabilities. However, because such matters are subject to many uncertainties, the ultimate
outcomes are not predictable, and there can be no assurances that the actual amounts required to satisfy alleged liabilities from
the matters described above will not exceed the amounts reflected in our Consolidated Financial Statements or will not have a
material adverse effect on our results of operations, financial condition or cash flows.
NOTE 16 — COMMITMENTS AND CONTINGENCIES
Factoring. We have agreements (referred to as “factoring agreements”) with financial institutions to sell certain of our
trade receivables and promissory notes from customers without recourse. We do not believe we are at risk for any material
losses as a result of these agreements. In addition, we periodically sell certain LC, without recourse, received from customers in
payment for goods and services.
102
The following table shows total receivables sold under factoring agreements and proceeds from sales of LC for the
indicated periods:
(In thousands)
Receivables sold under factoring agreements
Proceeds from sales of LC
2021
Year Ended June 30,
2020
$
$
305,565 $
293,006 $
133,679 $
59,036 $
2019
193,089
95,436
Factoring and LC fees for the sale of certain trade receivables were recorded in other expense (income), net and were not
material for the periods presented.
Purchase Commitments. We maintain commitments to purchase inventory from our suppliers as well as goods,
services, and other assets in the ordinary course of business. Our liability under these purchase commitments is generally
restricted to a forecasted time-horizon as mutually agreed upon between the parties. This forecasted time-horizon can vary
among different suppliers. Our estimate of our significant purchase commitments primarily for material, services, supplies and
asset purchases is approximately $2 billion as of June 30, 2021, which are primarily due within the next 12 months. Actual
expenditures will vary based upon the volume of the transactions and length of contractual service provided. In addition, the
amounts paid under these arrangements may be less in the event that the arrangements are renegotiated or canceled. Certain
agreements provide for potential cancellation penalties.
Cash LTI Plan. As of June 30, 2021, we have committed $248.0 million for future payment obligations under our Cash
LTI Plan. The calculation of compensation expense related to the Cash LTI Plan includes estimated forfeiture rate assumptions.
Cash LTI awards issued to employees under the Cash LTI Plan vest in three or four equal installments, with one-third or one-
fourth of the aggregate amount of the Cash LTI award vesting on each anniversary of the grant date over a three or four-year
period. In order to receive payments under a Cash LTI award, participants must be employed by us as of the applicable award
vesting date.
Guarantees and Contingencies. We maintain guarantee arrangements available through various financial institutions for
up to $75.2 million, of which $59.7 million had been issued as of June 30, 2021, primarily to fund guarantees to customs
authorities for VAT and other operating requirements of our subsidiaries in Europe, Israel and Asia.
Indemnification Obligations. Subject to certain limitations, we are obligated to indemnify our current and former
directors, officers and employees with respect to certain litigation matters and investigations that arise in connection with their
service to us. These obligations arise under the terms of our certificate of incorporation, its bylaws, applicable contracts, and
Delaware and California law. The obligation to indemnify generally means that we are required to pay or reimburse the
individuals’ reasonable legal expenses and possibly damages and other liabilities incurred by several of our current and former
directors, officers and employees in connection with these matters. For example, we have paid or reimbursed legal expenses
incurred in connection with the investigation of our historical stock option practices and the related litigation and government
inquiries. Although the maximum potential amount of future payments we could be required to make under the indemnification
obligations generally described in this paragraph is theoretically unlimited, we believe the fair value of this liability, to the
extent estimable, is appropriately considered within the reserve we have established for currently pending legal proceedings.
We are a party to a variety of agreements pursuant to which we may be obligated to indemnify the other party with
respect to certain matters. Typically, these obligations arise in connection with contracts and license agreements or the sale of
assets, under which we customarily agree to hold the other party harmless against losses arising therefrom, or provide
customers with other remedies to protect against, bodily injury or damage to personal property caused by our products, non-
compliance with our product performance specifications, infringement by our products of third-party intellectual property rights
and a breach of warranties, representations and covenants related to matters such as title to assets sold, validity of certain
intellectual property rights, non-infringement of third-party rights, and certain income tax-related matters. In each of these
circumstances, payment by us is typically subject to the other party making a claim to and cooperating with us pursuant to the
procedures specified in the particular contract. This usually allows us to challenge the other party’s claims or, in case of breach
of intellectual property representations or covenants, to control the defense or settlement of any third-party claims brought
against the other party. Further, our obligations under these agreements may be limited in terms of amounts, activity (typically
at our option to replace or correct the products or terminate the agreement with a refund to the other party), and duration. In
some instances, we may have recourse against third parties and/or insurance covering certain payments made by us.
In addition, we may in limited circumstances enter into agreements that contain customer-specific commitments on
pricing, tool reliability, spare parts stocking levels, response time and other commitments. Furthermore, we may give these
customers limited audit or inspection rights to enable them to confirm that we are complying with these commitments. If a
customer elects to exercise its audit or inspection rights, we may be required to expend significant resources to support the audit
103
or inspection, as well as to defend or settle any dispute with a customer that could potentially arise out of such audit or
inspection. To date, we have made no significant accruals in our Consolidated Financial Statements for this contingency. While
we have not in the past incurred significant expenses for resolving disputes regarding these types of commitments, we cannot
make any assurance that it will not incur any such liabilities in the future.
It is not possible to predict the maximum potential amount of future payments under these or similar agreements due to
the conditional nature of our obligations and the unique facts and circumstances involved in each particular agreement.
Historically, payments made by us under these agreements have not had a material effect on our business, financial condition,
results of operations or cash flows.
