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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
| | | | | |
(Mark one) |
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2024
or
| | | | | |
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number 000-09992
| | |
KLA CORPORATION |
(Exact name of registrant as specified in its charter) |
| | | | | | | | | | | | | | |
Delaware | | 04-2564110 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
| | | | |
One Technology Drive, | Milpitas, | California | | 95035 |
(Address of principal executive offices) | | (Zip Code) |
(408) 875-3000
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| | | | | | | | |
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common Stock, $0.001 par value per share | KLAC | The Nasdaq Stock Market, LLC |
| | The Nasdaq Global Select Market |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| | | | | | | | | | | | | | | | | | | | |
Large accelerated filer | ☒ | | | | Accelerated filer | ☐ |
Non-accelerated filer | ☐ | | | | Smaller reporting company | ☐ |
| | | | | Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of October 21, 2024, there were 133,759,778 shares of the registrant’s Common Stock, $0.001 par value per share, outstanding.
INDEX
| | | | | | | | |
| | Page Number |
| | |
PART I | FINANCIAL INFORMATION | |
Item 1. | | |
| | |
| | |
| | |
| | |
| | |
| | |
Item 2. | | |
Item 3. | | |
Item 4. | | |
| | |
PART II | OTHER INFORMATION | |
Item 1. | | |
Item 1A. | | |
Item 2. | | |
Item 3. | | |
Item 4. | | |
Item 5. | | |
Item 6. | | |
| | |
| |
| | |
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
KLA CORPORATION
Condensed Consolidated Balance Sheets
(Unaudited)
| | | | | | | | | | | |
(In thousands) | September 30, 2024 | | June 30, 2024 |
ASSETS | | | |
Current assets: | | | |
Cash and cash equivalents | $ | 1,977,202 | | | $ | 1,977,129 | |
Marketable securities | 2,652,514 | | | 2,526,866 | |
Accounts receivable, net | 1,953,156 | | | 1,833,041 | |
Inventories | 3,109,837 | | | 3,034,781 | |
Other current assets | 535,730 | | | 659,327 | |
Total current assets | 10,228,439 | | | 10,031,144 | |
Land, property and equipment, net | 1,118,312 | | | 1,109,968 | |
Goodwill, net | 2,015,721 | | | 2,015,726 | |
Deferred income taxes | 981,591 | | | 915,241 | |
Purchased intangible assets, net | 612,011 | | | 668,764 | |
Other non-current assets | 725,663 | | | 692,723 | |
Total assets | $ | 15,681,737 | | | $ | 15,433,566 | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | | | |
Current liabilities: | | | |
Accounts payable | $ | 376,505 | | | $ | 359,487 | |
Deferred system revenue | 877,207 | | | 985,856 | |
Deferred service revenue | 512,470 | | | 501,926 | |
Current portion of long-term debt | 749,984 | | | 749,936 | |
Other current liabilities | 2,282,048 | | | 2,063,569 | |
Total current liabilities | 4,798,214 | | | 4,660,774 | |
Long-term debt | 5,881,372 | | | 5,880,199 | |
Deferred tax liabilities | 471,575 | | | 486,690 | |
Deferred service revenue | 319,794 | | | 294,460 | |
Other non-current liabilities | 651,068 | | | 743,115 | |
Total liabilities | 12,122,023 | | | 12,065,238 | |
Commitments and contingencies (Notes 8, 13 and 14) | | | |
Stockholders’ equity: | | | |
Common stock and capital in excess of par value | 2,257,052 | | | 2,280,133 | |
Retained earnings | 1,328,166 | | | 1,137,270 | |
Accumulated other comprehensive loss | (25,504) | | | (49,075) | |
| | | |
| | | |
Total stockholders’ equity | 3,559,714 | | | 3,368,328 | |
Total liabilities and stockholders’ equity | $ | 15,681,737 | | | $ | 15,433,566 | |
See accompanying notes to Condensed Consolidated Financial Statements (unaudited).
KLA CORPORATION
Condensed Consolidated Statements of Operations
(Unaudited)
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | |
(In thousands, except per share amounts) | 2024 | | 2023 | | | | |
Revenues: | | | | | | | |
Product | $ | 2,197,389 | | | $ | 1,836,664 | | | | | |
Service | 644,152 | | | 560,292 | | | | | |
Total revenues | 2,841,541 | | | 2,396,956 | | | | | |
Costs and expenses: | | | | | | | |
Costs of revenues | 1,147,431 | | | 946,891 | | | | | |
Research and development | 323,145 | | | 311,214 | | | | | |
Selling, general and administrative | 251,042 | | | 239,645 | | | | | |
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Interest expense | 82,171 | | | 74,234 | | | | | |
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Other expense (income), net | (40,935) | | | (26,739) | | | | | |
Income before income taxes | 1,078,687 | | | 851,711 | | | | | |
Provision for income taxes | 132,836 | | | 110,336 | | | | | |
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Net income | 945,851 | | | 741,375 | | | | | |
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Basic | $ | 7.05 | | | $ | 5.43 | | | | | |
Diluted | $ | 7.01 | | | $ | 5.41 | | | | | |
Weighted-average number of shares: | | | | | | | |
Basic | 134,134 | | | 136,412 | | | | | |
Diluted | 134,858 | | | 137,104 | | | | | |
See accompanying notes to Condensed Consolidated Financial Statements (unaudited).
