10-K – 2025-08-08 – klac-20250630.htm

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 and PCB industries, are constantly developing and changing. Many of the risks associated with operating in these industries are comparable to the risks faced by all technology companies, such as the uncertainty of future growth rates in the industries that we serve, pricing trends in the end-markets for consumer electronics and other products (which place a growing emphasis on our customers’ cost of ownership), rising inflation in the supply chain and interest rates, changes in our customers’ capital spending patterns and, in general, an environment of constant change and development, including decreasing product and component dimensions, use of new materials, and increasingly complex device structures, applications and process steps. If we fail to appropriately adjust our cost structure and operations to adapt to any of these trends, or, with respect to technological advances, if we do not timely develop new technologies and products that successfully anticipate and address these changes, we could experience a material adverse effect on our business, financial condition and operating results.
In addition, we face a number of risks specific to ongoing changes in the semiconductor industry, as a significant majority of our sales are our process control and yield management products sold to semiconductor manufacturers. The trends our management monitors in operating our business include the following:
• The potential for reversal of the long-term historical trend of declining cost per transistor with each new generation of technological advancement within the semiconductor industry, and the adverse impact that such reversal may have upon our business;
• The increasing cost of building and operating fabrication facilities and the impact of such increases on our customers’ capital equipment investment decisions;
• Differing market growth rates and capital requirements for different applications, such as memory and foundry/logic;
• Lower level of process control adoption by our memory customers compared to our foundry/logic customers;
• Our customers’ reuse of existing and installed products, which may decrease their need to purchase new products or solutions at more advanced technology nodes;
• The emergence of disruptive technologies that change the prevailing semiconductor manufacturing processes (or the economics associated with semiconductor manufacturing) and, as a result, also impact the inspection and metrology requirements associated with such processes;
• The higher design costs for the most advanced ICs, which could economically constrain leading-edge manufacturing technology customers to focus their resources on only the large, technologically advanced products and applications;
• The possible introduction of integrated products by our larger competitors that offer inspection and metrology functionality in addition to managing other semiconductor manufacturing processes;
• Changes in semiconductor manufacturing processes that are extremely costly for our customers to implement and, accordingly, our customers could reduce their available budgets for process control equipment by reducing inspection and metrology sampling rates for certain technologies;
• The bifurcation of the semiconductor manufacturing industry into (a) leading edge manufacturers driving continued R&D into next-generation products and technologies and (b) other manufacturers that are content with existing (including previous generation) products and technologies;
• The ever escalating cost of next-generation product development, which may result in joint development programs between us and our customers or government entities to help fund such programs that could restrict our control and ownership of and profitability from the products and technologies developed through those programs; and
• The entry by some semiconductor manufacturers into collaboration or sharing arrangements for capacity, cost or risk with other manufacturers, as well as increased outsourcing of their manufacturing activities, and greater focus only on specific markets or applications, whether in response to adverse market conditions or other market pressures.
Any of the changes described above may negatively affect our customers’ rate of investment in the capital equipment that we produce, which could result in downward pressure on our prices, customer orders, revenues and gross margins. If we do not successfully manage the risks resulting from any of these or other potential changes in our industries, our business, financial condition and operating results could be adversely impacted.
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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 expose our business and operating results to increased volatility tied to individual customers;
• New orders from our foundry/logic customers in the past several years have constituted a significant portion of our total orders. This concentration increases the impact that future business or technology changes within the foundry/logic industry may have on our business, financial condition and operating results;
• In a highly concentrated business environment, if a particular customer does not place an order, or if they delay or cancel orders, we may not be able to replace the business. Furthermore, because our process control and yield 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, IP-related or other commercial terms that may have an adverse impact on our business and we may not be able to pass on the cost of inflation to our customers. Any of these changes could negatively impact our prices, customer orders, revenues and gross margins;
• Certain customers have undergone significant ownership changes, created alliances with other companies, experienced management changes or have outsourced manufacturing activities, any of which may result in additional complexities in managing customer relationships and transactions. Any future change in ownership or management of our existing customers may result in similar challenges, including the possibility of the successor entity or new management deciding to select a competitor’s products;
• The highly concentrated business environment also increases our exposure to risks related to the financial condition of each of our customers. For example, as a result of the challenging economic environment during fiscal year 2009, we were (and, in some cases, continue to be) exposed to additional risks related to the continued financial viability of certain of our customers. To the extent our customers experience liquidity issues in the future, we may be required to incur additional credit losses with respect to receivables owed to us by those customers. In addition, customers with liquidity issues may be forced to reduce purchases of our equipment, delay deliveries of our products, discontinue operations or may be acquired by one of our customers, and, in either case, such event would have the effect of further consolidating our customer base;
• Semiconductor manufacturers generally must commit significant resources to qualify, install and integrate process control and yield management equipment into a semiconductor production line. We believe that once a semiconductor manufacturer selects a particular supplier’s process control and yield management equipment, the manufacturer generally relies upon that equipment for that specific production line application for an extended period of time. Accordingly, we expect it to be more difficult to sell our products to a given customer for that specific production line application and other similar production line applications if that customer initially selects a competitor’s equipment; and
• Prices differ among the products we offer for different applications due to differences in features offered or manufacturing costs. If there is a shift in demand by our customers from our higher-priced to lower-priced products, our gross margin and revenues would decrease. In addition, when products are initially introduced, they tend to have higher costs because of initial development costs and lower production volumes relative to the previous product generation, which can impact gross margin.
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
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utilization, consumer demand for products, inventory levels and our customers’ access to capital. Cyclicality affects our ability to accurately predict future revenue and, in some cases, future expense levels. During down cycles in our industry, the financial results of our customers may be negatively impacted, which could result not only in a decrease in, or cancellation or delay of, orders (which are generally subject to cancellation or delay by the customer with limited or no penalty) but also a weakening of their financial condition that could impair their ability to pay for our products or our ability to recognize revenue from certain customers. Our ability to recognize revenue from a particular customer may also be negatively impacted by the customer’s funding status, which could be weakened not only by rising interest rates, adverse business conditions or inaccessibility to capital markets for any number of macroeconomic or company-specific reasons, but also by funding limitations imposed by the customer’s unique organizational structure. Any of these factors could negatively impact our business, operating results and financial condition.
When cyclical fluctuations result in lower than expected revenue levels, operating results may be adversely affected and cost reduction measures may be necessary for us to remain competitive and financially sound. During periods of declining revenues, we must be in a position to adjust our cost and expense structure to prevailing market conditions and to continue to motivate and retain our key employees. If we fail to respond, or if our attempts to respond fail to accomplish our intended results, our business could be seriously harmed. Furthermore, any workforce reductions and cost reduction actions that we adopt in response to down cycles may result in additional restructuring charges, disruptions in our operations and loss of key personnel. In addition, during periods of rapid growth, we must be able to increase manufacturing capacity and personnel to meet customer demand. We can provide no assurance that these objectives can be met in a timely manner in response to industry cycles. Each of these factors could adversely impact our operating results and financial condition.
We are exposed to risks related to the use of AI by us, our competitors and other third parties.
We are increasingly incorporating AI capabilities into the development of technologies and our business operations, and into our products and services. AI technology is complex and rapidly evolving, and may subject us to significant competitive, legal, regulatory and other risks. The implementation of AI can be costly and there is no guarantee that our use of AI will enhance our technologies, benefit our business operations or produce products and services that are preferred by our customers. Our competitors may be more successful in their AI strategy and develop superior products and services with the aid of AI.
Additionally, AI algorithms or training methodologies may be flawed, and datasets may contain irrelevant, insufficient or biased information, which can cause errors in outputs. This may give rise to legal liability, damage our reputation and materially harm our business. The use of AI in the development of our products and services, and our customers’ use of AI in relation to our products and services could also cause loss of IP, as well as subject us to risks, including third-party claims, related to IP infringement or misappropriation, data privacy and cybersecurity. Additionally, concerns over the use of AI for purposes contrary to public interests could impair public acceptance of AI and impair demand for our products and services. Furthermore, the United States and other countries may adopt laws and regulations related to AI. Such laws and regulations could cause us to incur greater compliance costs and limit the use of AI in the development of our products and services. Any failure or perceived failure by us to comply with such regulatory requirements could subject us to legal liabilities, damage our reputation, or otherwise have a material and adverse impact on our business.
Risks Related to Our Business Model and Capital Structure
If we do not develop and introduce new products and technologies in a timely manner in response to changing market conditions or customer requirements, our business could be seriously harmed.
Success in the industries in which we serve, including the semiconductor and PCB industries depends, in part, on the continual improvement of existing technologies and rapid innovation of new solutions. The primary driver of technology advancement in the semiconductor industry has been to shrink the lithography that prints the circuit design on semiconductor chips. To the extent that driver slows, semiconductor manufacturers may delay investments in equipment, investigate more complex device architectures, use new materials and develop innovative fabrication processes. These and other evolving customer plans and needs require us to respond with continued development programs and cut back or discontinue older programs, which may no longer have industry-wide support. Technical innovations are inherently complex and require long development cycles and appropriate staffing of highly qualified employees. Our competitive advantage and future business success depend on our ability to accurately predict evolving industry standards, develop and introduce new products and solutions that successfully address changing customer needs, win market acceptance of these new products and solutions, and manufacture these new products in a timely and cost-effective manner. Our failure to accurately predict evolving industry standards and develop as well as offer competitive technology solutions in a timely manner with cost-effective products could result in loss of market share, unanticipated costs and inventory obsolescence, which would adversely impact our business, operating results and financial condition.
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We must continue to make significant investments in R&D in order to enhance the performance, features and functionality of our products, to keep pace with competitive products and to satisfy customer demands. Substantial R&D costs typically are incurred before we confirm the technical feasibility and commercial viability of a new product, and not all development activities result in commercially viable products. There can be no assurance that revenues from future products or product enhancements will be sufficient to recover the development costs associated with such products or enhancements. In addition, we cannot be sure that these products or enhancements will receive market acceptance nor that we will be able to sell these products at prices that are favorable to us. Our business will be seriously harmed if we are unable to sell our products at favorable prices or if the market in which we operate does not accept our products.
In addition, the complexity of our products exposes us to other risks. We regularly recognize revenue from a sale upon shipment of the applicable product to the customer (even before receiving the customer’s formal acceptance of that product) in certain situations, including sales of products for which installation is considered perfunctory, transactions in which the product is sold to an independent distributor and we have no installation obligations, and sales of products where we have previously delivered the same product to the same customer location and that prior delivery has been accepted. However, our products are very technologically complex and rely on the interconnection of numerous subcomponents (all of which must perform to their respective specifications), so it is conceivable that a product for which we recognize revenue upon shipment may ultimately fail to meet the overall product’s required specifications. In such a situation, the customer may be entitled to certain remedies, which could materially and adversely affect our operating results for various periods and, as a result, our stock price.
We derive a substantial percentage of our revenues from sales of inspection products. As a result, any delay or reduction of sales of these products could have a material adverse effect on our business, financial condition and operating results. The continued customer demand for these products and the development, introduction and market acceptance of new products and technologies are critical to our future success.
Our success is dependent in part on our technology and other proprietary rights. 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 U.S. and international patents and have additional pending patent applications relating to some of our products and technologies. The process of seeking patent protection is lengthy and expensive, and we cannot be certain that pending or future applications will actually result in issued patents or that issued patents will be of sufficient scope or strength to provide meaningful protection or commercial advantage to us. Other companies and individuals, including our larger competitors, may develop technologies and obtain patents relating to our business that are similar or superior to our technology or may design around the patents we own, which may adversely affect our business. In addition, we at times engage in collaborative technology development efforts with our customers and suppliers, and these collaborations may constitute a key component of certain of our ongoing technology and product R&D projects. The termination of any such collaboration, or delays caused by disputes or other unanticipated challenges that may arise in connection with any such collaboration, could significantly impair our R&D efforts, which could have a material adverse impact on our business and operations.
We also maintain trademarks on certain of our products and services and claim copyright protection for certain proprietary software and documentation. However, we can give no assurance that our trademarks and copyrights will be upheld or successfully deter infringement by third parties.
While patent, copyright and trademark protection for our IP is important, we believe our future success in highly dynamic markets is most dependent upon the technical competence and creative skills of our personnel. We attempt to protect our trade secrets and other proprietary information through confidentiality and other agreements with our customers, suppliers, employees and consultants and through other security measures. We also maintain exclusive and non-exclusive licenses with third parties for strategic technology used in certain products. However, these employees, consultants and third parties may breach these agreements, and we may not have adequate remedies for wrongdoing. We also try to control access to and distribution of our technology and proprietary information. Despite our efforts, internal or external parties may attempt to copy, disclose, obtain or misappropriate our IP or technology. In addition, former employees may seek employment with our customers, suppliers or competitors and there can be no assurance that the confidential nature of our proprietary information will be maintained in the course of such future employment. In addition, the laws of certain territories in which we develop, manufacture or sell our products may not protect our IP rights to the same extent as the laws of the U.S. In any event, the extent to which we can protect our trade secrets through the use of confidentiality agreements is limited, and our success will depend to a significant extent on our ability to innovate ahead of our competitors.
Our 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,
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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 key suppliers, identifying (but not necessarily qualifying) possible alternative suppliers and maintaining appropriate inventories of key parts. Although we make reasonable efforts to ensure that parts are available from multiple suppliers, certain key parts are available only from a single supplier or a limited group of suppliers. Also, key parts we obtain from some of our suppliers incorporate the suppliers’ proprietary IP; in those cases, we are increasingly reliant on third parties for high-performance, high-technology components, which reduces the amount of control we have over the availability and protection of the technology and IP that is used in our products. In addition, if certain of our key suppliers experience liquidity issues and are forced to discontinue operations, which is a heightened risk, especially during economic downturns, it could affect their ability to deliver parts and could result in delays for our products. Similarly, especially with respect to suppliers of high-technology components, our suppliers themselves have increasingly complex supply chains, and delays or disruptions at any stage of their supply chains may prevent us from obtaining parts in a timely manner and result in delays for our products, or our suppliers might pass on the cost of inflation to us while we are unable to adjust pricing with our own customers. In April 2025, the Chinese government imposed certain new export controls on a range of critical rare earth minerals. Rare earth minerals are critical to certain components contained in our products. If our suppliers are unable to provide the components necessary to make our products because of restrictions placed on their access to rare earth minerals, our business, financial condition and results of operations could be materially harmed. 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.
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.
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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 and allocation of resources, the need to manage our operating model and other factors. In furtherance of those efforts, we often must exercise discretion and judgment as to the timing and prioritization of manufacturing, deliveries, installations and payment scheduling. Any such decisions may impact our ability to recognize revenue, including the fiscal period during which such revenue may be recognized, with respect to such products, which could have a material adverse effect on our business, results of operations or stock price.
We have a leveraged capital structure.
