UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


FORM			10-Q


(Mark one)
☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~March 31,~~September 30, 2022


☐			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

04-2564110

(State or other jurisdiction of
incorporation or organization)

(I.R.S. Employer
Identification No.)

One Technology Drive,

Milpitas,

California

95035

(Address of Principal Executive Offices)

(Zip Code)

(408) 875-3000

(Registrant’s telephone number, including area code)

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

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 ☒ No ☐

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 ☒ No ☐

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

☒

Accelerated filer

☐

Non-accelerated filer

☐

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 is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of ~~April 18,~~October 17, 2022, there were ~~149,235,049~~141,718,327 shares of the registrant’s Common Stock, $0.001 par value per share, outstanding.

Table of Contents

INDEX


		Page Number

PART I	FINANCIAL INFORMATION
Item 11.	Financial Statements (Unaudited)
	Condensed Consolidated Balance Sheets as of ~~March 31,~~September 30, 2022 and June 30, ~~2021~~2022	3
	Condensed Consolidated Statements of Operations for the Three ~~Months and~~ ~~Nine~~ Months Ended ~~March 31,~~September 30, 2022 and 2021	4
	Condensed Consolidated Statements of Comprehensive Income for the Three Months ~~and Nine Months~~ Ended ~~March 31,~~September 30, 2022 and 2021	5
	Condensed Consolidated Statements of Stockholders’ Equity for the Three Months ~~and~~ ~~Nine Months~~ Ended ~~March 31,~~September 30, 2022 and 2021	6
	Condensed Consolidated Statements of Cash Flows for the ~~Nine~~Three Months Ended ~~March 31,~~September 30, 2022 and 2021	87
	Notes to Condensed Consolidated Financial Statements	98
Item 22.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	4036
Item 33.	Quantitative and Qualitative Disclosures About Market Risk	5348
Item 44.	Controls and Procedures	5449

PART II	OTHER INFORMATION
Item 11.	Legal Proceedings	5550
Item 1A1A.	Risk Factors	5550
Item 22.	Unregistered Sales of Equity Securities and Use of Proceeds	7470
Item 33.	Defaults Upon Senior Securities	7470
Item 44.	Mine Safety Disclosures	7470
Item 55.	Other Information	7470
Item 66.	Exhibits	7571

SIGNATURES		7672

Table of Contents

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

KLA CORPORATION

Condensed Consolidated Balance Sheets

(Unaudited)


(In thousands)	(In thousands)	March 31, 2022		June 30, 2021		(In thousands)	September 30, 2022		June 30, 2022
ASSETS	ASSETS					ASSETS
Current assets:	Current assets:					Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	1,415,172	$	1,434,610	Cash and cash equivalents	$	1,819,280	$	1,584,908
Marketable securities	Marketable securities	1,162,724		1,059,912		Marketable securities	1,134,240		1,123,100
Accounts receivable, net	Accounts receivable, net	1,618,867		1,305,479		Accounts receivable, net	1,857,320		1,811,877
Inventories	Inventories	1,982,297		1,575,380		Inventories	2,408,325		2,146,889
Other current assets	Other current assets	403,657		320,867		Other current assets	424,774		502,137
Total current assets	Total current assets	6,582,717		5,696,248		Total current assets	7,643,939		7,168,911
Land, property and equipment, net	Land, property and equipment, net	808,874		663,027		Land, property and equipment, net	913,002		849,929
Goodwill	Goodwill	2,314,471		2,011,172		Goodwill	2,278,827		2,320,049
Deferred income taxes	Deferred income taxes	614,957		270,461		Deferred income taxes	662,408		579,173
Purchased intangible assets, net	Purchased intangible assets, net	1,255,672		1,185,311		Purchased intangible assets, net	1,131,445		1,194,414
Other non-current assets	Other non-current assets	441,121		444,905		Other non-current assets	494,031		484,612
Total assets	Total assets	$	12,017,812	$	10,271,124	Total assets	$	13,123,652	$	12,597,088
LIABILITIES, NON-CONTROLLING INTEREST AND STOCKHOLDERS’ EQUITY	LIABILITIES, NON-CONTROLLING INTEREST AND STOCKHOLDERS’ EQUITY					LIABILITIES, NON-CONTROLLING INTEREST AND STOCKHOLDERS’ EQUITY
Current liabilities:	Current liabilities:					Current liabilities:
Accounts payable	Accounts payable	$	424,128	$	342,083	Accounts payable	$	479,707	$	443,338
Deferred system revenue	Deferred system revenue	428,723		295,192		Deferred system revenue	440,477		500,969
Deferred service revenue	Deferred service revenue	350,429		284,936		Deferred service revenue	362,832		381,737
Short-term debt		—		20,000

Other current liabilities	Other current liabilities	1,625,703		1,161,016		Other current liabilities	1,856,348		1,545,039
Total current liabilities	Total current liabilities	2,828,983		2,103,227		Total current liabilities	3,139,364		2,871,083
Long-term debt	Long-term debt	3,699,799		3,422,767		Long-term debt	6,312,749		6,660,718
Deferred tax liabilities	Deferred tax liabilities	660,816		650,623		Deferred tax liabilities	557,832		658,937
Deferred service revenue	Deferred service revenue	107,424		87,575		Deferred service revenue	129,861		124,618
Other non-current liabilities	Other non-current liabilities	642,166		631,290		Other non-current liabilities	881,772		882,642
Total liabilities	Total liabilities	7,939,188		6,895,482		Total liabilities	11,021,578		11,197,998
Commitments and contingencies (Notes 9, 14 and 15)	Commitments and contingencies (Notes 9, 14 and 15)	0		0		Commitments and contingencies (Notes 9, 14 and 15)
Stockholders’ equity:	Stockholders’ equity:					Stockholders’ equity:
Common stock and capital in excess of par value	Common stock and capital in excess of par value	2,179,229		2,175,988		Common stock and capital in excess of par value	1,041,948		1,061,940
Retained earnings	Retained earnings	1,972,611		1,277,123		Retained earnings	1,118,967		366,882
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(71,533)		(75,557)		Accumulated other comprehensive loss	(58,841)		(27,471)
Total KLA stockholders’ equity	Total KLA stockholders’ equity	4,080,307		3,377,554		Total KLA stockholders’ equity	2,102,074		1,401,351
Non-controlling interest in consolidated subsidiaries	Non-controlling interest in consolidated subsidiaries	(1,683)		(1,912)		Non-controlling interest in consolidated subsidiaries	—		(2,261)
Total stockholders’ equity	Total stockholders’ equity	4,078,624		3,375,642		Total stockholders’ equity	2,102,074		1,399,090
Total liabilities and stockholders’ equity	Total liabilities and stockholders’ equity	$	12,017,812	$	10,271,124	Total liabilities and stockholders’ equity	$	13,123,652	$	12,597,088

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

Table of Contents

KLA CORPORATION

Condensed Consolidated Statements of Operations

(Unaudited)


		Three Months Ended March 31,				Nine Months Ended March 31,					Three Months Ended September 30,
(In thousands, except per share amounts)	(In thousands, except per share amounts)	2022		2021		2022		2021		(In thousands, except per share amounts)	2022		2021
Revenues:	Revenues:									Revenues:
Product	Product	$	1,800,659	$	1,375,320	$	5,326,316	$	3,758,838	Product	$	2,195,609	$	1,629,888
Service	Service	488,017		428,453		1,398,828		1,234,425		Service	528,815		453,950
Total revenues	Total revenues	2,288,676		1,803,773		6,725,144		4,993,263		Total revenues	2,724,424		2,083,838
Costs and expenses:	Costs and expenses:									Costs and expenses:
Costs of revenues	Costs of revenues	892,091		709,629		2,613,877		1,999,924		Costs of revenues	1,041,226		813,624
Research and development	Research and development	285,189		238,957		808,373		687,059		Research and development	318,515		258,153
Selling, general and administrative	Selling, general and administrative	216,489		183,040		623,229		537,580		Selling, general and administrative	253,980		193,261

Interest expense	Interest expense	39,978		39,092		116,142		117,358		Interest expense	74,395		38,312

Loss on extinguishment of debt										Loss on extinguishment of debt	13,286		—
Other expense (income), net	Other expense (income), net	8,644		(7,348)		23,985		(269)		Other expense (income), net	(47,006)		14,140
Income before income taxes	Income before income taxes	846,285		640,403		2,539,538		1,651,611		Income before income taxes	1,070,028		766,348
Provision for income taxes		115,625		73,233		22,876		207,316
Provision (benefit) for income taxes										Provision (benefit) for income taxes	43,963		(302,137)

Net income	Net income	730,660		567,170		2,516,662		1,444,295		Net income	1,026,065		1,068,485
Less: Net income (loss) attributable to non-controlling interest		88		(326)		229		(1,019)
Less: Net loss attributable to non-controlling interest										Less: Net loss attributable to non-controlling interest	74		68
Net income attributable to KLA	Net income attributable to KLA	$	730,572	$	567,496	$	2,516,433	$	1,445,314	Net income attributable to KLA	$	1,025,991	$	1,068,417
Net income per share attributable to KLA	Net income per share attributable to KLA									Net income per share attributable to KLA
Basic	Basic	$	4.87	$	3.69	$	16.64	$	9.36	Basic	$	7.23	$	7.01
Diluted	Diluted	$	4.83	$	3.66	$	16.52	$	9.28	Diluted	$	7.20	$	6.96
Weighted-average number of shares:	Weighted-average number of shares:									Weighted-average number of shares:
Basic	Basic	150,145		153,801		151,250		154,457		Basic	141,829		152,330
Diluted	Diluted	151,186		155,159		152,346		155,789		Diluted	142,563		153,410

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

Table of Contents

KLA CORPORATION

Condensed Consolidated Statements of Comprehensive Income

(Unaudited)


		Three Months Ended March 31,				Nine Months Ended March 31,					Three Months Ended September 30,
(In thousands)	(In thousands)	2022		2021		2022		2021		(In thousands)	2022		2021
Net income	Net income	$	730,660	$	567,170	$	2,516,662	$	1,444,295	Net income	$	1,026,065	$	1,068,485
Other comprehensive income (loss):	Other comprehensive income (loss):									Other comprehensive income (loss):
Currency translation adjustments:	Currency translation adjustments:									Currency translation adjustments:
Cumulative currency translation adjustments	Cumulative currency translation adjustments	413		(2,079)		(3,733)		12,262		Cumulative currency translation adjustments	(19,712)		(2,755)
Income tax (provision) benefit		870		(417)		1,265		(1,607)
Income tax benefit										Income tax benefit	—		317
Net change related to currency translation adjustments	Net change related to currency translation adjustments	1,283		(2,496)		(2,468)		10,655		Net change related to currency translation adjustments	(19,712)		(2,438)
Cash flow hedges:	Cash flow hedges:									Cash flow hedges:
Net unrealized gains arising during the period	Net unrealized gains arising during the period	17,777		5,824		25,370		3,550		Net unrealized gains arising during the period	1,768		852
Reclassification adjustments for net (gains) losses included in net income		(992)		675		(3,122)		1,736
Income tax provision		(4,023)		(1,629)		(5,047)		(1,369)
Reclassification adjustments for net gains included in net income										Reclassification adjustments for net gains included in net income	(10,175)		(1,218)
Income tax (provision) benefit										Income tax (provision) benefit	1,188		(61)
Net change related to cash flow hedges	Net change related to cash flow hedges	12,762		4,870		17,201		3,917		Net change related to cash flow hedges	(7,219)		(427)
Net change related to unrecognized losses and transition obligations in connection with defined benefit plans	Net change related to unrecognized losses and transition obligations in connection with defined benefit plans	467		872		1,675		(2,626)		Net change related to unrecognized losses and transition obligations in connection with defined benefit plans	891		628
Available-for-sale securities:	Available-for-sale securities:									Available-for-sale securities:
Net unrealized losses arising during the period	Net unrealized losses arising during the period	(12,270)		(1,268)		(15,860)		(3,130)		Net unrealized losses arising during the period	(6,964)		(317)
Reclassification adjustments for net (gains) losses included in net income	Reclassification adjustments for net (gains) losses included in net income	88		(25)		90		(238)		Reclassification adjustments for net (gains) losses included in net income	174		(1)
Income tax benefit	Income tax benefit	2,616		278		3,386		723		Income tax benefit	1,460		68
Net change related to available-for-sale securities	Net change related to available-for-sale securities	(9,566)		(1,015)		(12,384)		(2,645)		Net change related to available-for-sale securities	(5,330)		(250)
Other comprehensive income		4,946		2,231		4,024		9,301
Less: Comprehensive income (loss) attributable to non-controlling interest		88		(326)		229		(1,019)
Other comprehensive loss										Other comprehensive loss	(31,370)		(2,487)
Less: Comprehensive loss attributable to non-controlling interest										Less: Comprehensive loss attributable to non-controlling interest	74		68
Total comprehensive income attributable to KLA	Total comprehensive income attributable to KLA	$	735,518	$	569,727	$	2,520,457	$	1,454,615	Total comprehensive income attributable to KLA	$	994,621	$	1,065,930

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

Table of Contents

KLA CORPORATION

Condensed Consolidated Statements of Stockholders’ Equity

(Unaudited)


		Common Stock and Capital in Excess of Par Value			Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total KLA Stockholders’ Equity		Non- Controlling Interest		Total Stockholders’ Equity			Common Stock and Capital in Excess of Par Value			Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total KLA Stockholders’ Equity		Non- Controlling Interest		Total Stockholders’ Equity
(In thousands, except per share amounts)	(In thousands, except per share amounts)	Shares	Amount												(In thousands, except per share amounts)	Shares	Amount
Balances as of June 30, 2021		152,776	$	2,175,988	$	1,277,123	$	(75,557)	$	3,377,554	$	(1,912)	$	3,375,642
Balances as of June 30, 2022															Balances as of June 30, 2022	141,804	$	1,061,940	$	366,882	$	(27,471)	$	1,401,351	$	(2,261)	$	1,399,090

Net income attributable to KLA	Net income attributable to KLA	—	—		1,068,417		—		1,068,417		—		1,068,417		Net income attributable to KLA	—	—		1,025,991		—		1,025,991		—		1,025,991

Net income attributable to non-controlling interest	Net income attributable to non-controlling interest	—	—		—		—		—		68		68		Net income attributable to non-controlling interest	—	—		—		—		—		74		74
Other comprehensive loss	Other comprehensive loss	—	—		—		(2,487)		(2,487)		—		(2,487)		Other comprehensive loss	—	—		—		(31,370)		(31,370)		—		(31,370)

Net issuance under employee stock plans	Net issuance under employee stock plans	160	(46,532)		—		—		(46,532)		—		(46,532)		Net issuance under employee stock plans	171	(54,950)		—		—		(54,950)		—		(54,950)
Repurchase of common stock	Repurchase of common stock	(1,190)	(16,966)		(382,711)		—		(399,677)		—		(399,677)		Repurchase of common stock	(257)	(1,926)		(87,690)		—		(89,616)		—		(89,616)
Cash dividends ($1.05 per share) and dividend equivalents declared		—	—		(161,561)		—		(161,561)		—		(161,561)
Cash dividends ($1.30 per share) and dividend equivalents declared															Cash dividends ($1.30 per share) and dividend equivalents declared	—	—		(186,216)		—		(186,216)		—		(186,216)

Stock-based compensation expense	Stock-based compensation expense	—	25,216		—		—		25,216		—		25,216		Stock-based compensation expense	—	34,982		—		—		34,982		—		34,982
Balances as of September 30, 2021		151,746	2,137,706		1,801,268		(78,044)		3,860,930		(1,844)		3,859,086
Net income attributable to KLA		—	—		717,444		—		717,444		—		717,444
Purchase of non-controlling interest															Purchase of non-controlling interest	—	1,902		—		—		1,902		(6,196)		(4,294)
Disposal of non-controlling interest															Disposal of non-controlling interest	—	—		—		—		—		8,383		8,383
Balances as of September 30, 2022															Balances as of September 30, 2022	141,718	$	1,041,948	$	1,118,967	$	(58,841)	$	2,102,074	$	—	$	2,102,074

Net income attributable to non-controlling interest		—	—		—		—		—		73		73
Other comprehensive income		—	—		—		1,565		1,565		—		1,565

Net issuance under employee stock plans		205	31,157		—		—		31,157		—		31,157
Repurchase of common stock		(1,104)	(15,604)		(414,270)		—		(429,874)		—		(429,874)
Cash dividends ($1.05 per share) and dividend equivalents declared		—	—		(160,461)		—		(160,461)		—		(160,461)

Stock-based compensation expense		—	27,766		—		—		27,766		—		27,766
Balances as of December 31, 2021		150,847	2,181,025		1,943,981		(76,479)		4,048,527		(1,771)		4,046,756
Net income attributable to KLA		—	—		730,572		—		730,572		—		730,572

Net income attributable to non-controlling interest		—	—		—		—		—		88		88
Other comprehensive income		—	—		—		4,946		4,946		—		4,946

Net issuance under employee stock plans		67	(16,661)		—		—		(16,661)		—		(16,661)
Repurchase of common stock		(1,539)	(22,222)		(542,444)		—		(564,666)		—		(564,666)
Cash dividends ($1.05 per share) and dividend equivalents declared		—	—		(159,498)		—		(159,498)		—		(159,498)

Stock-based compensation expense		—	37,087		—		—		37,087		—		37,087

Balances as of March 31, 2022		149,375	$	2,179,229	$	1,972,611	$	(71,533)	$	4,080,307	$	(1,683)	$	4,078,624

~~Table of Contents~~

Common Stock and
Capital in Excess of
Par Value Retained
Earnings Accumulated
Other
Comprehensive
Income (Loss)
Total KLA
Stockholders’
Equity
Non-
Controlling
Interest
Total
Stockholders’
Equity
(In thousands, except per share amounts) Shares Amount
Balances as of June 30, 2020 155,461 $ 2,090,268 $ 654,930 $ (79,774) $ 2,665,424 $ 15,586 $ 2,681,010
Adoption of ASC 326 — — (5,530) — (5,530) — (5,530)
Net income attributable to KLA — — 420,567 — 420,567 — 420,567
Net loss attributable to non-controlling interest — — — — — (425) (425)
Other comprehensive income — — — 328 328 — 328
Net issuance under employee stock plans 172 (25,145) — — (25,145) — (25,145)
Repurchase of common stock (1,027) (19,400) (174,497) — (193,897) — (193,897)
Cash dividends ($0.90 per share) and dividend equivalents declared — — (141,555) — (141,555) — (141,555)
Stock-based compensation expense — 26,992 — — 26,992 — 26,992
Balances as of September 30, 2020 154,606 2,072,715 753,915 (79,446) 2,747,184 15,161 2,762,345
Net income attributable to KLA — — 457,251 — 457,251 — 457,251
Net loss attributable to non-controlling interest — — — — — (268) (268)
Other comprehensive income — — — 6,742 6,742 — 6,742
Net issuance under employee stock plans 329 15,356 — — 15,356 — 15,356
Repurchase of common stock (774) (10,477) (167,015) — (177,492) — (177,492)
Cash dividends ($0.90 per share) and dividend equivalents declared — — (140,455) — (140,455) — (140,455)
Stock-based compensation expense — 26,596 — — 26,596 231 26,827
Balances as of December 31, 2020 154,161 2,104,190 903,696 (72,704) 2,935,182 15,124 2,950,306
Net income attributable to KLA — — 567,496 — 567,496 — 567,496
Net loss attributable to non-controlling interest — — — — — (326) (326)
Other comprehensive income — — — 2,231 2,231 — 2,231
Net issuance under employee stock plans 104 (6,674) — — (6,674) — (6,674)
Repurchase of common stock (906) (12,431) (261,010) — (273,441) — (273,441)
Cash dividends ($0.90 per share) and dividend equivalents declared — — (140,058) — (140,058) — (140,058)
Stock-based compensation expense — 30,120 — — 30,120 207 30,327
Net issuance on exercise of options by non-controlling interest — — — — — 127 127
Disposal of non-controlling interest — — — — — (17,124) (17,124)
Balances as of March 31, 2021 153,359 $ 2,115,205 $ 1,070,124 $ (70,473) $ 3,114,856 $ (1,992) $ 3,112,864


	Common Stock and Capital in Excess of Par Value			Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total KLA Stockholders’ Equity		Non- Controlling Interest		Total Stockholders’ Equity
(In thousands, except per share amounts)	Shares	Amount
Balances as of June 30, 2021	152,776	$	2,175,988	$	1,277,123	$	(75,557)	$	3,377,554	$	(1,912)	$	3,375,642

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




Net income attributable to non-controlling interest	—	—		—		—		—		68		68
Other comprehensive loss	—	—		—		(2,487)		(2,487)		—		(2,487)
Net issuance under employee stock plans	160	(46,532)		—		—		(46,532)		—		(46,532)
Repurchase of common stock	(1,190)	(16,966)		(382,711)		—		(399,677)		—		(399,677)
Cash dividends ($1.05 per share) and dividend equivalents declared	—	—		(161,561)		—		(161,561)		—		(161,561)
Stock-based compensation expense	—	25,216		—		—		25,216		—		25,216
Balances as of September 30, 2021	151,746	$	2,137,706	$	1,801,268	$	(78,044)	$	3,860,930	$	(1,844)	$	3,859,086

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

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KLA CORPORATION

Condensed Consolidated Statements of Cash Flows

(Unaudited)


		Nine Months Ended March 31,					Three Months Ended September 30,
(In thousands)	(In thousands)	2022		2021		(In thousands)	2022		2021
Cash flows from operating activities:	Cash flows from operating activities:					Cash flows from operating activities:
Net income	Net income	$	2,516,662	$	1,444,295	Net income	$	1,026,065	$	1,068,485
Adjustments to reconcile net income to net cash provided by operating activities:	Adjustments to reconcile net income to net cash provided by operating activities:					Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization	Depreciation and amortization	262,496		248,688		Depreciation and amortization	101,938		84,824

Unrealized foreign exchange (gain) loss and other		14,669		(13,339)
Loss on extinguishment of debt						Loss on extinguishment of debt	13,286		—
Unrealized foreign exchange loss and other						Unrealized foreign exchange loss and other	1,783		15,639
Asset impairment charges	Asset impairment charges	5,962		842		Asset impairment charges	9,156		5,962
Disposal of non-controlling interest						Disposal of non-controlling interest	8,270		—
Stock-based compensation expense	Stock-based compensation expense	90,069		84,146		Stock-based compensation expense	34,982		25,216
Gain on sale of business	Gain on sale of business	—		(4,422)		Gain on sale of business	(29,687)		—

Deferred income taxes	Deferred income taxes	(382,975)		(39,658)		Deferred income taxes	(156,226)		(427,970)
Changes in assets and liabilities, net of assets acquired and liabilities assumed in business acquisitions:	Changes in assets and liabilities, net of assets acquired and liabilities assumed in business acquisitions:					Changes in assets and liabilities, net of assets acquired and liabilities assumed in business acquisitions:
Accounts receivable	Accounts receivable	(318,271)		(101,134)		Accounts receivable	(55,073)		(180,354)
Inventories	Inventories	(396,403)		(146,375)		Inventories	(265,530)		(138,189)
Other assets	Other assets	(23,729)		(32,480)		Other assets	45,637		4,673
Accounts payable	Accounts payable	82,376		30,952		Accounts payable	36,472		41,868
Deferred system revenue	Deferred system revenue	141,122		(3,775)		Deferred system revenue	(60,492)		33,469
Deferred service revenue	Deferred service revenue	81,216		10,076		Deferred service revenue	(12,411)		4,912
Other liabilities	Other liabilities	420,279		241,586		Other liabilities	313,375		325,262
Net cash provided by operating activities	Net cash provided by operating activities	2,493,473		1,719,402		Net cash provided by operating activities	1,011,545		863,797
Cash flows from investing activities:	Cash flows from investing activities:					Cash flows from investing activities:
Proceeds from sale of assets		—		1,855
Proceeds from sale of business		—		16,833

Net proceeds from sale of business						Net proceeds from sale of business	75,358		—
Business acquisitions, net of cash acquired	Business acquisitions, net of cash acquired	(470,887)		—		Business acquisitions, net of cash acquired	(27,144)		(37,986)
Capital expenditures	Capital expenditures	(234,160)		(176,252)		Capital expenditures	(84,352)		(68,955)
Purchases of available-for-sale securities	Purchases of available-for-sale securities	(733,386)		(795,124)		Purchases of available-for-sale securities	(256,793)		(264,000)
Proceeds from sale of available-for-sale securities	Proceeds from sale of available-for-sale securities	67,505		125,774		Proceeds from sale of available-for-sale securities	26,608		14,954
Proceeds from maturity of available-for-sale securities	Proceeds from maturity of available-for-sale securities	524,677		418,447		Proceeds from maturity of available-for-sale securities	211,465		178,414
Purchases of trading securities	Purchases of trading securities	(101,342)		(83,866)		Purchases of trading securities	(19,512)		(22,896)
Proceeds from sale of trading securities	Proceeds from sale of trading securities	95,734		84,919		Proceeds from sale of trading securities	19,875		25,163
Proceeds from other investments	Proceeds from other investments	795		614		Proceeds from other investments	1,020		—
Net cash used in investing activities	Net cash used in investing activities	(851,064)		(406,800)		Net cash used in investing activities	(53,475)		(175,306)
Cash flows from financing activities:	Cash flows from financing activities:					Cash flows from financing activities:
Payment of debt issuance costs						Payment of debt issuance costs	(6,515)		—

Proceeds from issuance of debt, net of issuance costs		—		40,343
Proceeds from revolving credit facility	Proceeds from revolving credit facility	600,000		—		Proceeds from revolving credit facility	300,000		300,000
Repayment of debt	Repayment of debt	(345,000)		(70,000)		Repayment of debt	(662,250)		(300,000)
Common stock repurchases	Common stock repurchases	(1,394,217)		(638,830)		Common stock repurchases	(89,846)		(399,677)
Payment of dividends to stockholders	Payment of dividends to stockholders	(480,926)		(420,086)		Payment of dividends to stockholders	(187,984)		(162,821)

Issuance of common stock	Issuance of common stock	36,912		26,356		Issuance of common stock	115		—
Tax withholding payments related to vested and released restricted stock units	Tax withholding payments related to vested and released restricted stock units	(68,948)		(42,819)		Tax withholding payments related to vested and released restricted stock units	(54,952)		(46,532)
Contingent consideration payable and other, net		(1,100)		—

Purchase of non-controlling interest						Purchase of non-controlling interest	(4,295)		—
Net cash used in financing activities	Net cash used in financing activities	(1,653,279)		(1,105,036)		Net cash used in financing activities	(705,727)		(609,030)
Effect of exchange rate changes on cash and cash equivalents	Effect of exchange rate changes on cash and cash equivalents	(8,568)		10,175		Effect of exchange rate changes on cash and cash equivalents	(17,971)		(4,507)
Net (decrease) increase in cash and cash equivalents		(19,438)		217,741
Net increase in cash and cash equivalents						Net increase in cash and cash equivalents	234,372		74,954
Cash and cash equivalents at beginning of period	Cash and cash equivalents at beginning of period	1,434,610		1,234,409		Cash and cash equivalents at beginning of period	1,584,908		1,434,610
Cash and cash equivalents at end of period	Cash and cash equivalents at end of period	$	1,415,172	$	1,452,150	Cash and cash equivalents at end of period	$	1,819,280	$	1,509,564
Supplemental cash flow disclosures:	Supplemental cash flow disclosures:					Supplemental cash flow disclosures:
Income taxes paid		$	355,176	$	214,606
Income taxes paid, net						Income taxes paid, net	$	101,061	$	57,532
Interest paid	Interest paid	$	116,791	$	116,976	Interest paid	$	44,216	$	39,717
Non-cash activities:	Non-cash activities:					Non-cash activities:

Contingent consideration (receivable) payable - financing activities		$	15,086	$	(8,570)
Contingent consideration payable - financing activities						Contingent consideration payable - financing activities	$	145	$	12,810
Dividends payable - financing activities	Dividends payable - financing activities	$	5,375	$	4,857	Dividends payable - financing activities	$	1,942	$	1,783
Unsettled common stock repurchase - financing activities	Unsettled common stock repurchase - financing activities	$	6,000	$	6,000	Unsettled common stock repurchase - financing activities	$	—	$	5,999

Accrued purchases of land, property and equipment - investing activities	Accrued purchases of land, property and equipment - investing activities	$	22,305	$	24,392	Accrued purchases of land, property and equipment - investing activities	$	34,027	$	22,962

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

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KLA CORPORATION

Notes to Condensed Consolidated Financial Statements

(Unaudited)

NOTE 1 – BASIS OF PRESENTATION

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

The unaudited interim Condensed Consolidated Financial Statements do not include all of the information and footnotes required by GAAP for audited financial statements. The balance sheet as of June 30, ~~2021~~2022 was derived from the Company’s audited Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended June 30, ~~2021~~2022 but does not include all disclosures required by GAAP for audited financial statements. The unaudited interim Condensed Consolidated Financial Statements reflect all adjustments (consisting only of normal, recurring adjustments) necessary for a fair statement of the financial position, results of operations, comprehensive income, stockholders’ equity and cash flows for the periods indicated. These Condensed Consolidated Financial Statements and notes, however, should be read in conjunction with Item 8 “Financial Statements and Supplementary Data” included in our Annual Report on Form 10-K for the fiscal year ended June 30, ~~2021.~~2022.

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

The results of operations for the three ~~and nine~~ months ended ~~March 31,~~September 30, 2022 are not necessarily indicative of the results that may be expected for any other interim period or for the full fiscal year ending June 30, ~~2022.~~2023.

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

Significant Accounting Policies. There have been no material changes to our significant accounting policies summarized in Note 1 “Description of Business and Summary of Significant Accounting Policies” to our Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended June 30, ~~2021.~~2022.