KLA CORPORATION
Condensed Consolidated Statements of Comprehensive Income
(Unaudited)
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | |
(In thousands) | 2024 | | 2023 | | | | |
Net income | $ | 945,851 | | | $ | 741,375 | | | | | |
Other comprehensive income (loss): | | | | | | | |
Currency translation adjustments: | | | | | | | |
Cumulative currency translation adjustments | 10,257 | | | (6,853) | | | | | |
Income tax (provision) benefit | (1,148) | | | 260 | | | | | |
Net change related to currency translation adjustments | 9,109 | | | (6,593) | | | | | |
Cash flow hedges: | | | | | | | |
Net unrealized gains (losses) arising during the period | 3,098 | | | (1,481) | | | | | |
Reclassification adjustments for net gains included in net income | (3,508) | | | (7,108) | | | | | |
Income tax benefit | 2,213 | | | 856 | | | | | |
Net change related to cash flow hedges | 1,803 | | | (7,733) | | | | | |
Net change related to unrecognized losses and transition obligations in connection with defined benefit plans | (232) | | | 242 | | | | | |
Available-for-sale securities: | | | | | | | |
Net unrealized gains arising during the period | 16,422 | | | 1,244 | | | | | |
Reclassification adjustments for net losses included in net income | 1 | | | 12 | | | | | |
Income tax provision | (3,532) | | | (269) | | | | | |
Net change related to available-for-sale securities | 12,891 | | | 987 | | | | | |
Other comprehensive income (loss) | 23,571 | | | (13,097) | | | | | |
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Total comprehensive income | $ | 969,422 | | | $ | 728,278 | | | | | |
See accompanying notes to Condensed Consolidated Financial Statements (unaudited).
KLA CORPORATION
Condensed Consolidated Statements of Stockholders’ Equity
(Unaudited)
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| Common Stock and Capital in Excess of Par Value | | Retained Earnings | | Accumulated Other Comprehensive Income (Loss) | | | | | | Total Stockholders’ Equity |
(In thousands, except per share amounts) | Shares | | Amount | |
Balances as of June 30, 2024 | 134,425 | | | $ | 2,280,133 | | | $ | 1,137,270 | | | $ | (49,075) | | | | | | | $ | 3,368,328 | |
| | | | | | | | | | | | | |
Net income | — | | | — | | | 945,851 | | | — | | | | | | | 945,851 | |
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Other comprehensive income | — | | | — | | | — | | | 23,571 | | | | | | | 23,571 | |
Net issuance under employee stock plans | 134 | | | (72,245) | | | — | | | — | | | | | | | (72,245) | |
Repurchase of common stock | (740) | | | (12,536) | | | (558,400) | | | — | | | | | | | (570,936) | |
Cash dividends ($1.45 per share) and dividend equivalents declared | — | | | — | | | (196,555) | | | — | | | | | | | (196,555) | |
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Stock-based compensation expense | — | | | 61,700 | | | — | | | — | | | | | | | 61,700 | |
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Balances as of September 30, 2024 | 133,819 | | | 2,257,052 | | | 1,328,166 | | | (25,504) | | | | | | | 3,559,714 | |
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| Common Stock and Capital in Excess of Par Value | | Retained Earnings | | Accumulated Other Comprehensive Income (Loss) | | | | | | Total Stockholders’ Equity |
(In thousands, except per share amounts) | Shares | | Amount | |
Balance as of June 30, 2023 | 136,750 | | | $ | 2,107,663 | | | $ | 848,431 | | | $ | (36,341) | | | | | | | $ | 2,919,753 | |
Net income | — | | | — | | | 741,375 | | | — | | | | | | | 741,375 | |
| | | | | | | | | | | | | |
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Other comprehensive loss | — | | | — | | | — | | | (13,097) | | | | | | | (13,097) | |
Net issuance under employee stock plans | 173 | | | (68,237) | | | — | | | — | | | | | | | (68,237) | |
Repurchase of common stock | (956) | | | (14,722) | | | (444,371) | | | — | | | | | | | (459,093) | |
Cash dividends ($1.30 per share) and dividend equivalents declared | — | | | — | | | (179,256) | | | — | | | | | | | (179,256) | |
Stock-based compensation expense | — | | | 48,772 | | | — | | | — | | | | | | | 48,772 | |
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Balance as of September 30, 2023 | 135,967 | | | 2,073,476 | | | 966,179 | | | (49,438) | | | | | | | 2,990,217 | |
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See accompanying notes to Condensed Consolidated Financial Statements (unaudited).