As of June 30, 2025, we had $5.95 billion aggregate principal amount of outstanding indebtedness, consisting of senior, unsecured long-term notes (the “Senior Notes”). This aggregate principal amount of senior, unsecured notes includes an issuance in February 2024 of $750.0 million aggregate principal amount of senior, unsecured notes, consisting of $500.0 million of 4.700% senior, unsecured notes due February 1, 2034 and an additional $250.0 million of 4.950% senior, unsecured notes due July 15, 2052 which was originally issued in June 2022. On July 3, 2025, we replaced our Prior Revolving Credit Facility (“Prior Revolving Credit Facility”) with a new Credit Agreement (the “Credit Agreement”) and new Revolving Credit Facility (the “Revolving Credit Facility”) with a maturity date of July 3, 2030, with two one-year extension options that allow us to borrow up to $1.50 billion. Subject to the terms of the Credit Agreement, the Revolving Credit Facility may be increased by an amount up to $500.0 million in the aggregate. As of June 30, 2025, we had no outstanding borrowings under our Prior Revolving Credit Facility. We may incur additional indebtedness in the future by accessing the unfunded portion of our Revolving Credit Facility and/or entering into new financing arrangements. We also announced a stock repurchase program, under which the remaining available for repurchases was $5.03 billion as of June 30, 2025. A portion of the remaining repurchases may be financed with new indebtedness. Our ability to pay interest and repay the principal amount of our current indebtedness is dependent upon our ability to manage our business operations, our credit rating, the ongoing interest rate environment and the other risk factors discussed in this Item 1A. There can be no assurance that we will be able to manage any of these risks successfully.
In certain circumstances involving a change of control followed by a downgrade of the rating of a series of our Senior Notes by at least two of Moody’s Investors Service (“Moody’s”), S&P Global Ratings (“S&P”) and Fitch Inc. (“Fitch”) unless we have exercised our rights to redeem the Senior Notes of such series, we will be required to make an offer to repurchase all or, at the holder’s option, any part, of each holder’s Senior Notes of that series pursuant to the offer. At that time, we will be required to offer payment in cash equal to 101% of the aggregate principal amount of Senior Notes repurchased plus accrued and unpaid interest, if any, on the Senior Notes repurchased, up to, but not including, the date of repurchase. We cannot make any assurance that we will have sufficient financial resources at such time, nor that we will be able to arrange financing to pay the repurchase price of that series of Senior Notes. Our ability to repurchase that series of Senior Notes in such event may be limited by law, by the relevant indenture associated with that series of Senior Notes, or by the terms of other agreements to which we may be a party at such time. If we fail to repurchase that series of Senior Notes as required by the terms of such Senior Notes, it would constitute an event of default under the relevant indenture governing that series of Senior Notes which, in turn, may also constitute an event of default under our other obligations.
Borrowings under our Revolving Credit Facility bear interest at a floating rate, and an increase in interest rates, particularly in the current environment of rising interest rates, would require us to pay additional interest on any borrowings, which may have an adverse effect on the value and liquidity of our debt and the market price of our common stock could decline. The interest rate under our Revolving Credit Facility is also subject to (i) an adjustment in conjunction with our credit rating downgrades or upgrades and (ii) an adjustment based on our performance against certain sustainability key performance indicators related to GHG emissions and renewable electricity usage. Additionally, under our Revolving Credit Facility, we are required to comply with affirmative and negative covenants, which include the maintenance of certain financial ratios, the details of which can be found in Note 8 “Debt” to our Consolidated Financial Statements.
If we fail to comply with these covenants, we will be in default and our borrowings may become immediately due and payable. There can be no assurance that we will have sufficient financial resources nor that we will be able to arrange financing to repay our borrowings at such time. In addition, certain of our domestic subsidiaries are required to guarantee our borrowings under our Revolving Credit Facility. In the event we default on our borrowings, these domestic subsidiaries shall be liable for
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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:
• A negative impact on our ability to satisfy our future obligations;
• An increase in the portion of our cash flows that may have to be dedicated to interest and principal payments that may not be available for operations, working capital, capital expenditures, acquisitions, investments, dividends, stock repurchases, general corporate or other purposes;
• An impairment of our ability to obtain additional financing in the future; and
• Obligations to comply with restrictive and financial covenants as noted in the above risk factor and Note 8 “Debt” to our Consolidated Financial Statements.
Our ability to satisfy our future expenses as well as our debt obligations will depend on our future performance, which will be affected by financial, business, economic, regulatory and other factors. Furthermore, our future operations may not generate sufficient cash flows to enable us to meet our future expenses and service our debt obligations, which may impact our ability to manage our capital structure to preserve and maintain our investment grade rating. If our future operations do not generate sufficient cash flows, we may need to access the money available for borrowing under our Revolving Credit Facility or enter into new financing arrangements to obtain necessary funds. If we determine it is necessary to seek additional funding for any reason, we may not be able to obtain such funding or, if funding is available, we may not be able to obtain it on acceptable terms. Any borrowings under our Revolving Credit Facility will place further pressure on us to comply with the financial covenants. If we fail to make a payment associated with our debt obligations, we could be in default on such debt, and such a default could cause us to be in default on our other obligations.
There can be no assurance that we will continue to declare cash dividends at all or in any particular amounts.
We intend to continue to pay quarterly dividends subject to capital availability and periodic determinations by our Board of Directors that cash dividends are in the best interest of our stockholders and are in compliance with all laws and agreements applicable to the declaration and payment of cash dividends by us. However, future dividends may be affected by, among other factors: our views on potential future capital requirements for investments in acquisitions and the funding of our R&D; legal risks; stock repurchase programs; changes in federal and state income tax laws or corporate laws; changes to our business model; and our increased interest and principal payments required by our outstanding indebtedness and any additional indebtedness that we may incur in the future. Our dividend payments may change from time to time, and we cannot provide assurance that we will continue to declare dividends at all or in any particular amounts. A reduction in our dividend payments could have a negative effect on our stock price.
We are exposed to risks related to our commercial terms and conditions, including our indemnification of third parties, as well as the performance of our products.
Although our standard commercial documentation sets forth the terms and conditions that we intend to apply to commercial transactions with our business partners, counterparties to such transactions may not explicitly agree to our terms and conditions. In situations where we engage in business with a third party without an explicit master agreement regarding the applicable terms and conditions, or where the commercial documentation applicable to the transaction is subject to varying interpretations, we may have disputes with those third parties regarding the applicable terms and conditions of our business relationship with them. Such disputes could lead to a deterioration of our commercial relationship with those parties, costly and time-consuming litigation, or additional concessions or obligations being offered by us to resolve such disputes, or could impact our revenue or cost recognition. Any of these outcomes could materially and adversely affect our business, financial condition and results of operations.
In addition, in our commercial agreements, from time to time in the normal course of business, we indemnify third parties with whom we enter into contractual relationships, including customers, suppliers and lessors, with respect to certain matters. We have agreed, under certain conditions, to hold these third parties harmless against specified losses, such as those arising from a breach of representations or covenants, third-party claims that our products, when used for their intended purposes, infringe the IP rights of such third parties, or other claims made against certain parties. We may be compelled to enter into or accrue for probable settlements of alleged indemnification obligations, or we may be subject to potential liability arising from our customers’ involvements in legal disputes. In addition, notwithstanding the provisions related to limitations on our liability that we seek to include in our business agreements, the counterparties to such agreements may dispute our interpretation or
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application of such provisions, and a court of law may not interpret or apply such provisions in our favor, any of which could result in an obligation for us to pay material damages to third parties and engage in costly legal proceedings. It is difficult to determine the maximum potential amount of liability under any indemnification obligations, whether or not asserted, due to our limited history of prior indemnification claims and the unique facts and circumstances that are likely to be involved in any particular claim. Our business, financial condition and results of operations in a reported fiscal period could be materially and adversely affected if we expend significant amounts in defending or settling any purported claims, regardless of their merit or outcomes.
We are also exposed to potential costs associated with unexpected product performance issues. Our products and production processes are extremely complex and, thus, could contain unexpected product defects, especially when products are first introduced. Unexpected product performance issues could result in significant costs being incurred by us, including increased service or warranty costs, providing product replacements for (or modifications to) defective products, litigation related to defective products, reimbursement for damages caused by our products, product recalls, or product write-offs or disposal costs. These costs could be substantial and could have an adverse impact upon our business, financial condition and operating results. In addition, our reputation with our customers could be damaged as a result of such product defects, which could reduce demand for our products and negatively impact our business.
Furthermore, we occasionally enter into volume purchase agreements with our larger customers, and these agreements may provide for certain volume purchase incentives, such as credits toward future purchases. We believe that these arrangements are beneficial to our long-term business, as they are designed to encourage our customers to purchase larger volumes of our products. However, these arrangements could require us to recognize a reduced level of revenue for the products that are initially purchased, to account for the potential future credits or other volume purchase incentives. Our volume purchase agreements require significant estimation for the amounts to be accrued depending upon the estimate of volume of future purchases. As such, we are required to update our estimates of the accruals on a periodic basis. Until the earnings process is complete, our estimates could differ in comparison to actual results. As a result, these volume purchase arrangements, while expected to be beneficial to our business over time, could materially and adversely affect our results of operations in near-term periods, including the revenue we can recognize on product sales and, therefore, our gross margins.
In addition, we may, in limited circumstances, enter into agreements that contain customer-specific commitments on pricing, tool reliability, spare parts stocking levels, response time and other commitments, and we may be unable to adjust pricing with our customers despite rising inflation in our supply chain. Furthermore, we may give these customers limited audit or inspection rights to enable them to confirm that we are complying with these commitments. If a customer elects to exercise its audit or inspection rights, we may be required to expend significant resources to support the audit or inspection, as well as to defend or settle any dispute with a customer that could potentially arise out of such audit or inspection. To date, we have made no significant accruals in our Consolidated Financial Statements for this contingency. While we have not in the past incurred significant expenses for resolving disputes regarding these types of commitments, we cannot make any assurance that we will not incur any such liabilities in the future. Our business, financial condition and results of operations in a reported fiscal period could be materially and adversely affected if we expend significant amounts in supporting an audit or inspection, or defending or settling any purported claims, regardless of their merit or outcomes.
There are risks associated with our receipt of government funding for R&D.
We are exposed to additional risks related to our receipt of external funding for certain strategic development programs from various governments and government agencies, both domestically and internationally. Governments and government agencies typically have the right to terminate funding programs at any time in their sole discretion, or a project may be terminated by mutual agreement if the parties determine that the project’s goals or milestones are not being achieved, so there is no assurance that these sources of external funding will continue to be available to us in the future. In addition, under the terms of these government grants, the applicable granting agency typically has the right to audit the costs that we incur, directly and indirectly, in connection with such programs. Any such audit could result in modifications to, or even termination of, the applicable government funding program. For example, if an audit were to identify any costs as being improperly allocated to the applicable program, those costs would not be reimbursed, and any such costs that had already been reimbursed would have to be refunded. We do not know the outcome of any future audits. Any adverse finding resulting from any such audit could lead to penalties (financial or otherwise), termination of funding programs, suspension of payments, fines and suspension or prohibition from receiving future government funding from the applicable government or government agency, any of which could adversely impact our operating results, financial condition and ability to operate our business.
We have recorded significant asset impairment, restructuring and inventory write-off 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 restructuring charges related to our prior global workforce reductions, large excess
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inventory write-offs, and material impairment charges related to our goodwill and purchased intangible assets, such as the goodwill and purchased intangible asset impairment charges recorded in the second quarter of fiscal 2025. Workforce changes can also temporarily reduce workforce productivity, which could be disruptive to our business and adversely affect our results of operations. In addition, we may not achieve or sustain the expected cost savings or other benefits of our restructuring plans, or do so within the expected time frame. If we again restructure our organization and business processes, implement additional cost-reduction actions or discontinue certain business operations, we may take additional, potentially material, restructuring charges related to, among other things, employee terminations or exit costs. We may also be required to write off additional inventory if our product build plans or demand for service inventory decline. Also, in the event that our lead times from suppliers increase (possibly due to the increasing complexity of the parts and components they provide) and the lead times demanded by our customers decrease (which may be due to many factors, including the time pressures they face when introducing new products or technology or bringing new facilities into production), we may be compelled to increase our commitments, and, therefore, our risk exposure, to inventory purchases to meet our customers’ demands in a timely manner, and that inventory may need to be written off if demand for the underlying product declines for any reason. Such additional write-offs could result in material charges.
We have recorded material charges related to the impairment of our goodwill and purchased intangible assets. Goodwill represents the excess of costs over the net fair value of net assets acquired in a business combination. Goodwill is not amortized, but is instead tested for impairment at least annually in accordance with authoritative guidance for goodwill. Purchased intangible assets with estimable useful lives are amortized over their respective estimated useful lives based on economic benefit if known or using the straight-line method, and are reviewed for impairment in accordance with authoritative guidance for long-lived assets. The valuation of goodwill and intangible assets requires assumptions and estimates of many critical factors, including, but not limited to, declines in our operating cash flows, declines in our stock price or market capitalization, declines in our market share, and declines in revenues or profits. A substantial decline in our stock price, or any other adverse change in market conditions, particularly if such change has the effect of changing one of the critical assumptions or estimates we previously used to calculate the value of our goodwill or intangible assets (and, as applicable, the amount of any previous impairment charge), could result in a change to the estimation of fair value that could result in an additional impairment charge.
Any such additional material charges, whether related to restructuring or goodwill or purchased intangible asset impairment, may have a material negative impact on our operating results and related financial statements.
We are exposed to risks related to our 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 cash and cash equivalents with several domestic and foreign financial institutions, in excess of the Federal Deposit Insurance Corporation insurance limit. If we were to stop entering into these factoring arrangements, our operating results, financial condition and cash flows could be adversely impacted by delays or failures in collecting trade receivables. However, by engaging these financial institutions for factoring arrangements and for banking services, we are exposed to additional risks that any of such financial institutions may prove to be not financially viable. If any of these financial institutions experiences financial difficulties or is otherwise unable to honor the terms of our factoring or deposit arrangements, we may experience material financial losses due to the failure of such arrangements or a lack of access to our funds, any of which could have an adverse impact upon our operating results, financial condition and cash flows.
We are subject to the risks of additional government actions in the event we were to breach the terms of any settlement arrangement into which we have entered.
In connection with the settlement of certain government actions and other legal proceedings related to our historical stock option practices, we have explicitly agreed, as a condition to such settlements, that we will comply with certain laws, such as the books and records provisions of the federal securities laws. If we were to violate any such law, we might not only be subject to the significant penalties applicable to such violation, but our past settlements may also be impacted by such violation, which could give rise to additional government actions or other legal proceedings. Any such additional actions or proceedings may require us to expend significant management time and incur significant accounting, legal and other expenses, and may divert attention and resources from the operation of our business. These expenditures and diversions, as well as an adverse resolution of any such action or proceeding, could have a material adverse effect on our business, financial condition and results of operations.
Our Bylaws designate the Court of Chancery of the State of Delaware as the sole and exclusive forum for certain actions and proceedings, which could limit the ability of our stockholders to obtain a judicial forum of their choice for disputes with the Company or its directors, officers or employees.
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Our Bylaws provide that, unless we consent in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware generally shall be the sole and exclusive forum for (i) any derivative action or proceeding brought on behalf of the Company, (ii) any action asserting a claim of breach of a fiduciary duty owed by any director, officer or employee of the Company to the Company or its stockholders, (iii) any action asserting a claim arising pursuant to any provision of the General Corporation Law of the State of Delaware, our Certificate of Incorporation or Bylaws or (iv) any other action asserting a claim arising under, in connection with, and governed by the internal affairs doctrine. This choice of forum provision does not waive our compliance with our obligations under the federal securities laws and the rules and regulations thereunder. Moreover, the provision does not apply to suits brought to enforce a duty or liability created by the Securities Exchange Act or by the Securities Act of 1933, as amended.
This choice of forum provision may increase costs to bring a claim, discourage claims or limit a stockholder's ability to bring a claim in a judicial forum that the stockholder finds favorable for disputes with the Company or our directors, officers or employees, which may discourage such lawsuits against the Company and its directors, officers and employees, even though an action, if successful, might benefit our stockholders. Alternatively, if a court were to find the choice of forum provision to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such matters in other jurisdictions, which could increase our costs of litigation and adversely affect our business and financial condition.