NOTE 17 — DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
The authoritative guidance requires companies to recognize all derivative instruments and hedging activities, including
foreign currency exchange contracts and interest rate lock agreements (collectively “derivatives”) as either assets or liabilities at
fair value on the Consolidated Balance Sheets. In accordance with the accounting guidance, we designate foreign currency
exchange contracts and interest rate lock agreements as cash flow hedges of certain forecasted foreign currency denominated
sales, purchase and spending transactions, and the benchmark interest rate of the corresponding debt financing, respectively. In
accordance with the accounting guidance, we also designate foreign currency exchange contracts to hedge a portion of our
investment in a foreign denominated subsidiary.
Our foreign subsidiaries operate and sell our products in various global markets. As a result, we are exposed to risks
relating to changes in foreign currency exchange rates. We utilize foreign currency forward exchange contracts and option
contracts to hedge against future movements in foreign currency exchange rates that affect certain existing and forecasted
foreign currency denominated sales and purchase transactions, such as the Japanese yen, the euro, the pound sterling and the
Israeli new shekel. We routinely hedge our exposures to certain foreign currencies with various financial institutions in an effort
to minimize the impact of certain currency exchange rate fluctuations. These currency forward exchange contracts and options,
designated as cash flow hedges, generally have maturities of less than 18 months. Cash flow hedges are evaluated for
effectiveness monthly, based on changes in total fair value of the derivatives. If a financial counterparty to any of our hedging
arrangements experiences financial difficulties or is otherwise unable to honor the terms of the foreign currency hedge, we may
experience material losses.
In January 2020, we entered into a series of forward contracts (“2020 Rate Lock Agreements”) to lock the benchmark
interest rate on a portion of the $750.0 million of 3.300% 2020 Senior Notes due in 2050. The 2020 Rate Lock Agreements had
a notional amount of $350.0 million in aggregate which matured in the same quarter. The 2020 Rate Lock Agreements were
terminated on the date of the pricing of the 2020 Senior Notes and we recorded the fair value of $21.5 million as a loss within
AOCI as of March 31, 2020, which is being amortized over the life of the debt.
During the fiscal year ended June 30, 2018, we entered into a series of forward contracts (the “2018 Rate Lock
Agreements”) to lock the benchmark interest rate prior to expected debt issuances. The objective of the 2018 Rate Lock
Agreements was to hedge the risk associated with the variability in interest rates due to the changes in the benchmark interest
rate leading up to the closing of the intended financing, on the notional amount being hedged. The 2018 Rate Lock Agreement
had a notional amount of $500.0 million in aggregate, which matured and terminated in the third quarter of fiscal year ended
June 30, 2019 and we recorded the fair value of $13.6 million as a loss within AOCI, which is being amortized over the life of
the associated debt.
In October 2014, we entered into a series of forward contracts (“Rate Lock Agreements”) to lock the benchmark interest
rate on a portion of the 2014 Senior Notes. The Rate Lock Agreements had a notional amount of $1.00 billion in aggregate,
which matured in the second quarter of the fiscal year ended June 30, 2015. The Rate Lock Agreements were terminated on the
date of pricing of the $1.25 billion of 4.650% Senior Notes due in 2024 and we recorded the fair value of $7.5 million as a gain
within AOCI as of December 31, 2014, which is being amortized over the life of the debt. We recognized a net expense of
$1.1 million and $0.6 million for the fiscal years ended June 30, 2021 and 2020, respectively, for the amortization of the net of
the three rate lock agreements that had been recognized in AOCI, which increased the interest expense on a net basis. We
recognized net gain of $0.5 million for the fiscal year ended June 30, 2019, for the amortization of the net of the two rate lock
agreements that had been recognized in AOCI, which decreased the interest expense on a net basis. As of June 30, 2021, the
aggregate unamortized portion of the fair value of the forward contracts for the Rate Lock Agreements was $29.0 million.
For derivatives that are designated and qualify as cash flow hedges, the effective portion of the gains or losses is reported
in AOCI and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. Prior
to adopting the new accounting guidance for hedge accounting, time value was excluded from the assessment of effectiveness
for derivatives designated as cash flow hedges. Time value was amortized on a mark-to-market basis and recognized in earnings
104
over the life of the derivative contract. For derivative contracts executed after adopting the new accounting guidance, the
election to include time value for the assessment of effectiveness is made on all forward contracts designated as cash flow
hedges. The change in fair value of the derivative is recorded in AOCI until the hedged item is recognized in earnings. The
assessment of effectiveness of options contracts designated as cash flow hedges continue to exclude time value after adopting
the new accounting guidance. The initial value of the component excluded from the assessment of effectiveness is recognized in
earnings over the life of the derivative contract. Any difference between change in the fair value of the excluded components
and the amounts recognized in earnings are recorded in AOCI.
For derivatives that are designated and qualify as a net investment hedge in a foreign operation and that meet the
effectiveness requirements, the net gains or losses attributable to change 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 derivatives that are not designated as hedges, gains and losses are recognized in other expense (income), net. We use
foreign currency forward contracts to hedge certain foreign currency denominated assets or liabilities. The gains and losses on
these derivative instruments are largely offset by the changes in the fair value of the assets or liabilities being hedged.