Recent Accounting Pronouncements

Recently Adopted

None

Updates Not Yet Effective

In October 2021, the Financial Accounting Standards Board ~~(“FASB”)~~ issued ~~authoritative~~Accounting Standards Update 2021-08, Business Combinations (Topic 805), Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. The new guidance ~~that~~ requires companies to apply revenue guidance to recognize and measure contract assets and contract liabilities from contracts with customers acquired in a business combination at carrying value. Under the current business combination guidance, such assets and liabilities are recognized by the acquirer at fair value on the acquisition date. This update is effective for us in the first quarter of our fiscal year ending June 30, 2024, and should be applied on a prospective basis. Early adoption is permitted. ~~We are currently evaluating the~~The impact of ~~this guidance on our condensed consolidated financial statements.~~

~~Recently Adopted~~

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

In August 2020, the FASB issued an ASU to simplify the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity. The standard eliminates beneficial conversion features and cash conversion models resulting in more convertible instruments being accounted for as a single unit, and modifies the guidancewill depend on the ~~computation~~magnitude of ~~earnings per share for convertible instruments~~contract assets and ~~contracts on an~~contract liabilities acquired in future acquisitions.

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entity’s own equity. We adopted this update beginning in the first quarter of our fiscal year ending June 30, 2022 on a modified retrospective basis and the adoption had no material impact on our Condensed Consolidated Financial Statements.

NOTE 2 – REVENUE

Contract Balances

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


		As of		As of							As of		As of
(Dollar amounts in thousands)	(Dollar amounts in thousands)	March 31, 2022		June 30, 2021		$ Change		% Change		(Dollar amounts in thousands)	September 30, 2022		June 30, 2022		$ Change		% Change
Accounts receivable, net	Accounts receivable, net	$	1,618,867	$	1,305,479	$	313,388	24	%	Accounts receivable, net	$	1,857,320	$	1,811,877	$	45,443	3	%
Contract assets	Contract assets	$	104,838	$	91,052	$	13,786	15	%	Contract assets	$	114,086	$	114,747	$	(661)	(1)	%
Contract liabilities	Contract liabilities	$	886,576	$	667,703	$	218,873	33	%	Contract liabilities	$	933,170	$	1,007,324	$	(74,154)	(7)	%

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

The change in contract assets during the ~~nine~~three months ended ~~March 31,~~September 30, 2022 was mainly due to ~~$80.3 million of revenue recognized for which the payment is subject to conditions other than passage of time, partially offset by $66.9~~$49.6 million of contract assets reclassified to net accounts receivable as our right to consideration for these contract assets became ~~unconditional.~~unconditional, largely offset by $49.3 million of revenue recognized for which the payment is subject to conditions other than passage of time. Contract assets are included in ~~Other~~other current assets on our Condensed Consolidated Balance Sheets.

The change in contract liabilities during the ~~nine~~three months ended ~~March 31,~~September 30, 2022 was mainly due to the recognition in revenue of $489.5 million that was included in contract liabilities as of June 30, 2022, partially offset by an increase ~~for~~in the value of products and services billed to customers for which control of the products and ~~service~~services has not transferred to the ~~customers, partially offset by the recognition in revenue of $495.8 million that was included in contract liabilities as of June 30, 2021.~~customers. The change in contract liabilities during the ~~nine~~three months ended ~~March 31,~~September 30, 2021 was mainly due to an increase ~~for~~in the value of products and services billed to customers for which control of the products and ~~service~~services has not transferred to the customers, partially offset by the recognition in revenue of ~~$498.7~~$303.0 million that was included in contract liabilities as of June 30, ~~2020.~~2021. Contract liabilities are included in current and non-current liabilities on our Condensed Consolidated Balance Sheets.

Remaining Performance Obligations

As of ~~March 31,~~September 30, 2022, we had ~~$10.55~~$13.65 billion of remaining performance obligations, which represents our obligation to deliver products and services, and primarily consists ~~primarily~~ of sales orders where written customer requests have been received. This amount excludes contract liabilities of $0.93 billion as described above. We expect to recognize approximately ~~30%~~45% to ~~45%~~55% of these performance obligations as revenue beyond the next 12 months, but this estimate is subject to constant change depending upon supply chain constraints, customer slot change requests and potential elevated demand levels, which could require even longer lead times. In October 2022, the U.S. government issued new regulations to control U.S. semiconductor and high-performance computing technology (including wafer fab equipment) and related support by U.S. persons to the People’s Republic of China (“China”). The regulations impose export license requirements effectively on all KLA products and services to customers located in China that fabricate certain advanced logic, NAND and DRAM integrated circuits (“IC”). KLA is also restricted from providing certain U.S. origin tools, software and technology to certain wafer fab equipment manufacturers and maskshops located in China, absent an export license. These regulations are complex, and we are working on assessing their potential impact. We are taking appropriate measures to comply with these regulations and are applying for export licenses, when required, to avoid disruption to our customers’ operations. While some export licenses have been obtained by us or our customers, there can be no assurance that export licenses applied for by either us or our customers will be granted.

Refer to Note 18 “Segment Reporting and Geographic Information” to our Condensed Consolidated Financial Statements for information related to revenues by geographic region as well as significant product and service offerings.

NOTE 3 – FAIR VALUE MEASUREMENTS

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

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

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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.

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


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

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

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

A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. ~~Besides the transfer listed in the table below, there~~There were no ~~other~~ transfers between Level 1, Level 2 and Level 3 fair value measurements during the ~~nine~~three months ended ~~March 31,~~September 30, 2022.

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

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

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

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

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


				Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Little or No Market Activity Inputs					Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Little or No Market Activity Inputs
As of March 31, 2022 (In thousands)		Total		(Level 1)		(Level 2)		(Level 3)
As of September 30, 2022 (In thousands)										As of September 30, 2022 (In thousands)	Total		(Level 1)		(Level 2)		(Level 3)
Assets	Assets									Assets
Cash equivalents:	Cash equivalents:									Cash equivalents:
Corporate debt securities		$	858	$	—	$	858	$	—

Money market funds and other	Money market funds and other	734,466		734,466		—		—		Money market funds and other	$	1,050,327	$	1,050,327	$	—	$	—

U.S. Treasury securities	U.S. Treasury securities	1,500		—		1,500		—		U.S. Treasury securities	4,992		—		4,992		—

Marketable securities:	Marketable securities:									Marketable securities:
Corporate debt securities	Corporate debt securities	470,153		—		470,153		—		Corporate debt securities	465,354		—		465,354		—
Municipal securities	Municipal securities	65,703		—		65,703		—		Municipal securities	48,971		—		48,971		—
Sovereign securities	Sovereign securities	6,000		—		6,000		—		Sovereign securities	5,979		—		5,979		—
U.S. Government agency securities	U.S. Government agency securities	114,249		114,249		—		—		U.S. Government agency securities	76,702		76,702		—		—
U.S. Treasury securities	U.S. Treasury securities	347,318		332,298		15,020		—		U.S. Treasury securities	427,226		408,477		18,749		—

Equity securities~~(1)~~	Equity securities~~(1)~~	15,796		15,796		—		—		Equity securities~~(1)~~	13,086		13,086		—		—

Total cash equivalents and marketable securities~~(2)~~(1)	Total cash equivalents and marketable securities~~(2)~~(1)	1,756,043		1,196,809		559,234		—		Total cash equivalents and marketable securities~~(2)~~(1)	2,092,637		1,548,592		544,045		—
Other current assets:	Other current assets:									Other current assets:
Derivative assets	Derivative assets	44,762		—		44,762		—		Derivative assets	44,989		—		44,989		—
Other non-current assets:	Other non-current assets:									Other non-current assets:
Executive Deferred Savings Plan	Executive Deferred Savings Plan	260,634		199,933		60,701		—		Executive Deferred Savings Plan	213,824		167,944		45,880		—
Total financial assets~~(2)~~(1)	Total financial assets~~(2)~~(1)	$	2,061,439	$	1,396,742	$	664,697	$	—	Total financial assets~~(2)~~(1)	$	2,351,450	$	1,716,536	$	634,914	$	—
Liabilities	Liabilities									Liabilities
Derivative liabilities	Derivative liabilities	$	(8,887)	$	—	$	(8,887)	$	—	Derivative liabilities	$	(43,087)	$	—	$	(43,087)	$	—
Deferred payments	Deferred payments	(2,275)		—		—		(2,275)		Deferred payments	(2,425)		—		—		(2,425)
Contingent consideration payable	Contingent consideration payable	(22,501)		—		—		(22,501)		Contingent consideration payable	(23,820)		—		—		(23,820)

Total financial liabilities	Total financial liabilities	$	(33,663)	$	—	$	(8,887)	$	(24,776)	Total financial liabilities	$	(69,332)	$	—	$	(43,087)	$	(26,245)

________________

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

~~(2)~~ Excludes cash of ~~$551.6~~$591.1 million held in operating accounts and time deposits of ~~$270.3~~$269.8 million (of which ~~$126.8~~$172.8 million were cash equivalents) as of ~~March 31,~~September 30, 2022.

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				Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Little or No Market Activity Inputs					Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Little or No Market Activity Inputs
As of June 30, 2021 (In thousands)		Total		(Level 1)		(Level 2)		(Level 3)
As of June 30, 2022 (In thousands)										As of June 30, 2022 (In thousands)	Total		(Level 1)		(Level 2)		(Level 3)
Assets	Assets									Assets
Cash equivalents:	Cash equivalents:									Cash equivalents:

Corporate debt securities										Corporate debt securities	$	922	$	—	$	922	$	—
Money market funds and other	Money market funds and other	$	691,375	$	691,375	$	—	$	—	Money market funds and other	948,027		948,027		—		—

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

Marketable securities:	Marketable securities:									Marketable securities:
Corporate debt securities	Corporate debt securities	468,746		—		468,746		—		Corporate debt securities	472,047		—		472,047		—
Municipal securities	Municipal securities	70,228		—		70,228		—		Municipal securities	60,724		—		60,724		—
Sovereign securities	Sovereign securities	3,052		��		3,052		—		Sovereign securities	5,990		—		5,990		—
U.S. Government agency securities	U.S. Government agency securities	145,921		145,921		—		—		U.S. Government agency securities	91,116		91,116		—		—
U.S. Treasury securities	U.S. Treasury securities	233,064		205,055		28,009		—		U.S. Treasury securities	348,026		344,559		3,467		—

Equity securities	Equity securities	29,930		—		29,930		—		Equity securities	11,035		11,035		—		—

Total cash equivalents and marketable securities(1)	Total cash equivalents and marketable securities(1)	1,642,316		1,042,351		599,965		—		Total cash equivalents and marketable securities(1)	1,960,372		1,394,737		565,635		—
Other current assets:	Other current assets:									Other current assets:
Derivative assets	Derivative assets	8,252		—		8,252		—		Derivative assets	40,311		—		40,311		—
Other non-current assets:	Other non-current assets:									Other non-current assets:
Executive Deferred Savings Plan	Executive Deferred Savings Plan	266,199		200,925		65,274		—		Executive Deferred Savings Plan	224,188		176,928		47,260		—
Total financial assets(1)	Total financial assets(1)	$	1,916,767	$	1,243,276	$	673,491	$	—	Total financial assets(1)	$	2,224,871	$	1,571,665	$	653,206	$	—
Liabilities	Liabilities									Liabilities
Derivative liabilities	Derivative liabilities	$	(2,807)	$	—	$	(2,807)	$	—	Derivative liabilities	$	(34,315)	$	—	$	(34,315)	$	—
Deferred payments	Deferred payments	(4,550)		—		—		(4,550)		Deferred payments	(2,350)		—		—		(2,350)
Contingent consideration payable	Contingent consideration payable	(8,514)		—		—		(8,514)		Contingent consideration payable	(23,674)		—		—		(23,674)

Total financial liabilities	Total financial liabilities	$	(15,871)	$	—	$	(2,807)	$	(13,064)	Total financial liabilities	$	(60,339)	$	—	$	(34,315)	$	(26,024)

________________

(1) Excludes cash of ~~$641.6~~$472.8 million held in operating accounts and time deposits of ~~$210.6~~$274.9 million (of which ~~$101.7~~$140.7 million were cash equivalents) as of June 30, ~~2021.~~2022.

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NOTE 4 – FINANCIAL STATEMENT COMPONENTS

Condensed Consolidated Balance Sheets


		As of		As of			As of		As of
(In thousands)	(In thousands)	March 31, 2022		June 30, 2021		(In thousands)	September 30, 2022		June 30, 2022
Accounts receivable, net:	Accounts receivable, net:					Accounts receivable, net:
Accounts receivable, gross	Accounts receivable, gross	$	1,637,904	$	1,323,515	Accounts receivable, gross	$	1,884,328	$	1,832,508
Allowance for credit losses	Allowance for credit losses	(19,037)		(18,036)		Allowance for credit losses	(27,008)		(20,631)
		$	1,618,867	$	1,305,479		$	1,857,320	$	1,811,877
Inventories:	Inventories:					Inventories:
Customer service parts	Customer service parts	$	393,215	$	349,743	Customer service parts	$	422,983	$	402,121
Raw materials	Raw materials	900,069		595,151		Raw materials	1,183,244		1,042,916
Work-in-process	Work-in-process	441,563		453,432		Work-in-process	527,359		451,782
Finished goods	Finished goods	247,450		177,054		Finished goods	274,739		250,070
		$	1,982,297	$	1,575,380		$	2,408,325	$	2,146,889
Other current assets:	Other current assets:					Other current assets:
Deferred costs of revenues						Deferred costs of revenues	$	117,341	$	124,487
Contract assets	Contract assets	$	104,838	$	91,052	Contract assets	114,086		114,747
Deferred costs of revenues		90,584		59,953
Prepaid expenses	Prepaid expenses	84,073		76,649		Prepaid expenses	100,027		108,942
Prepaid income and other taxes	Prepaid income and other taxes	46,126		68,847		Prepaid income and other taxes	31,009		89,713
Other current assets	Other current assets	78,036		24,366		Other current assets	62,311		64,248
		$	403,657	$	320,867		$	424,774	$	502,137
Land, property and equipment, net:	Land, property and equipment, net:					Land, property and equipment, net:
Land	Land	$	67,857	$	67,862	Land	$	72,288	$	67,846
Buildings and leasehold improvements	Buildings and leasehold improvements	631,467		458,605		Buildings and leasehold improvements	728,948		712,751
Machinery and equipment	Machinery and equipment	782,070		743,710		Machinery and equipment	805,466		819,191
Office furniture and fixtures	Office furniture and fixtures	42,617		32,856		Office furniture and fixtures	46,213		44,957
Construction-in-process	Construction-in-process	156,315		182,320		Construction-in-process	150,974		110,079
		1,680,326		1,485,353			1,803,889		1,754,824
Less: accumulated depreciation	Less: accumulated depreciation	(871,452)		(822,326)		Less: accumulated depreciation	(890,887)		(904,895)
		$	808,874	$	663,027		$	913,002	$	849,929
Other non-current assets:	Other non-current assets:					Other non-current assets:
Executive Deferred Savings Plan(1)	Executive Deferred Savings Plan(1)	$	260,634	$	266,199	Executive Deferred Savings Plan(1)	$	213,824	$	224,188

Operating lease right of use assets	Operating lease right of use assets	101,240		102,883		Operating lease right of use assets	125,986		126,444
Other non-current assets	Other non-current assets	79,247		75,823		Other non-current assets	154,221		133,980
		$	441,121	$	444,905		$	494,031	$	484,612
Other current liabilities:	Other current liabilities:					Other current liabilities:
Customer credits and advances	Customer credits and advances	$	558,487	$	250,784	Customer credits and advances	$	579,767	$	515,118
Compensation and benefits	Compensation and benefits	420,803		305,445		Compensation and benefits	441,671		351,924
Executive Deferred Savings Plan(1)		262,907		268,028
Income taxes payable						Income taxes payable	278,400		126,964
Other accrued expenses	Other accrued expenses	196,919		180,982		Other accrued expenses	245,476		253,265

Income taxes payable		120,803		87,320
Executive Deferred Savings Plan(1)						Executive Deferred Savings Plan(1)	215,193		225,867
Interest payable	Interest payable	34,626		36,135		Interest payable	65,140		39,683
Operating lease liabilities	Operating lease liabilities	31,158		32,322		Operating lease liabilities	30,701		32,218
		$	1,625,703	$	1,161,016		$	1,856,348	$	1,545,039
Other non-current liabilities:	Other non-current liabilities:					Other non-current liabilities:
Customer credits and advances						Customer credits and advances	$	304,396	$	204,914
Income taxes payable	Income taxes payable	$	346,516	$	333,866	Income taxes payable	300,461		367,052
Operating lease liabilities						Operating lease liabilities	79,789		81,369
Pension liabilities	Pension liabilities	81,102		87,602		Pension liabilities	73,426		78,525
Operating lease liabilities		62,053		70,739
Other non-current liabilities	Other non-current liabilities	152,495		139,083		Other non-current liabilities	123,700		150,782
		$	642,166	$	631,290		$	881,772	$	882,642

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________________

(1)We have a non-qualified deferred compensation plan (known as “Executive Deferred Savings Plan” or “EDSP”) under which certain employees and non-employee directors may defer a portion of their compensation. The ~~expense (benefit)~~benefit associated with changes in the EDSP liability included in selling, general and administrative (“SG&A”) expense was ~~$(18.8)~~$10.3 million and ~~$5.7~~$1.0 million during the three months ended ~~March 31, 2022 and 2021, respectively, and was $(7.8) million and $41.0 million during the nine months ended March 31,~~September 30, 2022 and 2021, respectively. The amount of net ~~gains (losses)~~losses associated with changes in the EDSP assets included in SG&A expense was ~~$(18.7)~~$10.3 million and ~~$5.8~~$1.1 million during the three months ended ~~March 31, 2022 and 2021, respectively and was $(8.0) million and $41.3 million during the nine months ended March 31,~~September 30, 2022 and 2021, respectively. For additional details, refer to Note 1 “Description of Business and Summary of Significant Accounting Policies” to our Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended June 30, ~~2021.~~2022.

Accumulated Other Comprehensive Income (Loss)

The components of Accumulated Other Comprehensive Income (Loss) (“AOCI”) as of the dates indicated below were as follows:

(In thousands) Currency Translation Adjustments Unrealized Gains (Losses) on Available-for-Sale Securities Unrealized Gains (Losses) on Derivatives Unrealized Gains (Losses) on Defined Benefit Plans Total
Balance as of March 31, 2022 $ (35,031) $ (11,789) $ (2,891) $ (21,822) $ (71,533)
Balance as of June 30, 2021 $ (32,563) $ 595 $ (20,092) $ (23,497) $ (75,557)


(In thousands)	Currency Translation Adjustments		Unrealized Gains (Losses) on Available-for-Sale Securities		Unrealized Gains (Losses) on Derivatives		Unrealized Gains (Losses) on Defined Benefit Plans		Total
Balance as of September 30, 2022	$	(63,598)	$	(20,816)	$	49,617	$	(24,044)	$	(58,841)

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

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


AOCI Components	AOCI Components		Three Months Ended				Nine Months Ended				AOCI Components		Three Months Ended
		Location in the Condensed Consolidated	March 31,				March 31,						September 30,
		Statement of Operations	2022		2021		2022		2021			Location in the Condensed Consolidated Statement of Operations	2022		2021
Unrealized gains (losses) on cash flow hedges from foreign exchange and interest rate contracts	Unrealized gains (losses) on cash flow hedges from foreign exchange and interest rate contracts	Revenues	$	1,600	$	(583)	$	4,868	$	(1,511)	Unrealized gains (losses) on cash flow hedges from foreign exchange and interest rate contracts	Revenues	$	14,605	$	1,729
		Costs of revenues and operating expenses	(329)		187		(909)		612			Costs of revenues and operating expenses	(5,367)		(232)
		Interest expense	(279)		(279)		(837)		(837)			Interest expense	937		(279)

		Net gains (losses) reclassified from AOCI	$	992	$	(675)	$	3,122	$	(1,736)		Net gains reclassified from AOCI	$	10,175	$	1,218
Unrealized gains (losses) on available-for-sale securities	Unrealized gains (losses) on available-for-sale securities	Other expense (income), net	$	(88)	$	25	$	(90)	$	238	Unrealized gains (losses) on available-for-sale securities	Other expense (income), net	$	(174)	$	1

The ~~amounts~~amount reclassified out of AOCI related to our defined benefit pension plans that ~~were~~was recognized as a component of net periodic cost for the three months ended ~~March 31,~~September 30, 2022 and 2021 ~~were~~was $0.4 million ~~and $0.3 million, respectively and for the nine months ended March 31, 2022 and 2021 were $1.1 million and $0.8 million, respectively.~~in both periods. For additional details, refer to Note 13 “Employee Benefit Plans” to our Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended June 30, ~~2021.~~2022.

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NOTE 5 – MARKETABLE SECURITIES

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


As of March 31, 2022 (In thousands)		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
As of September 30, 2022 (In thousands)										As of September 30, 2022 (In thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Corporate debt securities	Corporate debt securities	$	477,237	$	18	$	(6,244)	$	471,011	Corporate debt securities	$	476,396	$	9	$	(11,051)	$	465,354
Money market funds and other	Money market funds and other	734,466		—		—		734,466		Money market funds and other	1,050,327		—		—		1,050,327

Municipal securities	Municipal securities	66,714		—		(1,011)		65,703		Municipal securities	50,374		—		(1,403)		48,971
Sovereign securities	Sovereign securities	6,044		2		(46)		6,000		Sovereign securities	6,034		—		(55)		5,979
U.S. Government agency securities	U.S. Government agency securities	115,223		38		(1,012)		114,249		U.S. Government agency securities	78,138		17		(1,453)		76,702
U.S. Treasury securities	U.S. Treasury securities	355,576		13		(6,771)		348,818		U.S. Treasury securities	444,801		9		(12,592)		432,218
Equity securities(1)	Equity securities(1)	3,211		12,585		—		15,796		Equity securities(1)	3,211		9,875		—		13,086

Subtotal	Subtotal	1,758,471		12,656		(15,084)		1,756,043		Subtotal	2,109,281		9,910		(26,554)		2,092,637
Add: Time deposits(2)	Add: Time deposits(2)	270,290		—		—		270,290		Add: Time deposits(2)	269,755		—		—		269,755
Less: Cash equivalents	Less: Cash equivalents	863,609		—		—		863,609		Less: Cash equivalents	1,228,151		1		—		1,228,152
Marketable securities	Marketable securities	$	1,165,152	$	12,656	$	(15,084)	$	1,162,724	Marketable securities	$	1,150,885	$	9,909	$	(26,554)	$	1,134,240


As of June 30, 2021 (In thousands)		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
As of June 30, 2022 (In thousands)										As of June 30, 2022 (In thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Corporate debt securities	Corporate debt securities	$	468,192	$	689	$	(135)	$	468,746	Corporate debt securities	$	481,881	$	3	$	(8,915)	$	472,969
Money market funds and other	Money market funds and other	691,375		—		—		691,375		Money market funds and other	948,027		—		—		948,027
Municipal securities	Municipal securities	70,155		106		(33)		70,228		Municipal securities	61,973		—		(1,249)		60,724
Sovereign securities	Sovereign securities	3,045		7		—		3,052		Sovereign securities	6,041		2		(53)		5,990
U.S. Government agency securities	U.S. Government agency securities	145,810		160		(49)		145,921		U.S. Government agency securities	92,273		26		(1,183)		91,116
U.S. Treasury securities	U.S. Treasury securities	233,052		129		(117)		233,064		U.S. Treasury securities	378,871		18		(8,378)		370,511
Equity securities(1)	Equity securities(1)	3,211		26,719		—		29,930		Equity securities(1)	3,211		7,824		—		11,035

Subtotal	Subtotal	1,614,840		27,810		(334)		1,642,316		Subtotal	1,972,277		7,873		(19,778)		1,960,372
Add: Time deposits(2)	Add: Time deposits(2)	210,636		—		—		210,636		Add: Time deposits(2)	274,873		—		—		274,873
Less: Cash equivalents	Less: Cash equivalents	793,040		—		—		793,040		Less: Cash equivalents	1,112,146		—		(1)		1,112,145
Marketable securities	Marketable securities	$	1,032,436	$	27,810	$	(334)	$	1,059,912	Marketable securities	$	1,135,004	$	7,873	$	(19,777)	$	1,123,100

________________

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

(2) Time deposits excluded from fair value measurements.

Our investment portfolio includes both corporate and government securities that have a maximum maturity of three years. The longer the duration of these securities, the more susceptible they are to changes in market interest rates and bond yields. As yields increase, those securities with a lower yield-at-cost show a mark-to-market unrealized loss. Most of our unrealized losses are due to changes in market interest rates and bond yields. We believe that we have the ability to realize the full value of all of these investments upon maturity. As of ~~March 31,~~September 30, 2022, we had ~~543~~536 investments in a gross unrealized loss position. ~~Our investments that were in a continuous loss position of 12 months or more, as well as the unrealized losses on those investments, were immaterial.~~ The following table summarizes the fair value and gross unrealized losses of our investments that were in an unrealized loss position as of the ~~date~~dates indicated below.

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As of March 31, 2022 (In thousands)		Fair Value		Gross Unrealized Losses
As of September 30, 2022						As of September 30, 2022	Less than 12 Months				12 Months or Greater				Total
(In thousands)						(In thousands)	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
Corporate debt securities	Corporate debt securities	$	439,540	$	(6,244)	Corporate debt securities	$	405,334	$	(9,419)	$	51,452	$	(1,632)	$	456,786	$	(11,051)
Municipal securities						Municipal securities	33,165		(857)		15,505		(546)		48,670		(1,403)
Sovereign securities	Sovereign securities	2,969		(46)		Sovereign securities	4,019		(12)		1,960		(43)		5,979		(55)
Municipal securities		65,352		(1,011)
U.S. Government agency securities	U.S. Government agency securities	75,936		(1,012)		U.S. Government agency securities	25,363		(322)		29,225		(1,131)		54,588		(1,453)
U.S. Treasury securities	U.S. Treasury securities	333,334		(6,771)		U.S. Treasury securities	310,815		(9,310)		107,359		(3,282)		418,174		(12,592)
Total	Total	$	917,131	$	(15,084)	Total	$	778,696	$	(19,920)	$	205,501	$	(6,634)	$	984,197	$	(26,554)


As of June 30, 2021 (In thousands)		Fair Value		Gross Unrealized Losses
As of June 30, 2022 (In thousands)						As of June 30, 2022 (In thousands)	Fair Value(1)		Gross Unrealized Losses(1)
Corporate debt securities	Corporate debt securities	$	161,012	$	(135)	Corporate debt securities	$	458,699	$	(8,915)

Municipal securities	Municipal securities	21,605		(33)		Municipal securities	58,722		(1,249)
Sovereign securities						Sovereign securities	2,963		(53)
U.S. Government agency securities	U.S. Government agency securities	38,904		(49)		U.S. Government agency securities	60,285		(1,183)
U.S. Treasury securities	U.S. Treasury securities	117,761		(117)		U.S. Treasury securities	336,819		(8,378)
Total	Total	$	339,282	$	(334)	Total	$	917,488	$	(19,778)

________________

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

unrealized losses on those investments, were immaterial.

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


As of March 31, 2022 (In thousands)		Amortized Cost		Fair Value
As of September 30, 2022 (In thousands)						As of September 30, 2022 (In thousands)	Amortized Cost		Fair Value
Due within one year	Due within one year	$	550,125	$	560,500	Due within one year	$	601,307	$	602,657
Due after one year through three years	Due after one year through three years	615,027		602,224		Due after one year through three years	549,578		531,583
Total	Total	$	1,165,152	$	1,162,724	Total	$	1,150,885	$	1,134,240

Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Realized gains and losses on available-for-sale securities for the three ~~and nine~~ months ended ~~March 31,~~September 30, 2022 and 2021 were immaterial.

NOTE 6 - BUSINESS COMBINATIONS AND DISPOSITIONS

Business Combinations

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

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

On February 28, 2022, we completed the acquisition of 100% of the outstanding shares of ECI Technology, Inc. (“ECI”), a privately held company, for aggregate purchase consideration of $431.5 million, paid in ~~cash. ECI is~~cash, including a ~~provider of chemical management systems for semiconductor, photovoltaic and printed circuit board industries.~~post-closing adjustment in the quarter ended September 30, 2022. KLA acquired ECI to extend and enhance our portfolio of products and services. The purchase consideration was allocated as follows: $208.4 million to identifiable intangible assets, $2.9 million to

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~~Preliminary Purchase Price Allocation~~

~~The aggregate purchase consideration has been preliminarily allocated as follows (in thousands):~~


~~Total purchase consideration~~	$	~~443,176~~
~~Less: cash acquired~~	~~(11,652)~~
~~Total purchase consideration, net of cash acquired~~	$	~~431,524~~
~~Allocation~~
~~Accounts receivable~~	~~15,044~~
~~Inventory~~	~~13,552~~
~~Goodwill~~	~~271,783~~
~~Intangible assets~~	~~208,400~~
~~Other assets~~	~~5,188~~
~~Accrued officers' bonus~~	~~(23,889)~~
~~Other liabilities~~	~~(12,759)~~
~~Deferred tax liabilities~~	~~(45,795)~~
	$	~~431,524~~

The purchase price was allocated to tangible and identified intangible assets acquired and liabilities assumed based on their preliminary estimated fair values, which were determined using generally accepted valuation techniques based on estimates and assumptions made by management at the time of the acquisition. These estimates and assumptions are subject to change during the measurement period, which is not expected to exceed one year. The primary tasks that are required to be completed include validation of business-level forecasts and customer attrition rates expected to be derived from the acquisition, including any related tax impacts. Any adjustments to our preliminary purchase price allocation identified during the measurement period will be recognized in the period in which the adjustments are determined.

The operating results of ECI have been included in our Condensed Consolidated Financial Statements for the three and nine months ended March 31, 2022 from the acquisition date. The goodwill was primarily attributable to the assembled workforce of the acquired company and planned growth in new markets. The $271.8 million of goodwill was assigned to the Wafer Inspection and Patterning reporting unit, and the amount recognized was not deductible for tax purposes.