ITEM 1B. UNRESOLVED STAFF COMMENTS
None.

ITEM 1C. CYBERSECURITY
Cybersecurity Risk Management and Strategy
We have a cybersecurity risk management process intended to protect the confidentiality, integrity and availability of our critical systems and information. We design and assess our process based on the National Institute of Standards and Technology Cybersecurity Framework (“NIST CSF”). This does not imply that we meet any particular technical standards, specifications or requirements, only that we use the NIST CSF as a guide to help us identify, assess and manage cybersecurity risks relevant to our business.
Our cybersecurity risk management process is integrated into our overall risk management process, and shares common methodologies, reporting channels and governance processes that apply across the risk management process to other legal, compliance, strategic, operational and financial risk areas.
Key elements of our cybersecurity risk management process include, but are not limited to, the following:
• Risk assessments designed to help identify material risks from cybersecurity threats to our critical systems and     information;
• A cybersecurity team principally responsible for managing (1) our cybersecurity risk assessment processes, (2) our security controls, and (3) our response to cybersecurity incidents;
• The use of external service providers, where appropriate, to assess, test or otherwise assist with aspects of our security processes;
• Cybersecurity awareness training of our workforce;
• A cybersecurity incident response plan and processes for responding to cybersecurity incidents; and
• Risk management processes based on our assessment of the respective risk profile of key third parties.
We face risks from cybersecurity threats that, if realized, are reasonably likely to materially affect us, including our operations, business strategy, results of operations, or financial condition. See Part I Item 1A “Risk Factors – We depend on information technology for our business and are exposed to risks related to cybersecurity threats and cyber incidents affecting our, our customers’, suppliers’ and other service providers’ systems and networks. ”
Cybersecurity Governance
Our Board considers cybersecurity risk as part of its risk oversight function and has delegated to the Audit Committee (the “Committee”) oversight of cybersecurity risks, including oversight of management’s implementation of our cybersecurity risk management process.
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The Committee receives quarterly reports from management on our cybersecurity risks. In addition, management updates the Committee, where it deems appropriate, regarding cybersecurity incidents it considers to be significant or potentially significant.
The Committee reports to the full Board regarding its activities, including those related to cybersecurity. The full Board also regularly receives briefings from management on our cyber risk management process. Board members receive presentations on cybersecurity topics from management or external experts as part of the Board’s continuing education on topics that impact public companies.
Our management team, including our Chief Legal Officer and Chief Information Security Officer (“CISO”) , is responsible for assessing and managing our material risks from cybersecurity threats. The team has primary responsibility for our overall cybersecurity risk management process and supervises both our internal cybersecurity personnel and our retained external cybersecurity consultants. Our CISO has a degree with a focus on information technology, and is a Certified Information Systems Auditor with over 20 years of experience in information technology related roles, including building and leading cybersecurity, risk management and information protection teams. Our CISO reports to our Chief Legal Officer who oversees cybersecurity, and holds a Carnegie Mellon University Software Engineering Institute CERT Certificate for Cybersecurity Oversight. The other members of the operational cybersecurity team collectively have decades of relevant education and experience and maintain a wide range of industry certifications. We invest in regular, ongoing cybersecurity training for the cybersecurity team.
Our management team takes steps to stay informed about and monitor efforts to prevent, detect, mitigate and remediate cybersecurity risks and incidents through various means, which may include: briefings from internal security personnel; threat intelligence and other information obtained from governmental, public or private sources, including external consultants engaged by us; and alerts and reports produced by security tools deployed in our information technology environment.

ITEM 2. PROPERTIES
Our headquarters are located in Milpitas, California. As of June 30, 2025, we owned or leased a total of 7.1 million square feet of space for research, engineering, marketing, service, sales and administration worldwide primarily in the U.S., Germany, U. K., Singapore, Israel, and India. Our operating leases expire at various times through April 1, 2052, subject to renewal, with some of the leases containing renewal option clauses at the fair market value, for additional periods up to five years. Additional information regarding these leases is incorporated herein by reference to Note 9 “Leases” to our Consolidated Financial Statements. We believe our properties are adequately maintained and suitable for their intended use and that our production facilities have capacity adequate for our current needs. We do not identify or allocate assets by operating segment.
Information regarding our principal properties as of June 30, 2025 is set forth below:
(Square Feet) U.S. Other Countries Total
Owned (1)
1,134,127  3,147,113  4,281,240 
Leased 555,043  2,292,335  2,847,378 
Total 1,689,170  5,439,448  7,128,618 

__________________ 
(1) Includes 421,132 square feet of property owned at our location in Serangoon, Singapore, where the land on which this building resides is leased.

ITEM 3. LEGAL PROCEEDINGS
The information set forth below under Note 15 “Litigation and Other Legal Matters” to our Consolidated Financial Statements is incorporated herein by reference.

ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
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Our common stock is listed and traded on the NASDAQ Global Select Market of The Nasdaq Stock Market LLC under the symbol “KLAC.”
On August 7, 2025, we announced that our Board of Directors had declared a quarterly cash dividend of $1.90 per share to be paid on September 3, 2025 to stockholders of record as of the close of business on August 18, 2025.
As of July 21, 2025, there were 405 holders of record of our common stock.
Equity Repurchase Plans
The following is a summary of stock repurchases for each month during the fourth quarter of the fiscal year ended June 30, 2025.
Period Total Number of Shares Purchased (1)
Average Price Paid (3) per Share
Total Number of Shares Purchased As Part of Publicly Announced Plans or Programs (1)
Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (1)(2)

April 1, 2025 to April 30, 2025 169,783  $ 643.29  169,783  $ 5,347,461,929 
May 1, 2025 to May 31, 2025 272,564  $ 732.50  272,564  $ 5,147,809,123 
June 1, 2025 to June 30, 2025 134,467  $ 867.44  134,467  $ 5,031,167,586 

Total 576,814  576,814 
__________________ 
(1) Our Board of Directors has authorized a program that permits us to repurchase our common stock, including a $5.00 billion increase approved by the Board in the fourth quarter of fiscal 2025. As of June 30, 2025, $5.03 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 shares of our common stock under our repurchase program may be effected through various different repurchase transaction structures including isolated open market transactions, accelerated share repurchase agreements or systematic repurchase plans, subject to market conditions, applicable legal requirements and other factors.
(3) Average price paid per share and approximate dollar value of shares that may yet be purchased under the plans or programs exclude the excise tax imposed on certain stock repurchases as part of the IRA, or other fees, costs or expenses that may be applicable to the repurchases.
Stock Performance Graph and Cumulative Total Return
Notwithstanding any statement to the contrary in any of our previous or future filings with the SEC, the following information relating to the price performance of our common stock shall not be deemed “filed” with the SEC under the Securities Exchange Act and shall not be incorporated by reference into any such filings.
The following graph compares the cumulative five-year total return attained by stockholders on our common stock relative to the cumulative total returns of the S&P 500 Index and the Philadelphia Semiconductor Index (“PHLX”). The graph tracks the performance of a $100 investment in our common stock and in each of the indices (with the reinvestment of all dividends) from June 30, 2020 to June 30, 2025.
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June 2020 June 2021 June 2022 June 2023 June 2024 June 2025
KLA Corporation $100.00 $169.01 $168.30 $259.29 $444.99 $487.89
S&P 500 $100.00 $140.79 $125.85 $150.51 $187.47 $215.89
PHLX Semiconductor $100.00 $169.82 $131.43 $191.59 $288.53 $295.18

Our fiscal year ends June 30. The comparisons in the graph above are based upon historical data and are not necessarily indicative of, nor intended to forecast, future stock price performance.

ITEM 6. [RESERVED]

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of our financial condition and results of operations should be read in conjunction with our Consolidated Financial Statements and the related notes included in Item 8 “Financial Statements and Supplementary Data” in this Annual Report on Form 10-K. This discussion contains forward-looking statements, which involve risks and uncertainties. Our actual results could differ materially from those anticipated in the forward-looking statements as a result of certain factors, including but not limited to those discussed in Part I Item 1A “Risk Factors” and elsewhere in this Annual Report on Form 10-K (see “Special Note Regarding Forward-Looking Statements”). Discussions and analysis of fiscal year 2024 as compared against fiscal year 2023 have been omitted and can be found in Item 7 of our Annual Report on Form 10-K for the fiscal year ended June 30, 2024, filed with the SEC.
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EXECUTIVE SUMMARY
We are a leading supplier of process control and yield management solutions and services for the semiconductor and related electronics industries. Our broad portfolio of inspection and metrology products, and related service, software and other offerings, support R&D and manufacturing of ICs, wafers and reticles. Our products, services and expertise are used by our customers to measure, detect, analyze and resolve critical and nanometric level product defects, helping them to manage manufacturing process challenges and to obtain higher finish product yields at lower cost. We also offer advanced technology solutions to address various manufacturing needs of PCBs, specialty semiconductor devices and other electronic components, including advanced packaging, light emitting diode (“LED”), power devices, compound semiconductor, and data storage industries, as well as general materials research. In addition, our services business has grown consistently each quarter on a year-over-year basis and accounted for approximately 22% of our total revenues in fiscal 2025, due to increases in the installed base of KLA systems. Our services revenue, which is generated largely from recurring “subscription-like” contracts, increases the value of our contract offerings and extension of system lifetimes resulting from growth in legacy semiconductor markets.
Our semiconductor customers generally operate in one or both of the major semiconductor device manufacturing markets: memory and foundry/logic. End-market demand drivers that are expected to continue to benefit KLA in the long term include adoption of EUV in HVM for Logic and DRAM memory, which drives new process control requirements and growth in key markets for KLA. Demand for advanced semiconductor technologies, particularly evident in the 2-nanometer node, which is seeing higher levels of investment and process control intensity, continues to drive investments in AI. Increasing complexity and value of semiconductor packages, particularly for AI and HPC applications, is also driving significant growth in our advanced packaging business. The digitization of all industries, including 5G markets, advances in healthcare and industrial applications, together with the increasing adoption of electric vehicles and intelligence in automobiles, are powering leading-edge design node technology investments and capacity expansions. While we continue to invest in technological innovation, factors such as delays from customers in adopting new chips and technology methods could impact process control capital intensity. Push out or cancellation of deliveries to our customers could still cause earnings volatility, due to the timing of revenue recognition as well as increased risk of inventory-related charges.
We are organized into three reportable segments, as follows:
• Semiconductor Process Control: a comprehensive portfolio of inspection, metrology and data analytics products as well as related service offerings that help IC manufacturers achieve target yields throughout the semiconductor fabrication process, from R&D to final volume production.
• Specialty Semiconductor Process: advanced vacuum deposition and etching process tools used by a broad range of specialty semiconductor customers.
• PCB and Component Inspection: a range of inspection, testing and measurement, and direct imaging for patterning products used by manufacturers of PCBs, advanced packaging, MEMS and other electronic components.
A majority of our revenues are derived from outside the U.S., and include geographic regions such as China, Taiwan, Korea, Japan, Europe and Israel, and Rest of Asia. China remains a major region for manufacturing of legacy node logic and memory chips, adding to its role as the world’s largest consumer of ICs. Additionally, a significant portion of global PCB manufacturing has migrated to China. Chinese government initiatives around self-sustainability are propelling China to expand its domestic manufacturing capacity and attracting investment from semiconductor manufacturers from Taiwan, Korea, Japan and the U.S. Although China is currently seen as an important long-term growth region for the semiconductor and electronics capital equipment sector, the U.S. government has tightened export controls for commodities, software, and technology (collectively, “items”) destined to China over the past several years. In the last few years, Commerce has adopted regulations and added certain China-based entities to the U.S. Entity List (a list of parties that are generally ineligible to receive U.S.-regulated items without prior licensing from Commerce), restricting our ability to provide products and services to such entities without an export license. In addition, Commerce has imposed export licensing requirements on China-based customers that are military end users or engaged in military end uses, as well as requiring our customers to obtain an export license when they use certain semiconductor capital equipment based on U.S. technology to manufacture products connected to certain entities on the U.S. Entity List. The inability to obtain export licenses has resulted in a reduction to our backlog and required us to return some deposits received from customers in China for purchase orders, and limited our ability to meet our contractual obligations and sell our products or services to our customers in China. The percentage of our overall revenue from Chinese customers decreased in fiscal year 2025 compared to fiscal year 2024. However increased investments in process control to meet leading-edge demand by our customers in Taiwan have contributed to our overall revenue increase in fiscal year 2025 compared to fiscal year 2024.
The recent imposition of tariffs by the U.S. government, along with countermeasures taken by foreign countries, have had an adverse impact on our results of operations, though the impact was not material in fiscal year 2025. There continues to be uncertainty around the ultimate duration, size and substance of the tariffs, including reciprocal actions against the U.S. by other
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countries. However, despite headwinds from tariffs, our gross margin and overall financial performance improved in fiscal year 2025 compared to fiscal year 2024 due to higher revenue volume on products and services sold and cost management.
We are continuously assessing the aggregate potential impact of government regulations and tariffs on our financial results and operations. See Part I Item 1A “Risk Factors” in this report for more information regarding how such actions by the U.S. government or another country could significantly impact our ability to provide our products and services to existing and potential customers, especially in China, and adversely affect our business, financial condition and results of operations.
The following table sets forth some of our key consolidated financial information for each of our last three fiscal years:

  Year Ended June 30,
(Dollar amounts in thousands, except diluted net income per share) 2025 2024 2023
Total revenues $ 12,156,162  $ 9,812,247  $ 10,496,056 
Costs of revenues $ 4,751,867  $ 3,928,073  $ 4,218,307 
Gross margin 60.9  % 60.0  % 59.8  %
Net income attributable to KLA $ 4,061,643  $ 2,761,896  $ 3,387,277 
Diluted net income per share attributable to KLA $ 30.37  $ 20.28  $ 24.15 

We continue to focus on returning cash to our investors, making $2.15 billion in share repurchases and paying $904.6 million in dividends in the year ended June 30, 2025. We increased the dividend in the fourth quarter of fiscal 2025 to $1.90 per share per quarter, which was our 16th consecutive annual dividend increase. Refer to the “Liquidity and Capital Resources” section below for more information on our strong cash flow generation and strategy of returning excess cash to our stockholders.

CRITICAL ACCOUNTING ESTIMATES
A critical accounting estimate is defined as one that has a material impact on our financial condition and results of operations and requires us to make difficult, complex or subjective judgments, often as a result of the need to make estimates about matters that are inherently uncertain. Where applicable, 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 believe that the following critical accounting policies reflect more significant judgments and estimates used in the preparation of our consolidated financial statements regarding critical accounting estimates. See Note 1 “Description of Business and Summary of Significant Accounting Policies” to our Consolidated Financial Statements for additional information regarding our accounting policies.