KLA CORPORATION
Condensed Consolidated Statements of Cash Flows
(Unaudited)
| | | | | | | | | | | |
| Three Months Ended September 30, |
(In thousands) | 2024 | | 2023 |
Cash flows from operating activities: | | | |
Net income | $ | 945,851 | | | $ | 741,375 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | |
| | | |
Depreciation and amortization | 95,823 | | | 102,403 | |
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Unrealized foreign exchange loss and other | 7,718 | | | 9,970 | |
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Stock-based compensation expense | 61,700 | | | 48,772 | |
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Deferred income taxes | (81,682) | | | (71,322) | |
Changes in assets and liabilities, net of assets acquired and liabilities assumed in business acquisitions: | | | |
Accounts receivable | (91,660) | | | 107,018 | |
Inventories | (59,326) | | | (138,419) | |
Other assets | 152,641 | | | (7,520) | |
Accounts payable | (12,463) | | | 8,345 | |
Deferred system revenue | (108,648) | | | 14,057 | |
Deferred service revenue | 35,863 | | | 5,901 | |
Other liabilities | 49,421 | | | 63,160 | |
Net cash provided by operating activities | 995,238 | | | 883,740 | |
Cash flows from investing activities: | | | |
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Capital expenditures | (60,393) | | | (68,045) | |
Purchases of available-for-sale securities | (837,935) | | | (530,842) | |
Proceeds from sale of available-for-sale securities | 55,322 | | | 7,983 | |
Proceeds from maturity of available-for-sale securities | 671,925 | | | 201,149 | |
Purchases of trading securities | (17,581) | | | (49,958) | |
Proceeds from sale of trading securities | 17,623 | | | 48,042 | |
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Net cash used in investing activities | (171,039) | | | (391,671) | |
Cash flows from financing activities: | | | |
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Common stock repurchases | (567,383) | | | (455,412) | |
Payment of dividends to stockholders | (198,079) | | | (181,507) | |
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Tax withholding payments related to vested and released restricted stock units | (72,246) | | | (68,237) | |
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Net cash used in financing activities | (837,708) | | | (705,156) | |
Effect of exchange rate changes on cash and cash equivalents | 13,582 | | | (3,208) | |
Net increase (decrease) in cash and cash equivalents | 73 | | | (216,295) | |
Cash and cash equivalents at beginning of period | 1,977,129 | | | 1,927,865 | |
Cash and cash equivalents at end of period | $ | 1,977,202 | | | $ | 1,711,570 | |
Supplemental cash flow disclosures: | | | |
Income taxes paid, net | $ | 96,395 | | | $ | 99,388 | |
Interest paid | $ | 131,126 | | | $ | 113,236 | |
Non-cash activities: | | | |
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Contingent consideration payable - financing activities | $ | — | | | $ | (920) | |
Dividends payable - financing activities | $ | 2,009 | | | $ | 1,853 | |
Unsettled common stock repurchase - financing activities | $ | 5,499 | | | $ | 11,000 | |
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Accrued purchases of land, property and equipment - investing activities | $ | 13,849 | | | $ | 22,729 | |
See accompanying notes to Condensed Consolidated Financial Statements (unaudited).
KLA CORPORATION
Notes to Condensed Consolidated Financial Statements
(Unaudited)
NOTE 1 – BASIS OF PRESENTATION
Basis of Presentation. For purposes of this report, “KLA,” the “Company,” “we,” “our,” “us” or similar references mean KLA Corporation and its majority-owned subsidiaries unless the context requires otherwise. The Condensed Consolidated Financial Statements have been prepared by us pursuant to the rules and regulations of the U.S. Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted pursuant to such rules and regulations.
The unaudited interim Condensed Consolidated Financial Statements do not include all of the information and footnotes required by GAAP for audited financial statements. The balance sheet as of June 30, 2024 was derived from the Company’s audited Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended June 30, 2024, but does not include all disclosures required by GAAP for audited financial statements. The unaudited interim Condensed Consolidated Financial Statements reflect all adjustments (consisting only of normal, recurring adjustments) necessary for a fair statement of the financial position, results of operations, comprehensive income, stockholders’ equity and cash flows for the periods indicated. These Condensed Consolidated Financial Statements and notes, however, should be read in conjunction with Item 8 “Financial Statements and Supplementary Data” included in our Annual Report on Form 10-K for the fiscal year ended June 30, 2024.
The Condensed Consolidated Financial Statements include the accounts of KLA and its majority-owned subsidiaries. All significant intercompany balances and transactions have been eliminated.
The results of operations for the three months ended September 30, 2024 are not necessarily indicative of the results that may be expected for any other interim period or for the full fiscal year ending June 30, 2025.
Management Estimates. The preparation of the Condensed Consolidated Financial Statements in conformity with GAAP requires management to make estimates and assumptions in applying our accounting policies that affect the reported amounts of assets and liabilities (and related disclosure of contingent assets and liabilities) at the dates of the Condensed Consolidated Financial Statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.
Reclassifications. The Company has reclassified certain prior period balances to conform to the current year presentation. These reclassifications did not impact any prior amounts of reported total assets, total liabilities, stockholders’ equity, results of operations or cash flows.
Significant Accounting Policies. Except for the below additions to our accounting policies, there have been no material changes to our significant accounting policies summarized in Note 1 “Description of Business and Summary of Significant Accounting Policies” to our Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended June 30, 2024.
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 Accounting Standards Codification (“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 ending June 30, 2025 and interim period reports beginning in the first quarter of the fiscal year ending June 30, 2026. Early adoption is permitted on a retrospective basis. We will adopt this update for our annual report for the fiscal year ending June 30, 2025.
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.
NOTE 2 – REVENUE
Contract Balances
The following table represents the opening and closing balances of accounts receivable, net, contract assets and contract liabilities as of the indicated dates.