~~Intangible Assets~~

~~The estimated fair value and weighted average useful life of the acquired intangible assets are as follows:~~

(In thousands) Fair Value Weighted Average Useful Lives
Existing technology(1)
$ 117,900 8
Customer relationships(2)
52,400 7
Order backlog(3)
35,000 1.5
Trade name / trademark(4)
3,100 3
Total identified intangible assets $ 208,400

~~_________________~~

~~(1)~~Existing technology was identified from the products of ECI and its fair value was determined using the Relief-from-Royalty method under the income approach, which estimates the cost savings generated by a company related to the ownership of an asset for which it would otherwise have had to pay royalties or license fees on revenues earned through the use of the asset. The discount rate used was determined at the time of measurement based on an analysis of the implied internal rate of return of the transaction, weighted average cost of capital and weighted average return on assets. The economic useful life was determined based on the technology cycle related to each developed technology, as well as the cash flows over the forecast period.

~~(2)~~Customer relationships represent the fair value of the existing relationships with ECI’s customers and its fair value was determined using the Multi-Period Excess Earning Method which involves isolating the net earnings attributable to the asset being measured based on present value of the incremental after-tax cash flows (excess earnings) attributable solely

~~Table of Contents~~

~~to the intangible asset over its remaining useful life. The economic useful life was determined based on historical customer turnover rates.~~

~~(3)~~Order backlog primarily relates to the dollar value of purchase arrangements with customers, effective as of a given point in time, that are based on mutually agreed terms which, in some cases, may still be subject to completion of written documentation and may be changed or cancelled by the customer, often without penalty. ECI’s backlog consists of these arrangements with assigned shipment dates expected, in most cases, within twelve months. The fair value was determined using the Multi-Period Excess Earning Method. The economic useful life is based on the time to fulfill the outstanding order backlog obligation.

~~(4)~~Trade name / trademark primarily relates to ECI’s name. The fair value was determined by applying the Relief-from-Royalty Method under the income approach. The economic useful life was determined based on the expected life of the trade names, trademarks and domain names.

We believe the amounts of purchased intangible assets recorded above represent the fair values and approximate the amounts a market participant would pay for these intangible assets as of the acquisition date.

~~Our statement of operations for the three and nine months ended March 31, 2022 included revenue of $8.1 million and a net loss of $0.4 million from ECI.~~

~~Other Fiscal 2022 Acquisitions~~

On July 1, 2021, we acquired Anchor Semiconductor Inc. (the “Anchor acquisition”), a privately-held company, primarily to expand our products and services offerings, for a total purchase consideration of $81.7 million, including a post-closing working capital adjustments, as well as the fair value of the promise to pay an additional consideration up to $35.0 million contingent on the achievement of certain revenue milestones. As of March 31, 2022, the estimated fair value of the additional consideration was $13.2 million, which was classified as a current liability on the Condensed Consolidated Balance Sheet. The total purchase consideration was allocated as follows: $31.7 million to identifiable intangible assets, $26.4 million to net tangible ~~assets, $8.0~~liabilities, $40.5 million to deferred tax liabilities, and ~~$31.5~~$266.4 million to goodwill. The ~~total~~ purchase consideration is preliminary, and as additional information becomes available, we may further revise it during the remainder of the measurement period, which will not exceed 12 months from the closing of the acquisition. The ~~$31.5 million of~~ goodwill was assigned to the Wafer Inspection and Patterning reporting ~~unit, and the amount recognized was not deductible for tax purposes.~~ unit.

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

As of ~~March 31,~~September 30, 2022, we ~~have $22.5~~had $23.8 million of contingent consideration recorded for the ~~Anchor acquisition and other~~ acquisitions ~~from the~~completed during fiscal ~~year~~years ended June 30, 2022 and 2019, of which ~~$16.1~~$17.1 million is classified as a current liability and ~~$6.4~~$6.7 million as a non-current liability on the Condensed Consolidated Balance Sheet.

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

As of June 30, ~~2021.~~

~~Assets Held for Sale~~

In2022, we owned approximately 94% of the ~~third quarter of fiscal 2022, management committed to a plan to sell~~outstanding equity interest in Orbograph Ltd. (“Orbograph”), a non-core business engaged in the development and marketing of character recognition solutions to banks, financial and other payment processing institutions and healthcare ~~providers,~~providers. On August 9, 2022, we acquired the non-controlling interest in Orbograph. On August 11, 2022, we sold our entire interest in Orbograph to a portfolio company of ~~which we own approximately 94% as~~a private equity firm for total consideration of ~~March 31, 2022.~~$110.0 million and net cash proceeds from the transaction of $75.4 million. We determined that all of the criteria for held-for-sale accounting were met and, consequently, we designated the net assets and liabilities of Orbograph, which is in our PCB, Display and Component Inspection segment, as held for sale. We expect to completerecognized a pre-tax gain from the sale of $29.7 million, which was recorded as part of other expense (income), net. Included in the ~~next 12 months. In addition, based on available information, we determined that the carrying value~~sale were $26.5 million in tangible assets, $30.5 million in liabilities and $61.2 million in goodwill and intangible assets.

For additional details of ~~net~~business combinations and assets held for sale, ~~did not exceed fair value less costs~~refer to ~~sell; therefore, no impairment was recorded~~Note 6 “Business Combinations and Dispositions” to our Consolidated Financial Statements included in our Annual Report on Form 10-K for the ~~three months~~fiscal year ended ~~March 31,~~June 30, 2022.

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~~As of March 31, 2022 the balances of Orbograph's net assets held for sale were as follows (in thousands):~~


~~Cash~~	$	~~7,674~~
~~Trade and other receivables, net~~	~~20,109~~
~~Fixed assets~~	~~1,639~~
~~Intangible assets~~	~~18,588~~
~~Goodwill~~	~~42,622~~
~~Other long-term assets~~	~~1,665~~
~~Trade and other payables~~	~~(4,099)~~
~~Other liabilities~~	~~(7,776)~~
~~Minority interest~~	~~(540)~~
	$	~~79,882~~

NOTE 7 – GOODWILL AND PURCHASED INTANGIBLE ASSETS

Goodwill

Goodwill represents the excess of the purchase price over the fair value of the net tangible and identifiable intangible assets acquired in ~~the current and prior quarters’~~ business combinations. We have 4three reportable segments and 6five operating segments. The operating segments are determined to be the same as reporting units. For additional details, refer to Note 18 “Segment Reporting and Geographic Information” to our Condensed Consolidated Financial Statements. The following table presents changes in goodwill carrying value during the ~~nine~~three months ended ~~March 31, 2022(1)~~:September 30, 2022:


(In thousands)	(In thousands)	Wafer Inspection and Patterning		Global Service and Support (“GSS”)		Specialty Semiconductor Process		PCB and Display		Component Inspection		Total		(In thousands)	Wafer Inspection and Patterning		Global Service and Support (“GSS”)		Specialty Semiconductor Process		PCB and Display		Component Inspection		Total
Balance as of June 30, 2021		$	416,860	$	25,908	$	681,858	$	872,971	$	13,575	$	2,011,172
Balance as of June 30, 2022														Balance as of June 30, 2022	$	725,737	$	25,908	$	681,858	$	872,971	$	13,575	$	2,320,049
Acquired goodwill	Acquired goodwill	303,324		—		—		—		—		303,324		Acquired goodwill	6,776		—		—		—		—		6,776

Goodwill disposal from sale of business (1)														Goodwill disposal from sale of business (1)	—		—		—		(42,622)		—		(42,622)
Goodwill adjustments														Goodwill adjustments	(5,337)		—		—		—		—		(5,337)

Foreign currency adjustments	Foreign currency adjustments	(25)		—		—		—		—		(25)		Foreign currency adjustments	(39)		—		—		—		—		(39)
Balance as of March 31, 2022		$	720,159	$	25,908	$	681,858	$	872,971	$	13,575	$	2,314,471
Balance as of September 30, 2022														Balance as of September 30, 2022	$	727,137	$	25,908	$	681,858	$	830,349	$	13,575	$	2,278,827

~~_________________~~

(1)~~No goodwill was assigned~~ Refer to the ~~Other reporting unit~~“Business Dispositions” section of Note 6 “Business Combinations and ~~accordingly, it was excluded from~~Dispositions” for more information on the ~~table above.~~sale of Orbograph.

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

As of September 30, 2022, there have been no significant events or circumstances affecting the valuation of goodwill for impairment, we utilize a qualitative assessment to evaluate whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. When performing the qualitative assessment, we consider the following factors: stock price or market capitalization, changes in the industry and competitive environment, budget-to-actual revenue and profitability performance from the prior year and projected revenue and profitability trends for future years at our reporting units. If our qualitative assessment indicates that goodwill impairment is more likely than not, we perform a quantitative assessment by comparing the carrying value of net assetssubsequent to the fair value of the reporting units. If the fair value is determined to be less than the carrying value, the amount of impairment is computed as the excess of the carrying value over the estimated fair value, not to exceed the carrying value of goodwill. 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.

~~We performed the required~~ annual ~~goodwill impairment testing for all reporting units as of February 28, 2022, 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 next annual goodwill impairment assessment by reporting unit is scheduled to be~~ performed in the third quarter of the fiscal year ~~ending~~ended June 30, ~~2023.~~2022. There was no goodwill impairment as a result of that assessment. For additional details, refer to Note 7, “Goodwill and Purchased Intangible Assets” to our Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2022.

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Purchased Intangible Assets

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


(In thousands)	(In thousands)		As of March 31, 2022						As of June 30, 2021						(In thousands)		As of September 30, 2022						As of June 30, 2022
Category	Category	Range of Useful Lives (in years)	Gross Carrying Amount		Accumulated Amortization and Impairment		Net Amount		Gross Carrying Amount		Accumulated Amortization and Impairment		Net Amount		Category	Range of Useful Lives (in years)	Gross Carrying Amount		Accumulated Amortization and Impairment		Net Amount		Gross Carrying Amount		Accumulated Amortization and Impairment		Net Amount
Existing technology	Existing technology	4-8	$	1,521,291	$	623,834	$	897,457	$	1,382,612	$	499,219	$	883,393	Existing technology	4-8	$	1,536,826	$	705,476	$	831,350	$	1,523,691	$	668,175	$	855,516
Customer relationships	Customer relationships	4-9	365,717		157,608		208,109		305,817		131,386		174,431		Customer relationships	4-9	358,567		175,260		183,307		366,567		167,819		198,748
Trade name / Trademark	Trade name / Trademark	4-7	121,083		64,400		56,683		117,383		53,493		63,890		Trade name / Trademark	4-7	116,583		67,487		49,096		121,083		68,194		52,889
Order backlog and other	Order backlog and other	<1-9	87,836		52,807		35,029		50,403		49,962		441		Order backlog and other	<1-9	85,836		64,248		21,588		87,836		58,970		28,866
Intangible assets subject to amortization(1)	Intangible assets subject to amortization(1)		2,095,927		898,649		1,197,278		1,856,215		734,060		1,122,155		Intangible assets subject to amortization(1)		2,097,812		1,012,471		1,085,341		2,099,177		963,158		1,136,019
In-process research and development	In-process research and development		64,456		6,062		58,394		63,256		100		63,156		In-process research and development		61,322		15,218		46,104		64,457		6,062		58,395
Total	Total		$	2,160,383	$	904,711	$	1,255,672	$	1,919,471	$	734,160	$	1,185,311	Total		$	2,159,134	$	1,027,689	$	1,131,445	$	2,163,634	$	969,220	$	1,194,414

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

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~~Impairment indicators primarily ~~includes~~include 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.

During the three months ended September 30, 2022, there was an abandonment of an in-process research and development project that resulted in a write off of $9.2 million. As of ~~March 31,~~September 30, 2022, there were no impairment indicators for purchased intangible assets.

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


		Three Months Ended March 31,				Nine Months Ended March 31,					Three Months Ended September 30,
(In thousands)	(In thousands)	2022		2021		2022		2021		(In thousands)	2022		2021
Amortization expense - Costs of revenues	Amortization expense - Costs of revenues	$	42,586	$	40,309	$	124,834	$	116,087	Amortization expense - Costs of revenues	$	45,066	$	41,124
Amortization expense - SG&A	Amortization expense - SG&A	15,102		12,063		39,880		37,793		Amortization expense - SG&A	20,128		12,389
Amortization expense - Research and development	Amortization expense - Research and development	31		32		93		94		Amortization expense - Research and development	31		31
Total	Total	$	57,719	$	52,404	$	164,807	$	153,974	Total	$	65,225	$	53,544

Based on the purchased intangible assets gross carrying amount recorded as of ~~March 31,~~September 30, 2022, the remaining estimated annual amortization expense is expected to be as follows:


Fiscal year ending June 30:	Fiscal year ending June 30:	Amortization (In thousands)		Fiscal year ending June 30:	Amortization (In thousands)
2022 (remaining three months)		$	65,342
2023		259,649
2023 (remaining nine months)				2023 (remaining nine months)	$	195,393
2024	2024	237,210		2024	238,575
2025	2025	220,908		2025	222,123
2026	2026	204,894		2026	206,211
2027 and thereafter		209,275
2027				2027	129,630
2028 and thereafter				2028 and thereafter	93,409
Total	Total	$	1,197,278	Total	$	1,085,341

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NOTE 8 – DEBT

The following table summarizes our debt as of ~~March 31,~~September 30, 2022 and June 30, ~~2021:~~2022:

As of March 31, 2022 As of June 30, 2021
Amount
(In thousands) Effective
Interest Rate Amount
(In thousands) Effective
Interest Rate
Fixed-rate 4.650% Senior Notes due on November 1, 2024 $ 1,250,000 4.682 % $ 1,250,000 4.682 %
Fixed-rate 5.650% Senior Notes due on November 1, 2034 250,000 5.670 % 250,000 5.670 %
Fixed-rate 4.100% Senior Notes due on March 15, 2029 800,000 4.159 % 800,000 4.159 %
Fixed-rate 5.000% Senior Notes due on March 15, 2049 400,000 5.047 % 400,000 5.047 %
Fixed-rate 3.300% Senior Notes due on March 1, 2050 750,000 3.302 % 750,000 3.302 %
Revolving Credit Facility 275,000 1.210 % — — %
Fixed-rate 3.590% Note Payable due on February 20, 2022 — — % 20,000 2.300 %
    Total 3,725,000 3,470,000
Unamortized discount/premium, net (6,709) (7,168)
Unamortized debt issuance costs (18,492) (20,065)
    Total $ 3,699,799 $ 3,442,767
Reported as:
Short-term debt $ — $ 20,000
Long-term debt 3,699,799 3,422,767
    Total $ 3,699,799 $ 3,442,767

~~As of March 31, 2022, future minimum principal payments for our debt are as follows: $1.25 billion in fiscal year 2025 and $2.20 billion after fiscal year 2026.~~


	As of September 30, 2022				As of June 30, 2022
	Amount (In thousands)		Effective Interest Rate		Amount (In thousands)		Effective Interest Rate
Fixed-rate 4.650% Senior Notes due on November 1, 2024	$	750,000	4.682	%	$	1,250,000	4.682	%
Fixed-rate 5.650% Senior Notes due on November 1, 2034	250,000		5.670	%	250,000		5.670	%
Fixed-rate 4.100% Senior Notes due on March 15, 2029	800,000		4.159	%	800,000		4.159	%
Fixed-rate 5.000% Senior Notes due on March 15, 2049	400,000		5.047	%	400,000		5.047	%
Fixed-rate 3.300% Senior Notes due on March 1, 2050	750,000		3.302	%	750,000		3.302	%
Fixed-rate 4.650% Senior Notes due on July 15, 2032	1,000,000		4.657	%	1,000,000		4.657	%
Fixed-rate 4.950% Senior Notes due on July 15, 2052	1,200,000		5.009	%	1,200,000		5.009	%
Fixed-rate 5.250% Senior Notes due on July 15, 2062	800,000		5.259	%	800,000		5.259	%
Revolving Credit Facility	425,000		4.409	%	275,000		2.258	%

Total	6,375,000				6,725,000
Unamortized discount/premium, net	(18,720)				(19,304)
Unamortized debt issuance costs	(43,531)				(44,978)
Total	$	6,312,749			$	6,660,718
Reported as:

Long-term debt	$	6,312,749			$	6,660,718
Total	$	6,312,749			$	6,660,718

Senior Notes and Debt Redemption

In ~~February 2020,~~June 2022, we issued ~~$750.0 million~~$3.00 billion aggregate principal amount of senior, unsecured notes (the “2022 Senior Notes”) as follows: $1.00 billion of 4.650% senior, unsecured notes due July 15, 2032; $1.20 billion of 4.950% senior, unsecured notes due July 15, 2052; and $800.0 million of 5.250% senior, unsecured notes due July 15, 2062. A portion of the net proceeds of the 2022 Senior Notes was used to complete a tender offer in July 2022 for $500.0 million of our Senior Notes due November 1, 2024 including associated redemption premiums, accrued interest and other fees and expenses. The transaction resulted in pre-tax net loss on extinguishment of debt of $13.3 million for the three months ended September 30, 2022. The remainder of the net proceeds were used for share repurchases and for general corporate purposes.

Prior to June 2022, the following aggregate principal amounts of senior, unsecured long-term notes were issued in the following periods: $750.0 million in February 2020 (the “2020 Senior Notes”)~~. In~~, $1.20 billion in March 2019 ~~and November 2014, we issued $1.20 billion~~ (the “2019 Senior Notes”) and $2.50 billion in November 2014 (the “2014 Senior ~~Notes,” and, together~~Notes”). These along with the 2019 Senior Notes and the 2020 Senior Notes, the “Senior Notes”), respectively, aggregate principal amount of senior, unsecured long-term notes. In each of the second quarters of fiscal 2018 and 2020, we repaid $250.0 million of the 2014 Senior Notes and in the third quarter of fiscal 2020 we repaid another $500.0 million of the 2014 Senior Notes using the proceeds from the issuance of the 2020 Senior Notes, bringing the outstanding aggregate principal amount of the 2014 Senior Notes to ~~$1.50 billion~~ ~~as of March 31, 2022.~~

~~The interest rates for our~~2022 Senior Notes are ~~not subject~~collectively referred to ~~adjustment.~~as the “Senior Notes.”

The original discounts on the Senior Notes are being amortized over the life of the debt. Interest is payable as follows: semi-annually on January 15 and July 15 of each year for the 2022 Senior Notes; semi-annually on March 1 and September 1 of each year for the 2020 Senior Notes; semi-annually on March 15 and September 15 of each year for the 2019 Senior Notes; and semi-annually on May 1 and November 1 of each year for the 2014 Senior Notes. The ~~indenture~~relevant indentures for the Senior Notes ~~(the~~(collectively, the “Indenture”) ~~includes~~include 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.~~transactions.

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

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Based on the trading prices of the Senior Notes on the applicable dates, the fair value of the Senior Notes as of ~~March 31,~~September 30, 2022 and June 30, ~~2021~~2022 was $5.44 billion~~$3.61 billion~~ and ~~$3.98~~$6.39 billion, respectively. While the Senior Notes are recorded at cost, the fair value of the long-term debt was determined based on quoted prices in markets that are not active; accordingly, the long-term debt is categorized as Level 2 for purposes of the fair value measurement hierarchy.

As of ~~March 31,~~September 30, 2022, we were in compliance with all of our covenants under the Indenture associated with the Senior Notes.

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Revolving Credit Facility

~~We have~~As of March 31, 2022, we had in place a Credit Agreement ~~(the “Credit~~(“Prior Credit Agreement”) providing for a $1.00 billion five-year unsecured Revolving Credit Facility ~~(the “Revolving Credit Facility”)~~ with a maturity date of November 30, ~~2023.~~2023 (“Prior Revolving Credit Facility”). In the fourth quarter of fiscal 2022, we replaced the Prior Credit Agreement and Prior Revolving Credit Facility with a renegotiated Credit Facility (“Credit Agreement”) and renegotiated unsecured Revolving Credit Facility (“Revolving Credit Facility”) having a maturity date of June 8, 2027 that allows us to borrow up to $1.50 billion. Subject to the terms of the Credit Agreement, the Revolving Credit Facility may be increased by an amount up to $250.0 million in the aggregate. During the ~~first~~ quarter ~~of the fiscal year ending June~~ended September 30, 2022, we borrowed ~~$300.0~~$300.0 million from the Revolving Credit Facility ~~which was paid in full in the same quarter. During the quarter ended March 31, 2022, we borrowed $300.0~~and repaid $150.0 million, ~~from the Revolving Credit Facility, of which~~leaving $425.0 million ~~$25.0 million was repaid in the same quarter and $275.0 million of~~ aggregate principal amount of borrowings ~~remained~~ outstanding at ~~March 31,~~September 30, 2022.

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~~we may exercise two one-year extension options with ~~all accrued and unpaid interest, must be repaid.~~the consent of the lenders. We may prepay outstanding borrowings under the Revolving Credit Facility at any time without a prepayment penalty.

Borrowings under the Revolving Credit Facility can be made as Term Secured Overnight Financing Rate (“SOFR”) Loans or Alternate Base Rate (“ABR”) Loans, at the Company’s option. In the event that Term SOFR is unavailable, any Term SOFR elections will be converted to Daily Simple SOFR, as long as it is available. Each Term SOFR Loan will bear interest at ~~our option, at either: (i)~~a rate per annum equal to the ~~Alternative Base Rate (“ABR”)~~applicable Adjusted Term SOFR rate, which is equal to the applicable Term SOFR rate plus 10 bps that shall not be less than zero, plus a spread ~~which ranges~~ranging from ~~0 bps to~~ 75 bps ~~or (ii)~~ to 125 bps, as determined by the ~~London Interbank Offered Rate (“LIBOR”)~~Company’s credit ratings at the time. Each ABR Loan will bear interest at a rate per annum equal to the ABR plus a spread ~~which ranges~~ranging from ~~100~~0 bps to ~~175 bps. The spreads under ABR and LIBOR are subject to adjustment in conjunction with~~25 bps, as determined by the Company’s credit ~~rating downgrades or upgrades.~~ratings at the time. We are also obligated to pay an annual commitment fee on the daily undrawn balance of the Revolving Credit Facility, which ranges from 104.5 bps to 2512.5 bps, subject to an adjustment in conjunction with changes to our credit rating. The applicable interest rates and commitment fees are also subject to adjustment based on the Company’s performance against certain environmental sustainability key performance indicators related to greenhouse gas emissions and renewable electricity usage. As of ~~March 31,~~September 30, 2022, ~~we elected to pay~~the all-in interest onrate of the ~~borrowed amount under~~$425.0 million outstanding Term SOFR loans reflected the ~~Revolving Credit Facility at LIBOR~~applicable Adjusted Term SOFR rate plus a ~~sprea~~dspread of 100 bps and ~~we pay an annual~~the applicable commitment fee ~~of 10 bps~~ on the daily undrawn balance of the Revolving Credit ~~Facility.~~Facility was 9 bps.

~~The Revolving Credit Facility requires us to maintain an interest expense coverage ratio as described in~~Under the Credit Agreement, the maximum leverage ratio on a quarterly basis ~~covering the trailing 4 consecutive fiscal quarters of no less than~~is 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 4four 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 ~~March 31,~~September 30, 2022, our maximum allowed leverage ratio was ~~3.00~~3.50 to 1.00.

We were in compliance with all covenants under the Credit Agreement as of ~~March 31,~~September 30, 2022.

~~Notes Payable~~

In December 2020 we sold promissory notes to a financial institution, borrowing an aggregate principal amount of $40.0 million (“Notes Payable”). Of the aggregate amount borrowed, $20.0 million matured and was paid on February 20, 2021 and the balance of $20.0 million matured and was paid on February 22, 2022. The premium of $0.3 million from the sale of the Notes Payable was amortized over the life of the debt. The net proceeds from the sale of the Notes Payable were used for general corporate purposes.

For additional details, refer to Note 8 “Debt” to our Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended June 30, ~~2021.~~2022.

NOTE 9 – LEASES

We have operating leases for facilities, vehicles and other equipment. Our facility leases are primarily used for administrative functions, research and development (“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 15 years, including periods covered by options to extend the lease when it is reasonably certain that the option will be exercised.

Lease expense was ~~$9.2~~$9.4 million and ~~$27.5~~$9.1 million for the three ~~and nine~~ months ended ~~March 31,~~September 30, 2022 ~~respectively,~~ and ~~$9.7 million and $29.3 million for the three and nine months ended March 31,~~ 2021, respectively. Expense related to short-term leases, which are not recorded on the Condensed Consolidated Balance Sheets, was not material for the three ~~and nine~~ months ended ~~March 31,~~September 30, 2022 and 2021. As of ~~March 31,~~September 30, 2022 and June 30, ~~2021,~~2022, the weighted-average

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remaining lease term was ~~4.5~~4.8 years ~~and 4.6 years, respectively,~~for both periods, and the weighted-average discount rate for operating leases was ~~1.58%~~2.30% and ~~1.64%~~2.18%, respectively.

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Supplemental cash flow information related to leases was as follows:


		Nine Months Ended March 31,					Three Months Ended September 30,
In thousands	In thousands	2022		2021		In thousands	2022		2021
Operating cash outflows from operating leases	Operating cash outflows from operating leases	$	28,680	$	28,778	Operating cash outflows from operating leases	$	9,627	$	9,485
Right of use assets obtained in exchange for new operating lease liabilities	Right of use assets obtained in exchange for new operating lease liabilities	$	20,698	$	29,155	Right of use assets obtained in exchange for new operating lease liabilities	$	9,220	$	5,955

Maturities of lease liabilities as of ~~March 31,~~September 30, 2022 were as follows:


Fiscal Year Ending June 30:	Fiscal Year Ending June 30:	(In thousands)		Fiscal Year Ending June 30:	(In thousands)
2022 (remaining three months)		$	9,270
2023		29,251
2023 (remaining nine months)				2023 (remaining nine months)	$	25,807
2024	2024	19,231		2024	27,028
2025	2025	13,389		2025	21,023
2026	2026	10,027		2026	16,200
2027 and thereafter		15,840
2027				2027	11,987
2028 and thereafter				2028 and thereafter	15,499
Total lease payments	Total lease payments	97,008		Total lease payments	117,544
Less imputed interest	Less imputed interest	(3,797)		Less imputed interest	(7,054)
Total	Total	$	93,211	Total	$	110,490

As of ~~March 31,~~September 30, 2022, ~~the aggregate amount of future obligations for lease agreements~~we did not have material leases that had not yet ~~commenced was $22.1 million.~~commenced.

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

Equity Incentive Program

As of ~~March 31,~~September 30, 2022, ~~9.9~~8.4 million shares remained available for issuance under our 2004 Equity Incentive Plan (the “2004 Plan”). For details of the 2004 Plan refer to Note 10 “Equity, Long-Term Incentive Compensation Plans and Non-Controlling Interest” to our Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended June 30, ~~2021.~~2022.

Assumed Equity Plans

As part of the acquisition of Orbotech Ltd. (“Orbotech”) in February 2019, we assumed outstanding equity incentive awards under the following Orbotech equity incentive plans: (i) Equity Remuneration Plan for Key Employees of Orbotech and its Affiliates and Subsidiaries (as Amended and Restated in 2005), (ii) 2010 Equity-Based Incentive Plan, and (iii) 2015 Equity-Based Incentive Plan (the “Assumed Equity Plans”).

As of ~~March 31,~~September 30, 2022, there were ~~22,620~~19,947 shares of our common stock underlying the outstanding assumed restricted stock units (“RSUs”) under the Assumed Equity Plans. For details on the Assumed Equity Plans, refer to Note 10 “Equity, Long-Term Incentive Compensation Plans and Non-Controlling Interest” to our Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended June 30, ~~2021.~~2022.

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Equity Incentive Plans - General Information

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


(In thousands)			Available For Grant(1) (2)
Balance as of June 30, ~~2021~~2022			~~10,253~~9,242

RSUs granted(3)			~~(498)~~(883)
~~RSUs granted adjustment(4)~~			39
RSUs canceled			7566

Balance as of ~~March 31,~~September 30, 2022			~~9,869~~8,425

__________________

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

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

(3)Includes RSUs granted to senior management during the ~~nine~~three months ended ~~March 31,~~September 30, 2022 with performance-based vesting criteria (in addition to service-based vesting criteria for any of such RSUs that are deemed to have been earned) (“performance-based RSUs”). This line item includes all such performance-based RSUs granted during the ~~nine~~three months ended ~~March 31,~~September 30, 2022 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~~(0.6 million shares for the ~~nine~~three months ended ~~March 31,~~September 30, 2022 reflects the application of the multiplier described above).

~~(4)~~Represents the portion of RSUs granted with performance-based vesting criteria and reported at the actual number of shares issued upon achievement of the performance-based vesting criteria during the nine months ended March 31, 2022.

The fair value of stock-based awards is measured at the grant date and is recognized as an expense over the employee’s requisite service period. For RSUs granted without “dividend equivalent” rights, fair value is calculated using the closing price of our common stock on the grant date, adjusted to exclude the present value of dividends which are not accrued on those RSUs. The fair value for RSUs granted with “dividend equivalent” rights is determined using the closing price of our common stock on the grant date. Compensation expense for RSUs with ~~performance~~performance-based 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 following table shows stock-based compensation expense for the indicated periods:


		Three Months Ended March 31,				Nine Months Ended March 31,					Three Months Ended September 30,
(In thousands)	(In thousands)	2022		2021		2022		2021		(In thousands)	2022		2021
Stock-based compensation expense by:	Stock-based compensation expense by:									Stock-based compensation expense by:
Costs of revenues	Costs of revenues	$	6,543	$	4,779	$	14,475	$	12,550	Costs of revenues	$	5,589	$	3,838
R&D	R&D	8,482		6,518		18,077		17,214		R&D	8,356		4,694
SG&A	SG&A	22,062		19,030		57,517		54,382		SG&A	21,037		16,684
Total stock-based compensation expense	Total stock-based compensation expense	$	37,087	$	30,327	$	90,069	$	84,146	Total stock-based compensation expense	$	34,982	$	25,216

Stock-based compensation capitalized as inventory as of ~~March 31,~~September 30, 2022 and June 30, ~~2021~~2022 was ~~$8.0~~$9.7 million ~~on each date.~~and $8.6 million, respectively.