Derivatives in Hedging Relationships: Foreign Exchange and Interest Rate Contracts
The gains (losses) on derivatives in cash flow and net investment hedging relationships recognized in other
comprehensive income for the indicated periods were as follows:
(In thousands)
Derivatives Designated as Cash Flow Hedging Instruments:
Rate lock agreements:
Amounts included in the assessment of effectiveness
Foreign exchange contracts:
Amounts included in the assessment of effectiveness
Amounts excluded from the assessment of effectiveness
Derivatives Designated as Net Investment Hedging Instruments:
Foreign exchange contracts(1)
________________
Year Ended June 30,
2020
2019
2021
$
$
$
$
— $
— $
(8,649)
3,897 $
(16,649) $
(115) $
(90) $
(358)
(112)
(191) $
— $
—
(1)
No amounts were reclassified from AOCI into earnings related to the sale of a subsidiary.
105
The locations and amounts of designated and non-designated derivatives’ gains and losses reported in the
Consolidated Statements of Operations for the indicated periods were as follows:
(In thousands)
For the year ended June 30, 2019
Total amounts presented in the Consolidated Statements of Operations in
which the effects of cash flow hedges are recorded
Gains (Losses) on Derivatives Designated as Hedging Instruments:
Rate lock agreements:
Amount of gains (losses) reclassified from AOCI to earnings
Amount of gains (losses) reclassified from AOCI to earnings as a result
that a forecasted transaction is no longer probable of occurring
Foreign exchange contracts:
Amount of gains (losses) reclassified from AOCI to earnings
Amount excluded from the assessment of effectiveness recognized in
earnings
Gains (Losses) on Derivatives Not Designated as Hedging Instruments:
Amount of gains (losses) recognized in earnings
For the year ended June 30, 2020
Total amounts presented in the Consolidated Statements of Operations in
which the effects of cash flow hedges are recorded
Gains (Losses) on Derivatives Designated as Hedging Instruments:
Rate lock agreements:
Amount of gains (losses) reclassified from AOCI to earnings
Foreign exchange contracts:
Amount of gains (losses) reclassified from AOCI to earnings
Amount excluded from the assessment of effectiveness recognized in
earnings
Gains (Losses) on Derivatives Not Designated as Hedging Instruments:
Amount of gains (losses) recognized in earnings
For the year ended June 30, 2021
Total amounts presented in the Consolidated Statements of Operations in
which the effects of cash flow hedges are recorded
Gains (Losses) on Derivatives Designated as Hedging Instruments:
Rate lock agreements:
Costs of
Revenues and
Operating
Expense
Interest
Expense
Other
Expense
(Income),
Net
Revenues
$ 4,568,904 $
3,179,531 $
124,604 $
(31,462)
$
$
$
$
$
— $
— $
424 $
— $
— $
— $
4,329 $
(739) $
— $
—
4
—
— $
— $
— $
(323)
— $
— $
— $
(23)
$ 5,806,424 $
4,304,223 $
160,274 $
2,678
$
$
$
$
— $
— $
(637) $
4,473 $
(1,377) $
— $
(387) $
— $
— $
—
—
—
— $
— $
— $
1,990
$ 6,918,734 $
4,430,254 $
157,328 $
(29,302)
Amount of gains (losses) reclassified from AOCI to earnings
Foreign exchange contracts:
Amount of gains (losses) reclassified from AOCI to earnings
Amount excluded from the assessment of effectiveness recognized in
earnings
Gains (Losses) on Derivatives Not Designated as Hedging Instruments:
Amount of gains (losses) recognized in earnings
$
$
$
$
— $
— $
(1,116) $
920 $
551 $
— $
—
—
(536) $
— $
— $
1,216
— $
— $
— $
670
106
The U.S. dollar equivalent of all outstanding notional amounts of foreign currency hedge contracts, with maximum
remaining maturities of approximately ten months as of June 30, 2021 and seven months as of June 30, 2020, were as follows:
(In thousands)
Cash flow hedge contracts - foreign currency
Purchase
Sell
Net Investment hedge contracts - foreign currency
Sell
Other foreign currency hedge contracts
Purchase
Sell
As of June 30, 2021 As of June 30, 2020
$
$
$
$
$
12,550 $
134,845 $
10,705
71,431
66,848 $
—
264,292 $
278,635 $
329,310
357,939
The locations and fair value of our derivatives reported in our Consolidated Balance Sheets as of the dates indicated
below were as follows:
Asset Derivatives
Liability Derivatives
As of June
30,2021
As of June
30,2020
As of June
30,2021
As of June
30,2020
Balance Sheet
Location
Fair Value
Balance Sheet
Location
Fair Value
(In thousands)
Derivatives designated as hedging
instruments
Foreign exchange contracts
Other current assets
$
3,940 $
680 Other current liabilities
$
272 $
Total derivatives designated as
hedging instruments
Derivatives not designated as
hedging instruments
3,940
680
272
45
45
Foreign exchange contracts
Other current assets
4,312
1,397 Other current liabilities
2,535
1,365
Total derivatives not designated
as hedging instruments
Total derivatives
4,312
$
8,252 $
1,397
2,077
2,535
$
2,807 $
1,365
1,410
The changes in AOCI, before taxes, related to derivatives for the indicated periods were as follows:
(In thousands)
Beginning balance
Amount reclassified to earnings
Net change in unrealized gains or losses
Ending balance
Offsetting of Derivative Assets and Liabilities
Year Ended June 30,
2020
2019
2021
$ (29,602) $ (10,791) $
(2,072)
(16,739)
2,346
(4,018)
(9,119)
$ (25,830) $ (29,602) $ (10,791)
181
3,591
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 (in
thousands):
As of June 30, 2021
Description
Derivatives - assets
Derivatives - liabilities
Gross
Amounts of
Derivatives
Gross Amounts of
Derivatives Offset in
the Consolidated
Balance Sheets
Net Amount of
Derivatives
Presented in the
Consolidated
Balance Sheets
Gross Amounts of Derivatives
Not Offset in the Consolidated
Balance Sheets
Financial
Instruments
Cash
Collateral
Received
$
$
8,252 $
(2,807) $
— $
— $
8,252 $
(2,807) $
(2,492) $
2,492 $
107
Net Amount
5,760
(315)
— $
— $
As of June 30, 2020
Description
Gross
Amounts of
Derivatives
Gross Amounts of
Derivatives Offset in
the Consolidated
Balance Sheets
Net Amount of
Derivatives
Presented in the
Consolidated
Balance Sheets
Financial
Instruments
Cash
Collateral
Received
Net Amount
Gross Amounts of Derivatives
Not Offset in the Consolidated
Balance Sheets
Derivatives - assets
Derivatives - liabilities
$
$
2,077 $
(1,410) $
— $
— $
2,077 $
(1,020) $
(1,410) $
1,020 $
— $
— $
1,057
(390)
NOTE 18 — RELATED PARTY TRANSACTIONS
During the fiscal years ended June 30, 2021, 2020 and 2019, we purchased from, or sold to, several entities, where one or
more of our executive officers or members of our Board of Directors, or their immediate family members were, during the
periods presented, an executive officer or a board member of a subsidiary, including Anaplan, Inc., Ansys, Inc., Citrix Systems,
Inc., HP Inc., Integrated Device Technology, Inc., Keysight Technologies, Inc., Logmein Inc., NetApp, Inc. and Proofpoint,
Inc.