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| As of | | As of | | | | |
(Dollar amounts in thousands) | September 30, 2024 | | June 30, 2024 | | $ Change | | % Change |
Accounts receivable, net | $ | 1,953,156 | | | $ | 1,833,041 | | | $ | 120,115 | | | 7 | % |
Contract assets | $ | 71,407 | | | $ | 69,259 | | | $ | 2,148 | | | 3 | % |
Contract liabilities | $ | 1,709,471 | | | $ | 1,782,242 | | | $ | (72,771) | | | (4) | % |
Our payment terms and conditions vary by contract type, although terms generally include a requirement of payment of 70% to 90% of total contract consideration within 30 to 60 days of shipment, with the remainder payable within 30 days of acceptance.
The change in contract assets during the three months ended September 30, 2024 was mainly due to $37.4 million of revenue recognized for which the payment is subject to conditions other than passage of time, largely offset by $35.4 million of contract assets reclassified to accounts receivable, net, as our right to consideration for these contract assets became unconditional. Contract assets are included in other current assets on our Condensed Consolidated Balance Sheets.
The change in contract liabilities during the three months ended September 30, 2024 was mainly due to the recognition in revenue of $870.0 million that was included in contract liabilities as of June 30, 2024, largely offset by an increase in the value of products and services billed to customers for which control of the products and services has not transferred to the customers. Contract liabilities are included in other current liabilities and other non-current liabilities on our Condensed Consolidated Balance Sheets.
Remaining Performance Obligations
As of September 30, 2024, we had $10.04 billion of remaining performance obligations (“RPO”), which represents our obligation to deliver products and services, and primarily consists of sales orders where written customer requests have been received. This amount includes customer deposits of $682.2 million as disclosed in Note 4 “Financial Statement Components” and excludes contract liabilities of $1.71 billion as disclosed above. We expect to recognize approximately 65% to 70% of these performance obligations as revenue in the next 12 months, 25% to 30% in the subsequent 12 months and the remainder thereafter, but this estimate is subject to constant change. The timing of revenue recognition of our RPO is evaluated quarterly and is largely driven by multiple variables, many of which are beyond our control, such as: the readiness of customer fabs, end market needs for capacity, changes in the estimated versus actual start time of customers’ projects, timing of delivery and installation dates, supply chain constraints and changes in regulations. Our customers are currently purchasing equipment from us with lead times that are longer than our historical experience. As customers try to balance the evolution of their technological, production or market needs with the timing and content of orders placed with us, there is elevated risk of order modifications, pushouts or cancellations.
In addition, in October 2022, the U.S. government issued regulations that imposed new export licensing requirements for certain U.S. semiconductor and high-performance computing technology (including wafer fab equipment), for the use of such technology for certain end uses in the People’s Republic of China (“China”), and for the provision of support by U.S. Persons to certain advanced integrated circuit (“IC”) fabs located in China. The regulations impose export license requirements effectively on all KLA products and services to customers located in China that fabricate certain advanced logic, NAND and DRAM ICs. KLA is also restricted from providing certain U.S. origin tools, software and technology to certain wafer fab equipment manufacturers located in China, absent an export license. In October 2023, the U.S. government issued additional regulations that went into effect in November 2023. These additional rules are designed to update export controls on advanced computing semiconductors and semiconductor manufacturing equipment, as well as items that support supercomputing applications and end-uses, to arms embargoed countries, including China. They adjust the parameters included in the existing regulations that determine whether an advanced computing chip is restricted and impose new measures to address risks of circumvention of the controls established in October 2022. The regulations are very complex and, in January 2024, KLA, among other companies, submitted comments to the government regarding these regulations. We are taking appropriate measures to comply with all government regulations, and will continue to apply for export licenses, when required, to avoid disruption to our customers’ operations. While some export licenses have been obtained by us or our customers, there can be no assurance that export licenses applied for by either us or our customers, now or in the future, will be granted.
Refer to Note 17 “Segment Reporting and Geographic Information” to our Condensed Consolidated Financial Statements for information related to revenues by geographic region as well as significant product and service offerings.
NOTE 3 – FAIR VALUE MEASUREMENTS
Our financial assets and liabilities are measured and recorded at fair value, except for our debt and certain equity investments in privately held companies. Equity investments without a readily available fair value are accounted for using the measurement alternative. The measurement alternative is calculated as cost minus impairment, if any, plus or minus changes resulting from observable price changes. See Note 7 “Debt” to our Condensed Consolidated Financial Statements for disclosure of the fair value of our Senior Notes, as defined in that Note.
Our non-financial assets, such as goodwill, intangible assets, and land, property and equipment, are assessed for impairment when an event or circumstance indicates that an other-than-temporary decline in value may have occurred and, for goodwill, also annually.
Fair Value of Financial Instruments. We have evaluated the estimated fair value of financial instruments using available market information and valuations as provided by third-party sources. The use of different market assumptions and/or estimation methodologies could have a significant effect on the estimated fair value amounts. The fair value of our cash equivalents, accounts receivable, accounts payable and other current assets and liabilities approximate their carrying amounts due to the relatively short maturity of these items.