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Restricted Stock Units

The following table shows the activity and weighted-average grant date fair values for RSUs during the ~~nine~~three months ended ~~March 31,~~September 30, 2022:


		Shares(1) (In thousands)	Weighted-Average Grant Date Fair Value			Shares(1) (In thousands)	Weighted-Average Grant Date Fair Value
Outstanding RSUs as of June 30, 2021(2)		1,710	$	133.76
Outstanding RSUs as of June 30, 2022(2)					Outstanding RSUs as of June 30, 2022(2)	1,593	$	218.03
Granted(3)	Granted(3)	249	$	358.38	Granted(3)	441	$	397.40
Granted adjustments		(19)	$	118.47

Vested and released	Vested and released	(293)	$	118.04	Vested and released	(171)	$	159.44
Withheld for taxes	Withheld for taxes	(194)	$	118.04	Withheld for taxes	(141)	$	159.44
Forfeited	Forfeited	(42)	$	141.90	Forfeited	(34)	$	139.31
Outstanding RSUs as of March 31, 2022(2)		1,411	$	179.53
Outstanding RSUs as of September 30, 2022(2)					Outstanding RSUs as of September 30, 2022(2)	1,688	$	277.30

__________________

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

(2)Includes performance-based RSUs.

(3)This line item includes performance-based RSUs granted during the ~~nine~~three months ended ~~March 31,~~September 30, 2022 reported at the maximum possible number of shares that may ultimately be issuable if all applicable performance-based criteria are achieved at their maximum levels and all applicable service-based criteria are fully satisfied ~~(0.1~~(0.3 million shares for the ~~nine~~three months ended ~~March 31,~~September 30, 2022).

The RSUs granted by us generally vest as follows: with respect to awards with only service-based vesting criteria, over periods ranging from two to four years; with respect to awards with both performance-based and service-based vesting criteria, ~~in 2 equal installments on the third and fourth anniversaries of the grant date;~~over periods ranging from three to four years; and with respect to awards with both market-based and service-based vesting criteria, in 3three equal installments on the third, fourth and fifth anniversaries of the grant date, in each case subject to the recipient remaining employed by us as of the applicable vesting date. The RSUs granted to the independent members of the Board of Directors vest annually.

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


		Three Months Ended March 31,				Nine Months Ended March 31,					Three Months Ended September 30,
(In thousands, except for weighted-average grant date fair value)	(In thousands, except for weighted-average grant date fair value)	2022		2021		2022		2021		(In thousands, except for weighted-average grant date fair value)	2022		2021
Weighted-average grant date fair value per unit	Weighted-average grant date fair value per unit	$	388.03	$	302.26	$	358.38	$	203.19	Weighted-average grant date fair value per unit	$	397.40	$	353.71

Grant date fair value of vested RSUs	Grant date fair value of vested RSUs	$	10,150	$	14,436	$	57,453	$	65,005	Grant date fair value of vested RSUs	$	49,906	$	36,740
Tax benefits realized by us in connection with vested and released RSUs	Tax benefits realized by us in connection with vested and released RSUs	$	3,993	$	4,332	$	17,914	$	17,763	Tax benefits realized by us in connection with vested and released RSUs	$	10,543	$	9,008

As of ~~March 31,~~September 30, 2022, the unrecognized stock-based compensation expense balance related to RSUs was ~~$162.0~~$342.8 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 ~~1.2~~1.7 years. The intrinsic value of outstanding RSUs as of ~~March 31,~~September 30, 2022 was ~~$516.7~~$510.8 million.

Cash-Based Long-Term Incentive Compensation

We have adopted a cash-based long-term incentive (“Cash LTI”) program (“Cash LTI Plan”) for many of our employees as part of our employee compensation program. Executives and non-employee members of the Board of Directors do not participate in the Cash LTI Plan. During the ~~nine~~three months ended ~~March 31,~~September 30, 2022 and 2021, we approved Cash LTI awards of ~~$15.7~~$0.1 million and ~~$9.4~~$6.6 million, respectively. Cash LTI awards issued to employees under the Cash LTI Plan will vest in 3three or 4four equal installments, with one-third or one-fourth of the aggregate amount of the Cash LTI award vesting on each anniversary of the grant date over a three or four-year period. In order to receive payments under a Cash LTI award, participants must remain employed by us as of the applicable award vesting date. During the three months ended ~~March 31,~~September 30, 2022 and 2021, we recognized ~~$21.6~~$19.5 million and ~~$17.7 million, respectively, in compensation expense under the Cash LTI Plan. During the nine months ended March 31, 2022 and 2021, we recognized $65.6 million and $54.4~~$21.8 million, respectively, in compensation expense under the Cash LTI Plan. As of ~~March 31,~~September 30, 2022, the unrecognized compensation balance (excluding the impact of estimated forfeitures) related to the Cash LTI Plan was ~~$160.8~~$150.0 million. For details, refer to Note 10 “Equity, Long-Term

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Incentive Compensation Plans and Non-Controlling Interest” to our Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended June 30, ~~2021.~~2022.

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Employee Stock Purchase Plan

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

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

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


		Three Months Ended March 31,				Nine Months Ended March 31,					Three Months Ended September 30,
		2022		2021		2022		2021			2022		2021
Stock purchase plan:	Stock purchase plan:									Stock purchase plan:
Expected stock price volatility	Expected stock price volatility	41.5	%	42.1	%	38.2	%	47.0	%	Expected stock price volatility	41.6	%	34.9	%
Risk-free interest rate	Risk-free interest rate	0.1	%	0.1	%	0.1	%	0.4	%	Risk-free interest rate	1.1	%	0.1	%
Dividend yield	Dividend yield	1.0	%	1.4	%	1.2	%	1.6	%	Dividend yield	1.8	%	1.4	%
Expected life (in years)	Expected life (in years)	0.5		0.5		0.5		0.5		Expected life (in years)	0.5		0.5

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


(In thousands, except for weighted-average fair value per share)	(In thousands, except for weighted-average fair value per share)	Three Months Ended March 31,				Nine Months Ended March 31,				(In thousands, except for weighted-average fair value per share)	Three Months Ended September 30,
		2022		2021		2022		2021			2022		2021
Total cash received from employees for the issuance of shares under the ESPP		$	—	$	—	$	36,912	$	26,356

Number of shares purchased by employees through the ESPP	Number of shares purchased by employees through the ESPP	—		—		139		161		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	Tax benefits realized by us in connection with the disqualifying dispositions of shares purchased under the ESPP	$	488	$	722	$	1,686	$	1,886	Tax benefits realized by us in connection with the disqualifying dispositions of shares purchased under the ESPP	$	562	$	967
Weighted-average fair value per share based on Black-Scholes model	Weighted-average fair value per share based on Black-Scholes model	$	107.45	$	64.42	$	94.91	$	59.86	Weighted-average fair value per share based on Black-Scholes model	$	73.31	$	71.82

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 ~~March 31,~~September 30, 2022, a total of ~~2.1~~2.2 million shares were reserved and available for issuance under the ESPP.

Quarterly Cash Dividends

On ~~March~~September 1, 2022, we paid a quarterly cash dividend of ~~$1.05~~$1.30 per share to stockholders of record as of the close of business on ~~February 14,~~August 15, 2022. The total amount of regular quarterly cash dividends and dividend equivalents paid during the three months ended ~~March 31,~~September 30, 2022 and 2021 was ~~$159.0~~$188.0 million and ~~139.3 million, respectively. The total amount of regular quarterly cash dividends and dividend equivalents paid during the nine months ended March 31, 2022 and 2021 was $480.9 million and $420.1~~$162.8 million, respectively. The amount of accrued dividend equivalents payable for regular quarterly cash dividends on unvested RSUs with dividend equivalent rights as of ~~March 31,~~September 30, 2022 and June 30, ~~2021~~2022 was ~~$10.9~~$9.4 million and ~~$10.3~~$11.2 million, respectively. These amounts will be paid upon vesting of the underlying RSUs.

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Non-Controlling Interest

~~We have consolidated the results~~As of ~~Orbograph, in which~~June 30, 2022, we ~~own~~owned approximately 94% of the outstanding equity interest ~~as of March 31, 2022.~~in Orbograph, isa non-core business engaged in the development and marketing of character recognition solutions to banks, financial and other payment processing institutions and healthcare providers.For ~~information~~details regarding the ~~designation~~sale of ~~Orbograph's net assets as held for sale during~~Orbograph in the quarter ended ~~March 31,~~September 30, 2022, refer to Note 6 “Business Combinations and Dispositions” to our Condensed Consolidated Financial Statements.

During the fourth quarter of fiscal 2020, we entered into an Asset Purchase Agreement to sell certain core assets of Orbotech LT Solar, LLC (“OLTS”), which was engaged in the research, development and marketing of products for the deposition of thin film coating of various materials on crystalline silicon photovoltaic wafers for solar energy panels through plasma-enhanced chemical vapor deposition. The sale was completed in the first quarter of fiscal 2021 and the proceeds were not material. We consolidate the results of OLTS, which is considered a non-strategic business, of which we own 97% of the outstanding equity interest as of March 31, 2022.

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NOTE 11 – STOCK REPURCHASE PROGRAM

Our Board of Directors has authorized a program that permits us to repurchase our common stock. As of June 30, 2021, there was an aggregate of approximately $93 million remaining available for repurchase under previous authorizations, and on July 29, 2021, the Board of Directors authorized an additional $2.00 billion. The intent of this program is to offset the dilution from our equity incentive plans, shares issued in connection with purchases under our ESPP, as well as to return excess cash to our stockholders. Subject to market conditions, applicable legal requirements and other factors, the repurchases were madestock, including increases in the ~~open market~~authorized repurchase amount of $2.00 billion in ~~compliance with applicable securities laws, including~~ the ~~Securities Exchange Act~~first quarter of ~~1934~~fiscal 2022 and $6.00 billion in the ~~rules promulgated thereunder, such as Rule 10b-18 and, if pursuant to a written plan, Rule 10b5-1. This~~fourth quarter of fiscal 2022. The stock repurchase program has no expiration date and may be suspended at any time. The intent of the program is, in part, to mitigate the potential dilutive impact related to our equity incentive plans and shares issued in connection with our ESPP as well as to return excess cash to our stockholders. Any and all share repurchase transactions are subject to market conditions and applicable legal requirements.

On June 23, 2022, the Company executed accelerated share repurchase agreements (“ASR Agreements”) with two financial institutions to repurchase shares of our common stock in exchange for an upfront payment of $3.00 billion. The Company received initial deliveries totaling approximately 6.5 million shares in the fourth quarter of fiscal 2022, which represented 70% of the prepayment amount at the then prevailing market price of the Company’s shares of stock. The value of the shares yet to be delivered to the Company for the remainder of the upfront payment of $0.90 billion was recorded as an unsettled forward contract, classified within stockholders’ equity. The delivery of any remaining shares would occur at the final settlement of the transactions under the ASR Agreements, which is scheduled for the second quarter of fiscal 2023. The total number of shares received under the ASR Agreements will be based on the volume-weighted average prices of the Company’s stock during the term of the ASR Agreements, less an agreed-upon discount and subject to adjustments pursuant to the terms and conditions of the ASR Agreements. No shares were returned to us under the ASR Agreements in the quarter ended September 30, 2022.

Under the authoritative guidance, share repurchases are recognized as a reduction to retained earnings to the extent available, with any excess recognized as a reduction of capital in excess of par value.

As of ~~March 31,~~September 30, 2022, an aggregate of ~~$0.70~~$3.14 billion was available for repurchase under the stock repurchase program.

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


		Three Months Ended March 31,				Nine Months Ended March 31,					Three Months Ended September 30,
(In thousands)	(In thousands)	2022		2021		2022		2021		(In thousands)	2022		2021
Number of shares of common stock repurchased	Number of shares of common stock repurchased	1,539		906		3,833		2,707		Number of shares of common stock repurchased	257		1,190
Total cost of repurchases	Total cost of repurchases	$	564,666	$	273,441	$	1,394,217	$	644,830	Total cost of repurchases	$	89,616	$	399,677

NOTE 12 – NET INCOME PER SHARE

Basic net income per share is calculated by dividing net income available to common stockholders by the weighted-average number of common shares outstanding during the period. Diluted net income per share is calculated by using the weighted-average number of common shares outstanding during the period, increased to include the number of additional shares of common stock that would have been outstanding if the shares of common stock underlying our outstanding dilutive RSUs had been issued. The dilutive effect of outstanding RSUs is reflected in diluted net income per share by application of the treasury stock method.

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


(In thousands, except per share amounts)	(In thousands, except per share amounts)	Three Months Ended March 31,				Nine Months Ended March 31,				(In thousands, except per share amounts)	Three Months Ended September 30,
		2022		2021		2022		2021			2022		2021
Numerator:	Numerator:									Numerator:
Net income attributable to KLA	Net income attributable to KLA	$	730,572	$	567,496	$	2,516,433	$	1,445,314	Net income attributable to KLA	$	1,025,991	$	1,068,417
Denominator:	Denominator:									Denominator:
Weighted-average shares - basic, excluding unvested RSUs	Weighted-average shares - basic, excluding unvested RSUs	150,145		153,801		151,250		154,457		Weighted-average shares - basic, excluding unvested RSUs	141,829		152,330
Effect of dilutive RSUs and options	Effect of dilutive RSUs and options	1,041		1,358		1,096		1,332		Effect of dilutive RSUs and options	734		1,080
Weighted-average shares - diluted	Weighted-average shares - diluted	151,186		155,159		152,346		155,789		Weighted-average shares - diluted	142,563		153,410
Basic net income per share attributable to KLA	Basic net income per share attributable to KLA	$	4.87	$	3.69	$	16.64	$	9.36	Basic net income per share attributable to KLA	$	7.23	$	7.01
Diluted net income per share attributable to KLA	Diluted net income per share attributable to KLA	$	4.83	$	3.66	$	16.52	$	9.28	Diluted net income per share attributable to KLA	$	7.20	$	6.96
Anti-dilutive securities excluded from the computation of diluted net income per share	Anti-dilutive securities excluded from the computation of diluted net income per share	10		—		9		—		Anti-dilutive securities excluded from the computation of diluted net income per share	205		135

NOTE 13 – INCOME TAXES

The following table provides details of income taxes:


		Three Months Ended March 31,						Nine Months Ended March 31,							Three Months Ended September 30,
(Dollar amounts in thousands)	(Dollar amounts in thousands)	2022			2021			2022			2021			(Dollar amounts in thousands)	2022			2021
Income before income taxes	Income before income taxes	$	846,285		$	640,403		$	2,539,538		$	1,651,611		Income before income taxes	$	1,070,028		$	766,348
Provision for income taxes		$	115,625		$	73,233		$	22,876		$	207,316
Provision (benefit) for income taxes														Provision (benefit) for income taxes	$	43,963		$	(302,137)
Effective tax rate	Effective tax rate	13.7		%	11.4		%	0.9		%	12.6		%	Effective tax rate	4.1		%	(39.4)		%

Our effective tax rate is lower than the U.S. federal statutory rate during the three months ended March 31, 2022 primarily due to the proportion of earnings generated in jurisdictions with tax rates lower than the U.S. statutory rate and the proportion of U.S. earnings eligible for the Foreign Derived Intangible Income deduction.

~~Our effective tax rate is lower than the U.S. federal statutory rate during the nine months ended March 31,~~September 30, 2022 primarily due to a non-recurring tax benefit resulting from a decrease in our unrecognized tax benefits from the ~~intra-entity transfers~~settlement of ~~certain intellectual property rights (“IP rights”). During the six months ended December 31, 2021, we completed intra-entity transfers of IP rights to one of~~income tax examinations and a decrease in our Singapore subsidiaries in order to better align the ownership of these rights with how our business operates. The transfers did not result in taxable gains; however, our Singapore subsidiary recognized deferred tax ~~assets for the book~~liabilities on unremitted earnings and tax basis difference of the eligible transferred IP rights. As a result of these transactions, we recorded deferred tax assets and related tax benefits of $394.5 million, based on the fair value of the eligible IP rights transferred in September 2021. The tax-deductible amortization related to the eligible transferred IP rights will be recognized over 15 years as allowed under Singapore tax law.unrealized gains.

In the normal course of business, we are subject to examination by tax authorities throughout the world. We are subject to U.S. federal income tax examinations for all years beginning from the fiscal year ended June 30, 2018 and are under United States income tax examination for the fiscal years ended June 30, 2018, June 30, 2019 and June 30, 2020. We are subject to state income tax examinations for all years beginning from the fiscal year ended June 30, ~~2017.~~2018. 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.~~2013. We are under audit in Germany related to Orbotech for the calendar years ended December 31, 2013 to December 31, 2015.

It is possible that certain examinations may be concluded in the next 12 months. The timing and resolution of income tax examinations is uncertain. Given the uncertainty around the timing of the resolution of these ongoing examinations, we are unable to estimate the full range of possible adjustments to our unrecognized tax benefits within the next 12 months.

In ~~May 2017,~~August 2022, Orbotech ~~received an assessment from~~executed a settlement agreement with the Israel Tax Authority (“ITA”) ~~with respect to its~~in resolution of tax examinations for fiscal years 2012 through 2014 ~~(the “Assessment”), for an aggregate~~and 2015 through 2018. The settlement agreement included a payment of approximately $25.7 million, including interest, to the ITA. Approximately $5.7 million of this payment may be refunded if and when the Israel Innovation Authority agrees to the amount of ~~tax, after offsetting all net operating losses (“NOL”) available through~~R&D expenses eligible for deduction during the ~~end of 2014, of approximately NIS 229~~above referenced years. In addition, Orbotech agreed to make an election in the current year to pay $16.2 million ~~(equivalent to approximately $66 million which includes related interest and linkage differentials~~ to the ~~Israeli consumer price index as~~ITA related to previous “tax exempt” earnings under the historical Approved or Beneficial Enterprises regimes. The current year election to pay tax on the previous exempt earnings was made under the Temporary Order issued in the Israel Budget, which allows for a reduced tax rate on such earnings. Orbotech currently has no ongoing ITA examinations. Orbotech is subject to income tax examination in Israel for all years beginning from the calendar year ended December 31, 2019.

Legislative Developments

President Biden signed into law the CHIPS and Science Act of ~~the date of the issuance of the Tax Decrees, as defined below).~~2022 (“CHIPS Act,” where “CHIPS” stands for Creating Helpful Incentives to Produce Semiconductors) on August 9, 2022. The CHIPS Act provides for various incentives and tax

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Oncredits among other items including the Advanced Manufacturing Investment Credit (“AMIC”) which equals 25% of qualified investments in an advanced manufacturing facility that is placed in service after December 31, 2022.

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

The IRA also introduced a 1% excise tax imposed on certain stock repurchases by publicly traded companies made after December 31, ~~2018, Orbotech filed an objection in respect~~2022. We will record the excise tax as part of the ~~Assessment (the “Objection”). The ITA completed the second stage~~cost basis 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,any treasury stock repurchased 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.December 31, 2022.

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 inevaluating the ~~pre-trial hearing stage~~applicability and impact of the ~~process.The ITA~~CHIPS Act and ~~Orbotech are continuing discussions in an effort to resolve this matter in a mutually agreeable manner.~~

~~In connection with~~ the above, there was an ongoing criminal investigation in Israel against Orbotech, certain of its employees and a 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 stated 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. On March 23, 2022, Orbotech received a letter from the Assessment Investigation Officer that the investigation was closed due to lack of evidence. In addition, the Orbotech employees and its tax consultant also received letters in March 2022 noting the investigation against them had been closed.

In December 2020, Orbotech received an assessment from the ITA with respect to its fiscal years 2015 through 2018 (the “Second Assessment”) for an aggregate amount of tax, after offsetting all NOLs available through the end of 2018, of approximately NIS 227 million (equivalent to approximately $68 million which includes related interest and linkage differentials to the Israeli consumer price index as of the date of the issuance of the Second Assessment). We filed an objection to the Second Assessment with the ITA in March 2021. The objection moved the 2015-2018 audit to the second stage, in which the ITA will review the objections. The ITA has completed the second stage review for 2015 and 2016 of the Second Assessment and issued Tax Decrees to OrbotechIRA on March 3, 2022 for 2015-2016 in the amount of approximately NIS 63 million (equivalent to approximately $19 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 Second Assessment for 2015 and 2016. The second stage review for fiscal 2017 and 2018 has not been completed. The Second Assessment for 2017 and 2018 remains at approximately NIS 114 million (equivalent to approximately $34 million which includes related interest and linkage differentials to the Israeli consumer price index as of the date of the issuance of the Second Assessment). We believe that our ~~recorded unrecognized tax benefits are sufficient to cover the resolution of the Second Assessment.~~Condensed Consolidated Financial Statements including our future cash flows.

NOTE 14 – LITIGATION AND OTHER LEGAL MATTERS

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

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NOTE 15 – COMMITMENTS AND CONTINGENCIES

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

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


		Three Months Ended March 31,				Nine Months Ended March 31,					Three Months Ended September 30,
(In thousands)	(In thousands)	2022		2021		2022		2021		(In thousands)	2022		2021
Receivables sold under factoring agreements	Receivables sold under factoring agreements	$	63,094	$	100,475	$	210,130	$	239,037	Receivables sold under factoring agreements	$	104,247	$	67,118
Proceeds from sales of LC	Proceeds from sales of LC	$	74,267	$	19,458	$	115,433	$	60,297	Proceeds from sales of LC	$	24,651	$	21,673

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 ~~$3.4~~$3.8 billion as of ~~March 31,~~September 30, 2022, a majority of 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 ~~March 31,~~September 30, 2022, we have committed ~~$241.8~~$188.8 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 3three or 4four equal installments, with ~~one-third~~one-

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third or one-fourth of the aggregate amount of the Cash LTI award vesting on each anniversary of the grant date over a three- or four-year period. In order to receive payments under a Cash LTI award, participants must remain employed by us as of the applicable award vesting date.

Guarantees and Contingencies. We maintain guarantee arrangements available through various financial institutions for up to ~~$87.5~~$93.0 million, of which ~~$58.1~~$59.7 million had been issued as of ~~March 31,~~September 30, 2022, primarily to fund guarantees to customs authorities for value-added tax and other operating requirements of our consolidated subsidiaries in Europe, Israel and Asia.

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

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

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

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

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

NOTE 16 – DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

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

Our foreign subsidiaries operate and sell our products in various global markets. As a result, we are exposed to risks relating to changes in foreign currency exchange rates. We utilize foreign ~~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 and the pound ~~sterling and the Israeli new shekel.~~sterling. We routinely hedge our exposures to

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certain foreign currencies with various financial institutions in an effort to minimize the impact of certain currency exchange rate fluctuations. These ~~currency forward~~foreign 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.

Since fiscal 2015, we have entered into ~~3 series~~four sets of forward contracts to ~~lock~~hedge the benchmark interest rate on portions of our Senior Notes prior to issuance (“Rate Lock Agreements”). Upon issuance of the associated debt, the Rate Lock Agreements were settled and their fair values were recorded within ~~AOCI, amortizing~~AOCI. The resulting gains and losses from these transactions are amortized to interest expense over the lives of the associated debt. We recognized a net ~~expenses~~gain of ~~$0.3~~$0.9 million ~~and $0.8 million for~~in the three ~~and nine~~ months ended ~~March 31,~~September 30, 2022, ~~respectively, and net expenses of $0.3 million and $0.8 million for the three and nine months ended March 31, 2021, respectively,~~ for the amortization of the net of the Rate Lock Agreements that had been recognized in AOCI, which decreased the interest expense on a net basis. We recognized net expense of $0.3 million in the three months ended September 30, 2021, for the amortization of the net of the Rate Lock Agreements that had been recognized in AOCI, which increased the interest expense on a net basis. As of ~~March 31,~~September 30, 2022, the aggregate unamortized portion of the fair value of the forward contracts for the Rate Lock Agreements was ~~$28.2 million.~~a $53.9 million net gain.

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

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

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

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

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


		Three Months Ended March 31,				Nine Months Ended March 31,					Three Months Ended September 30,
(In thousands)	(In thousands)	2022		2021		2022		2021		(In thousands)	2022		2021
Derivatives Designated as Cash Flow Hedging Instruments:	Derivatives Designated as Cash Flow Hedging Instruments:									Derivatives Designated as Cash Flow Hedging Instruments:
Rate lock agreements:	Rate lock agreements:									Rate lock agreements:
Amounts included in the assessment of effectiveness	Amounts included in the assessment of effectiveness	$	10,069	$	—	$	10,069	$	—	Amounts included in the assessment of effectiveness	$	937	$	—
Foreign exchange contracts:	Foreign exchange contracts:									Foreign exchange contracts:
Amounts included in the assessment of effectiveness	Amounts included in the assessment of effectiveness	$	7,733	$	5,878	$	15,335	$	3,696	Amounts included in the assessment of effectiveness	$	816	$	853
Amounts excluded from the assessment of effectiveness	Amounts excluded from the assessment of effectiveness	$	(25)	$	(54)	$	(34)	$	(146)	Amounts excluded from the assessment of effectiveness	$	15	$	(1)
Derivatives Designated as Net Investment Hedging Instruments:	Derivatives Designated as Net Investment Hedging Instruments:									Derivatives Designated as Net Investment Hedging Instruments:
Foreign exchange contracts(1):	Foreign exchange contracts(1):	$	1,850	$	1,094	$	1,386	$	1,094	Foreign exchange contracts(1):	$	3,679	$	650

__________________

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

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

Three Months Ended March 31, Three Months Ended March 31,
2022 2021
(In thousands) Revenues Costs of Revenues and Operating Expenses Interest Expense Other Expense (Income), Net Revenues Costs of Revenues and Operating Expenses Interest Expense Other Expense (Income), Net
Total amounts presented in the Condensed Consolidated Statements of Operations in which the effects of cash flow hedges are recorded $ 2,288,676 $ 1,393,769 $ 39,978 $ 8,644 $ 1,803,773 $ 1,131,626 $ 39,092 $ (7,348)
Gains (Losses) on Derivatives Designated as Hedging Instruments:
Rate lock agreements:
Amount of gains (losses) reclassified from AOCI to earnings $ — $ — $ (279) $ — $ — $ — $ (279) $ —
Foreign exchange contracts:
Amount of gains (losses) reclassified from AOCI to earnings $ 1,711 $ (329) $ — $ — $ (441) $ 187 $ — $ —
Amount excluded from the assessment of effectiveness recognized in earnings $ (111) $ — $ — $ 568 $ (142) $ — $ — $ 699
Gains (Losses) on Derivatives Not Designated as Hedging Instruments:
Amount of gains (losses) recognized in earnings $ — $ — $ — $ (2,802) $ — $ — $ — $ 3,420

Nine Months Ended March 31, Nine Months Ended March 31,
2022 2021
(In thousands) Revenues Costs of Revenues and Operating Expenses Interest Expense Other Expense (Income), Net Revenues Costs of Revenues and Operating Expenses Interest Expense Other Expense (Income), Net
Total amounts presented in the Condensed Consolidated Statements of Operations in which the effects of cash flow hedges are recorded $ 6,725,144 $ 4,045,479 $ 116,142 $ 23,985 $ 4,993,263 $ 3,224,563 $ 117,358 $ (269)
Gains (Losses) on Derivatives Designated as Hedging Instruments:
Rate lock agreements:
Amount of gains (losses) reclassified from AOCI to earnings $ — $ — $ (837) $ — $ — $ — $ (837) $ —
Foreign exchange contracts:
Amount of gains (losses) reclassified from AOCI to earnings $ 5,197 $ (909) $ — $ — $ (1,091) $ 612 $ — $ —
Amount excluded from the assessment of effectiveness recognized in earnings $ (329) $ — $ — $ 1,883 $ (420) $ — $ — $ 699
Gains (Losses) on Derivatives Not Designated as Hedging Instruments:
Amount of gains (losses) recognized in earnings $ — $ — $ — $ 4,261 $ — $ — $ — $ 483

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	Three Months Ended September 30,								Three Months Ended September 30,
	2022								2021
(In thousands)	Revenues		Costs of Revenues and Operating Expenses		Interest Expense		Other Expense (Income), Net		Revenues		Costs of Revenues and Operating Expenses		Interest Expense		Other Expense (Income), Net
Total amounts presented in the Condensed Consolidated Statements of Operations in which the effects of cash flow hedges are recorded	$	2,724,424	$	1,613,721	$	74,395	$	(47,006)	$	2,083,838	$	1,265,038	$	38,312	$	14,140
Gains (Losses) on Derivatives Designated as Hedging Instruments:
Rate lock agreements:
Amount of gains (losses) reclassified from AOCI to earnings	$	—	$	—	$	937	$	—	$	—	$	—	$	(279)	$	—

Foreign exchange contracts:
Amount of gains (losses) reclassified from AOCI to earnings	$	14,915	$	(5,367)	$	—	$	—	$	1,843	$	(232)	$	—	$	—
Amount excluded from the assessment of effectiveness recognized in earnings	$	(310)	$	—	$	—	$	455	$	(114)	$	—	$	—	$	657

Gains (Losses) on Derivatives Not Designated as Hedging Instruments:
Amount of gains (losses) recognized in earnings	$	—	$	—	$	—	$	14,374	$	—	$	—	$	—	$	1,069

The U.S. dollar equivalent of all outstanding notional amounts of foreign currency hedge contracts ~~and rate lock agreements,~~ with maximum remaining maturities of approximately ~~eleven~~11 months as of the dates indicated below, were as follows:


		As of		As of			As of		As of
(In thousands)	(In thousands)	March 31, 2022		June 30, 2021		(In thousands)	September 30, 2022		June 30, 2022
Cash flow hedge contracts - foreign currency	Cash flow hedge contracts - foreign currency					Cash flow hedge contracts - foreign currency
Purchase	Purchase	$	133,194	$	12,550	Purchase	$	122,528	$	124,641
Sell	Sell	$	193,447	$	134,845	Sell	$	207,905	$	176,259
Net investment hedge contracts - foreign currency	Net investment hedge contracts - foreign currency					Net investment hedge contracts - foreign currency