The following table provides the transactions with these parties for the indicated periods (for the portion of such period
that they were considered related):
(In thousands)
Total revenues
Total purchases
Year Ended June 30,
2020
2019
2021
$
$
1,276 $
1,347 $
4,237 $
2,414 $
2,402
2,881
Our receivable balance was $1.1 million and payable balances were immaterial from these parties as of June 30,
2021. Our receivable balance was $2.4 million and payable balances were immaterial from these parties as of June 30,
2020.
NOTE 19 — SEGMENT REPORTING AND GEOGRAPHIC INFORMATION
ASC 280, Segment Reporting, establishes standards for reporting information about operating segments. Operating
segments are defined as components of an enterprise about which separate financial information is evaluated regularly by the
chief operating decision maker (“CODM”) in deciding how to allocate resources and in assessing performance. Our CODM is
our Chief Executive Officer.
We have four reportable segments: Semiconductor Process Control; Specialty Semiconductor Process; PCB, Display and
Component Inspection; and Other. The reportable segments are determined based on several factors including, but not limited
to, customer base, homogeneity of products, technology, delivery channels and similar economic characteristics.
Semiconductor Process Control.
The SPC segment offers comprehensive portfolio of inspection, metrology and data analytics products, and related
service, which helps integrated circuit manufacturers achieve target yield throughout the entire semiconductor fabrication
process, from R&D to final volume production. Our differentiated products and services are designed to provide comprehensive
solutions that help our customers accelerate development and production ramp cycles, achieve higher and more stable
semiconductor die yields and improve their overall profitability. This reportable segment is comprised of two operating
segments, Wafer Inspection and Patterning and GSS.
Specialty Semiconductor Process
The Specialty Semiconductor Manufacturing segment develops and sells advanced vacuum deposition and etching
process tools, which are used by a broad range of specialty semiconductor customers, including manufacturers of MEMS, radio
frequency communication chips, and power semiconductors for automotive and industrial applications. This reportable segment
is comprised of one operating segment.
PCB, Display and Component Inspection
The PCB, Display and Component Inspection segment enables electronic device manufacturers to inspect, test and
measure PCBs, FPDs and ICs to verify their quality, pattern the desired electronic circuitry on the relevant substrate and
108
perform three-dimensional shaping of metalized circuits on multiple surfaces. This segment also engages in the development
and marketing of character recognition solutions to banks, financial and other payment processing institutions and healthcare
providers. This reportable segment is comprised of two operating segments, PCB and Display and Component Inspection.
Other
The Other segment is comprised of one operating segment. During the fourth quarter of fiscal 2020, we entered into an
Asset Purchase Agreement to sell certain core assets of our non-strategic solar energy business, OLTS, which accounted for the
majority of our Other reportable segment. The sale was completed in the first quarter of fiscal 2021 with an insignificant
amount of proceeds. This business was engaged in the research, development and marketing of products for the deposition of
thin film coating of various materials on crystalline silicon photovoltaic wafers for solar energy panels.
The CODM assesses the performance of each operating segment and allocates resources to those segments based on total
revenue and segment gross margin and does not evaluate the segments using discrete asset information. Segment gross margin
excludes corporate allocations and effects of foreign currency exchange rates, amortization of intangible assets, amortization of
inventory fair value adjustments, and transaction costs associated with our acquisitions related to costs of revenues.