Revenue Recognition. We recognize revenue from sales at a point in time when we have satisfied our performance obligation by transferring control of the goods or services to the customer. The transaction price for our contracts with customers is allocated among the identified performance obligations and consists of both fixed and variable consideration provided it is probable that a significant reversal of revenue will not occur when the uncertainty related to variable consideration is resolved. Fixed consideration includes amounts to be contractually billed to the customer while variable consideration includes estimates for discounts and credits for future usage.
Management uses judgment in identifying performance obligations, determining the stand-alone selling price (“SSP”) for each distinct performance obligation and allocating consideration from an arrangement to the individual performance obligations based on the SSP. We estimate the SSP of products and services based on observable transactions when the products and services are sold on a stand-alone basis and those prices fall within a reasonable range. We typically have established SSP ranges for individual products and services due to the stratification of these products by customers and circumstances. In instances where the SSP is not directly observable, we determine the SSP using information that includes market conditions, entity-specific factors including discounting strategies, information about the customer or class of customer that is reasonably available and other observable inputs. While changes in the allocation of SSP between performance obligations will not affect the amount of total revenue recognized for a particular contract, any material changes could impact the timing of revenue recognition, which could have a material effect on our financial position and results of operations. Additionally, management also uses judgments to evaluate whether or not the customer has obtained control of the product and considers several indicators in evaluating whether or not control has transferred to the customer, which could also impact the timing of revenue recognition, and could have a material effect on our financial position and results of operations. Although our products are generally not sold with a right of return, we may provide other credits or sales incentives, which are accounted for either as variable consideration or a material right, depending on the specific terms and conditions of the arrangement. These
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credits and incentives are estimated at contract inception and updated at the end of each reporting period if and when additional information becomes available.
Inventory Valuation. Inventories are stated at the lower of cost or net realizable value using standard costs that approximate actual costs on a first-in, first-out basis. The carrying value of inventory is reduced for estimated obsolescence equal to the difference between its cost and the estimated net realizable value based on assumptions about future demand for meeting our product manufacturing plans and our customers’ support requirements. The estimate of net realizable value of inventory is impacted by assumptions regarding general semiconductor market conditions, manufacturing schedules, technology changes, new product introductions and possible alternative uses, and requires us to use significant judgment that may include uncertain elements. Actual demand may differ from forecasted demand, and such differences may have a material effect on recorded inventory values. If in any period we anticipate an adverse change in assumptions such as future demand or market conditions to be less favorable than our previous estimates, additional inventory write-downs may be required and would be reflected in cost of revenues, resulting in a negative impact to our gross margin in that period. The potential negative impact based on future demand is not practically quantifiable. On the other hand, if in any period we are able to sell inventories that had been written down in a previous period to a level below the ultimate realized selling price, related revenue would be recorded with a lower or no offsetting charge to cost of revenues resulting in a net benefit to our gross margin in that period. A decrease in the future average selling prices would not have a material impact on the estimated net realizable value of finished goods and work in process inventories.
Goodwill and Long-Lived Assets Impairment. We assess goodwill for impairment annually as well as whenever events or changes in circumstances indicate that the carrying value of a reporting unit may not be recoverable. Events or changes in circumstances that could affect the likelihood that we will be required to recognize an impairment charge for goodwill include, but are not limited to, declines in our stock price or market capitalization, declines in our market share and declines in revenues or profits at our reporting units. If the fair value of a reporting unit is less than its carrying value, a goodwill impairment charge is recorded for the difference.
We determine the fair value of a reporting unit using the income approach or market approach, or a combination of both. If multiple valuation methodologies are used, the results are judgmentally weighted. The income approach is estimated through discounted cash flow analysis. The estimated fair value of a reporting unit is computed by adding the present value of the estimated annual discounted cash flows over a discrete projection period to the residual value of the business at the end of the projection period. This valuation technique requires us to use significant estimates and assumptions, including long-term growth rates, discount rates and other inputs. The estimated growth rates for the projection period are based on our internal forecasts of anticipated future performance of the business. The residual value is estimated using a perpetual nominal growth rate, which is based on projected long-range inflation and long-term industry projections. The discount rates are calculated as the weighted average cost of capital of comparable peer companies, adjusted for company-specific risk. The market approach estimates the fair value of a reporting unit by utilizing the market comparable method, which uses revenue and earnings multiples from comparable companies.
During the second quarter of fiscal 2025, we noted a continued deterioration of the long-term forecast for our PCB business, which is part of our PCB and Component Inspection reportable segment. We also completed an internal reorganization affecting the composition of reporting units within our Specialty Semiconductor Process and PCB and Component Inspection reportable segments. These two events triggered goodwill and purchased intangible assets impairment tests, which resulted in a $230.4 million pre-reorganization goodwill impairment charge in the PCB and Component Inspection reportable segment. The quantitative assessment performed, which utilized a combination of the income and market approaches described above, was particularly sensitive to changes in the underlying estimates and assumptions. For example, if these estimates and assumptions were adjusted to the extent the fair value of the reporting unit was calculated to be 10% lower, we would have incurred an additional approximately $50 million impairment charge.
Due to the downward revision of financial outlook for our PCB and Display businesses, we performed a quantitative goodwill impairment assessment and recorded impairment losses related to goodwill of $192.6 million in the second quarter of fiscal 2024.
In March 2024, we made the decision to exit the Display business but continue to provide services to the installed base for the discontinued product lines. This decision triggered a quantitative impairment assessment for the Display reporting unit as of March 31, 2024, which resulted in a total goodwill impairment charge of $70.5 million in the third quarter of fiscal 2024.
Long-lived assets, including both tangible and purchased intangible assets, are tested for impairment whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable. Events or changes in circumstances that could affect the likelihood that we will be required to recognize an impairment charge for long-lived assets primarily include declines in our operating cash flows from the use of these assets.
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For finite-lived purchased intangible assets, we determine whether the assets are recoverable based on the forecasted undiscounted future cash flows that are expected to be generated by the lowest-level associated asset grouping. If the undiscounted cash flows used in the recoverability test are less than the assets’ carrying value, we recognize an impairment loss for the amount that the carrying value exceeds the fair value.
We determine the fair value of purchased intangible assets using the income approach, primarily by applying the relief-from-royalty or multi-period excess-earnings methods. In connection with the downward revision of financial outlook for our PCB and Display businesses noted above, we recorded impairment losses related to purchased intangible assets of $8.7 million during the second quarter of fiscal 2025 and $26.4 million during the second quarter of fiscal 2024. As a result of the Company's decision to exit the Display business, also described above, an immaterial purchased intangible asset impairment charge was recorded in the third quarter of fiscal 2024.
There can be no assurance that the estimates and assumptions used in our fair value calculations will prove to be an accurate prediction of the future. If our assumptions are not realized, or if there are future changes in any of the assumptions due to a change in economic conditions or otherwise, it is possible that a further impairment charge may need to be recorded in the future.
See Note 7 “Goodwill and Purchased Intangible Assets” in the Notes to our Consolidated Financial Statements for additional information.
Income Taxes. The calculation of our effective tax rate involves significant judgment in the application of complex tax laws among various tax jurisdictions worldwide; identifying uncertain tax positions; and estimating the amount of deferred tax assets that will be realized in the future. We believe that our tax positions and judgments are reasonable, but actual results may differ. If one or more taxing authorities were to successfully overturn our tax positions, it could have a material adverse effect on our effective tax rate, results of operations, or cash flows.
Unrecognized tax benefits are recorded for uncertain tax positions on the largest amount that is more than 50% likely of being realized upon ultimate settlement. Evaluation of tax positions, their technical merits, and measurements using cumulative probability are inherently subjective estimates since they require our assessment of the probability of future outcomes. We recorded unrecognized tax benefits of $258.6 million and $245.7 million for the years ended June 30, 2025 and June 30, 2024, respectively. We reevaluate these uncertain tax positions on a quarterly basis based on certain factors including, but not limited to, changes in facts or circumstances; changes in tax law; audit settlements; new audit activities; and changes in accounting standards. Any changes to these factors can result in a material change to tax expense.
Our calculations of deferred tax assets and liabilities are based on estimates and judgments related to uncertainties in the application of complex tax laws and projections of future taxable income. The guidance requires that deferred tax assets be reduced by a valuation allowance if we determine it is more likely than not that a portion of the deferred tax asset will not be realized in the foreseeable future. We have determined that a valuation allowance is necessary against a portion of the deferred tax assets, but we anticipate that our future taxable income will be sufficient to recover the remainder of our deferred tax assets. We recorded tax valuation allowances of $310.6 million and $289.5 million as of June 30, 2025 and June 30, 2024, respectively, primarily related to California credit carry-forwards. Based on the enacted income apportionment rules in California, our future California income tax liability will not be sufficient to fully utilize the credit carry-forwards. We assess on a quarterly basis whether there should be a change to the valuation allowance for some portion or all of the deferred tax assets. If there is a change in our ability to recover our deferred tax assets that are not subject to a valuation allowance, we will be required to record an additional valuation allowance against such deferred tax assets which may materially increase our tax expense. If there is a change in our ability to utilize the California credit carry-forwards, we will be required to reduce our valuation allowance against such deferred tax assets which may materially decrease our tax expense.
Recent Accounting Pronouncements
For a description of recent accounting pronouncements, including those recently adopted and the expected dates of adoption as well as estimated effects, if any, on our Consolidated Financial Statements of those not yet adopted, see Note 1 “Description of Business and Summary of Significant Accounting Policies” to our Consolidated Financial Statements.
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RESULTS OF OPERATIONS
Revenues and Gross Margin
  Year Ended June 30,        
(Dollar amounts in thousands) 2025 2024 2023 FY25 vs. FY24 FY24 vs. FY23
Revenues:
Product $ 9,472,854  $ 7,482,679  $ 8,379,025  $ 1,990,175  27  % $ (896,346) (11) %
Service 2,683,308  2,329,568  2,117,031  353,740  15  % 212,537  10  %
Total revenues $ 12,156,162  $ 9,812,247  $ 10,496,056  $ 2,343,915  24  % $ (683,809) (7) %
Costs of revenues $ 4,751,867  $ 3,928,073  $ 4,218,307  $ 823,794  21  % $ (290,234) (7) %
Gross margin 60.9% 60.0% 59.8% 0.9% 0.2%

Our business is affected by the concentration of our customer base and our customers’ capital equipment procurement schedules as a result of their investment plans. Our product revenues in any particular period are impacted by the amount of new orders we receive during that period and, depending upon the duration of manufacturing and installation cycles, in the preceding periods. Revenue is also impacted by average customer pricing, customer revenue deferrals associated with volume purchase agreements, the effect of fluctuations in foreign currency exchange rates, increased trade restrictions as discussed in the “Executive Summary” section above and the availability of government incentives for semiconductor capital investments. 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. 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.
The increase in total revenues by 24% in the fiscal year ended June 30, 2025 compared to the prior fiscal year is primarily attributable to the increase in our product revenues and is due to increased investments by leading edge foundries driven by the AI infrastructure buildout, strong customer adoption of our advanced packaging portfolio of products and strong demand for many of our products, especially those in our inspection portfolio, partially offset by a decrease of 4% in revenues from our customers in China.
The increase in service revenues by 15% in the fiscal year ended June 30, 2025 compared to the prior fiscal year is primarily attributable to the growth of our installed base.
Revenues by segment (1)
  Year Ended June 30,        
(Dollar amounts in thousands) 2025 2024 2023 FY25 vs. FY24 FY24 vs. FY23
Revenues:
Semiconductor Process Control $ 10,947,359  $ 8,733,556  $ 9,324,190  $ 2,213,803  25  % $ (590,634) (6) %
Specialty Semiconductor Process 587,107  528,701  543,398  58,406  11  % (14,697) (3) %
PCB and Component Inspection 621,721  552,491  631,604  69,230  13  % (79,113) (13) %
Total segment revenues $ 12,156,187  $ 9,814,748  $ 10,499,192  $ 2,341,439  24  % $ (684,444) (7) %

__________
(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 Consolidated Financial Statements.
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The primary factors impacting the performance of our segment revenues for fiscal year 2025 compared to fiscal year 2024 are summarized as follows:
• Revenue from our Semiconductor Process Control segment increased in fiscal 2025 compared to fiscal 2024 primarily due to a resumption of growth in the industry, demonstrated by strong demand for many of our products, especially those in our inspection portfolio, as well as higher service revenue from an increase in our installed base.
• Revenue from our Specialty Semiconductor Process segment, which comprises etching and deposition solutions for advanced packaging and specialty semiconductor markets, increased in fiscal 2025 compared to fiscal 2024 primarily due to increased revenue from our advanced packaging business.
• Revenue from our PCB and Component Inspection segment increased in fiscal 2025 as compared to fiscal 2024 primarily due to increased revenue from packaging products related to AI and a settlement received in the second quarter of fiscal 2025 related to cancellation of a technology project by a major Display customer that resulted in our decision to exit the Display business in the third quarter of fiscal 2024. These increases were partially offset by decreased revenues during the relatively soft market in the first half of fiscal year 2025.
The following is a summary of revenues by major product categories for the indicated periods:

Year Ended June 30,
(Dollar amounts in thousands) 2025 2024 2023 FY25 vs. FY24 FY24 vs. FY23
Revenues:
Wafer Inspection $ 6,198,815  51  % $ 4,333,296  44  % $ 4,336,663  41  % $ 1,865,519  43  % $ (3,367) —  %
Patterning 2,196,347  18  % 2,054,442  21  % 2,791,130  26  % 141,905  7  % (736,688) (26) %
Specialty Semiconductor Process 517,201  4  % 470,565  5  % 492,109  5  % 46,636  10  % (21,544) (4) %
PCB and Component Inspection 355,891  3  % 291,161  3  % 378,030  4  % 64,730  22  % (86,869) (23) %
Services 2,683,308  22  % 2,329,568  24  % 2,117,031  20  % 353,740  15  % 212,537  10  %
Other 204,600  2  % 333,215  3  % 381,093  4  % (128,615) (39) % (47,878) (13) %
Total $ 12,156,162  100  % $ 9,812,247  100  % $ 10,496,056  100  % $ 2,343,915  24  % $ (683,809) (7) %

The following customers each accounted for more than 10% of our total revenues, primarily in our Semiconductor Process Control segment, for the indicated periods:
Fiscal Year Ended June 30,
2025 2024 2023
Taiwan Semiconductor Manufacturing Company Limited Taiwan Semiconductor Manufacturing Company Limited Taiwan Semiconductor Manufacturing Company Limited
Samsung Electronics Co., Ltd.

Revenues by region
Revenues by region, based on ship-to location, for the periods indicated were as follows:
  Year Ended June 30,
(Dollar amounts in thousands) 2025 2024 2023
China $ 4,042,567  33  % $ 4,196,727  43  % $ 2,867,443  27  %
Taiwan 3,205,392  27  % 1,738,065  18  % 2,493,379  24  %
Korea 1,452,826  12  % 906,924  9  % 1,895,710  18  %
North America 1,362,311  11  % 1,070,791  11  % 1,254,956  12  %
Japan 1,133,002  9  % 963,203  10  % 888,016  9  %
Europe and Israel 574,197  5  % 540,263  6  % 682,103  6  %
Rest of Asia 385,867  3  % 396,274  3  % 414,449  4  %
Total $ 12,156,162  100  % $ 9,812,247  100  % $ 10,496,056  100  %

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There was a decrease in revenues from our customers in China, accounting for 33% of total revenues in fiscal 2025 compared to 43% of total revenues in fiscal 2024. This decrease comes after elevated levels of investment by our larger Chinese customers in the years following the COVID-19 pandemic, which have now moderated, causing our revenues from Chinese customers to begin to normalize. Additionally, while many Chinese customers, encouraged by the growth potential of certain semiconductor markets and Chinese government initiatives around self-sustainability in domestic semiconductor production, continued to increase their semiconductor-related investments, more stringent U.S. export controls and regulations have also contributed to the decrease in revenue share from China. Our customers in Taiwan contributed to the increased revenues with increased investments in process control to meet leading edge demand driven by innovation and growth of new technologies like AI, with that region recording 27% and 18% of total revenues during fiscal years 2025 and 2024, respectively. The remaining regions accounted for less than 20% of total revenues individually in all periods.

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

Fiscal Year Ended June 30, 2024 60.0   %
Revenue volume of products and services 1.8  %
Mix of products and services sold (1.3) %
Manufacturing labor, overhead and efficiencies 0.4  %
Other service and manufacturing costs —  %

Fiscal Year Ended June 30, 2025 60.9   %

Changes in gross margin from revenue volume of products and services reflect our ability to leverage existing infrastructure to generate higher revenues. Changes in gross margin from the mix of products and services sold reflect the impact of changes within the composition of product and service offerings. Changes in gross margin from manufacturing labor, overhead and efficiencies reflect our ability to manage costs and drive productivity as we scale our manufacturing activity to respond to customer requirements and amortization of intangible assets. Changes in gross margin from other service and manufacturing costs include the impact of customer support costs, including the efficiencies with which we deliver services to our customers, and the effectiveness with which we manage our production plans and inventory risk. Other service and manufacturing costs included lower inventory obsolescence charges offset by higher tariff and freight expenses in fiscal year 2025 compared to fiscal year 2024.