Purchase						Purchase	$	66,516	$	—
Sell	Sell	$	66,436	$	66,848	Sell	$	66,436	$	66,436
Other foreign currency hedge contracts	Other foreign currency hedge contracts					Other foreign currency hedge contracts
Purchase	Purchase	$	713,497	$	264,292	Purchase	$	475,015	$	565,586
Sell	Sell	$	482,401	$	278,635	Sell	$	435,525	$	389,368
Rate lock agreements		$	400,000	$	—

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


		Asset Derivatives					Liability Derivatives						Asset Derivatives					Liability Derivatives
		Balance Sheet	As of		As of		Balance Sheet	As of		As of			Balance Sheet	As of		As of		Balance Sheet	As of		As of
		Location	March 31, 2022		June 30, 2021		Location	March 31, 2022		June 30, 2021			Location	September 30, 2022		June 30, 2022		Location	September 30, 2022		June 30, 2022
(In thousands)	(In thousands)		Fair Value					Fair Value				(In thousands)		Fair Value					Fair Value
Derivatives designated as hedging instruments	Derivatives designated as hedging instruments											Derivatives designated as hedging instruments
Rate lock agreements		Other current assets	$	10,242	$	—	Other current liabilities	$	(173)	$	—

Foreign exchange contracts	Foreign exchange contracts	Other current assets	15,221		3,940		Other current liabilities	(2,642)		272		Foreign exchange contracts	Other current assets	21,176		20,595		Other current liabilities	(12,989)		8,406
Total derivatives designated as hedging instruments	Total derivatives designated as hedging instruments		25,463		3,940			(2,815)		272		Total derivatives designated as hedging instruments		21,176		20,595			(12,989)		8,406
Derivatives not designated as hedging instruments	Derivatives not designated as hedging instruments											Derivatives not designated as hedging instruments
Foreign exchange contracts	Foreign exchange contracts	Other current assets	19,299		4,312		Other current liabilities	(6,072)		2,535		Foreign exchange contracts	Other current assets	23,813		19,716		Other current liabilities	(30,098)		25,909
Total derivatives not designated as hedging instruments	Total derivatives not designated as hedging instruments		19,299		4,312			(6,072)		2,535		Total derivatives not designated as hedging instruments		23,813		19,716			(30,098)		25,909
Total derivatives	Total derivatives		$	44,762	$	8,252		$	(8,887)	$	2,807	Total derivatives		$	44,989	$	40,311		$	(43,087)	$	34,315

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


		Three Months Ended March 31,				Nine Months Ended March 31,					Three Months Ended September 30,
(In thousands)	(In thousands)	2022		2021		2022		2021		(In thousands)	2022		2021
Beginning AOCI	Beginning AOCI	$	(20,831)	$	(30,816)	$	(25,830)	$	(29,602)	Beginning AOCI	$	77,018	$	(25,830)
Amount reclassified to earnings as net (gains) losses	Amount reclassified to earnings as net (gains) losses	(992)		675		(3,122)		1,736		Amount reclassified to earnings as net (gains) losses	(10,175)		(1,218)
Net change in unrealized gains (losses)	Net change in unrealized gains (losses)	19,627		6,919		26,756		4,644		Net change in unrealized gains (losses)	5,447		1,502
Ending AOCI	Ending AOCI	$	(2,196)	$	(23,222)	$	(2,196)	$	(23,222)	Ending AOCI	$	72,290	$	(25,546)

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Offsetting of Derivative Assets and Liabilities

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

As of March 31, 2022 Gross Amounts of Derivatives Not Offset in the Condensed Consolidated Balance Sheets
(In thousands) Gross Amounts of Derivatives Gross Amounts of Derivatives Offset in the Condensed Consolidated Balance Sheets Net Amount of Derivatives Presented in the Condensed Consolidated Balance Sheets Financial Instruments Cash Collateral Received Net Amount
Derivatives - Assets $ 44,762 $ — $ 44,762 $ (8,017) $ — $ 36,745
Derivatives - Liabilities $ (8,887) $ — $ (8,887) $ 8,017 $ — $ (870)


As of September 30, 2022							Gross Amounts of Derivatives Not Offset in the Condensed Consolidated Balance Sheets
(In thousands)	Gross Amounts of Derivatives		Gross Amounts of Derivatives Offset in the Condensed Consolidated Balance Sheets		Net Amount of Derivatives Presented in the Condensed Consolidated Balance Sheets		Financial Instruments		Cash Collateral Received		Net Amount
Derivatives - assets	$	44,989	$	—	$	44,989	$	(27,133)	$	—	$	17,856
Derivatives - liabilities	$	(43,087)	$	—	$	(43,087)	$	27,133	$	—	$	(15,954)

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


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

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NOTE 17– RELATED PARTY TRANSACTIONS

During the three ~~and nine~~ months ended ~~March 31,~~September 30, 2022 and 2021, we purchased from, or sold to, several entities where one or more of our executive officers or members of our Board of Directors or their immediate family members were, during the periods presented, an executive officer or a board member of a subsidiary, ~~or in the case of The Vanguard Group, Inc., together with its affiliates, beneficially owns more than 10% of our outstanding stock,~~ including ~~Ansys, Inc.,~~ Citrix Systems, Inc., HP Inc., Keysight Technologies, Inc., Advanced Micro Devices, Inc., and ~~for the nine months ended March 31, 2021 Proofpoint,~~Ansys, Inc. The following table provides the transactions with these parties for the indicated periods (for the portion of such period that they were considered related):


		Three Months Ended March 31,				Nine Months Ended March 31,					Three Months Ended September 30,
(In thousands)	(In thousands)	2022		2021		2022		2021		(In thousands)	2022		2021
Total revenues	Total revenues	$	4,485	$	417	$	5,108	$	1,055	Total revenues	$	757	$	79
Total purchases	Total purchases	$	562	$	545	$	834	$	1,116	Total purchases	$	245	$	359

Our receivable balances from these parties were ~~$1.1~~$1.5 million and $1.1 million as of ~~March 31,~~September 30, 2022 and June 30, ~~2021,~~2022, respectively. Our payable balances to these parties were immaterial as of ~~March 31,~~September 30, 2022 and June 30, ~~2021.~~2022.

NOTE 18 – SEGMENT REPORTING AND GEOGRAPHIC INFORMATION

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

We have 4three reportable segments: Semiconductor Process ~~Control (“SPC”);~~Control; Specialty Semiconductor Process; and Printed Circuit Board (“PCB”), Display and Component ~~Inspection; and Other.~~Inspection. The reportable segments are determined based on several factors including, but not limited to, customer base, homogeneity of products, technology, delivery channels and similar economic characteristics.

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Prior to July 1, 2022, we had a fourth segment, Other, but core assets were sold and there are no longer operations.

Semiconductor Process Control

The ~~SPC~~Semiconductor Process Control segment offers a comprehensive portfolio of inspection, metrology and data analytics products, and related ~~service,~~services, which helps ~~integrated circuit (“IC”)~~IC manufacturers achieve target yield throughout the entire semiconductor fabrication process, – from R&D to final volume production. Our differentiated products and services are designed to provide comprehensive solutions that help our customers accelerate development and production ramp cycles, achieve higher and more stable semiconductor die yields and improve their overall profitability. This reportable segment is composed of 2two operating segments, Wafer Inspection and Patterning and GSS.

Specialty Semiconductor Process

The Specialty Semiconductor Manufacturing segment develops and sells advanced vacuum deposition and etching process tools, which are used by a broad range of specialty semiconductor customers, including manufacturers of microelectromechanical systems, radio frequency communication chips and power semiconductors for automotive and industrial applications. This reportable segment is composed of 1one operating segment.

PCB, Display and Component Inspection

The PCB, Display and Component Inspection segment enables electronic device manufacturers to inspect, test and measure PCBs, flat panel displays and ICs to verify their quality, pattern the desired electronic circuitry on the relevant substrate and perform three-dimensional shaping of metalized circuits on multiple surfaces. This segment also engages in the development and marketing of character recognition solutions to banks, financial and other payment processing institutions and healthcare providers. This reportable segment is composed of 2two operating segments, PCB and Display and Component Inspection.

~~Other~~

The Other segment is composed of 1 operating segment. During the fourth quarter of fiscal 2020, we entered into an Asset Purchase Agreement to sell certain core assets of our non-strategic solar energy business, which accounted for the majority of our Other reportable segment. The sale was completed in the first quarter of fiscal 2021.

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

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The following is a summary of results for each of our 4three reportable segments for the indicated periods:


		Three Months Ended March 31,				Nine Months Ended March 31,					Three Months Ended September 30,
(In thousands)	(In thousands)	2022		2021		2022		2021		(In thousands)	2022		2021
SPC:
Semiconductor Process Control:										Semiconductor Process Control:
Revenues	Revenues	$	1,979,295	$	1,506,140	$	5,810,580	$	4,154,278	Revenues	$	2,397,759	$	1,779,083
Segment gross profit	Segment gross profit	1,284,450		982,511		3,789,316		2,681,411		Segment gross profit	1,576,982		1,161,929
Specialty Semiconductor Process:	Specialty Semiconductor Process:									Specialty Semiconductor Process:
Revenues	Revenues	117,253		91,724		332,020		271,264		Revenues	127,867		102,029
Segment gross profit	Segment gross profit	61,521		51,720		176,516		152,819		Segment gross profit	67,040		54,721
PCB, Display and Component Inspection:	PCB, Display and Component Inspection:									PCB, Display and Component Inspection:
Revenues	Revenues	192,533		205,202		583,318		565,646		Revenues	200,745		202,808
Segment gross profit	Segment gross profit	93,298		100,311		270,096		275,064		Segment gross profit	85,674		94,476
Other:
Revenues		—		149		—		739
Segment gross profit		—		40		—		(68)

Totals:	Totals:									Totals:
Revenues for reportable segments	Revenues for reportable segments	$	2,289,081	$	1,803,215	$	6,725,918	$	4,991,927	Revenues for reportable segments	$	2,726,371	$	2,083,920
Segment gross profit	Segment gross profit	$	1,439,269	$	1,134,582	$	4,235,928	$	3,109,226	Segment gross profit	$	1,729,696	$	1,311,126

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


		Three Months Ended March 31,				Nine Months Ended March 31,					Three Months Ended September 30,
(In thousands)	(In thousands)	2022		2021		2022		2021		(In thousands)	2022		2021
Total revenues for reportable segments	Total revenues for reportable segments	$	2,289,081	$	1,803,215	$	6,725,918	$	4,991,927	Total revenues for reportable segments	$	2,726,371	$	2,083,920
Corporate allocations and effects of changes in foreign currency exchange rates	Corporate allocations and effects of changes in foreign currency exchange rates	(405)		558		(774)		1,336		Corporate allocations and effects of changes in foreign currency exchange rates	(1,947)		(82)
Total revenues	Total revenues	$	2,288,676	$	1,803,773	$	6,725,144	$	4,993,263	Total revenues	$	2,724,424	$	2,083,838

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


		Three Months Ended March 31,				Nine Months Ended March 31,					Three Months Ended September 30,
(In thousands)	(In thousands)	2022		2021		2022		2021		(In thousands)	2022		2021
Total segment gross profit	Total segment gross profit	$	1,439,269	$	1,134,582	$	4,235,928	$	3,109,226	Total segment gross profit	$	1,729,696	$	1,311,126
Acquisition-related charges, corporate allocations, and effects of changes in foreign currency exchange rates(1)	Acquisition-related charges, corporate allocations, and effects of changes in foreign currency exchange rates(1)	42,684		40,438		124,661		115,887		Acquisition-related charges, corporate allocations, and effects of changes in foreign currency exchange rates(1)	46,498		40,912
R&D	R&D	285,189		238,957		808,373		687,059		R&D	318,515		258,153
SG&A	SG&A	216,489		183,040		623,229		537,580		SG&A	253,980		193,261

Interest expense	Interest expense	39,978		39,092		116,142		117,358		Interest expense	74,395		38,312

Loss on extinguishment of debt										Loss on extinguishment of debt	13,286		—
Other expense (income), net	Other expense (income), net	8,644		(7,348)		23,985		(269)		Other expense (income), net	(47,006)		14,140
Income before income taxes	Income before income taxes	$	846,285	$	640,403	$	2,539,538	$	1,651,611	Income before income taxes	$	1,070,028	$	766,348

__________________

(1)Acquisition-related charges primarily include amortization of intangible assets, ~~and~~ 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.

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

(Dollar amounts in thousands) Three Months Ended March 31, Nine Months Ended March 31,
2022 2021 2022 2021
Revenues:
China $ 709,502 31 % $ 353,393 20 % $ 1,939,195 29 % $ 1,221,639 24 %
Taiwan 515,097 22 % 401,797 22 % 1,918,623 29 % 1,151,683 23 %
Korea 474,019 21 % 557,514 31 % 1,036,297 16 % 1,094,979 22 %
North America 219,267 10 % 174,728 10 % 668,601 10 % 559,712 11 %
Europe and Israel 164,246 7 % 95,080 5 % 426,881 6 % 278,398 6 %
Japan 132,829 6 % 161,190 9 % 504,278 7 % 482,330 10 %
Rest of Asia 73,716 3 % 60,071 3 % 231,269 3 % 204,522 4 %
Total $ 2,288,676 100 % $ 1,803,773 100 % $ 6,725,144 100 % $ 4,993,263 100 %

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(Dollar amounts in thousands)	Three Months Ended September 30,
	2022				2021
Revenues:
China	$	839,661	31	%	$	685,156	33	%
Taiwan	748,334		27	%	627,084		30	%
Korea	407,462		15	%	239,183		12	%
North America	233,754		9	%	177,740		9	%
Japan	217,709		8	%	175,167		8	%
Europe and Israel	164,073		6	%	87,440		4	%
Rest of Asia	113,431		4	%	92,068		4	%
Total	$	2,724,424	100	%	$	2,083,838	100	%

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


(Dollar amounts in thousands)	(Dollar amounts in thousands)	Three Months Ended March 31,								Nine Months Ended March 31,								(Dollar amounts in thousands)	Three Months Ended September 30,
		2022				2021				2022				2021					2022				2021
Revenues:	Revenues:																	Revenues:
Wafer Inspection	Wafer Inspection	$	919,072	40	%	$	714,990	40	%	$	2,910,616	43	%	$	1,921,571	38	%	Wafer Inspection	$	1,102,542	41	%	$	887,512	43	%
Patterning	Patterning	610,821		27	%	399,533		22	%	1,559,197		23	%	1,077,977		22	%	Patterning	733,370		27	%	439,591		21	%
Specialty Semiconductor Process	Specialty Semiconductor Process	105,832		5	%	76,852		4	%	303,884		5	%	222,857		4	%	Specialty Semiconductor Process	114,444		4	%	93,120		4	%
PCB, Display and Component Inspection	PCB, Display and Component Inspection	123,384		5	%	141,539		8	%	383,021		6	%	377,990		8	%	PCB, Display and Component Inspection	134,443		5	%	137,887		7	%
Services	Services	488,017		21	%	428,453		24	%	1,398,828		21	%	1,234,425		25	%	Services	528,815		19	%	453,950		22	%
Other	Other	41,550		2	%	42,406		2	%	169,598		2	%	158,443		3	%	Other	110,810		4	%	71,778		3	%
Total	Total	$	2,288,676	100	%	$	1,803,773	100	%	$	6,725,144	100	%	$	4,993,263	100	%	Total	$	2,724,424	100	%	$	2,083,838	100	%

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

In the three months ended ~~March 31,~~September 30, 2022, two customers accounted for approximately ~~17%~~20% and ~~16%~~11% of total ~~revenues.~~revenues, respectively. In the three months ended ~~March 31,~~September 30, 2021, ~~two customers~~one customer accounted for approximately 24% and 16% of total revenues. In the nine months ended March 31, 2022, two customers accounted for approximately 22% and 12% of total revenues. In the nine months ended March 31, 2021, two customers accounted for approximately 17% and 15% of total revenues. Two customers and one customer on an individual basis accounted for greater than 10% of net accounts receivable at ~~March 31,~~September 30, 2022 and at June 30, ~~2021,~~2022, respectively.

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


		As of		As of			As of		As of
(In thousands)	(In thousands)	March 31, 2022		June 30, 2021		(In thousands)	September 30, 2022		June 30, 2022
Land, property and equipment, net:	Land, property and equipment, net:					Land, property and equipment, net:
United States	United States	$	530,852	$	447,359	United States	$	596,069	$	547,454
Singapore	Singapore	128,640		76,882		Singapore	148,789		146,057
Israel	Israel	65,238		57,403		Israel	73,965		72,791
Europe	Europe	55,000		56,895		Europe	62,404		55,370
Rest of Asia	Rest of Asia	29,144		24,488		Rest of Asia	31,775		28,257
Total	Total	$	808,874	$	663,027	Total	$	913,002	$	849,929

NOTE 19 – RESTRUCTURING CHARGES

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

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Restructuring charges were ~~zero~~$16.2 million and ~~$2.9~~$0.5 million for the three months ended ~~March 31,~~September 30, 2022 and 2021, respectively. ~~Restructuring~~The fiscal year 2023 charges ~~were $0.9 million and $11.1 million for~~include one-time transaction bonuses triggered by the ~~nine months ended March 31, 2022 and 2021, respectively. Restructuring charges for the three and nine months ended March 31, 2021, included $1.0 million and $3.0 million, respectively,~~sale of ~~non-cash charges for accelerated depreciation related to certain right-of-use assets and fixed assets to be abandoned.~~Orbograph. As of ~~March 31,~~September 30, 2022 and June 30, ~~2021,~~2022, the accrual for restructuring charges was ~~$3.1~~$5.4 million and ~~$3.3~~$2.1 million, respectively.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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 order backlog; our future product shipments and product and service revenues; our future gross margins; our future research and development (“R&D”) expenses and selling, general and administrative (“SG&A”) expenses; international sales and operations; our ability to maintain or improve our existing competitive position; success of our product offerings; creation and funding of programs for R&D; results of our investment in leading edge technologies; the effects of hedging transactions; the effect of the sale of trade receivables and promissory notes from customers; the effect of future compliance with laws and regulations; our future effective income tax rate; our recognition of tax benefits; the effects of any audits or litigation; future payments of dividends to our stockholders; the completion of any acquisitions of third parties, or the technology or assets thereof; benefits received from any acquisitions and development of acquired technologies; sufficiency of our existing cash balance, investments, cash generated from operations and the unfunded portion of our Revolving Credit Facility (as defined below) 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; ~~and~~ our repayment of our outstanding ~~indebtedness.~~indebtedness; and our environmental, social and governance (“ESG”) related targets, goals and commitments.

Our actual results may differ significantly from those projected in the forward-looking statements in this report. Factors that might cause or contribute to such differences include, but are not limited to:

•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 rising inflation and interest rates, Russia’s invasion of Ukraine, and 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, onboard and retain key personnel;

•Cybersecurity threats, cyber incidents affecting our and our customers, suppliers and other service providers’ systems and networks and our and their 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;

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•Increasing attention to ESG Matters and the resulting costs, risks and impact on our business;

•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;

•Our ability or the ability of our customers to obtain licenses for the sale of certain products or provision of certain services to customers in the People’s Republic of China (“China”), pursuant to regulations recently issued (the “New BIS Rules”) by the Bureau of Industry and Security (“BIS”) of the U.S. Department of Commerce (“Commerce”), which could impact our business, financial condition and results of operations;

•Instability in the global credit and financial markets;

•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.~~businesses; and

•Unexpected delays, difficulties and expenses in executing against our environmental, climate, inclusion and diversity or other ESG targets, goals and commitments.

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 Part II, Item 1A, “Risk Factors” in this report as well as Part I, Item 1, “Business” and Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended June 30, ~~2021.~~2022. 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”). 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.

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 integrated circuits (“IC”), 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 ~~Printed Circuit Boards~~printed circuit boards (“PCB”), ~~Flat Panel Displays~~flat panel displays (“FPD”), Specialty Semiconductor Devices and other electronic components, including advanced packaging, light-emitting diodes (“LED”), power devices, compound ~~semiconductors,~~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, and this~~solutions. Other demand ~~is expected to continue for~~trends include the ~~foreseeable future. At the same time, technology is transforming how we live and work, and the data driven economy is fundamentally changing how businesses operate and deliver value. This digital transformation is enabling secular demand~~growth of end-market drivers such as ~~High-Performance Computing, Artificial Intelligence, Machine Learning,~~artificial intelligence (“AI”), the deployment of 5G telecommunications technology and ~~rapid~~associated high-end mobile devices, the electrification and digitalization of the automotive industry, the revival of personal computer (“PC”) demand and associated innovations to support remote work, virtual collaboration, remote learning and entertainment, and the growth in new automotive electronics and 5G communications markets. Each trend is driving investments and innovation in advanced Logic and Memory semiconductor devices, as well as new and increasingly more complex advanced packaging and PCB technologies. of the IoT. The favorable ~~end-market~~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 ~~thes~~ethese factors, we saw a general strengthening of demand for our products ~~throughout fiscal 2021~~over the last few years. While demand for our products remains strong and ~~fiscal 2022. We~~we continue to ~~focus~~invest in technological innovation, the recent macro-economic uncertainty, expectations of a slowing global economy and resulting impact on ~~our close collaborative relationships with~~consumer demand is a development we are monitoring closely. Some of our customers, ~~which allows us improved insight into customer demand~~particularly in the PC and mobile device end markets, are experiencing market softening in the past few months, and we have seen memory pricing in those markets weaken as well. As a result, some customers have started to ~~more efficiently manage~~postpone capacity expansion plans. Any push out or cancellation of deliveries by our ~~business, ranging from product development~~customers could cause earnings volatility, due to ~~balancing~~increases in risk of inventory ~~levels, in order to meet their needs.~~related charges as well as the timing of revenue recognition.

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We are organized into ~~four~~three reportable ~~segments. We manage our Specialty Semiconductor Process~~segments. Prior to July 1, 2022, we had a fourth segment, Other, but core assets were sold and ~~PCB, Display and Component Inspection reporting~~there are no longer operations. The remaining three segments ~~within our Electronics, Packaging and Components (“EPC”) group.~~are as follows:

•Semiconductor Process ~~Control (“SPC”): a~~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.~~process, from R&D to final volume production.

•Specialty Semiconductor Process: ~~advanced~~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 direct imaging for patterning products used by manufacturers of PCBs, FPDs, advanced packaging, ~~microelectromechanical systems~~MEMS, and other electronic components.

•~~Other: products that do not fall into~~A majority of our revenues are derived from outside the ~~three segments above.~~

~~Table~~U.S., and include geographic regions such as China, Taiwan, Korea, Japan, Europe and Israel, and Rest of ~~Contents~~

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.~~U.S. Although China is currently seen as an important long-term growth region for the semiconductor and electronics capital equipment sector, ~~the United States Department of~~ Commerce ~~(“Commerce”)~~ has adopted regulations and 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 export licensing requirements 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.

In addition, in October 2022, the BIS issued the New BIS Rules to control the export of U.S. semiconductor and high-performance computing technology (including wafer fab equipment) and to control the provision of support by U.S. persons to China. The New BIS Rules impose export license requirements effectively on all KLA products and services to customers located in China that fabricate:

a.Non-planar integrated circuits (“ICs”) (e.g., FinFet or GaaFeT) or 14/16nm and below logic ICs;

b.NAND ICs at 128 layers and above; and

c.DRAM ICs using a “production” technology node of 18 nanometer half-pitch or less.

KLA is also restricted from providing certain U.S. origin tools, software and technology to certain wafer fab equipment manufacturers and maskshops located in China, absent an export license. We are taking appropriate measures to comply with them and are applying for export licenses, when required, to avoid disruption to our customers’ operations. While ~~these~~some export licenses have been obtained by us or our customers, there can be no assurance that export licenses applied for by either us or our customers will be granted.

The New BIS Rules are complex, and we are working on assessing the their full impact on KLA. The new rules have not significantly impacted our operations to date, but the possible negative effects on our future business of export licenses not being granted could be material and could result in a substantial reduction to our remaining performance obligations (“RPO”) or require us to return substantial deposits received from customers in China for future purchase orders. We are still assessing the aggregate potential impact of the existing regulations and New BIS Rules on our financial results and operations, although our preliminary assessment indicates a potential combined gross direct impact on revenue, based on existing backlog, in the range of approximately $500 million to $900 million in calendar year 2023. However, this estimate does not take into account the likelihood of system reallocation of products to other customers where supply is meaningfully below demand for those products. See Part II, Item 1A, “Risk Factors” in this report for more information regarding how such actions by the U.S. government or another country could significantly impact our ability to provide our products and services to existing and potential customers, especially in China, and adversely affect our ~~business. For additional information regarding risks related to our international operations, see Part II, Item 1A, “Risk Factors” in this report.~~business, financial condition and results of operations.

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The following table sets forth some of our key quarterly unaudited financial information:


(In thousands, except net income per share)	(In thousands, except net income per share)	Three Months Ended															(In thousands, except net income per share)	Three Months Ended
		March 31, 2022			December 31, 2021			September 30, 2021			June 30, 2021			March 31, 2021				September 30, 2022			June 30, 2022			March 31, 2022			December 31, 2021			September 30, 2021
Total revenues	Total revenues	$	2,288,676		$	2,352,630		$	2,083,838		$	1,925,471		$	1,803,773		Total revenues	$	2,724,424		$	2,486,739		$	2,288,676		$	2,352,630		$	2,083,838
Costs of revenues	Costs of revenues	$	892,091		$	908,162		$	813,624		$	772,241		$	709,629		Costs of revenues	$	1,041,226		$	978,564		$	892,091		$	908,162		$	813,624
Gross margin	Gross margin	61		%	61		%	61		%	60		%	61		%	Gross margin	62		%	61		%	61		%	61		%	61		%
Net income attributable to KLA(1)	Net income attributable to KLA(1)	$	730,572		$	717,444		$	1,068,417		$	632,978		$	567,496		Net income attributable to KLA(1)	$	1,025,991		$	805,374		$	730,572		$	717,444		$	1,068,417
Diluted net income per share attributable to KLA(2)	Diluted net income per share attributable to KLA(2)	$	4.83		$	4.71		$	6.96		$	4.10		$	3.66		Diluted net income per share attributable to KLA(2)	$	7.20		$	5.40		$	4.83		$	4.71		$	6.96

__________________

(1)Our net income attributable to KLA increased to ~~$730.6~~$1,026.0 million in the three months ended ~~March 31,~~September 30, 2022 compared to the three months ended ~~December 31, 2021 and the three months ended March 31,~~September 30, 2021. While revenues and costs of revenues decreased slightly from the quarter ended December 31, 2021 and operating expenses trended at a higher rate, the reduction in income taxes contributed to an increase in net income attributable to KLA. The increase from the ~~third~~first quarter of fiscal ~~2021~~2022 was primarily due to higher revenues partially offset by higher operating ~~expenses.~~expenses as well as a lower income tax benefit. Refer to the sections below for further information.

(2)Diluted net income per share is computed independently for each of the quarters presented based on the weighted-average fully diluted shares outstanding for each quarter. Therefore, the sum of quarterly diluted net income per share information may not equal annual (or other multiple-quarter calculations of) diluted net income per share.

Impact of COVID-19

Events surrounding the ongoing COVID-19 pandemic had resulted in a reduction in economic activity across the globe in calendar year 2020 and early 2021. Vaccinations and pandemic containment measures have now created an environment that is driving economic growth and higher levels of inflation, even as the pace of economic recovery remains uneven in various geographies. ~~The~~On one hand, the semiconductor and capital equipment industry has experienced multiple growth drivers, including acceleration of the pace of virtual engagement and digitization driven by COVID-19 related travel restrictions and quarantines. On the other hand, the war in Ukraine and resumption of growth has caused us to experience new constraints ~~in our supply chain.~~and challenges. Supply chain lead times are extended and shortages have sometimes required us to plan further ahead and increase our purchase commitments to secure critical components on a timely basis. We continue to monitor our supply chain and work with our suppliers to identify and mitigate potential gaps to ensure continuity of supply.

While all of our global manufacturing sites are currently operational, any local pandemic outbreaks or ~~advent~~introduction of new variants have required and could in the future require us to temporarily curtail production levels or temporarily cease operations based on government mandates or due to outbreaks affecting our manufacturing employees. 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.

We are working with government authorities in the jurisdictions where we operate, and continue 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 may take further actions or alter 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.

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CRITICAL ACCOUNTING ESTIMATES AND POLICIES

The preparation of our Condensed 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 Quarterly Report on Form 10-Q.

There have been no material changes in our critical accounting estimates and policies since our Annual Report on Form 10-K for the fiscal year ended June 30, ~~2021.~~2022. Refer to Note 1 “Basis of Presentation” to our Condensed Consolidated Financial Statements for additional details. In addition, please refer to “Management’s Discussion and Analysis of Financial Condition

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and Results of Operations” contained in Part II, Item 7 of our Annual Report on Form 10-K for our fiscal year ended June 30, ~~2021~~2022 for a complete description of our critical accounting policies and estimates.

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 Condensed Consolidated Financial Statements of those not yet adopted, see Note 1 “Basis of Presentation” to our Condensed Consolidated Financial Statements.

RESULTS OF OPERATIONS

Revenues and Gross Margin

Revenues

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 we receive during that period and, depending upon the duration of manufacturing and installation cycles, in the preceding period. Revenue is also impacted by average customer pricing, customer revenue deferrals associated with volume purchase agreements, and the effect of fluctuations in foreign currency exchange rates.

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.