The following is a summary of results for each of our four reportable segments for the indicated periods:
(In thousands)
Semiconductor Process Control:
Revenues
Segment gross margin
Specialty Semiconductor Process:
Revenues
Segment gross margin
PCB, Display and Component Inspection:
Revenues
Segment gross margin
Other:
Revenues
Segment gross margin
Totals:
Revenues for reportable segments
Segment gross margin
2021
Year Ended June 30,
2020
2019
5,734,825 $
4,745,446 $
4,080,822
3,705,222 $
3,028,167 $
2,590,434
369,216 $
329,700 $
151,164
206,706 $
183,641 $
78,800
812,620 $
727,451 $
390,571 $
315,723 $
332,810
155,765
739 $
(68) $
3,614 $
(63) $
4,676
1,102
6,917,400 $
5,806,211 $
4,569,472
4,302,431 $
3,527,468 $
2,826,101
$
$
$
$
$
$
$
$
$
$
The following table reconciles total reportable segment revenue to total revenue for the indicated periods:
(In thousands)
Total revenues for reportable segments
Year Ended June 30,
2020
2019
2021
$
6,917,400 $
5,806,211 $
4,569,472
Corporate allocations and effects of foreign exchange rates
1,334
213
(568)
Total revenues
$
6,918,734 $
5,806,424 $
4,568,904
109
The following table reconciles total segment gross margin to total income before income taxes for the indicated periods:
(In thousands)
Total segment gross margin
Acquisition-related charges, corporate allocations and effects of
foreign exchange rates(1)
Research and development
Selling, general and administrative
Goodwill impairment
Interest expense
Loss on extinguishment of debt
Other expense (income), net
Income before income taxes
__________________
Year Ended June 30,
2020
2019
2021
$
4,302,431 $
3,527,468 $
2,826,101
155,862
928,487
729,602
—
157,328
—
(29,302)
170,605
863,864
734,149
256,649
160,274
22,538
2,678
126,574
711,030
599,124
—
124,604
—
(31,462)
$
2,360,454 $
1,316,711 $
1,296,231
(1)
Acquisition-related charges primarily include amortization of intangible assets, amortization of inventory fair value
adjustments, and other acquisition-related costs classified or presented as part of costs of revenues.
Our significant operations outside the United States include manufacturing facilities in China, Germany, Israel and
Singapore and sales, marketing and service offices in Japan, the rest of the Asia Pacific region and Europe. For geographical
revenue reporting, revenues are attributed to the geographic location in which the customer is located. Long-lived assets consist
of land, property and equipment, net, and are attributed to the geographic region in which they are located.
We have revised the fiscal 2020 revenue by geographic regions as presented below. The revisions were to correct the
amount of revenue allocated to each geographic region. These revisions had no impact on the previously issued Consolidated
Balance Sheet, Statements of Operations, Statements of Cash Flows, Statements of Comprehensive Income (Loss) or
Statements of Stockholders’ Equity as of and for the year-ended June 30, 2020 and we determined that the impact of the
revisions was not material to our previously issued Consolidated Financial Statements.
The following is a summary of revenues by geographic region, based on ship-to location, for the indicated periods:
(Dollar amounts in thousands)
Revenues:
China
Taiwan
Korea
North America
Japan
Europe and Israel
Rest of Asia
Total
2021
Year Ended June 30,
2020
2019
$ 1,831,446
26 % $ 1,495,977
26 % $ 1,215,807
1,690,558
25 %
1,598,201
27 %
1,105,726
1,343,473
765,974
639,381
396,422
251,480
19 %
11 %
9 %
6 %
4 %
911,848
651,328
660,772
322,085
166,213
16 %
11 %
11 %
6 %
3 %
584,091
596,452
581,529
305,924
179,375
27 %
24 %
13 %
13 %
13 %
7 %
3 %
$ 6,918,734
100 % $ 5,806,424
100 % $ 4,568,904
100 %
110
The following is a summary of revenues by major products for the indicated periods:
(Dollar amounts in thousands)
Revenues:
Wafer Inspection
Patterning
2021
Year ended June 30,
2020
2019
$ 2,661,167
39 % $ 2,080,484
36 % $ 1,630,899
1,505,990
22 %
1,278,382
22 %
1,161,263
Specialty Semiconductor Process
PCB, Display and Component Inspection
304,627
562,104
4 %
8 %
269,667
497,026
5 %
9 %
129,854
238,275
Services
Other
Total
1,678,418
24 %
1,477,699
25 %
1,176,661
206,428
3 %
203,166
3 %
231,952
$ 6,918,734
100 % $ 5,806,424
100 % $ 4,568,904
100 %
36 %
25 %
3 %
5 %
26 %
5 %
Wafer Inspection and Patterning products are offered in 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 Semiconductor Process Control segment.
In the fiscal year ended June 30, 2021, two customers accounted for approximately 17% and 15% of total revenues. In the
fiscal year ended June 30, 2020, two customers accounted for approximately 20% and 14% of total revenues. In the fiscal year
ended June 30, 2019, one customer accounted for approximately 15% of total revenues.
Land, property and equipment, net by geographic region as of the dates indicated below were as follows:
(In thousands)
Land, property and equipment, net:
United States
Singapore
Israel
Europe
Rest of Asia
Total
As of June 30,
2021
2020
$
447,359 $
329,558
76,882
57,403
56,895
24,488
54,946
59,162
58,065
18,093
$
663,027 $
519,824
NOTE 20 — RESTRUCTURING CHARGES
In September 2019, management approved a plan to streamline our organization and business processes that included the
reduction of workforce, primarily in our PCB, Display and Component Inspection segment.
Restructuring charges were $12.4 million for fiscal year ended June 30, 2021 and included $3.9 million of non-cash
charges for accelerated depreciation related to certain ROU assets and fixed assets to be abandoned. Restructuring charges were
$7.7 million for the year ended, June 30, 2020. The amounts of restructuring charges accrued were $3.3 million and
$5.7 million as of June 30, 2021 and 2020, respectively.
NOTE 21 — SUBSEQUENT EVENTS
On July 29, 2021, our Board of Directors authorized an additional $2.00 billion for share repurchases. As of June 30,
2021, the amount remaining for share repurchases under our previously authorized program was approximately $93 million.