Fair Value Hierarchy. The authoritative guidance for fair value measurements establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are described below:
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Level 1 | | Valuations based on quoted prices in active markets for identical assets or liabilities that the entity has the ability to access. |
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Level 2 | | Valuations based on quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable data for substantially the full term of the assets or liabilities. |
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Level 3 | | Valuations based on inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. |
A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. There were no transfers between Level 1, Level 2 and Level 3 fair value measurements during the three months ended September 30, 2024.
The types of instruments valued based on quoted market prices in active markets include money market funds, certain U.S. Treasury securities, U.S. Government agency securities and equity securities. Such instruments are generally classified within Level 1 of the fair value hierarchy.
The types of instruments valued based on other observable inputs include corporate debt securities, municipal securities and certain U.S. Treasury securities. The market inputs used to value these instruments generally consist of market yields, reported trades and broker/dealer quotes. Such instruments are generally classified within Level 2 of the fair value hierarchy.
The principal market in which we execute our foreign currency contracts is the institutional market in an over-the-counter environment with a relatively high level of price transparency. The market participants generally are large financial institutions. Our foreign currency contracts’ valuation inputs are based on quoted prices and quoted pricing intervals from public data sources and do not involve management judgment. These contracts are typically classified within Level 2 of the fair value hierarchy.
Financial assets (excluding cash held in operating accounts and time deposits) and liabilities measured at fair value on a recurring basis, as of the dates indicated below, were presented on our Condensed Consolidated Balance Sheets as follows:
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| | | Quoted Prices in Active Markets for Identical Assets | | Significant Other Observable Inputs | | |
As of September 30, 2024 (In thousands) | Total | | (Level 1) | | (Level 2) | | |
Assets | | | | | | | |
Cash equivalents: | | | | | | | |
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Money market funds and other | $ | 1,558,751 | | | $ | 1,558,751 | | | $ | — | | | |
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U.S. Treasury securities | 6,720 | | | — | | | 6,720 | | | |
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Marketable securities: | | | | | | | |
Corporate debt securities | 835,105 | | | — | | | 835,105 | | | |
Municipal securities | 43,673 | | | — | | | 43,673 | | | |
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U.S. Government agency securities | 97,887 | | | 97,887 | | | — | | | |
U.S. Treasury securities | 729,376 | | | 498,241 | | | 231,135 | | | |
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Equity securities | 19,654 | | | 19,654 | | | — | | | |
| | | | | | | |
Total cash equivalents and marketable securities(1) | 3,291,166 | | | 2,174,533 | | | 1,116,633 | | | |
Other current assets: | | | | | | | |
Derivative assets | 25,314 | | | — | | | 25,314 | | | |
Other non-current assets: | | | | | | | |
Executive Deferred Savings Plan | 318,855 | | | 286,149 | | | 32,706 | | | |
Total financial assets(1) | $ | 3,635,335 | | | $ | 2,460,682 | | | $ | 1,174,653 | | | |
Liabilities | | | | | | | |
Derivative liabilities | $ | (31,518) | | | $ | — | | | $ | (31,518) | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Total financial liabilities | $ | (31,518) | | | $ | — | | | $ | (31,518) | | | |
________________
(1) Excludes cash of $326.9 million held in operating accounts and time deposits of $1.01 billion (of which $84.9 million were cash equivalents) as of September 30, 2024.
| | | | | | | | | | | | | | | | | | | |
| | | Quoted Prices in Active Markets for Identical Assets | | Significant Other Observable Inputs | | |
As of June 30, 2024 (In thousands) | Total | | (Level 1) | | (Level 2) | | |
Assets | | | | | | | |
Cash equivalents: | | | | | | | |
| | | | | | | |
Corporate debt securities | $ | 2,312 | | | $ | — | | | $ | 2,312 | | | |
Money market funds and other | 1,585,832 | | | 1,585,832 | | | — | | | |
| | | | | | | |
U.S. Treasury securities | 35,158 | | | — | | | 35,158 | | | |
| | | | | | | |
| | | | | | | |
Marketable securities: | | | | | | | |
Corporate debt securities | 771,920 | | | — | | | 771,920 | | | |
Municipal securities | 41,159 | | | — | | | 41,159 | | | |
| | | | | | | |
U.S. Government agency securities | 105,874 | | | 105,874 | | | — | | | |
U.S. Treasury securities | 716,148 | | | 476,230 | | | 239,918 | | | |
| | | | | | | |
Equity securities | 25,566 | | | 25,566 | | | — | | | |
| | | | | | | |
Total cash equivalents and marketable securities(1) | 3,283,969 | | | 2,193,502 | | | 1,090,467 | | | |
Other current assets: | | | | | | | |
Derivative assets | 36,503 | | | — | | | 36,503 | | | |
Other non-current assets: | | | | | | | |
Executive Deferred Savings Plan | 303,365 | | | 272,816 | | | 30,549 | | | |
Total financial assets(1) | $ | 3,623,837 | | | $ | 2,466,318 | | | $ | 1,157,519 | | | |
Liabilities | | | | | | | |
Derivative liabilities | $ | (15,683) | | | $ | — | | | $ | (15,683) | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Total financial liabilities | $ | (15,683) | | | $ | — | | | $ | (15,683) | | | |
________________
(1) Excludes cash of $287.6 million held in operating accounts and time deposits of $932.4 million (of which $66.2 million were cash equivalents) as of June 30, 2024.