Three Months Ended March 31, Q3 FY22
vs.
Q3 FY21
(Dollar amounts in thousands) 2022 2021
Revenues:
Product $ 1,800,659 $ 1,375,320 $ 425,339 31 %
Service 488,017 428,453 59,564 14 %
Total revenues $ 2,288,676 $ 1,803,773 $ 484,903 27 %
Costs of revenues $ 892,091 $ 709,629 $ 182,462 26 %
Gross margin 61.0 % 60.7 %
Nine Months Ended March 31, Q3 FY22 YTD
vs.
Q3 FY21 YTD
(Dollar amounts in thousands) 2022 2021
Revenues:
Product $ 5,326,316 $ 3,758,838 $ 1,567,478 42 %
Service 1,398,828 1,234,425 164,403 13 %
Total revenues $ 6,725,144 $ 4,993,263 $ 1,731,881 35 %
Costs of revenues $ 2,613,877 $ 1,999,924 $ 613,953 31 %
Gross margin 61.1 % 59.9 %

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	Three Months Ended September 30,						Q1 FY23 vs. Q1 FY22
(Dollar amounts in thousands)	2022			2021
Revenues:
Product	$	2,195,609		$	1,629,888		$	565,721	35	%
Service	528,815			453,950			74,865		16	%
Total revenues	$	2,724,424		$	2,083,838		$	640,586	31	%
Costs of revenues	$	1,041,226		$	813,624		$	227,602	28	%
Gross margin	61.8		%	61.0		%

Product revenues during the three ~~and nine~~ months ended ~~March 31,~~September 30, 2022 increased compared to the three ~~and nine~~ months ended ~~March 31,~~September 30, 2021 ~~respectively,~~ primarily due to strong demand for many of our products, especially our ~~inspection~~metrology and ~~metrology~~inspection portfolios, as well as increases from continued growth in the advanced packaging and specialty semiconductor markets.

Service revenues during the three ~~and nine~~ months ended ~~March 31,~~September 30, 2022 increased compared to the three ~~and nine~~ months ended ~~March 31,~~September 30, 2021 primarily due to an increase in our installed base.

Revenues by segment(1)


		Three Months Ended March 31,				Q3 FY22 vs. Q3 FY21					Three Months Ended September 30,				Q1 FY23 vs. Q1 FY22
(Dollar amounts in thousands)	(Dollar amounts in thousands)	2022		2021						(Dollar amounts in thousands)	2022		2021
Revenues:	Revenues:									Revenues:
SPC		$	1,979,295	$	1,506,140	$	473,155	31	%
Semiconductor Process Control										Semiconductor Process Control	$	2,397,759	$	1,779,083	$	618,676	35	%
Specialty Semiconductor Process	Specialty Semiconductor Process	117,253		91,724		25,529		28	%	Specialty Semiconductor Process	127,867		102,029		25,838		25	%
PCB, Display and Component Inspection	PCB, Display and Component Inspection	192,533		205,202		(12,669)		(6)	%	PCB, Display and Component Inspection	200,745		202,808		(2,063)		(1)	%
Other		—		149		(149)		(100)	%
Total revenues for reportable segments	Total revenues for reportable segments	$	2,289,081	$	1,803,215	$	485,866	27	%	Total revenues for reportable segments	$	2,726,371	$	2,083,920	$	642,451	31	%

Nine Months Ended March 31, Q3 FY22 YTD
vs.
Q3 FY21 YTD
(Dollar amounts in thousands) 2022 2021
Revenues:
SPC $ 5,810,580 $ 4,154,278 $ 1,656,302 40 %
Specialty Semiconductor Process 332,020 271,264 60,756 22 %
PCB, Display and Component Inspection 583,318 565,646 17,672 3 %
Other — 739 (739) (100) %
Total revenues for reportable segments $ 6,725,918 $ 4,991,927 $ 1,733,991 35 %

__________

(1)Segment revenues exclude corporate allocations and the effects of changes in foreign currency exchange rates. For additional details, refer to Note 18 “Segment Reporting and Geographic Information” to our Condensed Consolidated Financial Statements.

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Revenues from our ~~SPC~~Semiconductor Process Control segment during the ~~three and~~ ~~nine~~three months ended ~~March 31,~~September 30, 2022 increased compared to the ~~three and~~ ~~nine~~three months ended ~~March 31,~~September 30, 2021 ~~respectively,~~ primarily due to strong demand for many of our products especially from our ~~inspection~~metrology and ~~metrology~~inspection portfolios. Revenues in the Specialty Semiconductor Process segment during the ~~three and~~ ~~nine~~three months ended ~~March 31,~~September 30, 2022 increased compared to the ~~three and~~ ~~nine~~three months ended ~~March 31,~~September 30, 2021 ~~respectively,~~ primarily due to continued growth in ~~advanced packaging and~~the specialty semiconductor ~~markets.~~ Revenues in the PCB, Display and Component Inspection segment during the three months ended March 31, 2022 decreased compared to the three months ended March 31, 2021, primarily due to recent COVID-19 driven lockdowns in the Asia Pacific region and delays of certain projects in the mobile application sector.market. Revenues in the PCB, Display and Component Inspection segment during the ~~nine~~three months ended ~~March 31,~~September 30, 2022 ~~increased~~remained relatively flat compared to the ~~nine~~three months ended ~~March 31, 2021, primarily due to recovery in the flat panel display market after softer demand and oversupply in fiscal~~September 30, 2021.

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~~Revenues by region~~

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


		Three Months Ended March 31,								Nine Months Ended March 31,									Three Months Ended September 30,
(Dollar amounts in thousands)	(Dollar amounts in thousands)	2022				2021				2022				2021				(Dollar amounts in thousands)	2022				2021
China	China	$	709,502	31	%	$	353,393	20	%	$	1,939,195	29	%	$	1,221,639	24	%	China	$	839,661	31	%	$	685,156	33	%
Taiwan	Taiwan	515,097		22	%	401,797		22	%	1,918,623		29	%	1,151,683		23	%	Taiwan	748,334		27	%	627,084		30	%
Korea	Korea	474,019		21	%	557,514		31	%	1,036,297		16	%	1,094,979		22	%	Korea	407,462		15	%	239,183		12	%
North America	North America	219,267		10	%	174,728		10	%	668,601		10	%	559,712		11	%	North America	233,754		9	%	177,740		9	%
Japan																		Japan	217,709		8	%	175,167		8	%
Europe and Israel	Europe and Israel	164,246		7	%	95,080		5	%	426,881		6	%	278,398		6	%	Europe and Israel	164,073		6	%	87,440		4	%
Japan		132,829		6	%	161,190		9	%	504,278		7	%	482,330		10	%
Rest of Asia	Rest of Asia	73,716		3	%	60,071		3	%	231,269		3	%	204,522		4	%	Rest of Asia	113,431		4	%	92,068		4	%
Total	Total	$	2,288,676	100	%	$	1,803,773	100	%	$	6,725,144	100	%	$	4,993,263	100	%	Total	$	2,724,424	100	%	$	2,083,838	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:

Gross Margin
Three Months Ended Nine Months Ended
March 31, 2021 60.7% 59.9%
Revenue volume of products and services 1.8% 2.5%
Mix of products and services sold 1.0% 0.3%
Manufacturing labor, overhead and efficiencies (0.5)% (0.3)%
Other service and manufacturing costs (2.0)% (1.3)%
March 31, 2022 61.0% 61.1%


			Gross Margin
			Three Months Ended
September 30, 2021			61.0%
Revenue volume of products and services			0.7%
Mix of products and services sold			1.9%

Manufacturing labor, overhead and efficiencies			(0.2)%
Other service and manufacturing costs			(1.6)%

September 30, 2022			61.8%

Changes in gross margin, which are driven by the revenue volume of products and services, reflect our ability to leverage existing infrastructure to generate higher revenues. Changes in gross margin from the mix of products and services sold reflect the impact of changes within the composition of product and service offerings. Changes in gross margin from manufacturing labor, overhead and efficiencies reflect our ability to manage costs and drive productivity as we scale our manufacturing activity to respond to customer requirements, and amortization of intangible assets. Changes in gross margin from other service and manufacturing costs include the impact of customer support costs, including the efficiencies with which we deliver services to our customers, and the effectiveness with which we manage our production plans and inventory risk.

The increase in our gross margin during the comparative periods presented is primarily due to a more profitable mix and a higher revenue volume of products and services sold, ~~and a more profitable mix,~~ partially offset by an increase in service and manufacturing costs including higher shipping costs.

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Segment gross profit(1)

Three Months Ended March 31, Q3 FY22
vs.
Q3 FY21
(Dollar amounts in thousands) 2022 2021
Segment gross profit:
SPC $ 1,284,450 $ 982,511 $ 301,939 31 %
Specialty Semiconductor Process 61,521 51,720 9,801 19 %
PCB, Display and Component Inspection 93,298 100,311 (7,013) (7) %
Other — 40 (40) (100) %
$ 1,439,269 $ 1,134,582 $ 304,687 27 %


		Nine Months Ended March 31,				Q3 FY22 YTD vs. Q3 FY21 YTD					Three Months Ended September 30,				Q1 FY23 vs. Q1 FY22
(Dollar amounts in thousands)	(Dollar amounts in thousands)	2022		2021						(Dollar amounts in thousands)	2022		2021
Segment gross profit:	Segment gross profit:									Segment gross profit:
SPC		$	3,789,316	$	2,681,411	$	1,107,905	41	%
Semiconductor Process Control										Semiconductor Process Control	$	1,576,982	$	1,161,929	$	415,053	36	%
Specialty Semiconductor Process	Specialty Semiconductor Process	176,516		152,819		23,697		16	%	Specialty Semiconductor Process	67,040		54,721		12,319		23	%
PCB, Display and Component Inspection	PCB, Display and Component Inspection	270,096		275,064		(4,968)		(2)	%	PCB, Display and Component Inspection	85,674		94,476		(8,802)		(9)	%
Other		—		(68)		68		100	%
		$	4,235,928	$	3,109,226	$	1,126,702	36	%		$	1,729,696	$	1,311,126	$	418,570	32	%

________________

(1) Segment gross profit is calculated as segment revenues less segment costs of revenues and excludes corporate allocations, amortization of intangible assets, inventory fair value adjustments, acquisition related costs, and the effects of changes in foreign currency exchange rates. For additional details, refer to Note 18 “Segment Reporting and Geographic Information” to our Condensed Consolidated Financial Statements.

Gross profit in the ~~SPC~~Semiconductor Process Control segment during the three ~~and nine~~ months ended ~~March 31,~~September 30, 2022 increased compared to the three ~~and nine~~ months ended ~~March 31,~~September 30, 2021 ~~respectively,~~ primarily due to a higher revenue volume of products and services sold, partially offset by an increase in other service and manufacturing ~~costs including higher shipping~~ costs. Gross profit in the Specialty Semiconductor Process segment during the three ~~and nine~~ months ended ~~March 31,~~September 30, 2022 increased compared to the three ~~and nine~~ months ended ~~March 31,~~September 30, 2021 ~~respectively,~~ primarily due to a higher revenue volume, partially offset by a less favorable mix of products and services sold as well as an increase in other service and manufacturing costs. Gross profit in the PCB, Display and Component Inspection segment during the three ~~and nine~~ months ended ~~March 31,~~September 30, 2022 decreased compared to the three ~~and nine~~ months ended ~~March 31,~~September 30, 2021 primarily due to a ~~less favorable mix~~lower revenue volume of products and services sold ~~as well as~~and an increase in other service and manufacturing ~~costs.~~costs, partially offset by a more favorable mix of products and services sold.

Research and Development

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.


(Dollar amounts in thousands)	(Dollar amounts in thousands)	Three Months Ended March 31,						Q3 FY22 vs. Q3 FY21				(Dollar amounts in thousands)	Three Months Ended September 30,						Q1 FY23 vs. Q1 FY22
		2022			2021								2022			2021
R&D expenses	R&D expenses	$	285,189		$	238,957		$	46,232	19	%	R&D expenses	$	318,515		$	258,153		$	60,362	23	%
R&D expenses as a percentage of total revenues	R&D expenses as a percentage of total revenues	12		%	13		%					R&D expenses as a percentage of total revenues	12		%	12		%

R&D expenses during the three months ended ~~March 31,~~September 30, 2022 increased compared to the three months ended ~~March 31,~~September 30, 2021 primarily due to an increase in employee-related expenses of ~~$40.4~~$32.1 million as a result of additional engineering headcount ~~as well as~~contributing to higher employee compensation and benefit costs, ~~and~~ an increase in engineering project material costs of ~~$3.1 million.~~

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Nine Months Ended March 31, Q3 FY22 YTD
vs.
Q3 FY21 YTD
(Dollar amounts in thousands) 2022 2021
R&D expenses $ 808,373 $ 687,059 $ 121,314 18 %
R&D expenses as a percentage of total revenues 12 % 14 %

R&D expenses during the nine months ended March 31, 2022 increased compared to the nine months ended March 31, 2021 primarily due to an increase in employee-related expenses of $110.6 million as a result of additional engineering headcount as well as higher employee compensation and benefit costs, an in-process R&D write-off of $6.0$20.2 million and ~~an increase in consulting costs~~increased depreciation expense of ~~$6.0 million, partially offset by a decrease in engineering project material costs of $7.4~~$5.5 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 we must continue to make substantial and focused investments in our R&D. We remain committed to product development in new and emerging technologies.

Selling, General and Administrative


		Three Months Ended March 31,						Q3 FY22 vs. Q3 FY21					Three Months Ended September 30,						Q1 FY23 vs. Q1 FY22
(Dollar amounts in thousands)	(Dollar amounts in thousands)	2022			2021							(Dollar amounts in thousands)	2022			2021
SG&A expenses	SG&A expenses	$	216,489		$	183,040		$	33,449	18	%	SG&A expenses	$	253,980		$	193,261		$	60,719	31	%
SG&A expenses as a percentage of total revenues	SG&A expenses as a percentage of total revenues	9		%	10		%					SG&A expenses as a percentage of total revenues	9		%	9		%

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SG&A expenses during the three months ended ~~March 31,~~September 30, 2022 increased compared to the three months ended ~~March 31,~~September 30, 2021 primarily due to $16.8 million of compensation-related expense from the sale of Orbograph Ltd. (“Orbograph”) along with increases in the following: employee-related expenses of $9.6 million as a result of additional headcount as well as higher employee compensation and benefit costs, depreciation expense of $8.6 million, facilities-related expense of $5.0 million, consulting costs of $3.9 million and promotional expense of $2.7 million.

Nine Months Ended March 31, Q3 FY22 YTD
vs.
Q3 FY21 YTD
(Dollar amounts in thousands) 2022 2021
SG&A expenses $ 623,229 $ 537,580 $ 85,649 16 %
SG&A expenses as a percentage of total revenues 9 % 11 %

SG&A expenses during the nine months ended March 31, 2022 increased compared to the nine months ended March 31, 2021 primarily due to increases in the following: employee-related expenses of $42.3 million as a result of additional headcount as well as higher employee compensation and benefit costs, depreciation expense of $11.3 million, facilities-related expense of $9.0 million, employee travel expenses of $6.6 million, allowance for credit losses of $6.4 million and consulting costs of ~~$9.8 million, facilities-related expense of $8.7 million and promotional expense of $6.2~~$4.6 million.

Restructuring Charges

Restructuring charges were ~~zero~~$16.2 million and ~~$2.9~~$0.5 million for the three months ended ~~March 31,~~September 30, 2022 and 2021, respectively. Restructuring charges were $0.9 million and $11.1 million for the nine months ended March 31, 2022 and 2021, respectively. Restructuring charges for the three and nine months ended March 31, 2021, included $1.0 million and $3.0 million, respectively, of non-cash charges for accelerated depreciation related to certain right-of-use assets and fixed assets to be abandoned. As of ~~March 31,~~September 30, 2022, the accrual for restructuring charges was ~~$3.1~~$5.4 million.

For additional information refer to Note 19 “Restructuring Charges” to our Condensed Consolidated Financial Statements.

Interest Expense and Other Expense (Income), Net

Other expense (income), net is comprised primarily of realized gains or losses on sales of 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.

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(Dollar amounts in thousands)	(Dollar amounts in thousands)	Three Months Ended March 31,						Q3 FY22 vs. Q3 FY21				(Dollar amounts in thousands)	Three Months Ended September 30,							Q1 FY23 vs. Q1 FY22
		2022			2021									(Dollar amounts in thousands)	2022				Q1 FY23 vs. Q1 FY22
Interest expense	Interest expense	$	39,978		$	39,092		$	886	2	%				$	74,395						$	38,312		$	36,083
Other expense (income), net	Other expense (income), net	8,644			(7,348)			15,992		218	%				Other expense (income), net		(47,006)			14,140				(61,146)			(432)	%
Interest expense as a percentage of total revenues	Interest expense as a percentage of total revenues	2		%	2		%								Interest expense as a percentage of total revenues		3	%		2	%
Other expense (income), net as a percentage of total revenues	Other expense (income), net as a percentage of total revenues	< 1%			< 1%										Other expense (income), net as a percentage of total revenues		(2)	%		< 1%

Interest expense during the three months ended ~~March 31,~~September 30, 2022 ~~was relatively unchanged~~increased compared to the three months ended ~~March 31, 2021.~~September 30, 2021 primarily due to additional interest expense on the $3.0 billion Senior Notes issued in June 2022.

Other expense (income), net during the three months ended ~~March 31,~~September 30, 2022 ~~increased~~decreased compared to the three months ended ~~March 31,~~September 30, 2021 primarily due to the following: a ~~fair value loss~~gain of ~~$5.2~~$29.7 million from ~~an equity security in the third quarter of fiscal 2022; a $4.4 million gain recorded in the third quarter of the prior fiscal year due to~~ the sale of our interest in ~~PixCell; and the write-off of~~Orbograph to a ~~$2.5 million cumulative translation loss, previously recorded in AOCI on the consolidated balance sheet, upon substantial completion of the liquidation of~~private equity firm, a ~~foreign subsidiary in the third quarter of the current fiscal year.~~

(Dollar amounts in thousands) Nine Months Ended March 31, Q3 FY22 YTD
vs.
Q3 FY21 YTD
2022 2021
Interest expense $ 116,142 $ 117,358 $ (1,216) (1) %
Other expense (income), net 23,985 (269) 24,254 9,016 %
Interest expense as a percentage of total revenues 2 % 2 %
Other expense (income), net as a percentage of total revenues < 1% < 1%

~~Interest expense during the nine months ended March 31, 2022 was relatively unchanged compared to the nine months ended March 31, 2021.~~

~~Other expense (income),~~higher net ~~during the nine months ended March 31, 2022 increased compared to the nine months ended March 31, 2021 primarily due to the following: a~~ fair value ~~loss~~gain of ~~$14.1~~$13.3 million from an equity security ~~in the current fiscal year; a $4.4 million gain recorded in~~compared to the prior fiscal year, ~~due~~and decreases in accruals related to uncertain tax positions of $10.4 million.

Loss on Extinguishment of Debt

For the ~~sale~~three months ended September 30, 2022, loss on extinguishment of ~~our interest in PixCell; and~~debt reflected a pre-tax net loss of $13.3 million associated with the ~~write-off~~redemption of ~~a $2.5~~$500.0 million ~~cumulative translation loss, previously recorded in AOCI on the consolidated balance sheet, upon substantial completion~~ of the ~~liquidation~~Senior Notes due 2024, including associated redemption premiums, accrued interest and other fees and expenses. We had no loss on extinguishment of ~~a foreign subsidiary~~debt in the ~~current fiscal year.~~three months ended September 30, 2021.

Provision for Income Taxes

The following table provides details of income taxes:


		Three Months Ended March 31,						Nine Months Ended March 31,							Three Months Ended September 30,
(Dollar amounts in thousands)	(Dollar amounts in thousands)	2022			2021			2022			2021			(Dollar amounts in thousands)	2022			2021
Income before income taxes	Income before income taxes	$	846,285		$	640,403		$	2,539,538		$	1,651,611		Income before income taxes	$	1,070,028		$	766,348
Provision (benefit) for income taxes	Provision (benefit) for income taxes	115,625			73,233			22,876			207,316			Provision (benefit) for income taxes	43,963			(302,137)
Effective tax rate	Effective tax rate	13.7		%	11.4		%	0.9		%	12.6		%	Effective tax rate	4.1		%	(39.4)		%

The effective tax rate during the three months ended ~~March 31,~~September 30, 2022 was higher compared to the three months ended ~~March 31, 2021 primarily due to the impact of the following items:~~

•Tax expense increased by $8.3 million during the three months ended March 31, 2022 relating to a decrease in the proportion of our earnings generated in jurisdictions with tax rates lower than the U.S. statutory rate; and

•~~Tax expense increased by $5.3 million during the three months ended March 31, 2022 relating to a non-deductible decrease in the value of the assets held within our Executive Deferred Savings Plan;~~

•~~Tax expense increased by $2.2 million during the three months ended March 31, 2022 relating to the Foreign Derived Intangible Income deduction; partially offset by~~

•~~Tax expense decreased by $1.3 million during the three months ended March 31, 2022 relating to the Global Intangible Low-Taxed Income.~~

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~~The effective tax rate during the nine months ended March 31, 2022 was lower compared to the nine months ended March 31,~~September 30, 2021 primarily due to the impact of the following items:

•Tax expense decreased by $394.5 million during the ~~nine~~three months ended ~~March 31, 2022~~September 30, 2021 relating to a non-recurring tax benefit resulting from the intra-entity transfers of certain intellectual property ~~rights~~ (“~~IP rights”~~IP”). rights. During the three months ended September 30, 2021, we completed intra-entity transfers of IP rights to one of our Singapore subsidiaries in order to better align the ownership of these rights with how our business operates. The transfers did not

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result in taxable gains; however, our Singapore subsidiary recognized deferred tax assets for the book and tax basis difference of the eligible transferred IP rights; and

•Tax expense ~~decreased~~increased by ~~$69.1~~$11.7 million during the ~~nine~~three months ended ~~March 31,~~September 30, 2022 relating to the sale of an ~~internal restructuring reducing the deferred tax liability on unremitted earnings;~~Orbotech Ltd. subsidiary; partially offset by

•Tax expense ~~increased~~decreased by $163.7 million during the nine months ended March 31, 2022 relating to a non-recurring tax expense resulting from a new Israel tax law enacted on November 15, 2021. The new Israel tax law limits our ability to maintain our previous assertion that certain historical earnings of our subsidiaries were permanently reinvested in Israel. Given this, we recorded a deferred tax liability and related tax expense of $163.7$31.8 million during the three months ended ~~December~~September 31, ~~2021 for~~2022 relating to a decrease in our unrecognized tax benefits from the ~~future Israel~~settlement of income tax ~~due upon repatriation of these historical~~examinations; and

•Tax expense decreased by $62 million during the three months ended September 31, 2022 relating to a decrease in our deferred tax liabilities on unremitted earnings ~~in accordance with the new Israel tax law.~~and unrealized gains.

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.

For discussions on tax examinations, assessments and certain related proceedings, see Note 13 “Income Taxes” to our Condensed Consolidated Financial Statements.

Liquidity and Capital Resources


		As of			As of				As of			As of
(Dollar amounts in thousands)	(Dollar amounts in thousands)	March 31, 2022			June 30, 2021			(Dollar amounts in thousands)	September 30, 2022			June 30, 2022
Cash and cash equivalents	Cash and cash equivalents	$	1,415,172		$	1,434,610		Cash and cash equivalents	$	1,819,280		$	1,584,908
Marketable securities	Marketable securities	1,162,724			1,059,912			Marketable securities	1,134,240			1,123,100
Total cash, cash equivalents and marketable securities	Total cash, cash equivalents and marketable securities	$	2,577,896		$	2,494,522		Total cash, cash equivalents and marketable securities	$	2,953,520		$	2,708,008
Percentage of total assets	Percentage of total assets	21		%	24		%	Percentage of total assets	23		%	21		%

		Nine Months Ended March 31,							Three Months Ended September 30,
(In thousands)	(In thousands)	2022			2021			(In thousands)	2022			2021
Cash flows:	Cash flows:							Cash flows:
Net cash provided by operating activities	Net cash provided by operating activities	$	2,493,473		$	1,719,402		Net cash provided by operating activities	$	1,011,545		$	863,797
Net cash used in investing activities	Net cash used in investing activities	(851,064)			(406,800)			Net cash used in investing activities	(53,475)			(175,306)
Net cash used in financing activities	Net cash used in financing activities	(1,653,279)			(1,105,036)			Net cash used in financing activities	(705,727)			(609,030)
Effect of exchange rate changes on cash and cash equivalents	Effect of exchange rate changes on cash and cash equivalents	(8,568)			10,175			Effect of exchange rate changes on cash and cash equivalents	(17,971)			(4,507)
Net (decrease) increase in cash and cash equivalents		$	(19,438)		$	217,741
Net increase in cash and cash equivalents								Net increase in cash and cash equivalents	$	234,372		$	74,954

Cash, Cash Equivalents and Marketable Securities

As of ~~March 31,~~September 30, 2022, our cash, cash equivalents and marketable securities totaled ~~$2.58~~$2.95 billion, which represents an increase of ~~$83.4~~$245.5 million from June 30, ~~2021.~~2022. The increase is due to net cash provided by operating activities of ~~$2.49~~$1.01 billion and net proceeds from ~~our revolving credit facility~~the sale of ~~$275.0 million and stock issuance~~a business of ~~$36.9~~$75.4 million, partially offset by ~~stock repurchases~~net repayments of ~~$1.39 billion,~~debt of $368.8 million, cash used for payment of dividends and dividend equivalents of ~~$480.9~~$188.0 million, ~~$470.9~~stock repurchases of $89.8 million, ~~in net cash paid for acquisitions,~~ capital expenditures of ~~$234.2~~$84.4 million and ~~net purchases~~$55.0 million of ~~available for sale~~tax withholding payments related to vested and ~~trading securities of $146.8 million.~~released restricted stock units (“RSU”).

As of ~~March 31,~~September 30, 2022, ~~$1.16~~$1.24 billion of our ~~$2.58~~$2.95 billion of cash, cash equivalents and marketable securities were held by our foreign subsidiaries and branch offices. We currently intend to indefinitely reinvest ~~$747.4~~$88.5 million of the cash, cash equivalents and marketable securities held by our foreign subsidiaries for which we assert that earnings are permanently

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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 ~~$409.4 million~~$1.15 billion of the ~~$1.16~~$1.24 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

During the three months ended ~~March 31,~~September 30, 2022, our Board of Directors declared a regular quarterly cash dividend of ~~$1.05~~

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$1.30 per share on our outstanding common stock, which was paid on ~~March~~September 1, 2022 to our stockholders of record as of the close of business on ~~February 14,~~August 15, 2022. During the same period in fiscal year ended June 30, ~~2021,~~2022, our Board of Directors declared and paid a regular quarterly cash dividend of ~~$0.90~~$1.05 per share on our outstanding common stock. The total amount of regular quarterly cash dividends and dividend equivalents paid during the three months ended ~~March 31,~~September 30, 2022 and 2021 was ~~$159.0~~$188.0 million and ~~$139.3 million, respectively. The total amount of regular quarterly cash dividends and dividend equivalents paid during the nine months ended March 31, 2022 and 2021 was $480.9 million and $420.1~~$162.8 million, respectively. The amount of accrued dividend equivalents payable for regular quarterly cash dividends on unvested RSUs with dividend equivalent rights as of ~~March 31,~~September 30, 2022 and June 30, ~~2021~~2022 was ~~$10.9~~$9.4 million and ~~$10.3~~$11.2 million, 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 Condensed Consolidated Financial Statements.

Stock Repurchases

The shares repurchased under our stock repurchase program have reduced our basic and diluted weighted-average shares outstanding for the ~~nine~~three months ended ~~March 31,~~September 30, 2022 and 2021. The stock repurchase program is intended, in part, to ~~offset~~mitigate the ~~dilution from~~potential dilutive impact related to our equity incentive plans and shares issued in connection with ~~purchases under~~ our Employee Stock Purchase Program as well as to return excess cash to our ~~shareholders.~~stockholders.

Cash Flows ~~from~~Provided by Operating Activities

Historically, we have financed our liquidity requirements through cash generated from our operations. Net cash provided by operating activities during the ~~nine~~three months ended ~~March 31,~~September 30, 2022 was ~~$2.49~~$1.01 billion compared to ~~$1.72~~$0.86 billion during the ~~nine~~three months ended ~~March 31,~~September 30, 2021. This increase of ~~$774.1~~$147.7 million resulted primarily from the following:

•An increase in collections of approximately ~~$1.9 billion~~$605 million mainly driven by higher shipments and prepayments during the ~~nine~~three months ended ~~March 31,~~September 30, 2022; partially offset by

•An increase in accounts payable payments of approximately ~~$769~~$298 million during the ~~nine~~three months ended ~~March 31,~~September 30, 2022;

•An increase in employee-related payments of approximately ~~$215~~$105 million during the ~~nine~~three months ended ~~March 31,~~September 30, 2022;

•An increase in income tax payments of approximately ~~$135~~$44 million during the ~~nine~~three months ended ~~March 31,~~September 30, 2022; and

•An increase in other tax payments of approximately $5$31 million during the ~~nine~~three months ended ~~March 31,~~September 30, 2022.

Cash Flows ~~from~~Used in Investing Activities

Net cash used in investing activities during the ~~nine~~three months ended ~~March 31,~~September 30, 2022 was ~~$851.1~~$53.5 million compared to ~~$406.8~~$175.3 million during the ~~nine~~three months ended ~~March 31,~~September 30, 2021. This ~~increase~~decrease in cash used was mainly due to ~~increases~~an increase in ~~cash paid for~~proceeds from the sale of a business ~~acquisition~~ of ~~$470.9~~$75.4 million and ~~cash paid to purchase fixed assets of $57.9 million, partially offset by~~ a decrease in net purchases of ~~available for sale~~available-for-sale and trading securities of ~~$103.0~~$50.0 million.

Cash Flows ~~from~~Used in Financing Activities

Net cash used in financing activities during the ~~nine~~three months ended ~~March 31,~~September 30, 2022 was ~~$1.65~~$0.71 billion compared to net cash used in financing activities of ~~$1.11~~$0.61 billion during the ~~nine~~three months ended ~~March 31,~~September 30, 2021. This increase was mainly due to increases in ~~cash used for common stock repurchases~~repayment of ~~$755.4~~debt of $362.3 million and cash paid for dividends and dividend equivalents of ~~$60.8~~$25.2 million, partially offset by ~~an increase~~a decrease in ~~net debt receipts~~cash used for common stock repurchases of ~~$284.7~~$309.8 million.