On August 5, 2021, we announced that our Board of Directors had declared a quarterly cash dividend of $1.05 per share
to be paid on September 1, 2021 to stockholders of record as of the close of business on August 16, 2021.
111
NOTE 22 — QUARTERLY CONSOLIDATED RESULTS OF OPERATIONS (UNAUDITED)
The following is a summary of our quarterly consolidated results of operations (unaudited) for the fiscal years ended
June 30, 2021 and 2020.
(In thousands, except per share data)
Total revenues
Gross margin
Net income attributable to KLA
Net income attributable to KLA per share:
Basic(1)
Diluted(1)
(In thousands, except per share data)
Total revenues
Gross margin
Net income (loss) attributable to KLA
Net income (loss) attributable to KLA per share:
Basic(1)
Diluted(1)
__________________
First Quarter
Ended September
30, 2020
Second Quarter
Ended December
31, 2020
Third Quarter
Ended March 31,
2021
Fourth Quarter
Ended June 30,
2021
$
$
$
$
$
1,538,620 $
1,650,870 $
1,803,773 $
1,925,471
918,058 $
420,567 $
981,137 $
1,094,144 $
1,153,230
457,251 $
567,496 $
632,978
2.71 $
2.69 $
2.96 $
2.94 $
3.69 $
3.66 $
4.14
4.10
First Quarter
Ended September
30, 2019
Second Quarter
Ended December
31, 2019
Third Quarter
Ended March 31,
2020
Fourth Quarter
Ended June 30,
2020
$
$
$
$
$
1,413,414 $
1,509,453 $
1,423,964 $
1,459,593
809,173 $
346,525 $
875,835 $
380,555 $
833,806 $
78,452 $
838,049
411,253
2.18 $
2.16 $
2.42 $
2.40 $
0.50 $
0.50 $
2.65
2.63
(1)
Basic and diluted net income (loss) per share were computed independently for each of the quarters presented based on
the weighted-average basic and fully diluted shares outstanding for each quarter. Therefore, the sum of quarterly basic
and diluted net income (loss) per share information may not equal annual basic and diluted net income (loss) per share.
112
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of KLA Corporation
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of KLA Corporation and its subsidiaries (the “Company”) as of
June 30, 2021 and 2020, 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, 2021, including the related notes and financial statement
schedule listed in the index appearing 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, 2021, 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, 2021 and 2020, and the results of its operations and its cash flows for each of the three
years in the period ended June 30, 2021 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, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the
COSO.
Changes in Accounting Principles
As discussed in Note 1 to the consolidated financial statements, the Company changed the manner in which it accounts for
current expected credit losses in 2021, the manner in which it accounts for leases in 2020 and the manner in which it accounts
for revenue from contracts with customers in 2019.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining effective internal
control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included
in Management’s Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express
opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting
based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United
States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities
laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement,
whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material
respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement
of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.
Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated
financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal
control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the
risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based
on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the
circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures
113
that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial
statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or
disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or
complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated
financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate
opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Uncertain Tax Position Related to the Ongoing Israeli Tax Authority Matter
As described in Notes 1 and 14 to the consolidated financial statements, the Company has recorded liabilities for uncertain tax
positions of $149.6 million as of June 30, 2021, which includes a liability for an uncertain tax position arising from a tax
assessment and subsequent Tax Decrees received from the Israel Tax Authority (“ITA”). The calculation of the Company’s tax
liability associated with the ongoing ITA matter involves dealing with uncertainties in the application of complex tax
regulations. Management recognizes 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.
Management re-evaluates uncertain tax positions on a quarterly basis. This evaluation is based on factors including, but not
limited to changes in facts or circumstances, changes in tax law, effectively settled issues under audit and new audit activity.
The principal considerations for our determination that performing procedures relating to the uncertain tax position related to
the ongoing ITA matter is a critical audit matter are (i) the significant judgment by management when determining the uncertain
tax position and the application of complex tax regulations; (ii) a high degree of auditor judgment, subjectivity, and effort in
performing procedures and evaluating management’s timely identification and accurate measurement of the uncertain tax
position; and (iii) the evaluation of audit evidence available to support the tax liability for the uncertain tax position is complex
and resulted in significant auditor judgment as the nature of the evidence is often highly subjective.
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
identification and recognition of the liability for the uncertain tax position, controls addressing completeness of the uncertain
tax position, and controls over measurement of the liability. These procedures also included, among others (i) testing the
information used in the calculation of the liability for the uncertain tax position related to the ongoing ITA matter, including
evaluating international filing positions, the related final tax returns, and communications between the Company and the tax
authorities; (ii) testing the calculation of the liability, including management’s assessment of the technical merits of tax position
related to the ITA matter and estimates of the amount of tax benefit expected to be sustained for the matter; and (iii) testing the
completeness of management’s assessment of both the identification of the uncertain tax position and possible outcomes of
each uncertain tax position.
/s/ PricewaterhouseCoopers LLP
San Jose, California
August 6, 2021
We have served as the Company’s auditor since 1977.
114
SCHEDULE II
Valuation and Qualifying Accounts
(In thousands)
Fiscal Year Ended June 30, 2019:
Allowance for Credit Losses
Allowance for Deferred Tax Assets
Fiscal Year Ended June 30, 2020:
Allowance for Credit Losses
Allowance for Deferred Tax Assets
Fiscal Year Ended June 30, 2021:
Allowance for Credit Losses
Allowance for Deferred Tax Assets
Balance at
Beginning
of Period
Charged to
Expense
Deductions/
Adjustments
Balance
at End
of Period
$
$
$
$
$
$
11,639 $
163,570 $
364 $
— $
(2) $
3,001 $
12,001
166,571
12,001 $
166,571 $
(189) $
— $
10 $
15,275 $
11,822
181,846
11,822 $
181,846 $
2,246 $
2,650 $
3,968 $
19,937 $
18,036
204,433
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 9A.
CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
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 of 1934, as amended (the “Exchange Act”)
(“Disclosure Controls”) as of the end of the period covered by this Annual Report on Form 10-K (this “Report”) required by
Exchange Act Rules 13a-15(b) or 15d-15(b). The 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, 2021, 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 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.
Definition of Disclosure Controls
Disclosure Controls are controls and procedures designed to reasonably assure that information required to be disclosed
in our reports filed or submitted under the Exchange Act, such as this Report, is recorded, processed, summarized and reported
within the time periods specified in the SEC’s rules and forms. Disclosure Controls are also designed to reasonably assure that
such information is accumulated and communicated to 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.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as
defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Under the supervision and with the participation of 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 Internal Control—Integrated Framework (2013) 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, 2021.
115
The effectiveness of our internal control over financial reporting as of June 30, 2021 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.
Limitations on the Effectiveness of Controls
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.
Changes in Internal Control over Financial Reporting
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 Exchange Act that occurred during the fourth quarter of the fiscal year ended
June 30, 2021 that have materially affected, or is reasonably likely to materially affect, our internal control over financial
reporting.
ITEM 9B.
OTHER INFORMATION
None.
ITEM 9C.
DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not applicable.
PART III
ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
For the information required by this Item, see “Information About the Board of Directors and its Committees—Nominees
for Election at the 2021 Annual Meeting,” “Information About Executive Officers,” “Our Corporate Governance Practices—
Standards of Business Conduct; Whistleblower Hotline and Website,” “Information About the Board of Directors and Its
Committees” 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.
ITEM 11.
EXECUTIVE COMPENSATION
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,” 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.
ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
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.
116
ITEM 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
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.
ITEM 14.
PRINCIPAL ACCOUNTANT FEES AND SERVICES
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, 2022” in the Proxy Statement,
which is incorporated herein by reference.
PART IV
ITEM 15.
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) The following documents are filed as part of this Annual Report on Form 10-K:
1. Financial Statements:
The following financial statements and schedules of the Registrant are contained in Item 8, “Financial Statements and
Supplementary Data” of this Annual Report on Form 10-K:
Consolidated Balance Sheets as of June 30, 2021 and June 30, 2020
Consolidated Statements of Operations for each of the three years in the period ended June 30, 2021
Consolidated Statements of Comprehensive Income for each of the three years in the period ended June 30, 2021
Consolidated Statements of Stockholders’ Equity for each of the three years in the period ended June 30, 2021
Consolidated Statements of Cash Flows for each of the three years in the period ended June 30, 2021
Notes to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
2. Financial Statement Schedule:
61
62
63
64
65
67
113
The following financial statement schedule of the Registrant is filed as part of this Annual Report on Form 10-K and
should be read in conjunction with the financial statements:
Schedule II—Valuation and Qualifying Accounts for the years ended June 30, 2021, 2020 and 2019
115
All other schedules are omitted because they are either not applicable or the required information is shown in the
Consolidated Financial Statements or notes thereto.
3. Exhibits
The information required by this item is set forth below.
117
Exhibit
Number
3.1
3.2
4.1
4.2
4.3
4.4
4.5
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
Exhibit Description
Restated Certificate of Incorporation
Amended and Restated Bylaws
Indenture dated November 6, 2014 between
KLA-Tencor Corporation and Wells Fargo
Bank, National Association, as trustee
Form of Officer’s Certificate setting forth the
terms of the Notes (with form of Notes
attached)
Form of Officer’s Certificate setting forth the
terms of the 4.100% Senior Notes due 2029
and 5.000% Senior Notes due 2049 (with
form of Notes attached)
Form of Officer’s Certificate setting forth the
terms of the 3.300% Senior Notes due 2050
(with form of Notes attached)
Description of the Registrant's securities
registered under Section 12 of the Securities
Act of 1934
2004 Equity Incentive Plan (as amended and
restated (as of November 7, 2018))*
Form of Restricted Stock Unit Award
Notification (Performance-Vesting)*
Form of Restricted Stock Unit Award
Notification (Service-Vesting)*
Executive Deferred Savings Plan (as
amended and restated effective July 31,
2019)*
Credit Agreement, dated as of November 30,
2017 among KLA-Tencor Corporation, the
lenders from time to time and JPMorgan
Chase Bank, N.A., as administrative agent
Amended and Restated Executive Severance
Plan*
Amended and Restated 2010 Executive
Severance Plan*
Calendar Year 2021 Executive Incentive
Plan*+
Incremental Facility, Extension and
Amendment Agreement, dated as of
November 2, 2018 by and among the
registrant, the subsidiary guarantors party
thereto, the lenders party thereto and
JPMorgan Chase Bank, N.A., as
administrative agent
10.10
21.1
23.1
31.1
Offer Letter dated August 20, 2020 by and
between KLA Corporation and Mary Beth
Wilkinson*
List of Subsidiaries
Consent of Independent Registered Public
Accounting Firm
Certification of Chief Executive Officer
under Rule 13a-14(a) of the Securities
Exchange Act of 1934
Incorporated by Reference
Form
10-K
8-K
8-K
File No.