Research and Development

  Year Ended June 30,        
(Dollar amounts in thousands) 2025 2024 2023 FY25 vs. FY24 FY24 vs. FY23
R&D expenses $ 1,360,334  $ 1,278,981  $ 1,296,727  $ 81,353  6  % $ (17,746) (1) %
R&D expenses as a percentage of total revenues 11  % 13  % 12  % (2) % 1  %

R&D expenses may fluctuate with product development phases and project timing as well as our R&D efforts. As technological innovation is essential to our success, we may incur significant costs associated with R&D projects, including compensation for engineering talent, engineering material costs and other expenses.
R&D expenses during the fiscal year ended June 30, 2025 increased compared to the fiscal year ended June 30, 2024 primarily due to an increase in employee-related expenses of $70.1 million, an increase in depreciation expense of $5.9 million and an increase in engineering project material costs of $4.9 million.
Our future operating results will depend significantly on our ability to make products and provide services that have a competitive advantage in our marketplace. To do this, we believe that we must continue to make substantial and focused investments in our R&D. We remain committed to product development in new and emerging technologies.
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Selling, General and Administrative
  Year Ended June 30,        
(Dollar amounts in thousands) 2025 2024 2023 FY25 vs. FY24 FY24 vs. FY23
SG&A expenses $ 1,029,734  $ 969,509  $ 986,326  $ 60,225  6  % $ (16,817) (2) %
SG&A expenses as a percentage of total revenues 8  % 10  % 9  % (2) % 1  %

SG&A expenses during the fiscal year ended June 30, 2025 increased compared to the fiscal year ended June 30, 2024 primarily due to increases in the following areas: facility-related expenses of $15.9 million, employee-related expenses of $12.9 million, depreciation expense of $12.0 million, promotional expenses of $8.3 million, travel expenses of $6.8 million and engineering project material costs of $6.1 million.

Impairment of Goodwill and Purchased Intangible Assets
During the second quarter of fiscal 2025, we noted a continued deterioration of the long-term forecast for our PCB business, which is part of our PCB and Component Inspection reportable segment. We also completed an internal reorganization affecting the composition of reporting units within our Specialty Semiconductor Process and PCB and Component Inspection reportable segments. These two events triggered goodwill and purchased intangible assets impairment tests, which resulted in a $239.1 million goodwill and purchased intangible assets impairment charge in the PCB and Component Inspection reportable segment.
During the second quarter of fiscal 2024, we noted a significant deterioration of the long-term forecast for our PCB and Display businesses. As a result, we recorded a $219.0 million goodwill and purchased intangible asset impairment charge for the PCB and Display reporting unit in the second quarter of fiscal 2024. In March 2024, we made the decision to exit the Display business but continue to provide services to the installed base for the discontinued product lines. As a result, we recorded a $70.5 million goodwill impairment charge, and an immaterial amount of purchased intangible assets were abandoned in the third quarter of fiscal 2024. See Note 7 “Goodwill and Purchased Intangible Assets” to our Consolidated Financial Statements for further details.

Restructuring Charges
Restructuring charges were $7.7 million and $21.6 million for the years ended June 30, 2025 and June 30, 2024, respectively, primarily due to severance and related charges for the restructuring of the former PCB and Display operating segment, as described further in Note 7 “Goodwill and Purchased Intangible Assets,” as well as write-downs of certain right of use assets and fixed assets that were abandoned.
For additional information, refer to Note 19 “Restructuring Charges” to our Consolidated Financial Statements.

Interest Expense and Other Expense (Income), Net

Year Ended June 30,
(Dollar amounts in thousands) 2025 2024 2023 FY25 vs. FY24 FY24 vs. FY23
Interest expense $ 302,166  $ 311,253  $ 296,940  $ (9,087) (3) % $ 14,313  5  %
Other expense (income), net $ (171,487) $ (155,075) $ (104,720) $ (16,412) (11) % $ (50,355) (48) %
Interest expense as a percentage of total revenues 2  % 3  % 3  %
Other expense (income), net as a percentage of total revenues (1) % (2) % (1) %

Interest expense during the fiscal year ended June 30, 2025 was comparable to the fiscal year ended June 30, 2024 as average debt outstanding was essentially unchanged.
Other expense (income), net is comprised primarily of fair value adjustments and realized gains or losses on sales of marketable and non-marketable securities, gains or losses from revaluations of certain foreign currency denominated assets and liabilities as well as foreign currency contracts, interest-related accruals (such as interest and penalty accruals related to our tax obligations) and interest income earned on our invested cash, cash equivalents and marketable securities.
The change in Other expense (income), net during the fiscal year ended June 30, 2025 compared to the fiscal year ended June 30, 2024 was primarily attributable to higher interest income of $17.1 million due to higher interest earning balances and a
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higher net fair value gain of $7.0 million from an equity security compared to the prior fiscal year, partially offset by higher net foreign exchange losses of $10.2 million.

Provision for Income Taxes
The following table provides details of income taxes:

Year Ended June 30,
(Dollar amounts in thousands) 2025 2024 2023
Income before income taxes $ 4,644,448  $ 3,190,032  $ 3,789,190 
Provision for income taxes $ 582,805  $ 428,136  $ 401,839 
Effective tax rate 12.5  % 13.4  % 10.6  %

Tax expense was lower as a percentage of income before taxes during the fiscal year ended June 30, 2025 compared to the fiscal year ended June 30, 2024 primarily due to goodwill impairment charges, which are non-deductible for income tax. There was a $230.4 million goodwill impairment charge during the fiscal year ended June 30, 2025 compared to a $263.1 million goodwill impairment charge during the fiscal year ended June 30, 2024.
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. We also continue to monitor the adoption of Pillar Two relating to the global minimum tax in each of our tax jurisdictions to evaluate its impact on our effective income tax rate. For some of the jurisdictions that have adopted Pillar Two in their tax legislation, it was effective for us beginning in our fiscal year ended June 30, 2025, and there was no material impact to our effective tax rate.
For discussions on tax examinations, assessments and certain related proceedings, see Note 14 “Income Taxes” to our Consolidated Financial Statements.

LIQUIDITY AND CAPITAL RESOURCES

As of June 30,
(Dollar amounts in thousands) 2025 2024 2023
Cash and cash equivalents $ 2,078,908  $ 1,977,129  $ 1,927,865 
Marketable securities 2,415,715  2,526,866  1,315,294 
Total cash, cash equivalents and marketable securities $ 4,494,623  $ 4,503,995  $ 3,243,159 
Percentage of total assets 28  % 29  % 23  %

  Year Ended June 30,
(In thousands) 2025 2024 2023
Cash flows:
Net cash provided by operating activities $ 4,081,903  $ 3,308,575  $ 3,669,805 
Net cash used in investing activities (202,481) (1,476,985) (482,571)
Net cash used in financing activities (3,785,687) (1,776,017) (2,830,289)
Effect of exchange rate changes on cash and cash equivalents 8,044  (6,309) (13,988)
Net increase in cash and cash equivalents $ 101,779  $ 49,264  $ 342,957 

Cash, Cash Equivalents and Marketable Securities:
As of June 30, 2025, our cash, cash equivalents and marketable securities totaled $4.49 billion, compared to the $4.50 billion balance as of June 30, 2024. Refer to below discussions of sources and uses of cash during the fiscal year.
As of June 30, 2025, $1.11 billion of our $4.49 billion cash, cash equivalents, and marketable securities were held by our foreign subsidiaries and branch offices. We currently intend to indefinitely reinvest $66.6 million of the cash, cash equivalents and marketable securities held by our foreign subsidiaries for which we assert that earnings are permanently reinvested. If, however, a portion of these funds were to be repatriated to the U.S., we would be required to accrue and pay state and foreign taxes of approximately 1%-22% of the funds repatriated. The amount of taxes due will depend on the amount and manner of the
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repatriation, as well as the location from which the funds are repatriated. We have accrued state and foreign tax on the remaining cash of $1.04 billion of the $1.11 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 Flows Provided by Operating Activities:
We typically finance our liquidity requirements through cash generated from our operations. Net cash provided by operating activities during the fiscal year ended June 30, 2025 was $4.08 billion compared to $3.31 billion during the fiscal year ended June 30, 2024. The increase was primarily due to an increase in customer and other collections of approximately $1.4 billion, mainly driven by higher shipments; partially offset by increases in accounts payable payments of approximately $480 million and employee-related payments of approximately $130 million.
Cash Flows Used in Investing Activities
Net cash used in investing activities during the fiscal year ended June 30, 2025 was $202.5 million compared to $1.48 billion during the fiscal year ended June 30, 2024. The decrease was mainly due to an increase in net proceeds from available-for-sale securities of $1.33 billion, primarily due to the sale of investments to support the $750.0 million debt principal payment in November 2024, and $6.3 million in proceeds from capital-related government assistance, partially offset by increases in capital expenditures of $57.9 million and IP acquisitions of $5.0 million.
Cash Flows Used in Financing Activities:
Net cash used in financing activities during the fiscal year ended June 30, 2025 was $3.79 billion compared to $1.78 billion during the fiscal year ended June 30, 2024. The increase was mainly due to a debt repayment of $750.0 million contrasting with debt-related proceeds of $735.0 million in the prior year, and increases in cash used for common stock repurchases of $414.2 million and cash paid for dividends and dividend equivalents of $131.6 million.
Stock Repurchases:
The shares of common stock repurchased under our stock repurchase program have reduced our basic and diluted weighted-average shares outstanding for the fiscal years ended June 30, 2025, 2024 and 2023. The total amount of stock repurchases during the fiscal years ended June 30, 2025, 2024 and 2023 were $2.15 billion, $1.74 billion and $1.31 billion, respectively. The stock repurchase program is intended, in part, to mitigate the potential dilutive impact related to our equity incentive plans and shares issued in connection with our ESPP as well as to return excess cash to our stockholders. As of June 30, 2025, an aggregate of $5.03 billion was available for repurchase under our stock repurchase program, which reflects an increase in the authorized repurchase amount of $5.00 billion in the fourth quarter of fiscal 2025.
Cash Dividends:
The total amounts of regular quarterly cash dividends and dividend equivalents paid during the fiscal years ended June 30, 2025, 2024 and 2023 were $904.6 million, $773.0 million and $732.6 million, respectively. The increase in the amount of regular quarterly cash dividends and dividends equivalents paid during the fiscal year ended June 30, 2025 as compared to the fiscal year ended June 30, 2024 reflected the increases in the level of our regular quarterly cash dividend from $1.45 to $1.70 per share and from $1.70 to $1.90 per share that were announced during the first and fourth quarters, respectively of fiscal 2025. The amounts of accrued dividend equivalents payable for regular quarterly cash dividends on unvested RSUs with dividend equivalent rights were $13.3 million and $11.8 million as of June 30, 2025 and 2024, respectively. These amounts will be paid upon vesting of the underlying unvested RSUs as described in Note 10 “Equity, Long-term Incentive Compensation Plans and Non-Controlling Interest” to our Consolidated Financial Statements.
On August 7, 2025, we announced that our Board of Directors had declared a quarterly cash dividend of $1.90 per share. Refer to Note 20 “Subsequent Events” to our Consolidated Financial Statements for additional information regarding the declaration of our quarterly cash dividend announced subsequent to June 30, 2025.
Senior Notes:
As of June 30, 2025, we had an aggregate principal amount of senior, unsecured notes totaling $5.95 billion with due dates ranging from fiscal 2029 through fiscal 2063. For additional information on these senior notes, see Note 8 “Debt” in the Notes to our Consolidated Financial Statements. In November 2024, we repaid $750.0 million of Senior Notes. As of June 30, 2025, we were in compliance with all of our covenants under the relevant indentures associated with the Senior Notes.
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Revolving Credit Facility:
On July 3, 2025, we replaced our Prior Revolving Credit Facility with a new unsecured Revolving Credit Facility with a maturity date of July 3, 2030, 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 $500.0 million in the aggregate. See Note 20 “Subsequent Events” in the Notes to our Consolidated Financial Statements.
As of June 30, 2025 and 2024, we had no outstanding borrowings under the Prior Revolving Credit Facility. We were in compliance with all covenants under the prior Credit Agreement as of June 30, 2025 (the leverage ratio was 1.02 to 1.00 compared to a maximum leverage ratio of 3.50 to 1.00 on a quarterly basis covering the trailing four consecutive fiscal quarters for each fiscal quarter). 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, 2026. For additional information on the Revolving Credit Facility, see Note 8 “Debt” in the Notes to our Consolidated Financial Statements.

Factoring Arrangements
We have agreements with financial institutions to sell certain of our trade receivables and promissory notes from customers without recourse. In addition, we periodically sell certain letters of credit (“LC”), without recourse, received from customers as payment for goods and services.
The following table shows total receivables sold under factoring agreements and proceeds from sales of LC for the indicated periods:

Year Ended June 30,
(In thousands) 2025 2024 2023
Receivables sold under factoring agreements $ 230,552  $ 254,889  $ 328,933 
Proceeds from sales of LC $ 55,525  $ 22,242  $ 69,247 

 Factoring and LC fees for the sale of certain trade receivables were recorded in Other expense (income), net and were not material for the periods presented.
We maintain guarantee arrangements available through various financial institutions for up to $126.8 million, of which $92.7 million had been issued as of June 30, 2025, primarily to fund guarantees to customs authorities for value-added tax and other operating requirements of our consolidated subsidiaries worldwide.
Material Cash Requirements
As of June 30, 2025, our aggregate principal debt obligation was $5.95 billion, which represents Senior Notes due from fiscal year 2029 to fiscal year 2063. Our principal note of $750.0 million was repaid in November 2024. Interest payments of $5.48 billion associated with all of our debt obligations are based on the principal amount multiplied by the applicable interest rate for each series of Senior Notes. For additional details, refer to Note 8 “Debt” to our Consolidated Financial Statements.
We maintain commitments to purchase inventory from our suppliers as well as goods, services, and other assets in the ordinary course of business. Our estimate of our significant purchase commitments primarily for material, services, supplies and asset purchases is $2.42 billion as of June 30, 2025, a majority of which will be due within the next 12 months. For additional details, refer to Note 16 “Commitments and Contingencies” to our Consolidated Financial Statements.
We also have commitments for our non-qualified executive deferred compensation plan of $349.5 million, an income tax payable obligation related to uncertain tax positions of $272.0 million and an operating lease obligation of $234.1 million.
Working Capital:
Working capital was $6.61 billion as of June 30, 2025, which represents an increase of $1.24 billion compared to our working capital as of June 30, 2024. As of June 30, 2025, our principal sources of liquidity consisted of $4.49 billion of cash, cash equivalents and marketable securities, as well as $1.50 billion availability under our Revolving Credit Facility. Our liquidity may be affected by many factors, some of which are based on the normal ongoing operations of the business, spending for business acquisitions, and other factors such as uncertainty in the global and regional economies and the semiconductor, semiconductor-related and electronic device industries. Although cash requirements will fluctuate based on the timing and extent of these factors, we believe that cash generated from operations, together with the liquidity provided by existing cash and cash equivalents balances, marketable securities and our $1.50 billion Revolving Credit Facility, will be sufficient to satisfy our
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liquidity requirements associated with working capital needs, capital expenditures, cash dividends, stock repurchases and other contractual obligations for at least the next 12 months.
Credit Ratings
Our credit ratings as of June 30, 2025 are summarized below: 