Senior Notes

~~We have senior unsecured notes in the aggregate principal amount of $3.45 billion outstanding as of March 31, 2022.~~ In ~~February 2020,~~June 2022, we issued ~~$750.0 million (“2020 Senior Notes”)~~$3.00 billion aggregate principal amount of senior, unsecured ~~long-term~~

~~Table~~notes (the “2022 Senior Notes”) as follows: $1.00 billion of ~~Contents~~

4.650% senior, unsecured notes ~~under which~~due July 15, 2032; $1.20 billion of 4.950% senior, unsecured notes due July 15, 2052; and $800.0 million of 5.250% senior, unsecured notes due July 15, 2062. A portion of the net proceeds ~~were~~of the 2022 Senior Notes was used to ~~redeem~~complete a tender offer in July 2022 for $500.0 million of our 2014 Senior Notes, ~~due 2021,~~as defined below, including associated redemption premiums, accrued interest and other fees and ~~expenses, to repay borrowings~~expenses. The transaction resulted in pre-tax net loss on extinguishment of ~~$200.0~~debt of $13.3 million ~~under~~for the ~~Revolving Credit Facility~~three months ended September 30, 2022. The remainder of the net proceeds were used for share repurchases and for ~~other~~ general corporate purposes. In

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The original discounts on the Senior Notes are being amortized over the ~~“Senior Notes”), respectively, aggregate principal amount~~life of ~~senior, unsecured long-term notes. See Note 8 “Debt” to our Condensed Consolidated Financial Statements for additional discussion of existing~~the debt. ~~We may seek to refinance our existing debt and may incur additional indebtedness depending on our capital requirements and the availability of financing.~~

Interest is payable as follows: semi-annually on January 15 and July 15 of each year for the 2022 Senior Notes; semi-annually on March 1 and September 1 of each year for the 2020 Senior Notes; semi-annually on March 15 and September 15 of each year for the 2019 Senior Notes; and semi-annually on May 1 and November 1 of each year for the 2014 Senior Notes. The ~~Indenture~~relevant indentures for the Senior Notes ~~includes~~(collectively, the “Indenture”) include 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.~~transactions.

In certain circumstances involving a change of control followed by a downgrade of the rating of a series of Senior Notes by at least two of Moody’s Investors Service (“~~Moody's”~~Moody’s”), S&P Global Ratings (“S&P”) and Fitch Inc. (“Fitch”), unless we have exercised our rights to redeem the Senior Notes of such series, we will be required to make an offer to repurchase all or, at the holder’s option, any part of each holder’s Senior Notes of that series pursuant to the offer ~~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 ~~March 31,~~September 30, 2022, we were in compliance with all of our covenants under the Indenture associated with the Senior Notes.

Revolving Credit Facility

We have in place a Credit Agreement ~~(the “Credit~~(“Credit Agreement”) ~~providing~~ for ~~a $1.00 billion~~an unsecured Revolving Credit Facility ~~(the “Revolving~~(“Revolving Credit Facility”), with a maturity date of ~~November 30, 2023. During~~June 8, 2027 that allows us to borrow up to $1.50 billion. Subject to the terms of the Credit Agreement, the Revolving Credit Facility may be increased by an amount up to $250.0 million in the aggregate. In the first quarter of ~~the~~ fiscal year ending June 30, 2021, we made a principal payment of $50.0 million on the Revolving Credit Facility which brought the balance under the Revolving Credit Facility to zero. During the first quarter of the fiscal year ending June 30, 2022,2023, we borrowed $300.0 million ~~from the Revolving Credit Facility, which was paid in full in the same quarter. During the quarter ended March 31, 2022, we borrowed $300.0~~and repaid $150.0 million, ~~from the Revolving Credit Facility, of which $25.0~~leaving $425.0 million ~~was repaid in the same quarter and $275.0 million of~~ aggregate principal amount ~~of borrowings remained~~ outstanding ~~as of March 31,~~at September 30, 2022.

Borrowings under the Revolving Credit Facility can be made as Term Secured Overnight Financing Rate (“SOFR”) Loans or Alternate Base Rate (“ABR”) Loans, at the Company’s option. In the event that Term SOFR is unavailable, any Term SOFR elections will be converted to Daily Simple SOFR, as long as it is available. Each Term SOFR Loan will bear interest at ~~our option, at either: (i)~~a rate per annum equal to the ~~Alternative Base Rate (“ABR”)~~applicable Adjusted Term SOFR rate, which is equal to the applicable Term SOFR rate plus 10 bps that shall not be less than zero, plus a spread ~~which ranges~~ranging from 75 bps to 125 bps, as determined by the Company’s credit ratings at the time. Each ABR Loan will bear interest at a rate per annum equal to the ABR plus a spread ranging from 0 bps to 7525 bps, ~~or (ii)~~as determined by 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~~Company’s credit ~~rating downgrades or upgrades.~~ratings at the time. We are also obligated to pay an annual commitment fee on the daily undrawn balance of the Revolving Credit Facility, which ranges from 104.5 bps to 2512.5 bps, subject to an adjustment in conjunction with changes to our credit rating. The applicable interest rates and commitment fees are also subject to adjustment based on the Company’s performance against certain environmental sustainability key performance indicators related to greenhouse gas (“GHG”) emissions and renewable electricity usage. As of ~~March 31,~~September 30, 2022, ~~we elected to pay~~the all-in interest onrate of the ~~borrowed amount under~~$425.0 million outstanding Term SOFR loans reflected the ~~Revolving Credit Facility at LIBOR~~applicable Adjusted Term SOFR plus a spread of 100 bps and ~~we pay an annual~~the applicable commitment fee ~~of 10 bps~~ on the daily undrawn balance of the Revolving Credit ~~Facility.~~Facility was 9 bps.

~~The Revolving Credit Facility requires us to maintain an interest expense coverage ratio as described in~~Under the Credit Agreement, the maximum leverage ratio, on a quarterly basis, ~~covering the trailing four consecutive fiscal quarters of no less than~~is 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 ~~a maximum of~~ 4.00 to 1.00 for a period of time in connection with a material acquisition or a series of material acquisitions. As of ~~March 31,~~September 30, 2022, our maximum allowed leverage ratio was ~~3.00~~3.50 to 1.00.

We were in compliance with all covenants under the Credit Agreement as of ~~March 31,~~September 30, 2022 (the ~~interest expense coverage ratio was 24.79 to 1.00 and the~~ leverage ratio was ~~0.96~~1.41 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.~~

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2023.

~~Contractual Obligations~~Material Cash Requirements

There have been no material changes outside the ordinary course of business to our ~~contractual obligations~~material cash requirements as disclosed in our Annual Report on Form 10-K for the fiscal year ended June 30, ~~2021, except for an increase in purchase obligations for inventory.~~2022. For additional details regarding our debt and commitments, refer to Note 8 “Debt” and Note 15 “Commitments and Contingencies,” respectively, to our Condensed Consolidated Financial Statements. For additional details regarding our ~~contractual obligations,~~material cash requirements, refer to our Annual Report Form on 10-K for the fiscal year ended June 30, ~~2021.~~2022.

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Working Capital

Working capital was ~~$3.75~~$4.50 billion as of ~~March 31,~~September 30, 2022, which represents an increase of ~~$160.7~~$206.7 million compared to our working capital of ~~$3.59~~$4.30 billion as of June 30, ~~2021.~~2022. As of ~~March 31,~~September 30, 2022, our principal sources of liquidity consisted of ~~$2.58~~$2.95 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 ~~availability under~~ our $1.50 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.

~~In March 2022, Fitch upgraded our senior unsecured credit rating from BBB+ to A-.~~ Our credit ratings as of ~~March 31,~~September 30, 2022 are summarized below:


Rating Agency			Rating
Fitch			A-
Moody’s			A2
Standard & Poor’s			~~BBB+~~A-

In June 2022, S&P upgraded our senior unsecured credit rating from BBB+ to A-. Factors that can affect our credit ratings include changes in our operating performance, the economic environment, conditions in the semiconductor and semiconductor equipment industries, our financial position, material acquisitions and changes in our business strategy.

Off-Balance Sheet Arrangements

As of ~~March 31,~~September 30, 2022, we did not have any off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of Regulation S-K, that have or are reasonably likely to have a current or future effect on our financial 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 15 “Commitments and Contingencies” to our Condensed Consolidated Financial Statements for information related to indemnification obligations.

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ITEM 3. 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 ~~March 31,~~September 30, 2022. Actual results may differ materially.

As of ~~March 31,~~September 30, 2022, we had an investment portfolio of fixed income securities of ~~$1.0~~$1.05 billion. These securities, as with all fixed income instruments, are subject to interest rate risk and will decline in value if market interest rates increase. If market interest rates were to increase immediately and uniformly by 100 bps from levels as of ~~March 31,~~September 30, 2022, the fair value of the portfolio would have declined by ~~$9.5~~$9.8 million.

The fair market value of our long-term fixed interest rate Senior Notes is subject to interest rate risk. Generally, the fair market value of fixed interest rate notes will increase as market interest rates fall and decrease as market interest rates rise. As of ~~March 31,~~September 30, 2022, our fixed rate Senior Notes had a principal amount, fair value and book value of ~~$3.45~~$5.95 billion, ~~$3.61~~$5.44 billion and ~~$3.42~~$5.89 billion, respectively, due in various fiscal years ranging from ~~2024~~2025 to ~~2050.~~2063.

As of ~~March 31,~~September 30, 2022, we had outstanding ~~$275.0~~$425.0 million aggregate principal amount of borrowings under our Revolving Credit Facility. ~~We elected~~Each Term SOFR Loan will bear interest at a rate per annum equal to ~~pay interest on~~ the ~~borrowed amount~~applicable Adjusted Term SOFR, which is equal to the applicable Term SOFR plus 10 bps that shall not be less than zero, plus a spread ranging from 75 bps to 125 bps, as determined by the Company’s credit ratings at the ~~London Interbank Offered Rate (“LIBOR”) plus a spread. The spread ranges from 100 bps to 175 bps based on the adjusted credit rating.~~time. The fair value of the borrowings under the Revolving Credit Facility is subject to interest rate and credit risk ~~only~~due to the ~~extent~~timing of the ~~fixed spread portion of the interest rates, which does not fluctuate with~~rate resets and changes in ~~interest rates.~~the market’s assessment of risk of default, respectively. As of ~~March 31,~~September 30, 2022, if ~~LIBOR-based~~the SOFR-based interest ~~rates~~rate increased by 100 bps, the change would increase our annual interest expense by approximately ~~$2.4~~$4 million as it relates to our borrowings under the Revolving Credit Facility. Pursuant to the terms of the Credit Agreement, we are also obligated to pay an annual commitment fee on the daily undrawn balance of the Revolving Credit Facility at a rate that ranges from 4.5 bps to 12.5 bps, depending upon the Company’s then prevailing credit rating. As of September 30, 2022 the annual commitment fee was 9 bps. Additionally, as of ~~March 31,~~September 30, 2022, 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 ~~March 31,~~September 30, 2022, the fair value of our investment in the marketable equity security, which ~~begun~~began publicly trading on the Tokyo Stock Exchange on April 5, 2021, was ~~$15.8~~$13.1 million. Assuming a decline of 50% in market prices, the aggregate value of our investment in the marketable equity security could decrease by approximately $8$7 million, based on the value as of ~~March 31,~~September 30, 2022.

See Note 5 “Marketable Securities” to our Condensed Consolidated Financial Statements in Part I, Item 1 and “Risk Factors” in Part II, Item 1A of this Quarterly Report on Form 10-Q for additional details and risks that may affect the value of the investments in our portfolio as of ~~March 31,~~September 30, 2022.

As of ~~March 31,~~September 30, 2022, we had net forward and option contracts to sell ~~$104.4~~$45.8 million in foreign currency in order to hedge certain currency exposures (see Note 16 “Derivative Instruments and Hedging Activities” to our Condensed Consolidated Financial Statements for additional details). If we had entered into these contracts on ~~March 31,~~September 30, 2022, the U.S. dollar equivalent would have been ~~$130.2~~$43.9 million. A 10% adverse move in all currency exchange rates affecting the contracts would decrease the fair value of the contracts by ~~$93.1~~$85.4 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.

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ITEM 4 CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures and Related CEO and CFO Certifications

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 Quarterly Report on Form 10-Q (this “Report”) required by Exchange Act Rules 13a-15(b) or 15d-15(b). The Disclosure Controls evaluation 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 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, that 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 ensure 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~~U.S. Securities and Exchange Commission’s rules and forms. Disclosure Controls are also designed to provide reasonable assurance 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 of ~~America (“GAAP”).~~America. 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.

Limitations on the Effectiveness of Disclosure 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 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 errors or mistakes. 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 most recent fiscal quarter covered by this Report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

The information set forth above under Note 14 “Litigation and Other Legal Matters” to our Condensed Consolidated Financial Statements in Item 1 of Part 1 is incorporated herein by reference.

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~~Shortages or disruption in the supply chain could affect our ability to timely process components for our products;

•~~travel~~Travel bans, lockdowns, or quarantine requirements could delay our ability to install or service our products;

•~~governmental~~Governmental orders or employee exposure could cause manufacturing stoppages for us or our customers or suppliers;

•~~reduced~~Continued volatility and uncertainty in customer demand for our products, delivery pushouts or cancellations of orders by our customers;

•~~increased~~Increased costs or inability to acquire components necessary for the manufacture of our products;

•~~absence~~Absence of liquidity at customers and suppliers; and

•~~loss~~Loss of efficiencies and increased cybersecurity risks due to remote working requirements for our employees.

Commercial, Operational, Financial and Regulatory Risks

•~~laws, regulations or other orders may limit~~Risks related to 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~~international operations, such as tariffs or similar trade ~~impairments;~~

•~~international sales may expose us to~~impairments, and longer payment cycles or collection ~~difficulties;~~difficulties associated with international sales;

•~~intellectual property~~Our vulnerability to a weakening in the condition of the financial markets and the global economy;

•IP disputes can be expensive and could result in an inability to sell our products in certain jurisdictions;

•weLaws, rules, regulations or other orders that may limit our ability to sell our products or provide service on products previously sold to certain customers;

•Increasing attention to ESG matters, including any targets or other ESG initiatives, could result in additional costs or risks or adversely impact our business;

•We may be unable to attract, onboard and retain key personnel;

•~~reliance~~Reliance on third-party service providers could result in disruptions if such third parties cannot perform services for us in a timely manner;

•~~cybersecurity~~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;

•weWe may face disruptions if we cannot access critical information in a timely manner due to system failures;

•weWe may not find suitable acquisition candidates or fail to successfully integrate our acquisitions;

•~~natural~~Natural disasters, such as earthquakes, health epidemics, acts of terrorism or war or other catastrophic events, and the lack of insurance thereof, could significantly disrupt our operations for lengthy periods of time;

•weWe are exposed to fluctuations in foreign currency exchange rates, interest rates and the market values of our portfolio investments;

•weWe are subject to tax and regulatory compliance audits;

•~~economic,~~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;

•Increased compliance costs with federal securities laws, rules, and regulations, as well as NASDAQ requirements; and

•~~changes~~Changes in accounting pronouncements and laws could have unforeseen effects.

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Industry Risks

•weWe may not be able to keep pace with trends and technological changes in the industries in which we operate;

•weWe have a highly concentrated customer base; and

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•~~prevailing~~Prevailing local and global economic conditions may negatively affect the purchasing decisions of our ~~customers or the value of our investment portfolio.~~customers.

Business Model and Capital Structure Risks

•weWe may not be able to maintain our technology advantage or protect our proprietary rights;

•weWe may not be able to compete with new products introduced by our competitors;

•weWe may not receive components necessary to build our products in a timely manner;

•weWe may fail to operate our business in a manner consistent with our business plan;

•We may fail to comply with the covenants in our Revolving Credit Facility and Senior Notes, which could impair our ability to borrow needed funds, or require us to repay debt sooner than we planned;

•We may not have sufficient financial resources to repay our indebtedness when it becomes ~~due;~~due and our leveraged capital structure may divert resources from operations and other corporate uses;

•weWe may ~~fail~~not be able to ~~comply with the covenants~~declare cash dividends at all or in ~~our Revolving Credit Facility, which could impair our ability to borrow needed funds under the facility, or require us to repay it sooner than we planned;~~any particular amounts;

•ifRisks related to our ~~products fail to operate properly or contain defects or~~commercial terms and conditions, including our ~~customers are sued by~~indemnification of third parties, ~~due to~~as well as the performance of our ~~products, we may be liable under indemnification provisions with our customers;~~products;

•weOur government funding for R&D is subject to termination, audit and any further penalties;

•We may incur significant restructuring charges or other asset impairment charges or inventory write-offs; and

•weWe 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.~~ 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. In 2022, the Chinese government implemented lockdowns in two of its larger economic hubs, Shenzhen and Shanghai.~~The lockdown in Shanghai continues to persist.~~Lockdowns in major economic hubs ~~such as Shenzhen and Shanghai have led to additional supply chain challenges and~~ could cause delays in the delivery of goods in or around impacted areas, which could both harm our ability to obtain components for our products in a timely manner, delay the delivery of our products in and around those areas, or delay installation of our products in those ~~areas.~~areas or affect customer acceptance processes due to resource mobility restrictions. Any delays in delivering or installing our products could adversely impact the timing of our revenue recognition.While all of our global manufacturing sites are currently operational, any local pandemic outbreaks or the ~~advent~~introduction of new variants could require us to temporarily curtail production levels or temporarily cease operations based on government mandates.

Despite the wide availability of COVID-19 vaccines in the ~~United States~~U.S. and in other parts of the world, we are unable to predict how effective they will continue to be in preventing the spread of COVID-19 (including its variant strains). In addition, although ~~economic activity improved~~there has been improvement in ~~recent months from~~ the global ~~reduction in economic activity in calendar year 2020 caused by~~economy since the severe effects of the COVID-19 pandemic ~~the resumption of growth has caused us~~at its onset, many macroeconomic variables remain dynamic and we continue 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~~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~~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 I, Item 2 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for additional information on supply constraints related to the COVID-19 pandemic);

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•~~travel~~Travel bans, lockdowns 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~~Governmental orders or employee exposure requiring us, our customers or our suppliers to discontinue manufacturing products at our or their respective facilities for a period of time;

•~~reduced~~Continued volatility and uncertainty in customer 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;

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•~~increased~~Increased costs or inability to acquire components necessary for the manufacture of our products due to reduced availability or rising inflation;

•~~absence~~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~~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.

Commercial, Operational, Financial and Regulatory Risks

A majority of our annual revenues are derived from outside the ~~United States,~~US, and we maintain significant operations outside the ~~United States.~~US. 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,~~U.S., and we maintain significant operations outside the ~~United States.~~U.S. We expect ~~that~~ these conditions ~~will~~to 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~~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~~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~~Ineffective or inadequate legal protection of ~~intellectual property~~IP rights in certain countries;

•~~managing~~Managing cultural diversity and organizational alignment;

•~~exposure~~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~~Periodic local or international economic downturns;

•~~potential~~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~~Compliance with customs regulations in the countries in which we do business;

•~~existing~~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~~Political instability, natural disasters, legal or regulatory changes, acts of war such as ~~Russia's~~Russia’s invasion of Ukraine or terrorism in regions where we, our customers or our suppliers have operations or where we or they do business;

•~~rising~~Rising inflation and fluctuations in interest and currency exchange rates may adversely impact our ability to compete on price with local providers or the value of revenues we generate from our international business. Although we attempt to manage some of our near-term currency risks through the use of hedging instruments, there can be no assurance that such efforts will be adequate;

•~~our~~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.~~ harmed;

•~~longer~~Required refunds for customer prepayments resulting from our inability to ship to certain jurisdictions, especially for customers in China as described in more detail below. If we are required to make such refunds, our cash flows could be negatively affected;

•Longer payment cycles and difficulties in collecting accounts receivable outside of the ~~United States;~~U.S.;

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•~~difficulties~~Difficulties in managing foreign distributors (including monitoring and ensuring our distributors’ compliance with applicable laws); and

•~~inadequate~~Inadequate protection or enforcement of our ~~intellectual property~~IP 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 export licensing requirements

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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 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.

Any of the factors above could have a significant negative impact on our business and results of operations.

Over the past several years, there have been a variety of rules and regulations issued by Commerce and BIS that have had an impact on our ability to sell certain products and provide certain services to certain customers in China. These rules and regulations may significantly harm our business in future periods, unless we are able to obtain required licenses.

Over the past several years, the U.S. government has tightened export controls for commodities, software, and technology (collectively, “items”) destined to China. These China restrictions have included, for example, restrictions on exporting certain items to military end users and for military end uses, the addition of numerous entities to the U.S. Entity List (a list of parties that are generally ineligible to receive U.S.-regulated items without prior licensing from BIS), and the creation of new licensing requirements that apply to the export, re-export, and transfer of certain foreign-made items that are the direct product of U.S. origin technology and which are destined to Huawei and its affiliates.

Most recently, Commerce and BIS published the New BIS Rules that introduce new and novel restrictions related to semiconductor, semiconductor manufacturing, supercomputer, and advanced computing items and end uses. These new rules impose restrictions on our ability to sell, ship, and support certain equipment and otherwise conduct business with certain counterparties, primarily including China-based companies involved in semiconductor manufacturing.

The New BIS Rules are complex, and we are working on assessing their full impact. The rules remain open for public comment until December 12, 2022, and could be revised in response to those comments. Likewise, BIS may issue guidance clarifying the scope of the rules. Such revisions or guidance could change the impact of the rule for our business.

While we are taking appropriate measures to comply with all current export control laws and regulations applicable to our business (including the New BIS Rules) and are applying for export licenses, when required, in an effort to avoid disruption to our customers’ operations, there can be no assurance that export licenses applied for by either us or our customers will be granted. To the extent BIS does issue licenses to us or to our customers, such licenses may have a short duration or require us to satisfy various conditions.

If pending and future license applications are not granted, the potential impact could be material and could harm our RPO or require us to return substantial deposits received from customers in China for existing purchase orders. In addition, we may lose revenue in future periods related to anticipated sales to customers in China, unless we are able to replace their orders with other customer orders for which either a license has been obtained or is not required.

Our revenue from sales of products and provision of services to customers in China was 29%, 26% and 26% respectively over the last three fiscal years. If we are unable to obtain required authorizations to support sales and service customers in China and/or if additional restrictions are imposed that further limit our ability to sell our products or provide services to customers in China, our business could be significantly harmed.

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, rising interest rates and concerns regarding the availability of credit can make it more difficult for our customers to raise capital, whether debt or equity, to finance their purchases of capital equipment, including the products we sell. Reduced demand, combined with delays in our customers’ ability to obtain financing (or the unavailability of such financing), has, at times in the past, adversely affected our product and service sales and revenues and, therefore, has harmed our business and operating results, and our operating results and financial condition may again be adversely impacted if economic conditions decline from their current levels.

In addition, a decline in the condition of the global financial markets could adversely impact the market values or liquidity of our investments. Our investment portfolio includes corporate and government securities, money market funds and other types of debt and equity investments. Although we believe our portfolio continues to be comprised of sound investments due to the quality and (where applicable) credit ratings of such investments, a decline in the capital and financial markets or rising interest rates would adversely impact the market value of our investments and their liquidity. If the market value of such investments were to decline, or if we were to have to sell some of our investments under illiquid market conditions, we may be required to recognize an impairment charge on such investments or a loss on such sales, either of which could have an adverse effect on our financial condition and operating results.

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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~~IP or other confidential information that may be costly to resolve, prevent us from selling or using the challenged technology and seriously harm our operating results and financial condition.

As is typical in the industries in which we serve, from time to time we have received communications from other parties asserting the existence of patent rights, copyrights, trademark rights or other ~~intellectual property~~IP rights which they believe cover certain of our products, processes, technologies or information. In addition, we occasionally receive notification from customers who believe that we owe them indemnification or other obligations related to ~~intellectual property~~IP claims made against such customers by third parties. With respect to ~~intellectual property~~IP infringement disputes, our customary practice is to evaluate such infringement assertions and to consider whether to seek licenses where appropriate. However, there can be no assurance that licenses ~~can~~will be ~~obtained~~granted or, if ~~obtained,~~granted, will be on acceptable terms or that costly litigation or other administrative proceedings will not occur. The inability to obtain necessary licenses or other rights on reasonable terms could seriously harm our results of operations and financial condition. Furthermore, we may potentially be subject to claims by customers, suppliers or other business partners, or by governmental law enforcement agencies, related to our receipt, distribution and/or use of third-party ~~intellectual property~~IP or confidential information. Legal proceedings and claims, regardless of their merit, and associated internal investigations with respect to ~~intellectual property~~IP or confidential information disputes are often expensive to prosecute, defend or conduct; may divert management’s attention and other Company resources; and/or may result in restrictions on our ability to sell our products, settlements on significantly adverse terms or adverse judgments for damages, injunctive relief, penalties and fines, any of which could have a significant negative effect on our business, results of operations and financial condition. There can be no assurance regarding the outcome of future legal proceedings, claims or investigations. The instigation of legal proceedings or claims, our inability to favorably resolve or settle such proceedings or claims, or the determination of any adverse findings against us or any of our employees in connection with such proceedings or claims could materially and adversely affect our business, financial condition and results of operations, as well as our business reputation.

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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, business partners and representatives, for whose misconduct we may under some circumstances be legally responsible. Our failure or inability to comply with existing or future laws, rules or regulations in the countries in which we operate could result in government investigations and/or enforcement actions, which could result in significant financial cost (including investigation expenses, defense costs, assessments and criminal or civil penalties), reputational harm and other consequences that may adversely affect our operating results, financial condition and ability to conduct our business. For instance, in response to ~~Russia's~~Russia’s invasion of Ukraine, the ~~United States,~~U.S., European Union and other countries have imposed sanctions against Russia, Belarus and certain other regions, entities and individuals, and may impose additional sanctions, export controls or other measures. The imposition of sanctions, export controls and other measures could adversely impact our business including preventing us from performing existing contracts, recognizing revenue, pursuing new business opportunities or receiving payment for products already supplied or services already performed with customers.

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Additionally, we are subject to various domestic and international environmental laws and regulations, including those that control and restrict the use, transportation, emission, discharge, storage, and disposal of certain chemicals, gases and other substances. Any failure to comply with applicable environmental laws, regulations or requirements may subject us to a range of consequences, including fines, suspension of certain of our business activities, limitations on our ability to sell our products, obligations to remediate environmental contamination, and criminal and civil liabilities or other sanctions. Some of these laws impose strict liability for certain releases, which may require us to incur costs regardless of fault or the legality of actions at the time of release. In addition, changes in environmental laws and regulations (including any relating to climate change and GHG emissions) could require us, or others in our value chain, to install additional equipment, alter operations to incorporate new technologies or processes, or revise process inputs, among other things, which may cause us to incur significant costs or otherwise adversely impact our business performance. Various agencies and governmental bodies have expressed particular interest in promulgating rules relating to climate change. For example, in March 2022, the SEC published a proposed rule that would require companies to provide significantly expanded climate-related disclosures in their Form 10-K, which may require us to incur significant additional costs to comply and impose increased oversight obligations on our management and Board of Directors. We also face increasing complexity in our manufacturing, product design and procurement operations as we adjust to new and prospective requirements relating to the composition of our products, including restrictions on lead and other substances and requirements to track the sources, production methods, or provenance of certain metals and other materials. The cost of complying, or failing to comply, with these and other regulatory requirements or contractual obligations could adversely affect our operating results, financial condition and ability to conduct our business.

From time to time, we may receive inquiries, subpoenas, investigative demands or audit notices from governmental or regulatory bodies, or we may make voluntary disclosures, related to legal, regulatory or tax compliance matters, and these matters may result in significant financial cost (including investigation expenses, defense costs, assessments and criminal or civil penalties), reputational harm and other consequences that could materially and adversely affect our operating results and financial condition. In addition, we may be subject to new or amended laws, including laws that conflict with other applicable laws, which may impose compliance challenges and create the risk of non-compliance.

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.

Increasing attention to ESG matters, including any targets or other ESG initiatives, could result in additional costs or risks or adversely impact our business.

Certain investors, capital providers, shareholder advocacy groups, other market participants, customers and other stakeholder groups have focused increasingly on companies’ ESG initiatives, including those regarding climate change, human rights and inclusion and diversity, among others. This may result in increased costs, changes in demand for certain types of products, enhanced compliance or disclosure obligations and costs, or other adverse impacts on our business, financial condition or results of operations.

From time to time, we create and publish voluntary disclosures regarding ESG matters. Identification, assessment, and disclosure of such matters is complex. Many of the statements in such voluntary disclosures are based on our expectations and assumptions, which may require substantial discretion and forecasts about costs and future circumstances. Additionally, expectations regarding companies’ management of ESG matters continues to evolve rapidly, in many instances due to factors that are out of our control. In addition, organizations that provide information to investors on corporate governance and related matters have developed rating processes on evaluating companies on their approach to ESG matters. Such ratings are used by some investors to inform their investment and voting decisions. Unfavorable ESG ratings could lead to increased negative investor sentiment toward us, our customers, or our industry, which could negatively impact our share price as well as our access to and cost of capital. To the extent ESG matters negatively impact our reputation, it may also impede our ability to compete as effectively to recruit or retain employees, which may adversely affect our operations.

Although we may participate in various voluntary frameworks and certification programs, or establish voluntary ESG initiatives, to improve the ESG profile of our operations and product offerings, we cannot guarantee that such efforts will have the intended results. For example, in August 2022, we announced new targets to reduce our Scope 1 and 2 emissions by 50% from our 2021 baseline to 2030 and achieve net zero Scope 1 and 2 emissions by 2050. Our estimates concerning the timing and cost of implementing this and other goals are subject to risks and uncertainties, some of which are outside of our control. Any failure, or perceived failure, to successfully achieve our voluntary goals, or the manner in which we achieve some or any portion of our goals, could adversely impact our reputation or, to the extent related to sustainability-linked capital sources,

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financial condition and results of operations. Our ESG efforts may also include the adoption, or expansion, of certain ESG practices or policies, which may require us to expend additional resources to implement or to forego certain business opportunities to the extent others in our value chain do not meet pertinent requirements of such policies. By contrast, any failure, or perceived failure, to conform to such policies could have an adverse impact on our reputation and business activities. Our performance may be subject to greater scrutiny as a result of our announcement of any goals or policies and the publication of our performance against the same. Moreover, despite the voluntary nature of such efforts, we may receive pressure from external sources, such as lenders, investors or other groups, to adopt more aggressive climate or other ESG-related initiatives; however, we may not agree that such initiatives will be appropriate for our business, and we may not be able to implement such initiatives because of potential costs or technical or operational obstacles. In addition, we note that certain ESG matters are becoming less “voluntary” as regulators, including the SEC, begin proposing and adopting regulations regarding ESG matters, including, but not limited to, climate change-related matters. To the extent we are subject to increased regulatory requirements, we could become subject to increased compliance-related costs and risks, including potential enforcement and litigation. Such ESG matters may also impact our suppliers and customers, which may compound or cause new impacts on our business, financial condition or results of operations.