No. 000-09992
No. 000-09992
No. 000-09992
Exhibit
Number
3.1
3.1
4.1
Filing Date
August 16, 2019
May 7, 2021
November 7, 2014
8-K
No. 000-09992
4.2
November 7, 2014
8-K
No. 000-09992
4.2
March 20, 2019
8-K
No. 000-09992
4.2
March 3, 2020
10-Q
No. 000-09992
4.1
October 30, 2020
S-8
No. 228283
10.1
November 8, 2018
10-K
No. 000-09992
10.9
August 16, 2019
8-K
No. 000-09992
10.1
November 30, 2017
8-K
No. 000-09992
10.1
October 20, 2016
10-Q
No. 000-09992
10.45
October 22, 2015
10-Q
No. 000-09992
10.1
April 30, 2021
8-K
No. 000-09992
10.1
November 8, 2018
10-Q
No. 000-09992
10.1
October 30, 2020
118
Incorporated by Reference
Form
File No.
Exhibit
Number
Filing Date
Exhibit
Number
31.2
32
Exhibit Description
Certification of Chief Financial Officer under
Rule 13a-14(a) of the Securities Exchange
Act of 1934
Certification of Chief Executive Officer and
Chief Financial Officer Pursuant to 18 U.S.C.
Section 1350^
101.INS XBRL Instance Document - the instance
document does not appear in the Interactive
Data File because its XBRL tags are
embedded within the Inline XBRL document.
101.SCH XBRL Taxonomy Extension Schema
Document
101.CAL XBRL Taxonomy Extension Calculation
Linkbase Document
101.DEF XBRL Taxonomy Extension Definition
Linkbase Document
101.LAB XBRL Taxonomy Extension Label Linkbase
Document
101.PRE XBRL Taxonomy Extension Presentation
Linkbase Document
__________________
*
+
^
Denotes a management contract, plan or arrangement.
Certain portions of this document that constitute confidential information have been redacted in accordance with
Regulation S-K, Item 601(b)(10).
Furnished herewith
ITEM 16.
FORM 10-K SUMMARY
None.
119
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.
SIGNATURES
August 5, 2021
(Date)
KLA Corporation
By:
/S/ RICHARD P. WALLACE
Richard P. Wallace
President and Chief Executive Officer
120
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.
121
Signature
Title
Date
/s/ RICHARD P. WALLACE
Richard P. Wallace
President, Chief Executive Officer and Director
(principal executive officer)
August 5, 2021
/s/ BREN D. HIGGINS
Bren D. Higgins
Executive Vice President and Chief Financial
Officer (principal financial officer)
August 5, 2021
/s/ VIRENDRA A. KIRLOSKAR
Virendra A. Kirloskar
/s/ EDWARD W. BARNHOLT
Edward W. Barnholt
/s/ ROBERT M. CALDERONI
Robert M. Calderoni
/s/ JENEANNE HANLEY
Jeneanne Hanley
/s/ EMIKO HIGASHI
Emiko Higashi
/s/ KEVIN J. KENNEDY
Kevin J. Kennedy
Gary B. Moore
/s/ MARIE MYERS
Marie Myers
/s/ KIRAN M. PATEL
Kiran M. Patel
/s/ VICTOR PENG
Victor Peng
/s/ ROBERT A. RANGO
Robert A. Rango
Senior Vice President and Chief Accounting
Officer (principal accounting officer)
August 5, 2021
Chairman of the Board and Director
August 5, 2021
August 5, 2021
August 5, 2021
August 5, 2021
August 5, 2021
August 5, 2021
August 5, 2021
August 6, 2021
August 5, 2021
Director
Director
Director
Director
Director
Director
Director
Director
Director
122
BOARD OF DIRECTORS
(as of September 24, 2021)
EXECUTIVE OFFICERS
(as of September 24, 2021)
Richard Wallace
President and CEO
Bren Higgins
EVP and Chief Financial Officer
Mary Beth Wilkinson
EVP, Chief Legal Officer and
Corporate Secretary
Ahmad Khan
President, Semiconductor Process
Control
Virendra Kirloskar
SVP and Chief Accounting Officer
Brian Lorig
EVP, Global Support and Services
Oreste Donzella
EVP, Electronics, Packaging and Com-
ponents
Edward Barnholt
Chairman of the Board
KLA Corporation
Robert Calderoni
Chairman of the Board
Citrix Systems, Inc.
Jeneanne Hanley
Former SVP and President
E-Systems Division
Lear Corporation
Emiko Higashi
Managing Director and Founder
Tohmon Capital Partners, LLC
Kevin Kennedy
Chief Executive Officer Quanergy
Systems, Inc.
Gary Moore
Chief Executive Officer ServiceSource
International, Inc.
Marie Myers
Chief Financial Officer HP Inc.
Kiran Patel
Former EVP and GM
Small Business Group
Intuit, Inc.
Victor Peng
President and CEO
Xilinx, Inc.
Robert Rango
President and CEO
Enevate Corporation
Richard Wallace
President and CEO
KLA Corporation
CORPORATE HEADQUARTERS
One Technology Drive
Milpitas, California 95035 408.875.3000
www.kla.com
GLOBAL OFFICES
KLA has offices around the globe. For a
complete list of locations go to: www.
kla.com/locations
INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
PricewaterhouseCoopers LLP
San Jose, California
TRANSFER AGENT/REGISTRAR
Computershare Investor Services
462 South 4th Street, Suite 1600
Louisville, Kentucky
STOCK SYMBOL
KLAC
Nasdaq Global Select Market
Additional copies of this report may be
obtained by calling Investor
Relations at 408.875.3000