NOTE 4 – FINANCIAL STATEMENT COMPONENTS
Condensed Consolidated Balance Sheets
| | | | | | | | | | | |
| As of | | As of |
(In thousands) | September 30, 2024 | | June 30, 2024 |
Accounts receivable, net: | | | |
Accounts receivable, gross | $ | 1,985,777 | | | $ | 1,865,823 | |
Allowance for credit losses | (32,621) | | | (32,782) | |
| $ | 1,953,156 | | | $ | 1,833,041 | |
Inventories: | | | |
Customer service parts | $ | 602,206 | | | $ | 589,751 | |
Raw materials | 1,489,622 | | | 1,485,400 | |
Work-in-process | 736,878 | | | 700,895 | |
Finished goods | 281,131 | | | 258,735 | |
| $ | 3,109,837 | | | $ | 3,034,781 | |
Other current assets: | | | |
Deferred costs of revenues | $ | 215,370 | | | $ | 279,879 | |
Prepaid expenses | 118,366 | | | 124,969 | |
Contract assets | 71,407 | | | 69,259 | |
Prepaid income and other taxes | 58,210 | | | 102,398 | |
Other current assets | 72,377 | | | 82,822 | |
| $ | 535,730 | | | $ | 659,327 | |
Land, property and equipment, net: | | | |
Land | $ | 78,259 | | | $ | 78,260 | |
Buildings and leasehold improvements | 925,296 | | | 919,919 | |
Machinery and equipment | 1,139,003 | | | 1,116,793 | |
Office furniture and fixtures | 64,416 | | | 64,480 | |
Construction-in-process | 241,060 | | | 215,006 | |
| 2,448,034 | | | 2,394,458 | |
Less: accumulated depreciation | (1,329,722) | | | (1,284,490) | |
| $ | 1,118,312 | | | $ | 1,109,968 | |
Other non-current assets: | | | |
Executive Deferred Savings Plan(1) | $ | 318,855 | | | $ | 303,365 | |
Operating lease right of use assets | 250,460 | | | 231,812 | |
Other non-current assets | 156,348 | | | 157,546 | |
| $ | 725,663 | | | $ | 692,723 | |
Other current liabilities: | | | |
Customer deposits | $ | 610,630 | | | $ | 645,893 | |
Compensation and benefits | 479,471 | | | 371,713 | |
Income taxes payable | 347,503 | | | 146,740 | |
Executive Deferred Savings Plan(1) | 319,432 | | | 303,088 | |
Interest payable | 77,504 | | | 128,727 | |
Operating lease liabilities | 40,414 | | | 36,391 | |
Other liabilities and accrued expenses | 407,094 | | | 431,017 | |
| $ | 2,282,048 | | | $ | 2,063,569 | |
Other non-current liabilities: | | | |
Income taxes payable | $ | 217,015 | | | $ | 291,106 | |
Operating lease liabilities | 154,325 | | | 153,117 | |
Customer deposits | 71,564 | | | 99,794 | |
Pension liabilities | 56,924 | | | 51,778 | |
Other non-current liabilities | 151,240 | | | 147,320 | |
| $ | 651,068 | | | $ | 743,115 | |
________________
(1)We have a non-qualified deferred compensation plan (known as the “Executive Deferred Savings Plan” or “EDSP”) under which certain employees and non-employee directors may defer a portion of their compensation. The expense (benefit) associated with changes in the EDSP liability included in selling, general and administrative (“SG&A”) was $18.0 million and $(9.3) million during the three months ended September 30, 2024 and 2023, respectively. The amount of net gains (losses) associated with changes in the EDSP assets included in SG&A expense was $17.9 million and $(9.5) million during the three months ended September 30, 2024 and 2023, respectively. For additional details, refer to Note 1 “Description of Business and Summary of Significant Accounting Policies” to our Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended June 30, 2024.
Accumulated Other Comprehensive Income (Loss)
The components of Accumulated Other Comprehensive Income (Loss) (“AOCI”) as of the dates indicated below were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(In thousands) | Currency Translation Adjustments | | Unrealized Gains (Losses) on Available-for-Sale Securities | | Unrealized Gains (Losses) on Derivatives | | Unrealized Gains (Losses) on Defined Benefit Plans | | Total |
Balance as of September 30, 2024 | $ | (66,737) | | | $ | 9,237 | | | $ | 48,046 | | | $ | (16,050) | | | $ | (25,504) | |
| | | | | | | | | |
Balance as of June 30, 2024 | $ | (75,846) | | | $ | (3,654) | | | $ | 46,243 | | | $ | (15,818) | | | $ | (49,075) | |
The effects on net income of amounts reclassified from AOCI to the Condensed Consolidated Statements of Operations for the indicated periods were as follows (in thousands; amounts in parentheses indicate debits or reductions to earnings):
| | | | | | | | | | | | | | | | | | | | | | | | |
AOCI Components | | | | Three Months Ended | | |
| Location in the Condensed Consolidated Statement of Operations | | September 30, | | |
| | 2024 | | 2023 | | | | |
Unrealized gains on cash flow hedges from foreign exchange and interest rate contracts | | Revenues | | $ | 2,535 | | | $ | 3,396 | | | | | |
| | Costs of revenues and operating expenses | | 26 | | | 2,775 | | | | | |
| | Interest expense | | 947 | | | 937 | | | | | |
| | | | | | | | | | |
| | Net gains reclassified from AOCI | | $ | 3,508 | | | $ | 7,108 | | | | | |
Unrealized losses on available-for-sale securities | | Other expense (income), net | | $ | (1) | | | $ | (12) | | | | | |
The amount reclassified out of AOCI related to our defined benefit pension plans that was recognized as a component of net periodic cost for the three months ended September 30, 2024 and 2023 was $0.2 million and $0.3 million, respectively. For additional details, refer to Note 13 “Employee Benefit Plans” to our Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended June 30, 2024.