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 onfor any of our employees. The expansion of high technology companies worldwide and the elevated demand for talent from the growth in the demand for semiconductors following the onset of the COVID-19 pandemic 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, onboard and retain key personnel, or if we are not able to attract, assimilate, onboard and retain additional highly qualified employees to meet our current and future needs, our business and operations could be harmed.

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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 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 pass on the cost of inflation to us or 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~~IP rights or other sensitive data, quality and compliance issues, and challenges in managing our product inventory or recording and reporting financial and management information, any of which could materially and adversely affect our business, financial condition and results of operations.

We depend on secure information technology for our business and are exposed to risks related to cybersecurity threats and cyber incidents affecting our, our customers’, suppliers’ and other service providers’ systems and networks.

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~~IP belonging to us, our customers and our business partners, as well as personally identifiable information of individuals. Despite network security and other measures, our, our ~~customers, suppliers~~customers’, suppliers’ and other 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~~including but not limited to ~~the inherent~~ vulnerabilities ~~of network security measures.~~or misconfigurations in information systems, networks, software or hardware. We have experienced cyber-related attacks in the

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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, avoid detection and remove or obfuscate forensic artifacts, we may be unable to anticipate these techniques, implement adequate preventative measures, or adequately identify, investigate and ~~investigate~~recover from 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~~IP and other critical data, of KLA, our customers ~~and~~or 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. Cybersecurity incidents affecting our customers could result in substantial delays in our ability to ship to those customers or install our products, which could result in delays in revenue recognition or the cancellation of orders, and cybersecurity incidents affecting our suppliers could result in substantial delays in our ability to obtain necessary components for our products from those suppliers, which could hamper our ability to ship our products to our customers, harming our results of operations.

We carry insurance that provides limited protection against the potential losses arising from a cybersecurity incident but it will not likely cover all such losses, and the losses it does not cover may be significant.

We rely upon certain critical information systems for our daily business operations. Our inability to use or access our information systems at critical points in time could unfavorably impact our business operations.

Our global operations are dependent upon certain information systems, including telecommunications, the internet, our corporate intranet, network communications, email and various computer hardware and software applications. System failures

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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.

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 acquisition of ~~Orbotech.~~Orbotech Ltd. We may also enter into definitive agreements for and consummate acquisitions of, or significant investments in, businesses with complementary products, services and/or technologies. There can be no assurance that we will find suitable acquisition candidates, that we can close such acquisitions or that acquisitions we complete will be successful. In addition, we may use equity to finance future acquisitions, which would increase our number of shares outstanding and be dilutive to current stockholders.

If we are unable to successfully integrate and manage acquired businesses, if the costs associated with integrating the acquired 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 we may acquire in the future, may perform worse than expected or prove to be more difficult to integrate and manage than anticipated. In addition, we may face other risks associated with acquisition transactions that may lead to a material adverse effect on our business and financial results, including:

•weWe may have to devote unanticipated financial and management resources to acquired businesses;

•~~the~~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~~Company and/or the acquired business;

•weWe may not be able to realize expected operating efficiencies or product integration benefits from our acquisitions;

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•weWe may experience challenges in entering into new market segments for which we have not previously manufactured and sold products;

•weWe may face difficulties in coordinating geographically separated organizations, systems and facilities;

•~~the~~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;

•weWe may have difficulty implementing a cohesive framework of controls, procedures and policies appropriate for a larger, U.S.-based public company at companies that prior to acquisition may not have as robust controls, procedures and policies, particularly, with respect to the effectiveness of cyber and information security practices and incident response plans, compliance with data privacy and protection and other laws and regulations, and compliance with U.S.-based economic policies and sanctions which may not have previously been applicable to the acquired company’s operations;

•weWe may have to ~~write-off~~write off goodwill or other intangible assets; and

•weWe may incur unforeseen obligations or liabilities in connection with ~~acquisitions.~~acquisitions including, but not limited to, cybersecurity risks associated with integrating our networks or systems with those of acquired entities.

At times, we may also enter into strategic alliances with customers, suppliers or other business partners with respect to development of technology and ~~intellectual property.~~IP. These alliances typically require significant investments of capital and exchange of proprietary, highly sensitive information. The success of these alliances depends on various factors over which we may have limited or no control and requires ongoing and effective cooperation with our strategic partners. Mergers and acquisitions and strategic alliances are inherently subject to significant risks, and the inability to effectively manage these risks could materially and adversely affect our business, financial condition and operating results.

Disruption of our manufacturing facilities or other operations or those of our suppliers, or in the operations of our customers, due to 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.

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We have significant manufacturing operations in the ~~United States,~~U.S., Singapore, Israel, Germany, United Kingdom, Italy and China. In addition, our business is international in nature, with our sales, service and administrative personnel and our customers and suppliers located in numerous countries throughout the world. Operations at our manufacturing facilities and our assembly subcontractors and those of our suppliers, as well as our other operations and those of our customers, are subject to disruption for a variety of reasons, including work stoppages, acts of war such as ~~Russia's~~Russia’s invasion of Ukraine, terrorism, health epidemics and pandemics, fire, earthquake, volcanic eruptions, energy shortages or power blackouts, flooding or other natural ~~disasters.~~disasters; and certain of these events may become more frequent or intense as a result of climate change. Such disruption could cause delays in, among other things, shipments of products to our customers, our ability to perform services requested by our customers, the ability of our suppliers to supply us components for our products in a timely manner, or the timely installation and acceptance of our products at customer sites. 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.

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

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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.

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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 and the pound ~~sterling and the Israeli new shekel.~~sterling. 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,~~U.S., and many of the costs associated with such activities are denominated in foreign currencies. We routinely hedge our exposures to certain foreign currencies with certain financial institutions in an effort to minimize the impact of certain currency exchange rate fluctuations, but these hedges may be inadequate to protect us from currency exchange rate fluctuations. To the extent that these hedges are inadequate, or if there are significant currency exchange rate fluctuations in currencies for which we do not have hedges in place, our reported financial results or the way we conduct our business could be adversely affected. Furthermore, if a financial counterparty to our hedges experiences financial difficulties or is otherwise unable to honor the terms of the foreign currency hedge, we may experience material financial losses.

We are exposed to fluctuations in interest rates and the market values of our portfolio investments, and an impairment of our investments could harm our earnings. In addition, we and our stockholders are exposed to risks related to the volatility of the market for our common stock.

Our investment portfolio primarily consists of both corporate and government debt securities that are susceptible to changes in market interest rates and bond yields. As market interest rates and bond yields increase, those securities with a lower yield-at-cost show a mark-to-market unrealized loss. An impairment of the fair market value of our investments, even if unrealized, must be reflected in our financial statements for the applicable period and may, therefore, have a material adverse effect on our results of operations for that period.

In addition, the market price for our common stock is volatile and has fluctuated significantly during recent years. The trading price of our common stock could continue to be highly volatile and fluctuate widely in response to various factors, including without limitation conditions in the semiconductor industry and other industries in which we operate, fluctuations in the global economy or capital markets, our operating results or other performance metrics, or adverse consequences experienced by us as a result of any of the risks described elsewhere in this Item 1A. Volatility in the market price of our common stock could cause an investor in our common stock to experience a loss on the value of their investment in us and could also adversely impact our ability to raise capital through the sale of our common stock or to use our common stock as consideration to acquire other companies.

We are 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

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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 ITA Assessment described in more detail in Note 13 “Income Taxes” to our Condensed 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,~~Israel, the countries in which we earn the majority of our non-U.S. profits. Due to economic, political or other conditions, tax rates in those jurisdictions may be subject to significant change. A number of factors may adversely impact our future effective tax rates, such as the jurisdictions in which our profits are determined to be earned and taxed; changes in the tax rates imposed by those jurisdictions; expiration of tax holidays in certain jurisdictions that are not renewed; the resolution of issues arising from tax audits with various tax authorities; changes in the valuation of our deferred tax assets and liabilities; adjustments to estimated taxes upon finalization of various tax returns; increases in expenses not deductible for tax purposes, including write-offs of acquired in-process ~~R&D~~research and development and impairment of goodwill in connection with acquisitions; changes in available tax credits; changes in stock-based compensation expense; changes in tax laws or the interpretation of such tax laws; changes in ~~GAAP;~~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.

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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.~~Internal Revenue Service. Any future guidance can change our tax liability. A significant portion of the income taxes due to the enactment of the Tax Act is payable by us over a period of eight years. As a result, our cash flows from operating activities will be adversely impacted until the tax liability is paid in full. 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.

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 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), rising

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inflation in the supply chain and interest rates, changes in our customers’ capital spending patterns and, in general, an environment of constant change and development, including decreasing product and component ~~dimensions;~~dimensions, use of new ~~materials;~~materials, and increasingly complex device structures, applications and process steps. If we fail to appropriately adjust our cost structure and operations to adapt to any of these trends, or, with respect to technological advances, if we do not timely develop new technologies and products that successfully anticipate and address these changes, we could experience a material adverse effect on our business, financial condition and operating results.

In addition, we face a number of risks specific to ongoing changes in the semiconductor industry, as a significant majority of our sales are our process control and yield management products sold to semiconductor manufacturers. The trends our management monitors in operating our business include the following:

•~~the~~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~~The increasing cost of building and operating fabrication facilities and the impact of such increases on our customers’ capital equipment investment decisions;

•~~differing~~Differing market growth rates and capital requirements for different applications, such as memory and foundry/logic;

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•~~lower~~Lower level of process control adoption by our memory customers compared to our foundry/logic customers;

•~~our~~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~~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~~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~~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~~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~~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~~The ever escalating cost of next-generation product development, which may result in joint development programs between us and our customers or government entities to help fund such programs that could restrict our control and ownership of and profitability from the products and technologies developed through those programs; and

•~~the~~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.

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•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~~IP-related or other commercial terms that may have an adverse impact on our business and we may not be able to pass on the cost of inflation to our customers. Any of these changes could negatively impact our prices, customer orders, revenues and gross margins.

•Certain customers have undergone significant ownership changes, created alliances with other companies, experienced management changes or have outsourced manufacturing activities, any of which may result in additional complexities in managing customer relationships and transactions. Any future change in ownership or management of our existing customers may result in similar challenges, including the possibility of the successor entity or new management deciding to select a competitor’s products.

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•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.

We operate in industries that have historically been cyclical, including the semiconductor industry. The purchasing decisions of our customers are highly dependent on the economies of both the local markets in which they are located and the condition of the industry worldwide. If we fail to respond to industry cycles, our business, financial condition and operating results could be adversely impacted.

The timing, length and severity of the up-and-down cycles in the industries in which we serve are difficult to predict. The historically cyclical nature of the semiconductor industry in which we primarily operate is largely a function of our customers’ capital spending patterns and need for expanded manufacturing capacity, which, in turn, are affected by factors such as capacity utilization, consumer demand for products, inventory levels and our customers’ access to capital. Cyclicality affects our ability to accurately predict future revenue and, in some cases, future expense levels. During down cycles in our industry, the financial results of our customers may be negatively impacted, which could result not only in a decrease in, or cancellation or delay of, orders (which are generally subject to cancellation or delay by the customer with limited or no penalty) but also a weakening of their financial condition that could impair their ability to pay for our products or our ability to recognize revenue from certain customers. Our ability to recognize revenue from a particular customer may also be negatively impacted by the customer’s funding status, which could be weakened not only by rising interest rates, adverse business conditions or inaccessibility to capital markets for any number of macroeconomic or company-specific reasons, but also by funding limitations imposed by the customer’s unique organizational structure. Any of these factors could negatively impact our business, operating results and financial condition.

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When cyclical fluctuations result in lower than expected revenue levels, operating results may be adversely affected and cost reduction measures may be necessary for us to remain competitive and financially sound. During periods of declining revenues, we must be in a position to adjust our cost and expense structure to prevailing market conditions and to continue to motivate and retain our key employees. If we fail to respond, or if our attempts to respond fail to accomplish our intended results, our business could be seriously harmed. Furthermore, any workforce reductions and cost reduction actions that we adopt in response to down cycles may result in additional restructuring charges, disruptions in our operations and loss of key personnel. In addition, during periods of rapid growth, we must be able to increase manufacturing capacity and personnel to meet customer demand. We can provide no assurance that these objectives can be met in a timely manner in response to industry cycles. Each of these factors could adversely impact our operating results and financial condition.

The growth that we have experienced over the past few years has resulted in higher levels of backlog, or ~~remaining performance obligations (“RPO”).~~RPO. The supply chain disruptions caused by the ongoing pandemic as well as favorable market trends have led to customers agreeing to purchase equipment from us with lead times that are longer than our historical experience. As the lead times for delivery of our equipment get longer, the risk increases that customers may choose to change their equipment orders due to the evolution of the ~~customer's~~customer’s technological, production or market needs. This could result in order modifications, rescheduling or even cancellations that may not be communicated to us in a timely manner, causing RPO to remain elevated until agreed with the customer. Customer communication delays for orders already placed could affect our ability to respond quickly in weakening demand environments, which could harm our results of operations.

Risks Related to Our Business Model and Capital Structure

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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 the continual improvement of existing technologies and rapid innovation of new solutions. The primary driver of technology advancement in the semiconductor industry has been to shrink the lithography that prints the circuit design on semiconductor chips. ~~That~~To the extent that driver ~~appears to be slowing, which may cause~~slows, semiconductor manufacturers tomay delay investments in equipment, investigate more complex device architectures, use new materials and develop innovative fabrication processes. These and other evolving customer plans and needs require us to respond with continued development programs and cut back or discontinue older programs, which may no longer have industry-wide support. Technical innovations are inherently complex and require long development cycles and appropriate staffing of highly qualified employees. Our competitive advantage and future business success depend on our ability to accurately predict evolving industry standards, develop and introduce new products and solutions that successfully address changing customer needs, win market acceptance of these new products and solutions, and manufacture these new products in a timely and cost-effective manner. Our failure to accurately predict evolving industry standards and develop as well as offer competitive technology solutions in a timely manner with cost-effective products could result in loss of market share, unanticipated costs and inventory obsolescence, which would adversely impact our business, operating results and financial condition.

We must continue to make significant investments in R&D in order to enhance the performance, features and functionality of our products, to keep pace with competitive products and to satisfy customer demands. Substantial R&D costs typically are incurred before we confirm the technical feasibility and commercial viability of a new product, and not all development activities result in commercially viable products. There can be no assurance that revenues from future products or product enhancements will be sufficient to recover the development costs associated with such products or enhancements. In addition, we cannot be sure that these products or enhancements will receive market acceptance ornor 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

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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~~U.S. and international patents and have additional pending patent applications relating to some of our products and technologies. The process of seeking patent protection is lengthy and expensive, and we cannot be certain that pending or future applications will actually result in issued patents or that issued patents will be of sufficient scope or strength to provide meaningful protection or commercial advantage to us. Other companies and individuals, including our larger competitors, may develop technologies and obtain patents relating to our business that are similar or superior to our technology or may design around the patents we own, which may adversely affect our business. In addition, we at times engage in collaborative technology development efforts with our customers and suppliers, and these collaborations may constitute a key component of certain of our ongoing technology and product R&D projects. The termination of any such collaboration, or delays caused by disputes or other unanticipated challenges that may arise in connection with any such collaboration, could significantly impair our R&D efforts, which could have a material adverse impact on our business and operations.

We also maintain trademarks on certain of our products and services and claim copyright protection for certain proprietary software and documentation. However, we can give no assurance that our trademarks and copyrights will be upheld or successfully deter infringement by third parties.

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While patent, copyright and trademark protection for our ~~intellectual property~~IP is important, we believe our future success in highly dynamic markets is most dependent upon the technical competence and creative skills of our personnel. We attempt to protect our trade secrets and other proprietary information through confidentiality and other agreements with our customers, suppliers, employees and consultants and through other security measures. We also maintain exclusive and non-exclusive licenses with third parties for strategic technology used in certain products. However, these employees, consultants and third parties may breach these agreements, and we may not have adequate remedies for wrongdoing. We also try to control access to and distribution of our technology and proprietary information. Despite our efforts, internal or external parties may attempt to copy, disclose, obtain or misappropriate our ~~intellectual property~~IP or technology. In addition, former employees may seek employment with our customers, suppliers or competitors and there can be no assurance that the confidential nature of our proprietary information will be maintained in the course of such future employment. In addition, the laws of certain territories in which we develop, manufacture or sell our products may not protect our ~~intellectual property~~IP rights to the same extent as do the laws of the ~~United States.~~U.S. In any event, the extent to which we can protect our trade secrets through the use of confidentiality agreements is limited, and our success will depend to a significant extent on our ability to innovate ahead of our competitors.

Our 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 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. Generally, we do not have guaranteed supply arrangements with our suppliers. Because of the variability and uniqueness of customers’ orders, we do not maintain an extensive inventory of materials for manufacturing. Through our business interruption planning, we seek to minimize the risk of production and service interruptions and/or shortages of key parts by, among other things, monitoring the financial stability of

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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;~~IP; in those cases, we are increasingly reliant on third parties for high-performance, high-technology components, which reduces the amount of control we have over the availability and protection of the technology and ~~intellectual property~~IP that is used in our products. In addition, if certain of our key suppliers experience liquidity issues and are forced to discontinue operations, which is a heightened risk, especially during economic downturns, it could affect their ability to deliver parts and could result in delays for our products. Similarly, especially with respect to suppliers of high-technology components, our suppliers themselves have increasingly complex supply chains, and delays or disruptions at any stage of their supply chains may prevent us from obtaining parts in a timely manner and result in delays for our products, or our suppliers might pass on the cost of inflation to us while we are unable to adjust pricing with our own customers. Our operating results and business may be adversely impacted if we are unable to obtain parts to meet our production requirements and product specifications, or if we are able to do so only on unfavorable terms. Furthermore, a supplier may discontinue production of a particular part for any number of reasons, including the supplier’s financial condition or business operational decisions, which would require us to purchase, in a single transaction, a large number of such discontinued parts in order to ensure that a continuous supply of such parts remains available to our customers. Such “end-of-life” parts purchases could result in significant expenditures by us in a particular period, and, ultimately, any unused parts may result in a significant inventory write-off, either of which could have an adverse impact on our financial condition and results of operations for the applicable periods. Refer to the Executive Summary in Part I, Item 2 “Management’s Discussion and

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Analysis of Financial Condition and Results of ~~Operations,”~~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.

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 ~~March 31,~~September 30, 2022, we had ~~$3.73~~$6.38 billion aggregate principal amount of outstanding indebtedness, consisting of $5.95 billion aggregate principal amount of senior, unsecured long-term ~~notes. Additionally, we~~notes, of which $3.00 billion were issued in the fourth quarter of fiscal 2022. We have ~~commitments for an unfunded~~a Credit Agreement and a Revolving Credit Facility with a maturity date of ~~$725.0 million under~~June 8, 2027 with two one-year extension options that allows us to borrow up to $1.50 billion. Subject to the terms of the Credit ~~Agreement.~~Agreement, the Revolving Credit Facility may be increased by an amount up to $250.0 million in the aggregate. As of September 30, 2022, we had an aggregate principal amount of $425.0 million outstanding under our Revolving Credit Facility. We may incur additional indebtedness in the future by accessing the unfunded portion of our Revolving Credit Facility and/or entering into new

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financing arrangements. ~~For example, at the same time we announced our intention to acquire Orbotech, we~~We also announced a ~~new~~ stock repurchase program, ~~authorizing~~under which the ~~repurchase up to $3.00~~remaining available for repurchases was $3.14 billion as of ~~our common stock, a~~September 30, 2022. A large portion of ~~which~~the remaining repurchases may be financed with new indebtedness. Our ability to pay interest and repay the principal amount of our current indebtedness is dependent upon our ability to manage our business operations, our credit rating, the ongoing interest rate environment and the other risk factors discussed in this Item 1A. There can be no assurance that we will be able to manage any of these risks successfully.

In certain circumstances involving a change of control followed by a downgrade of the rating of a series of our Senior Notes ~~(as defined below)~~ by at least two of Moody’s, S&P and Fitch, unless we have exercised our ~~right~~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,~~offer. At that time, we will be required to offer payment in cash equal to 101% of the aggregate principal amount of Senior Notes repurchased plus accrued and unpaid interest, if any, on the Senior Notes repurchased, up to, but not including, the date of repurchase. We cannot make any assurance that we will have sufficient financial resources at such time, nor that we will be able to arrange financing to pay the repurchase price of that series of Senior Notes. Our ability to repurchase that series of Senior Notes in such event may be limited by law, by the relevant indenture associated with that series of Senior Notes, or by the terms of other agreements to which we may be a party at such time. If we fail to repurchase that series of Senior Notes as required by the terms of such Senior Notes, it would constitute an event of default under the relevant indenture governing that series of Senior Notes which, in turn, may also constitute an event of default under our other obligations.

Borrowings under our Revolving Credit Facility bear interest at a floating rate, and an increase in interest rates, particularly in the current environment of rising interest rates, would require us to pay additional interest on any borrowings, which may have an adverse effect on the value and liquidity of our debt and the market price of our common stock could

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decline. The interest rate under our Revolving Credit Facility is also subject to (i) an adjustment in conjunction with our credit rating downgrades or ~~upgrades.~~upgrades and (ii) an adjustment based on our performance against certain sustainability key performance indicators related to GHG emissions and renewable electricity usage. Additionally, under our Revolving Credit Facility, we are required to comply with affirmative and negative covenants, which include the maintenance of certain financial ratios, the details of which can be found in Note 8 “Debt” to our Condensed Consolidated Financial Statements.

If we fail to comply with these covenants, we will be in default and our borrowings ~~will~~may become immediately due and payable. There can be no assurance that we will have sufficient financial resources nor that we will be able to arrange financing to repay our borrowings at such time. In addition, certain of our domestic subsidiaries are required to guarantee our borrowings under our Revolving Credit Facility. In the event we default on our borrowings, these domestic subsidiaries shall be liable for our borrowings, which could disrupt our operations and result in a material adverse impact on our business, financial condition or stock price.

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:

•aA negative impact on our ability to satisfy our future obligations;

•anAn 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;

•anAn impairment of our ability to obtain additional financing in the future; and

•~~obligations~~Obligations to comply with restrictive and financial covenants as noted in the above risk factor and Note 8 “Debt” to our Condensed 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.

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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.

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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~~IP rights of such third parties, or other claims made against certain parties. We may be compelled to enter into or accrue for probable settlements of alleged indemnification obligations, or we may be subject to potential liability arising from our customers’ involvements in legal disputes. In addition, notwithstanding the provisions related to limitations on our liability that we seek to include in our business agreements, the counterparties to such agreements may dispute our interpretation or application of such provisions, and a court of law may not interpret or apply such provisions in our favor, any of which could result in an obligation for us to pay material damages to third parties and engage in costly legal proceedings. It is difficult to determine the maximum potential amount of liability under any indemnification obligations, whether or not asserted, due to our limited history of prior indemnification claims and the unique facts and circumstances that are likely to be involved in any particular claim. Our business, financial condition and results of operations in a reported fiscal period could be materially and adversely affected if we expend significant amounts in defending or settling any purported claims, regardless of their merit or outcomes.

We are also exposed to potential costs associated with unexpected product performance issues. Our products and production processes are extremely complex and, thus, could contain unexpected product defects, especially when products are first introduced. Unexpected product performance issues could result in significant costs being incurred by us, including increased service or warranty costs, providing product replacements for (or modifications to) defective products, litigation related to defective products, reimbursement for damages caused by our products, product recalls, or product write-offs or disposal costs. These costs could be substantial and could have an adverse impact upon our business, financial condition and operating results. In addition, our reputation with our customers could be damaged as a result of such product defects, which could reduce demand for our products and negatively impact our business.

Furthermore, we occasionally enter into volume purchase agreements with our larger customers, and these agreements may provide for certain volume purchase incentives, such as credits toward future purchases. We believe that these arrangements are beneficial to our long-term business, as they are designed to encourage our customers to purchase larger volumes of our products. However, these arrangements could require us to recognize a reduced level of revenue for the products that are initially purchased, to account for the potential future credits or other volume purchase incentives. Our volume purchase agreements require significant estimation for the amounts to be accrued depending upon the estimate of volume of future purchases. As such, we are required to update our estimates of the accruals on a periodic basis. Until the earnings process is complete, our estimates could differ in comparison to actual results. As a result, these volume purchase arrangements, while expected to be beneficial to our business over time, could materially and adversely affect our results of operations in near-term periods, including the revenue we can recognize on product sales and, therefore, our gross margins.

In addition, we may, in limited circumstances, enter into agreements that contain customer-specific commitments on

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

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

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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~~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~~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.

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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 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

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of any such action or proceeding, could have a material adverse effect on our business, financial condition and results of operations.

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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Equity Repurchase Plans

The following is a summary of stock repurchases for the three months ended ~~March 31, 2022:~~September 30, 2022(3):

Period Total Number of
Shares
Purchased Average Price Paid
per Share
Total Number of Shares Purchased As Part of Publicly Announced Plans or Programs(1)
Approximate Dollar Value that May Yet Be Purchased Under the Plans or Programs(1)
January 1, 2022 to January 31, 2022 349,971 $ 404.29 349,971 $ 1,121,962,204
February 1, 2022 to February 28, 2022 569,288 $ 371.49 569,288 $ 910,480,425
March 1, 2022 to March 31, 2022 619,805 $ 341.55 619,805 $ 698,784,257
Total 1,539,064 $ 366.89 1,539,064


Period	Total Number of Shares Purchased(1)	Average Price Paid per Share		Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs(1)(2)
July 1, 2022 to July 31, 2022	—	$	—	$	3,232,594,651
August 1, 2022 to August 31, 2022	110,781	$	357.84	$	3,192,952,413
September 1, 2022 to September 30, 2022	146,374	$	341.41	$	3,142,979,081

Total	257,155

__________________

(1)Our Board of Directors has authorized a program that permits us to repurchase our common ~~stock. The~~stock, including a $6.00 billion increase approved by the Board in June 2022. As of September 30, 2022, approximately $3.14 billion remained available for repurchases under our repurchase program. All shares in the table were purchased pursuant to our publicly announced repurchase program.

(2)Our 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, accelerated share repurchase agreements (“ASR Agreements”) or systematic repurchase ~~plans. As~~plans, subject to market conditions, applicable legal requirements and other factors.

(3)On June 23, 2022, the Company executed ASR Agreements with two financial institutions to repurchase shares of our common stock in exchange for an upfront payment of $3.00 billion. The Company received initial deliveries totaling approximately 6.5 million shares on June ~~30, 2021, there was~~24, 2022, which represented 70% of the prepayment amount at the then prevailing market price of the Company’s shares of stock. The delivery of any remaining shares would occur at the final settlement of the transactions under the ASR Agreements, which is scheduled for the second quarter of fiscal 2023 as set forth in the ASR Agreements. The total number of shares received under the ASR Agreements will be based on the volume-weighted average prices of the Company’s stock during the term of the ASR Agreements, less an ~~aggregate~~agreed-upon discount and subject to adjustments pursuant to the terms and conditions of ~~approximately $93 million remaining available for repurchase~~the ASR Agreements. There were no shares returned to us under ~~previous authorizations, and on July 29, 2021,~~ the ~~Board of Directors authorized an additional $2.00 billion.~~ASR Agreements this quarter.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None.

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ITEM 6. EXHIBITS

Incorporated by Reference

Exhibit
Number

Exhibit Description

Form

File
Number

Exhibit
Number

Filing
Date

10.1

~~Calendar Year 202~~Form of Restricted Stock Unit Award Notification and Agreement (Special Awards)*2 Executive Incentive Plan*+

31.1

Certification of Chief Executive Officer under Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934

31.2

Certification of Chief Financial Officer under Rule 13a-14(a)/15d-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

104

Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

* Denotes a management contract, plan or arrangement.

+ Certain portions of this document that constitute confidential information have been redacted in accordance with Item 601(b)(10) of Regulation ~~S-K, Item 601 (b)(10).~~S-K.

^ Furnished herewith

7571

Table of Contents

SIGNATURES

Pursuant to the requirements 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.

KLA CORPORATION

(Registrant)

~~April 29,~~October 28, 2022

/s/ RICHARD P. WALLACE

(Date)

Richard P. Wallace

President and Chief Executive Officer
(Principal Executive Officer)

~~April 29,~~October 28, 2022

/s/ BREN D. HIGGINS

(Date)

Bren D. Higgins

Executive Vice President and Chief Financial Officer
(Principal Financial Officer)

~~April 29,~~October 28, 2022

/s/ VIRENDRA A. KIRLOSKAR

(Date)

Virendra A. Kirloskar

Senior Vice President and Chief Accounting Officer
(Principal Accounting Officer)

7672


(In thousands)	Fair Value		Weighted Average Useful Lives
Existing technology(1)	$	117,900	8
Customer relationships(2)	52,400		7
Order backlog(3)	35,000		1.5
Trade name / trademark(4)	3,100		3
Total identified intangible assets	$	208,400


Period	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased As Part of Publicly Announced Plans or Programs(1)	Approximate Dollar Value that May Yet Be Purchased Under the Plans or Programs(1)
January 1, 2022 to January 31, 2022	349,971	$	404.29	349,971	$	1,121,962,204
February 1, 2022 to February 28, 2022	569,288	$	371.49	569,288	$	910,480,425
March 1, 2022 to March 31, 2022	619,805	$	341.55	619,805	$	698,784,257
Total	1,539,064	$	366.89	1,539,064