Rating Agency Rating
Fitch A
Moody’s A2
S&P A-

Factors that can affect our credit ratings include changes in our operating performance, the economic environment, conditions in the semiconductor and semiconductor capital equipment industries, our financial position, material acquisitions and changes in our business strategy.
Off-Balance Sheet Arrangements:
As of June 30, 2025, we did not have any off-balance sheet arrangements 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, cash requirements or capital resources that are material to investors. Refer to Note 16 “Commitments and Contingencies” to our Consolidated Financial Statements for information related to indemnification obligations.
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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to financial market risks, including changes in interest rates, foreign currency exchange rates and marketable equity security prices. To mitigate these risks, we utilize derivative financial instruments, such as foreign currency hedges. All of the potential changes noted below are based on sensitivity analyses performed on our financial position as of June 30, 2025. Actual results may differ materially.
Interest Rate Risk
As of June 30, 2025, we had an investment portfolio of fixed income securities of $2.05 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 June 30, 2025, the fair value of the portfolio would have declined by $21.5 million.
The fair market value of our long-term fixed interest rate Senior Notes is subject to interest rate risk. Generally, the fair market value of fixed interest rate notes will increase as market interest rates fall and decrease as market interest rates rise. As of June 30, 2025, our fixed rate Senior Notes had a fair value and book value of $5.54 billion and $5.88 billion, respectively, due in various fiscal years ranging from 2029 to 2063.
On July 3, 2025, we replaced our Prior Revolving Credit Facility with a new Revolving Credit Facility that allows us to borrow up to $1.50 billion, has a maturity date of July 3, 2030 with two one-year extension options, and may be increased by an amount up to $500.0 million in the aggregate. As of June 30, 2025, we had no outstanding borrowings under our Prior Revolving Credit Facility. Pursuant to the terms of the Prior Credit Agreement, we were also obligated to pay an annual commitment fee on the daily undrawn balance of the Revolving Credit Facility at a rate that ranges from 4.5 bps to 12.5 bps, depending upon our then prevailing credit rating. As of June 30, 2025, the annual commitment fee was 5.5 bps. Any increase in our commitment fee under our Credit Agreement due to changes in credit ratings would have no material impact on our results of operations or cash flows.
Marketable Equity Security Risk
Our equity investment in a publicly traded company is subject to market price risk, which we typically do not attempt to reduce or eliminate through hedging activities. As of June 30, 2025, the fair value of our investment in the marketable equity security, which began publicly trading on the Tokyo Stock Exchange on April 5, 2021, was $24.0 million. Assuming a decline of 50% in market prices, the aggregate value of our investment in the marketable equity security could decrease by approximately $12 million, based on the value as of June 30, 2025.
See Note 5 “Marketable Securities” to our Consolidated Financial Statements in Part II, Item 8; “Liquidity and Capital Resources” in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II Item 7; and “Risk Factors” in Part I Item 1A of this Annual Report on Form 10-K for a description of recent market events that may affect the value of the investments in our portfolio that we held as of June 30, 2025.
Foreign Currency Risk
As of June 30, 2025, we had net forward and option contracts to purchase $50.9 million in foreign currency in order to hedge certain currency exposures (see Note 17 “Derivative Instruments and Hedging Activities” to our Consolidated Financial Statements for additional details). If we had entered into these contracts on June 30, 2025, the U.S. dollar equivalent would have been $81.8 million. A 10% adverse move in all currency exchange rates affecting the contracts would decrease the fair value of the contracts by $153.4 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 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Consolidated Balance Sheets as of June 30, 2025 and 2024
50

Consolidated Statements of Operations for each of the three years in the period ended June 30, 2025
51

Consolidated Statements of Comprehensive Income for each of the three years in the period ended June 30, 2025
52

Consolidated Statements of Stockholders’ Equity for each of the three years in the period ended June 30, 2025
53

Consolidated Statements of Cash Flows for each of the three years in the period ended June 30, 2025
54

Notes to Consolidated Financial Statements
55

Report of Independent Registered Public Accounting Firm (PCAOB ID 238 )
95

Schedule II Valuation and Qualifying Accounts for the three years in the period ended June 30, 2025
97

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KLA CORPORATION
Consolidated Balance Sheets
 

  As of June 30,
(In thousands, except par value) 2025 2024
ASSETS
Current assets:
Cash and cash equivalents $ 2,078,908   $ 1,977,129  
Marketable securities 2,415,715   2,526,866  
Accounts receivable, net 2,263,915   1,833,041  
Inventories 3,212,149   3,034,781  

Other current assets 728,102   659,327  
Total current assets 10,698,789   10,031,144  
Land, property and equipment, net 1,252,775   1,109,968  
Goodwill, net 1,792,193   2,015,726  
Deferred income taxes 1,105,770   915,241  
Purchased intangible assets, net 444,785   668,764  
Other non-current assets 773,614   692,723  
Total assets $ 16,067,926   $ 15,433,566  
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable $ 458,509   $ 359,487  
Deferred system revenue 816,834   985,856  
Deferred service revenue 548,011   501,926  

Current portion of long-term debt —   749,936  
Other current liabilities 2,262,441   2,063,569  
Total current liabilities 4,085,795   4,660,774  
Long-term debt 5,884,257   5,880,199  
Deferred tax liabilities 446,945   486,690  
Deferred service revenue 348,844   294,460  
Other non-current liabilities 609,632   743,115  
Total liabilities 11,375,473   12,065,238  
Commitments and contingencies (Notes 9, 15 and 16)
Stockholders’ equity:
Preferred stock, $ 0.001 par value, 1,000 shares authorized, none outstanding
—   —  
Common stock, $ 0.001 par value, 500,000 shares authorized, 281,176 and 280,649 shares issued, 132,023 and 134,425 shares outstanding, as of June 30, 2025 and June 30, 2024, respectively
132   134  
Capital in excess of par value 2,511,790   2,279,999  
Retained earnings 2,179,330   1,137,270  
Accumulated other comprehensive income (loss) 1,201   ( 49,075 )

Total stockholders’ equity 4,692,453   3,368,328  
Total liabilities and stockholders’ equity $ 16,067,926   $ 15,433,566  

See accompanying notes to Consolidated Financial Statements.
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KLA CORPORATION
Consolidated Statements of Operations
 

  Year Ended June 30,
(In thousands, except per share amounts) 2025 2024 2023
Revenues:
Product $ 9,472,854   $ 7,482,679   $ 8,379,025  
Service 2,683,308   2,329,568   2,117,031  
Total revenues 12,156,162   9,812,247   10,496,056  
Costs and expenses:
Costs of revenues 4,751,867   3,928,073   4,218,307  
Research and development 1,360,334   1,278,981   1,296,727  
Selling, general and administrative 1,029,734   969,509   986,326  
Impairment of goodwill and purchased intangible assets 239,100   289,474   —  
Interest expense 302,166   311,253   296,940  
Loss on extinguishment of debt —   —   13,286  
Other expense (income), net ( 171,487 ) ( 155,075 ) ( 104,720 )
Income before income taxes 4,644,448   3,190,032   3,789,190  
Provision for income taxes 582,805   428,136   401,839  
Net income 4,061,643   2,761,896   3,387,351  
Less: Net income attributable to non-controlling interest —   —   74  
Net income attributable to KLA $ 4,061,643   $ 2,761,896   $ 3,387,277  
Net income per share attributable to KLA
Basic $ 30.53   $ 20.41   $ 24.28  
Diluted $ 30.37   $ 20.28   $ 24.15  
Weighted-average number of shares:
Basic 133,030   135,345   139,483  
Diluted 133,750   136,187   140,235  

See accompanying notes to Consolidated Financial Statements.
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KLA CORPORATION
Consolidated Statements of Comprehensive Income

Year Ended June 30,
(In thousands) 2025 2024 2023
Net income $ 4,061,643   $ 2,761,896   $ 3,387,351  
Other comprehensive income (loss):
Currency translation adjustments:
Cumulative currency translation adjustments 17,820   ( 11,763 ) ( 22,288 )
Income tax benefit 749   544   1,547  
Net change related to currency translation adjustments 18,569   ( 11,219 ) ( 20,741 )
Cash flow hedges:
Net unrealized gains arising during the period 36,726   9,737   30,025  
Reclassification adjustments for net gains included in net income ( 15,429 ) ( 25,904 ) ( 29,058 )
Income tax (provision) benefit ( 2,742 ) 2,466   2,141  
Net change related to cash flow hedges 18,555   ( 13,701 ) 3,108  
Net change related to unrecognized losses and transition obligations in connection with defined benefit plans 3,706   3,043   6,074  
Available-for-sale securities:
Net unrealized gains arising during the period 12,090   11,527   2,459  
Reclassification adjustments for net (gains) losses included in net income ( 59 ) 103   986  
Income tax provision ( 2,585 ) ( 2,487 ) ( 756 )
Net change related to available-for-sale securities 9,446   9,143   2,689  
Other comprehensive income (loss) 50,276   ( 12,734 ) ( 8,870 )
Less: Comprehensive income attributable to non-controlling interest —   —   74  
Total comprehensive income attributable to KLA $ 4,111,919   $ 2,749,162   $ 3,378,407  

See accompanying notes to Consolidated Financial Statements.
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KLA CORPORATION
Consolidated Statements of Stockholders’ Equity

  Common Stock and Capital in Excess of Par Value Retained Earnings Accumulated Other Comprehensive Income (Loss) Total KLA Stockholders’ Equity Non-Controlling Interest Total Stockholders’ Equity
(In thousands, except per share amounts) Shares Amount
Balances as of June 30, 2022 141,804   $ 1,061,940   $ 366,882   $ ( 27,471 ) $ 1,401,351   $ ( 2,261 ) $ 1,399,090  
Net income attributable to KLA —  —  3,387,277   —  3,387,277   —  3,387,277  
Net income attributable to non-controlling interest —  —  —  —  —  74   74  
Other comprehensive loss —  —  —  ( 8,870 ) ( 8,870 ) —  ( 8,870 )
Net issuance under employee stock plans 790   29,930   —  —  29,930   —  29,930  
Repurchase of common stock ( 5,844 ) 842,467   ( 2,172,181 ) —  ( 1,329,714 ) —  ( 1,329,714 )
Cash dividends ($ 5.20 per share) and dividend equivalents declared
—  —  ( 733,547 ) —  ( 733,547 ) —  ( 733,547 )
Stock-based compensation expense —  171,424   —  —  171,424   171,424  
Purchase of non-controlling interest —  1,902   —  —  1,902   ( 6,196 ) ( 4,294 )
Disposal of non-controlling interest —  —  —  —  —  8,383   8,383  
Balances as of June 30, 2023 136,750   2,107,663   848,431   ( 36,341 ) 2,919,753   —   2,919,753  
Net income attributable to KLA —  —  2,761,896   —  2,761,896   —  2,761,896  
Other comprehensive loss —  —  —  ( 12,734 ) ( 12,734 ) —  ( 12,734 )
Net issuance under employee stock plans 707   1,908   —  —  1,908   —  1,908  
Repurchase of common stock ( 3,032 ) ( 42,133 ) ( 1,700,368 ) —  ( 1,742,501 ) —  ( 1,742,501 )
Cash dividends ($ 5.65 per share) and dividend equivalents declared
—  —  ( 772,689 ) —  ( 772,689 ) —  ( 772,689 )
Stock-based compensation expense —  212,695   —  —  212,695   —  212,695  
Balances as of June 30, 2024 134,425   2,280,133   1,137,270   ( 49,075 ) 3,368,328   —   3,368,328  
Net income attributable to KLA —  —  4,061,643   —  4,061,643   —  4,061,643  
Other comprehensive income —  —  —  50,276   50,276   —  50,276  
Net issuance under employee stock plans 605   18,853   —  —  18,853   —  18,853  
Repurchase of common stock ( 3,007 ) ( 52,075 ) ( 2,113,560 ) —  ( 2,165,635 ) —  ( 2,165,635 )
Cash dividends ($ 6.75 per share) and dividend equivalents declared
—  —  ( 906,023 ) —  ( 906,023 ) —  ( 906,023 )
Stock-based compensation expense —  265,011   —  —  265,011   265,011  
Balances as of June 30, 2025 132,023   $ 2,511,922   $ 2,179,330   $ 1,201   $ 4,692,453   $ —   $ 4,692,453  

See accompanying notes to Consolidated Financial Statements.
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KLA CORPORATION
Consolidated Statements of Cash Flows

  Year Ended June 30,
(In thousands) 2025 2024 2023
Cash flows from operating activities:
Net income $ 4,061,643   $ 2,761,896   $ 3,387,351  
Adjustments to reconcile net income to net cash provided by operating activities:
Impairment of goodwill and purchased intangible assets 239,100   289,474   9,905  
Depreciation and amortization 394,088   401,730   415,113  
Loss on extinguishment of debt —   —   13,286  

Unrealized foreign exchange (gain) loss and other 14,974   ( 12,533 ) ( 17,825 )
Asset impairment charges —   11,307   —  
Disposal of non-controlling interest —   —   8,270  
Stock-based compensation expense 265,011   212,695   171,424  
Net gain on sale of assets ( 161 ) —   —  
Gain on sale of business —   —   ( 29,687 )
Deferred income taxes ( 246,577 ) ( 155,228 ) ( 298,145 )

Settlement of treasury lock agreement —   415   —  
Changes in assets and liabilities, net of assets acquired and liabilities assumed in business acquisitions:
Accounts receivable ( 367,897 ) ( 80,894 ) ( 48,534 )
Inventories ( 155,170 ) ( 164,092 ) ( 749,047 )
Other assets ( 10,459 ) ( 289,509 ) ( 121,018 )
Accounts payable 33,789   24,976   ( 144,661 )
Deferred system revenue ( 169,027 ) 334,136   150,750  
Deferred service revenue 100,460   203,106   88,223  

Other liabilities ( 77,871 ) ( 228,904 ) 834,400  
Net cash provided by operating activities 4,081,903   3,308,575   3,669,805  
Cash flows from investing activities:

Proceeds from sale of assets 161   5,079   —  
Net proceeds from sale of business —   —   75,358  
Business acquisitions, net of cash acquired —   ( 3,682 ) ( 27,144 )
Acquisition of intellectual property ( 4,950 ) —   —  
Capital expenditures ( 335,259 ) ( 277,384 ) ( 341,591 )
Proceeds from capital-related government assistance 6,263   —   —  
Purchases of available-for-sale and equity securities ( 2,772,578 ) ( 2,756,987 ) ( 1,441,933 )
Proceeds from sale of available-for-sale securities 459,620   107,773   124,620  
Proceeds from maturity of available-for-sale securities 2,455,815   1,459,864   1,134,182  
Purchases of trading securities ( 118,288 ) ( 134,098 ) ( 96,611 )
Proceeds from sale of trading securities 105,751   121,020   89,528  
Proceeds from other investments 984   1,430   1,020  
Net cash used in investing activities ( 202,481 ) ( 1,476,985 ) ( 482,571 )
Cash flows from financing activities:
Payment of debt issuance costs —   —   ( 6,515 )
Proceeds from issuance of debt, net of issuance costs —   735,043   —  
Proceeds from revolving credit facility, net of costs —   —   300,000  
Repayment of debt ( 750,000 ) —   ( 1,087,250 )
Common stock repurchases ( 2,149,946 ) ( 1,735,746 ) ( 1,311,864 )

Payment of dividends to stockholders ( 904,594 ) ( 773,041 ) ( 732,556 )

Issuance of common stock 151,514   144,934   124,847  
Tax withholding payments related to vested and released restricted stock units ( 132,661 ) ( 143,024 ) ( 94,806 )
Contingent consideration payable and other, net —   ( 4,183 ) ( 17,850 )

Purchase of non-controlling interest —   —   ( 4,295 )
Net cash used in financing activities ( 3,785,687 ) ( 1,776,017 ) ( 2,830,289 )
Effect of exchange rate changes on cash and cash equivalents 8,044   ( 6,309 ) ( 13,988 )
Net increase in cash and cash equivalents 101,779   49,264   342,957  
Cash and cash equivalents at beginning of period 1,977,129   1,927,865   1,584,908  
Cash and cash equivalents at end of period $ 2,078,908   $ 1,977,129   $ 1,927,865  
Supplemental cash flow disclosures:
Income taxes paid, net $ 886,937   $ 830,835   $ 495,101  
Interest paid, net of capitalized interest $ 292,771   $ 276,597   $ 223,955  
Non-cash activities:

Contingent consideration payable - financing activities $ —   $ ( 765 ) $ ( 1,878 )
Dividends payable - financing activities $ 8,660   $ 8,043   $ 7,903  

Unsettled common stock repurchase - financing activities $ 5,500   $ 5,500   $ 11,000  

Accrued purchases of land, property and equipment - investing activities $ 25,740   $ 13,849   $ 18,445  

See accompanying notes to Consolidated Financial Statements.
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KLA CORPORATION
Notes to Consolidated Financial Statements

NOTE 1— DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business and Principles of Consolidation. KLA Corporation and its majority-owned subsidiaries (“KLA” or the “Company” and also referred to as “we,” “our,” “us” or similar references) is a supplier of process equipment, process control equipment, and data analytics products for a broad range of industries, including semiconductors and printed circuit boards (“PCB”). We provide advanced process control and process-enabling solutions for manufacturing and testing wafers and reticles, integrated circuits (“IC”), advanced packaging, light-emitting diodes, power devices, compound semiconductor devices, microelectromechanical systems (“MEMS”), data storage and PCBs as well as general materials research. We also provide comprehensive support and services across our installed base. Our extensive portfolio of inspection, metrology and data analytics products, and related services, helps IC manufacturers achieve target yield throughout the entire semiconductor fabrication process, from research and development (“R&D”) to final volume production. We develop and sell advanced vacuum deposition and etching process tools, which are used by a broad range of specialty semiconductor customers. We enable electronic device manufacturers to inspect, test and measure PCBs and ICs to verify their quality, deposit a pattern of desired electronic circuitry on the relevant substrate and perform three-dimensional shaping of metalized circuits on multiple surfaces. Our advanced products, coupled with our unique yield management software and services, allow us to deliver the solutions our semiconductor and PCB customers need to achieve their productivity goals by significantly reducing their risks and costs and improving their overall profitability and return on investment. Headquartered in Milpitas, California, we have subsidiaries both in the U.S. and key markets throughout the world.
The Consolidated Financial Statements include the accounts of KLA and its majority-owned subsidiaries. All significant intercompany balances and transactions have been eliminated.
Comparability.  Certain reclassifications have been made to the prior year’s Consolidated Financial Statements to conform to the current year presentation. The reclassifications did not have material effects on the prior year’s Consolidated Balance Sheets, Statements of Operations, Comprehensive Income and Cash Flows.
Management Estimates. The preparation of the Consolidated Financial Statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions in applying our accounting policies that affect the reported amounts of assets and liabilities (and related disclosure of contingent assets and liabilities) at the date of the Consolidated Financial Statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.
Cash Equivalents and Fixed Income Marketable Securities . All highly liquid debt instruments with original or remaining maturities of less than three months at the date of purchase are cash equivalents. Fixed income marketable securities are generally classified as available-for-sale for use in current operations, if required, and are reported at fair value, with unrealized gains and non-credit related unrealized losses, net of tax, presented as a separate component of stockholders’ equity under the caption Accumulated other comprehensive income (loss) (“AOCI”). All realized gains and losses are recorded in earnings in the period of occurrence. The specific identification method is used to determine the realized gains and losses on investments.
We regularly review the available-for-sale debt securities in an unrealized loss position and evaluate the current expected credit loss by considering available information relevant to the collectability of the security, such as historical experience, market data, issuer-specific factors including credit ratings, default and loss rates of the underlying collateral and structure and credit enhancements, current economic conditions and reasonable and supportable forecasts. There were no credit losses on available-for-sale debt securities recognized in the years ended June 30, 2025, 2024 and 2023.
If we do not expect to recover the entire amortized cost of the security, the amount representing credit losses, defined as the difference between the present value of the cash flows expected to be collected and the amortized cost basis of the debt security, is recorded as an allowance for credit losses with an offsetting entry to net income, and the amount that is not credit-related is recognized in other comprehensive income (loss) (“OCI”). If we have the intent to sell the security or it is more likely than not that we will be required to sell the security before recovery of its entire amortized cost basis, we first write off any previously recognized allowance for credit losses with an offsetting entry to the security’s amortized cost basis. If the allowance has been fully written off and fair value is less than amortized cost basis, we write down the amortized cost basis of the security to its fair value with an offsetting entry to net income.
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Investments in Equity Securities. We hold equity securities in publicly and privately held companies for the promotion of business and strategic objectives. Equity securities in publicly held companies, or marketable equity securities, are measured and recorded at fair value on a recurring basis. Equity securities in privately held companies, or non-marketable equity securities, are accounted for at cost, less impairment, plus or minus observable price changes in orderly transactions for identical or similar securities of the same issuer. Non-marketable equity securities are subject to a periodic impairment review; however, since there are no open-market valuations, the impairment analysis requires significant judgment. This analysis includes assessment of the investee’s financial condition, the business outlook for its products and technology, its projected results and cash flow, financing transactions subsequent to the acquisition of the investment, the likelihood of obtaining subsequent rounds of financing and the impact of any relevant contractual equity preferences held by us or the others. Non-marketable equity securities are included in Other non-current assets on the balance sheet. Realized and unrealized gains and losses resulting from changes in fair value or the sale of our marketable and non-marketable equity securities are recorded in Other expense (income), net.
Inventory Valuation. Inventories are stated at the lower of cost or net realizable value using standard costs that approximate actual costs on a first-in, first-out basis. The carrying value of product inventory is reduced for estimated obsolescence equal to the difference between its cost and the estimated net realizable value based on assumptions about future demand for meeting our product manufacturing plans. The carrying value of service inventory is reduced for estimated obsolescence equal to the difference between its cost and the estimated net realizable value based on assumptions about future demand to meet our customers’ support requirements. Demonstration units are stated at their manufacturing cost and written down to their net realizable value. The Company’s policy is to assess the valuation of all inventories including manufacturing raw materials, work-in-process, finished goods and spare parts in each reporting period. The estimate of net realizable value of inventory is impacted by assumptions regarding general semiconductor market conditions, manufacturing schedules, technology changes, new product introductions and possible alternative uses, and require us to use significant judgment that may include uncertain elements. Actual demand may differ from forecasted demand, and such differences may have a material effect on recorded inventory values. Our manufacturing overhead standards for product costs are calculated assuming full absorption of forecasted spending over projected volumes, adjusted for excess capacity. Abnormal inventory costs such as costs of idle facilities, excess freight and handling costs and spoilage are recognized as current period charges.
Allowance for Credit Losses. A majority of our accounts receivable are derived from sales to large multinational semiconductor and electronics manufacturers throughout the world. We maintain an allowance for credit losses for expected uncollectible accounts receivable, which is recorded as an offset to accounts receivable and changes in such are classified as selling, general and administrative (“SG&A”) expense in the Consolidated Statements of Operations. We assess collectability by reviewing accounts receivable on a collective basis where similar risk characteristics exist and on an individual basis when we identify specific customers with known disputes or collectability issues. The estimate of expected credit losses considers historical credit loss information that is adjusted for current conditions and reasonable and supportable forecasts. The allowance for credit losses is reviewed on a quarterly basis to assess the adequacy of the allowance. Our assessment considered estimates of expected credit and collectability trends. The credit losses recognized on accounts receivable were not significant as of June 30, 2025 and 2024 . Volatility in market conditions and evolving credit trends are difficult to predict and may cause variability that may have a material impact on our allowance for credit losses in future periods.
Property and Equipment. Property and equipment are recorded at cost, net of accumulated depreciation. Depreciation of property and equipment is based on the straight-line method over the estimated useful lives of the assets. The following table sets forth the estimated useful life for various asset categories:
Asset Category Range of Useful Lives
Buildings 30 to 50 years