NOTE 5 – MARKETABLE SECURITIES
The amortized cost and fair value of marketable securities as of the dates indicated below were as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
As of September 30, 2024 (In thousands) | Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value |
Corporate debt securities | $ | 828,306 | | | $ | 7,102 | | | $ | (303) | | | $ | 835,105 | |
Money market funds and other | 1,558,751 | | | — | | | — | | | 1,558,751 | |
| | | | | | | |
Municipal securities | 43,399 | | | 294 | | | (20) | | | 43,673 | |
| | | | | | | |
U.S. Government agency securities | 96,859 | | | 1,037 | | | (9) | | | 97,887 | |
U.S. Treasury securities | 732,428 | | | 4,081 | | | (413) | | | 736,096 | |
| | | | | | | |
| | | | | | | |
Subtotal | 3,259,743 | | | 12,514 | | | (745) | | | 3,271,512 | |
Add: Time deposits(1) | 1,011,697 | | | — | | | — | | | 1,011,697 | |
Less: Cash equivalents | 1,650,347 | | | 2 | | | — | | | 1,650,349 | |
Marketable securities(2) | $ | 2,621,093 | | | $ | 12,512 | | | $ | (745) | | | $ | 2,632,860 | |
| | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
As of June 30, 2024 (In thousands) | Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value |
Corporate debt securities | $ | 775,277 | | | $ | 973 | | | $ | (2,018) | | | $ | 774,232 | |
Money market funds and other | 1,585,832 | | | — | | | — | | | 1,585,832 | |
Municipal securities | 41,343 | | | 13 | | | (197) | | | 41,159 | |
| | | | | | | |
U.S. Government agency securities | 106,101 | | | 26 | | | (253) | | | 105,874 | |
U.S. Treasury securities | 754,505 | | | 209 | | | (3,408) | | | 751,306 | |
| | | | | | | |
| | | | | | | |
Subtotal | 3,263,058 | | | 1,221 | | | (5,876) | | | 3,258,403 | |
Add: Time deposits(1) | 932,436 | | | — | | | — | | | 932,436 | |
Less: Cash equivalents | 1,689,540 | | | — | | | (1) | | | 1,689,539 | |
Marketable securities(2) | $ | 2,505,954 | | | $ | 1,221 | | | $ | (5,875) | | | $ | 2,501,300 | |
________________
(1) Time deposits excluded from fair value measurements.
(2) Excludes equity marketable securities.
Our investment portfolio includes both corporate and government securities that have a maximum maturity of three years. The longer the duration of these securities, the more susceptible they are to changes in market interest rates and bond yields. As yields increase, those securities with a lower yield-at-cost show a mark-to-market unrealized loss. Most of our unrealized losses are due to changes in market interest rates and bond yields. We believe that we have the ability to realize the full value of all these investments upon maturity. As of September 30, 2024, we had 100 investments in a gross unrealized loss position. The following table summarizes the fair value and gross unrealized losses of our investments that were in an unrealized loss position as of the dates indicated below.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
As of September 30, 2024 | Less than 12 Months | | 12 Months or Greater | | Total |
(In thousands) | Fair Value | | Gross Unrealized Losses | | Fair Value | | Gross Unrealized Losses | | Fair Value | | Gross Unrealized Losses |
Corporate debt securities | $ | 33,940 | | | $ | (20) | | | $ | 66,941 | | | $ | (283) | | | $ | 100,881 | | | $ | (303) | |
Municipal securities | 1,624 | | | (2) | | | 2,443 | | | (18) | | | 4,067 | | | (20) | |
| | | | | | | | | | | |
U.S. Government agency securities | 13,630 | | | (9) | | | — | | | — | | | 13,630 | | | (9) | |
U.S. Treasury securities | 35,771 | | | (26) | | | 63,733 | | | (387) | | | 99,504 | | | (413) | |
Total | $ | 84,965 | | | $ | (57) | | | $ | 133,117 | | | $ | (688) | | | $ | 218,082 | | | $ | (745) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
As of June 30, 2024 | Less than 12 Months | | 12 Months or Greater | | Total |
(In thousands) | Fair Value | | Gross Unrealized Losses | | Fair Value | | Gross Unrealized Losses | | Fair Value | | Gross Unrealized Losses |
Corporate debt securities | $ | 355,882 | | | $ | (942) | | | $ | 100,957 | | | $ | (1,076) | | | $ | 456,839 | | | $ | (2,018) | |
Municipal securities | 17,364 | | | (81) | | | 10,788 | | | (116) | | | 28,152 | | | (197) | |
| | | | | | | | | | | |
U.S. Government agency securities | 58,598 | | | (137) | | | 17,197 | | | (116) | | | 75,795 | | | (253) | |
U.S. Treasury securities | 466,144 | | | (1,040) | | | 166,867 | | | (2,368) | | | 633,011 | | | (3,408) | |
Total | $ | 897,988 | | | $ | (2,200) | | | $ | 295,809 | | | $ | (3,676) | | | $ | 1,193,797 | | | $ | (5,876) | |
The contractual maturities of securities classified as available-for-sale, regardless of their classification on our Condensed Consolidated Balance Sheets, as of the date indicated below were as follows:
| | | | | | | | | | | |
As of September 30, 2024 (In thousands) | Amortized Cost | | Fair Value |
Due within one year | $ | 1,786,826 | | | $ | 1,788,386 | |
Due after one year through three years | 834,267 | | | 844,474 | |
Total | $ | 2,621,093 | | | $ | 2,632,860 | |
Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Realized gains and losses on available-for-sale securities for the three months ended September 30, 2024 and 2023 were immaterial.