Leasehold improvements Shorter of 15 years or lease term

Machinery and equipment 2 to 10 years

Office furniture and fixtures 7 years

Construction-in-process assets are not depreciated until the assets are placed in service. Depreciation expense for the fiscal years ended June 30, 2025, 2024 and 2023 was $ 192.0 million, $ 181.7 million and $ 154.2 million, respectively.
Leases . Under Accounting Standards Codification (“ASC”) 842, Leases , a contract is or contains a lease when we have the right to control the use of an identified asset for a period of time. We determine if an arrangement is a lease at inception of the contract, which is the date on which the terms of the contract are agreed to, and the agreement creates enforceable rights and obligations. The commencement date of the lease is the date that the lessor makes an underlying asset available for our use. On the commencement date, leases are evaluated for classification and assets and liabilities are recognized based on the present value of lease payments over the lease term.
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The lease term used to calculate the lease liability includes options to extend or terminate the lease when it is reasonably certain that the option will be exercised. The right of use (“ROU”) asset is initially measured as the amount of lease liability, adjusted for any initial lease costs, prepaid lease payments and any lease incentives. Variable lease payments, consisting primarily of reimbursement of costs incurred by lessors for common area maintenance, real estate taxes and insurance, are not included in the lease liability and are recognized as they are incurred.
As most of our leases do not provide an implicit rate, we use our incremental borrowing rate at lease commencement to measure ROU assets and lease liabilities. The incremental borrowing rate used by us is based on baseline rates and adjusted by the credit spreads commensurate with our secured borrowing rate, over a similar term. We used the incremental borrowing rate on June 30, 2019 for all leases that commenced on or prior to that date. Operating lease expense is generally recognized on a straight-line basis over the lease term.
We have elected the practical expedient to account for the lease and non-lease components as a single lease component for the majority of our asset classes. For leases with a term of one year or less, we have elected not to record the ROU asset or liability.
Goodwill, Purchased Intangible Assets and Impairment Assessment. Goodwill represents the excess of the purchase price in a business combination over the fair value of the net tangible and intangible assets acquired. We assess goodwill for impairment annually during our third fiscal quarter or whenever events or changes in circumstances indicate the carrying value may not be fully recoverable. We have the option to perform a qualitative assessment prior to necessitating a quantitative impairment test. In the qualitative assessment, if we determine that it is more likely than not that the fair value of a reporting unit is less than the carrying value, a quantitative test is then performed, which involves comparing the estimated fair value of a reporting unit to its carrying value including goodwill. If goodwill is considered to be impaired, the amount of any impairment is measured as the difference between the carrying value and the fair value. Refer to Note 7 “Goodwill and Purchased Intangible Assets” for information related to determining the fair value of a reporting unit.
Purchased intangible assets that are not considered to have an indefinite useful life are amortized over their estimated useful lives, which generally range from six months to nine years . The carrying values of our intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of an asset or asset group may not be recoverable.
Impairment of Long-Lived Assets. Long-lived assets are tested for impairment whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable. Events or changes in circumstances that could affect the likelihood that we will be required to recognize an impairment charge for the long-lived assets primarily include declines in our operating cash flows from the use of these assets. We determine whether long-lived assets are recoverable based on the forecasted undiscounted future cash flows that are expected to be generated by the lowest-level associated asset grouping. If the undiscounted cash flows used in the recoverability test are less than the long-lived assets’ carrying value, we recognize an impairment loss for the amount that the carrying value exceeds the fair value. We determine the fair value of long-lived assets using the income approach, primarily by applying the relief-from-royalty or multi-period excess-earnings methods, when deemed appropriate.
Concentration of Credit Risk. Financial instruments that potentially subject us to significant concentrations of credit risk consist primarily of cash equivalents, short-term marketable securities, trade accounts receivable and derivative financial instruments used in hedging activities. We invest in a variety of financial instruments, such as, but not limited to, certificates of deposit, corporate debt and municipal securities, U.S. Treasury and Government agency securities, and equity securities and, by policy, we limit the amount of credit exposure with any one financial institution or commercial issuer. We have not experienced any material credit losses on our investments.
A majority of our accounts receivable are derived from sales to large multinational semiconductor and electronics manufacturers located throughout the world, with a majority located in Asia. In recent years, our customer base has become increasingly concentrated due to corporate consolidations, acquisitions and business closures, and to the extent that these customers experience liquidity issues in the future, we may be required to reserve for potential credit losses with respect to trade receivables. We perform ongoing credit evaluations of our customers’ financial condition and generally require little to no collateral to secure accounts receivable. We maintain an allowance for potential credit losses based upon expected collectability risk of all accounts receivable. In addition, we may utilize letters of credit (“LC”) or non-recourse factoring to mitigate credit risk when considered appropriate.
We are exposed to credit loss in the event of non-performance by counterparties on the foreign exchange contracts that we use in hedging activities and in certain factoring transactions. These counterparties are large international financial institutions, and, to date, no such counterparty has failed to meet its financial obligations to us under such contracts.
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Two customers and one customer on an individual basis accounted for greater than 10% of accounts receivable, net as of June 30, 2025 and 2024, respectively.
Foreign Currency. The functional currencies of our foreign subsidiaries are primarily the local currencies, except as described below. Accordingly, all assets and liabilities of these foreign operations are translated to U.S. dollars at current period end exchange rates, and revenues and expenses are translated to U.S. dollars using average exchange rates in effect during the period. The gains and losses from foreign currency translation of these subsidiaries’ financial statements are recorded directly into a separate component of stockholders’ equity under the caption AOCI.
Our manufacturing subsidiaries in Singapore, Israel, Germany, and the U. K. use the U.S. dollar as their functional currency. Accordingly, monetary assets and liabilities in non-functional currency of these subsidiaries are remeasured using exchange rates in effect at the end of the period. Revenues and costs in local currency are remeasured using average exchange rates for the period, except for costs related to those balance sheet items that are remeasured using historical exchange rates. The resulting remeasurement gains and losses are included in the Consolidated Statements of Operations as incurred.
Derivative Financial Instruments. We use financial instruments, such as foreign exchange contracts including forward and options transactions, to hedge a portion of, but not all, existing and forecasted foreign currency denominated transactions. The purpose of our foreign exchange hedging program is to manage the effect of exchange rate fluctuations on certain foreign currency denominated revenues, costs and eventual cash flows. The effect of exchange rate changes on foreign exchange contracts is expected to offset the effect of exchange rate changes on the underlying hedged items. We also use forward contracts to hedge the risk associated with the variability of cash flows due to changes in the benchmark interest rate of the intended debt financing (“Rate Lock Agreements”). We believe these financial instruments do not subject us to speculative risk that would otherwise result from changes in currency exchange rates or interest rates. All of our derivative financial instruments are recorded at fair value based upon quoted market prices for comparable instruments adjusted for risk of counterparty non-performance.
For derivative instruments designated and qualifying as cash flow hedges of forecasted foreign currency denominated transactions or debt financing, the effective portion of the gains or losses is reported in AOCI and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. We elected to include time value for the assessment of effectiveness on all forward transactions designated as cash flow hedges. The change in fair value of the derivative is recorded in AOCI until the hedged transaction is recognized in earnings. The assessment of effectiveness of options contracts designated as cash flow hedges excludes time value. The initial value of the component excluded from the assessment of effectiveness is recognized in earnings over the life of the derivative contract. Any differences between change in the fair value of the excluded components and the amounts recognized in earnings are recorded in AOCI. For foreign exchange contracts that are designated and qualify as a net investment hedge in a foreign operation and that meet the effectiveness requirements, the net gains or losses attributable to changes in spot exchange rates are recorded in cumulative translation within AOCI. The remainder of the change in value of such instruments is recorded in earnings using the mark-to-market approach. Recognition in earnings of amounts previously recorded in cumulative translation is limited to circumstances such as complete or substantially complete liquidation of the net investment in the hedged foreign operations. For foreign exchange contracts that are not designated as hedges, gains and losses are recognized in Other expense (income), net. We use foreign exchange contracts to hedge certain foreign currency denominated assets or liabilities. The gains and losses on these derivative instruments are largely offset by the changes in the fair value of the assets or liabilities being hedged. Cash flows associated with these derivatives are classified as cash flows from operating activities in the Consolidated Statement of Cash Flows to align with the underlying items.
Revenue Recognition. We primarily derive revenue from the sale of process control and process-enabling solutions for the semiconductor and related electronics industries, maintenance and support of all these products, installation and training services and the sale of spare parts. Our portfolio includes yield enhancement and production solutions for manufacturing wafers and reticles, ICs, packaging and PCBs, as well as comprehensive support and services across our installed base.
Our solutions are generally not sold with a right of return, nor have we experienced significant returns from or refunds to our customers.
We account for a contract with a customer when there is approval and commitment from both parties, the rights of the parties are identified, payment terms are identified, the contract has commercial substance and collectability of consideration is probable.
Our revenues are measured based on consideration stipulated in the arrangement with each customer, net of any sales incentives and amounts collected on behalf of third parties, such as sales taxes. The revenues are recognized as separate performance obligations that are satisfied by transferring control of the product or service to the customer.
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Our arrangements with our customers include various combinations of products and services, which are generally capable of being distinct and accounted for as separate performance obligations. A product or service is considered distinct if it is separately identifiable from other deliverables in the arrangement and if a customer can benefit from it on its own or with other resources that are readily available to the customer.
The transaction consideration, including any sales incentives, is allocated between separate performance obligations of an arrangement based on the stand-alone selling price (“SSP”) for each distinct product or service. Management considers a variety of factors to determine the SSP, such as historical stand-alone sales of products and services, discounting strategies and other observable data.
From time to time, our contracts are modified to account for additional, or to change existing, performance obligations. Our contract modifications are generally accounted for prospectively.
Product Revenue
We recognize revenue from product sales at a point in time when we have satisfied our performance obligation by transferring control of the product to the customer. We use judgment to evaluate whether control has transferred by considering several indicators, including whether:
• We have a present right to payment;
• The customer has legal title;
• The customer has physical possession;
• The customer has significant risk and rewards of ownership; and
• The customer has accepted the product, or whether customer acceptance is considered a formality based on history of acceptance of similar products (for example, when the customer has previously accepted the same tool, with the same specifications or technology, and when we can objectively demonstrate that the tool meets all of the required acceptance criteria, and when the installation of the system is deemed perfunctory).
Not all of the indicators need to be met for us to conclude that control has transferred to the customer. In circumstances in which revenue is recognized prior to the product acceptance, the fair value of revenue associated with our performance obligations to install the product is deferred and recognized as revenue at a point in time, once installation is complete.
We enter into volume purchase agreements with some of our customers. We adjust the transaction consideration for estimated credits and incentives earned by our customers. These credits are estimated based upon the forecasted and actual product sales for any given period and agreed incentive rate. The estimate is reviewed for material changes and updated at each reporting period.
We offer perpetual and term licenses for software products. The primary difference between perpetual and term licenses is the duration over which the customer can benefit from the use of the software, while the functionality and the features of the software are the same. Software is generally bundled with post-contract customer support (“PCS”), which includes unspecified software updates that are made available throughout the entire term of the arrangement. Revenue from software licenses is recognized at a point in time, when the software is made available to the customer. Revenue from PCS is deferred at contract inception and recognized ratably over the service period, or as services are performed.
Services Revenue
The majority of product sales include a standard  12 -month warranty that is not separately paid for by the customers. The customers may also purchase an extended warranty for periods beyond the initial period as part of the initial product sale. We have concluded that the standard  12 -month warranty as well as any extended warranty periods included in the initial product sales are separate performance obligations for most of our products. The estimated fair value of warranty services is deferred and recognized ratably as revenue over the warranty period, as the customer simultaneously receives and consumes the benefits of warranty services provided by us.
Additionally, we offer product maintenance and support services, which the customer may purchase separately from the standard and extended warranty offered as part of the initial product sale. Revenue from separately negotiated maintenance and support service contracts is also recognized over time based on the terms of the applicable service period. Revenue from services performed in the absence of a maintenance contract, including training revenue, is recognized when the related services are performed. We also sell spare parts, revenue from which is recognized when control over the spare parts is transferred to the customer.
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Significant Judgments
Our contracts with our customers often include promises to transfer multiple products and services. Each product and service is generally capable of being distinct within the context of the contract and represents a separate performance obligation. Determining the SSP for each distinct performance obligation and allocation of consideration from an arrangement to the individual performance obligations and the appropriate timing of revenue recognition are significant judgments with respect to these arrangements. We typically estimate the SSP of products and services based on observable transactions when the products and services are sold on a stand-alone basis and those prices fall within a reasonable range. We typically have more than one SSP for individual products and services due to the stratification of these products by customers and circumstances. In these instances, we use information such as the size of the customer, geographic region, as well as customization of the products in determining the SSP. In instances where the SSP is not directly observable, we determine the SSP using information that includes market conditions, entity-specific factors, including discounting strategies, information about the customer or class of customer that is reasonably available and other observable inputs. While changes in the allocation of SSP between performance obligations will not affect the amount of total revenue recognized for a particular contract, any material changes could impact the timing of revenue recognition, which could have a material effect on our financial position and results of operations.
Although our products are generally not sold with a right of return, we may provide other credits or sales incentives, which are accounted for either as variable consideration or material right, depending on the specific terms and conditions of the arrangement. These credits and incentives are estimated at contract inception and updated at the end of each reporting period if and when additional information becomes available.
As outlined above, we use judgments to evaluate whether or not the customer has obtained control of the product and consider several indicators in evaluating whether or not control has transferred to the customer. Not all of the indicators need to be met for us to conclude that control has transferred to the customer.
Contract Assets/Liabilities
The timing of revenue recognition, billings and cash collections may result in accounts receivable, contract assets, and contract liabilities (deferred revenue) on our Consolidated Balance Sheets. A receivable is recorded in the period we deliver products or provide services when we have an unconditional right to payment. Contract assets primarily relate to the value of products and services transferred to the customer for which the right to payment is not just dependent on the passage of time. Contract assets are transferred to accounts receivable when rights to payment become unconditional.
A contract liability is recognized when we receive payment or have an unconditional right to payment in advance of the satisfaction of performance. The contract liabilities represent (1) deferred product revenue related to the value of products that have been shipped and billed to customers and for which control has not been transferred to the customers, and (2) deferred service revenue, which is recorded when we receive consideration, or such consideration is unconditionally due, from a customer prior to transferring services to the customer under the terms of a contract. Deferred service revenue typically results from warranty services, and maintenance and other service contracts.
Contract assets and liabilities related to rights and obligations in a contract are recorded net in the Consolidated Balance Sheets.
Research and Development Costs.  R&D costs are expensed as incurred.
Shipping and Handling Costs. Shipping and handling costs are included as a component of cost of sales.
Accounting for Stock-Based Compensation Plans. We account for stock-based awards granted to employees for services based on the fair value of those awards. The fair value of stock-based awards is measured at the grant date and is recognized as expense over the employee’s requisite service period. The fair value for restricted stock units (“RSU”) granted without “dividend equivalent” rights is determined using the closing price of our common stock on the grant date, adjusted to exclude the present value of dividends which are not accrued on the RSUs. The fair value for RSUs granted with “dividend equivalent” rights is determined using the closing price of our common stock on the grant date. The award holder is not entitled to receive payments under dividend equivalent rights unless the associated RSU award vests (i.e., the award holder is entitled to receive credits, payable in cash or shares of common stock, equal to the cash dividends that would have been received on the shares of our common stock underlying the RSUs had the shares been issued and outstanding on the dividend record date, but such dividend equivalents are only paid subject to the recipient satisfying the vesting requirements of the underlying award). Compensation expense for RSUs with performance metrics is calculated based upon expected achievement of the metrics specified in the grant, or when a grant contains a market condition, the grant date fair value using a Monte Carlo simulation. The Monte Carlo simulation incorporates estimates of the potential outcomes of the market condition on the grant date fair value of each award. Additionally, we estimate forfeitures based on historical experience and revise those estimates in
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subsequent periods if actual forfeitures differ from the estimated amounts. The fair value for our Employee Stock Purchase Plan (“ESPP”) is determined using a Black-Scholes valuation model for purchase rights. The Black-Scholes option-pricing model requires the input of assumptions, including the option’s expected term and the expected price volatility of the underlying stock. The expected stock price volatility assumption is based on the market-based historical implied volatility from traded options of our common stock.
Accounting for Cash-Based Long-Term Incentive Compensation. Cash-based long-term incentive (“Cash LTI”) awards issued to employees under our Cash Long-Term Incentive Plan (“Cash LTI Plan”) vest in three or four equal installments, with one-third or one-fourth of the aggregate amount of the Cash LTI award vesting on each yearly anniversary of the grant date over a three - or four-year period. In order to receive payments under a Cash LTI award, participants must remain employed by us as of the applicable award vesting date. Compensation expense related to the Cash LTI awards is recognized over the vesting term and adjusted for the impact of estimated forfeitures.
Accounting for Non-qualified Deferred Compensation Plan. We have a non-qualified deferred compensation plan (known as the “Executive Deferred Savings Plan” or “EDSP”) under which certain executives and non-employee directors may defer a portion of their compensation. Participants are credited with returns based on their allocation of their account balances among measurement funds. We control the investment of these funds, and the participants remain general creditors of ours. We invest these funds in certain mutual funds and such investments are classified as trading securities in the Consolidated Balance Sheets. Investments in trading securities are measured at fair value in the statement of financial position. Unrealized holding gains and losses for trading securities are included in earnings. Distributions from the EDSP commence following a participant’s retirement or termination of employment or on a specified date allowed per the EDSP provisions, except in cases where such distributions are required to be delayed in order to avoid a prohibited distribution under Internal Revenue Code Section 409A. Participants can generally elect for the distributions to be paid in a lump sum or quarterly cash payments over a scheduled period for up to 15 years and are allowed to make subsequent changes to their existing elections as permissible under the EDSP provisions. The liability associated with the EDSP is included as a component of other current liabilities in the Consolidated Balance Sheets. Changes in the EDSP liability are recorded in SG&A expense in the Consolidated Statements of Operations. The net expense associated with changes in the liability included in SG&A expense was $ 41.5 million, $ 37.2 million and $ 27.6 million for the fiscal years ended June 30, 2025, 2024 and 2023, respectively. We also have a deferred compensation asset that corresponds to the liability under the EDSP and it is included as a component of other non-current assets in the Consolidated Balance Sheets. Changes in the EDSP assets are recorded as gains (losses), net in SG&A expense in the Consolidated Statements of Operations. The amount of net gains included in SG&A expense were $ 40.7 million, $ 36.6 million and $ 27.6 million for the fiscal years ended June 30, 2025, 2024 and 2023, respectively.
Income Taxes. We account for current and deferred income taxes in accordance with the authoritative guidance, which requires that the income tax impact is to be recognized in the period in which the law is enacted. Current income tax expense represents taxes paid or payable for the current period. Deferred tax assets and liabilities are recognized using enacted tax rates for the future tax impact of temporary differences between the financial statement and tax bases of recorded assets and liabilities. A valuation allowance is recorded to reduce deferred tax assets when it is more likely than not that a tax benefit will not be realized based on historical and projected future taxable income over the periods in which the temporary differences are expected to be recovered or settled.
We record income taxes on the undistributed earnings of foreign subsidiaries unless the subsidiaries’ earnings are considered indefinitely reinvested outside the U.S. Our income taxes will be greater if some or all of the indefinitely reinvested earnings are taxable when distributed to the U.S.
In accordance with the authoritative guidance on accounting for uncertainty in income taxes, we recognize liabilities for uncertain tax positions based on the two-step process. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained in audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon ultimate settlement.
Global Intangible Low-Taxed Income.  The Tax Cut and Jobs Act introduced the Global Intangible Low-Taxed Income (“GILTI”) provisions, wherein U.S. taxes on foreign income are imposed in excess of a deemed return on tangible assets of foreign corporations. This income is effectively taxed at a 10.5% tax rate in general. The One Big Beautiful Bill Act (“OBBBA”) renames GILTI to Net Controlled Foreign Corporation (“CFC”) Tested Income (“NCTI”), modifies the general effective tax rate on GILTI to 12.6% and removes the deemed return on tangible assets deduction. We elect to account for GILTI as a component of current period tax expense and not recognize deferred tax assets and liabilities for the basis differences expected to reverse as a result of GILTI provisions.
Business Combinations.  We allocate the fair value of the purchase price of our acquisitions to the tangible assets
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acquired, liabilities assumed, and intangible assets acquired, including in-process research and development (“IPR&D”), based on their estimated fair values at acquisition date. The excess of the fair value of the purchase price over the fair values of these net tangible and intangible assets acquired is recorded as goodwill. Management’s estimates of fair value are based upon assumptions believed to be reasonable, but our estimates and assumptions are inherently uncertain and subject to refinement. As a result, during the measurement period, which will not exceed one year from the acquisition date, we record adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill. After the conclusion of the measurement period or final determination of the fair value of the purchase price of our acquisitions, whichever comes first, any subsequent adjustments are recorded to our Consolidated Statements of Operations.
The fair value of IPR&D is initially capitalized as an intangible asset with an indefinite life and assessed for impairment thereafter whenever events or changes in circumstances indicate that the carrying value of the IPR&D assets may not be recoverable. Impairment of IPR&D is recorded to R&D expenses. When an IPR&D project is completed, the IPR&D is reclassified as an amortizable purchased intangible asset and amortized to costs of revenues over the asset’s estimated useful life.
Acquisition-related expenses are recognized separately from the business combination and are expensed as incurred.
Contingencies and Litigation. We are subject to the possibility of losses from various contingencies. Considerable judgment is necessary to estimate the probability and amount of any loss from such contingencies. An accrual is made when it is probable that a liability has been incurred or an asset has been impaired, and the amount of loss can be reasonably estimated. We accrue a liability and recognize as expense the estimated costs to defend or settle asserted and unasserted claims existing as of the balance sheet date. See Note 15 “Litigation and Other Legal Matters” and Note 16 “Commitments and Contingencies” for additional details.
Government Incentives. We occasionally receive incentives from governmental entities related to capital expenditures, expenses and other activities, primarily in the form of cash grants and tax credits. Government assistance is recognized when there is reasonable assurance that (1) the Company will comply with relevant conditions; and (2) the assistance will be received. Government incentives related to the acquisition or construction of property, plant and equipment are recognized as a reduction in the carrying amounts of the related assets and reduce depreciation expense over the useful lives of the assets. Incentives related to specific operating activities are offset against the related expense in the period the expense is incurred.
Collaborative Arrangements. We assess joint development arrangements to determine whether they are in the scope of ASC 808, Collaborative Arrangements . In our assessment, we evaluate whether such arrangements involve joint operating activities performed by parties that are both active participants in the activities and exposed to significant risks and rewards dependent on commercial success of the activities. This assessment is performed throughout the life of such arrangement with consideration given to the changes in the roles and responsibilities between the parties. During the quarter ended September 30, 2024, we entered into a joint development arrangement within the scope of ASC 808 to develop and commercialize a new product.
Recent Accounting Pronouncements
Recently Adopted
In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-07, Segment Reporting (Topic 280), Improvements to Reportable Segment Disclosures . The new guidance requires enhanced disclosures about significant segment expenses. This standard update is effective for our annual reports beginning in the fiscal year ended June 30, 2025 and interim period reports beginning in the first quarter of the fiscal year ending June 30, 2026. Early adoption is permitted on a retrospective basis. We adopted ASU 2023-07 for the fiscal year ended June 30, 2025 on a retrospective basis.
Updates Not Yet Effective
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740), Improvements to Income Tax Disclosures . The new guidance requires enhanced disclosures about income tax expenses. This standard update is effective for our annual reports beginning in the fiscal year ending June 30, 2026. Early adoption is permitted on a prospective basis. We are currently evaluating the impact of this ASU on our annual income tax disclosures.
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