The costs for our equity marketable securities were $22.9 million as of both September 30, 2024, and June 30, 2024. Unrealized losses for our equity marketable securities were $5.9 million and $4.3 million during the three months ended September 30, 2024 and 2023, respectively.
NOTE 6 – GOODWILL AND PURCHASED INTANGIBLE ASSETS
Goodwill
Goodwill represents the excess of the purchase price over the fair value of the net tangible and identifiable intangible assets acquired in business combinations. We have three reportable segments, five operating segments and six reporting units.
The following table presents changes in goodwill carrying value by reportable segment during the three months ended September 30, 2024:
| | | | | | | | | | | | | | | | | | | | | | | |
(In thousands) | Semiconductor Process Control | | Specialty Semiconductor Process | | Printed Circuit Board (“PCB”) and Component Inspection | | Total |
Balances as of June 30, 2024 | | | | | | |
Goodwill | $ | 1,030,588 | | | $ | 826,037 | | | $ | 651,324 | | | $ | 2,507,949 | |
Accumulated impairment losses | (277,570) | | | (144,179) | | | (70,474) | | | (492,223) | |
| $ | 753,018 | | | $ | 681,858 | | | $ | 580,850 | | | $ | 2,015,726 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Activity for the three months ended September 30, 2024 | | | | | | | |
| | | | | | | |
| | | | | | | |
Foreign currency adjustments | (5) | | | — | | | — | | | (5) | |
Balances as of September 30, 2024 | | | | | | |
Goodwill | 1,030,583 | | | 826,037 | | | 651,324 | | | $ | 2,507,944 | |
Accumulated impairment losses | (277,570) | | | (144,179) | | | (70,474) | | | (492,223) | |
| $ | 753,013 | | | $ | 681,858 | | | $ | 580,850 | | | $ | 2,015,721 | |
Goodwill is not subject to amortization but is tested for impairment annually during the third fiscal quarter, as well as whenever events or changes in circumstances indicate that the carrying value may not be recoverable.
As of September 30, 2024, there have been no significant events or circumstances affecting the valuation of goodwill subsequent to the assessments performed in the third quarter of the fiscal year ended June 30, 2024. As a result of those assessments, we recorded a $70.5 million impairment charge in the Display reporting unit in the three months ended March 31,
2024. For additional details, refer to Note 7 “Goodwill and Purchased Intangible Assets” to our Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended June 30, 2024.
Purchased Intangible Assets
The components of purchased intangible assets as of the dates indicated below were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(In thousands) | | | As of September 30, 2024 | | As of June 30, 2024 |
Category | Range of Useful Lives (in years) | | Gross Carrying Amount | | Accumulated Amortization and Impairment | | Net Amount | | Gross Carrying Amount | | Accumulated Amortization and Impairment | | Net Amount |
Existing technology | 4-8 | | $ | 1,552,074 | | | $ | 1,089,685 | | | $ | 462,389 | | | $ | 1,552,074 | | | $ | 1,045,585 | | | $ | 506,489 | |
Customer relationships | 4-9 | | 358,567 | | | 257,125 | | | 101,442 | | | 358,567 | | | 248,106 | | | 110,461 | |
Trade name / Trademark | 4-7 | | 119,083 | | | 100,691 | | | 18,392 | | | 119,083 | | | 97,106 | | | 21,977 | |
Order backlog and other | <1-7 | | 83,336 | | | 82,789 | | | 547 | | | 83,336 | | | 82,740 | | | 596 | |
Intangible assets subject to amortization | | | 2,113,060 | | | 1,530,290 | | | 582,770 | | | 2,113,060 | | | 1,473,537 | | | 639,523 | |
In-process research and development | | | 46,074 | | | 16,833 | | | 29,241 | | | 46,074 | | | 16,833 | | | 29,241 | |
Total | | | $ | 2,159,134 | | | $ | 1,547,123 | | | $ | 612,011 | | | $ | 2,159,134 | | | $ | 1,490,370 | | | $ | 668,764 | |
Purchased intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be fully recoverable. Impairment indicators primarily include declines in our operating cash flows from the use of these assets. If impairment indicators are present, we are required to perform a recoverability test by comparing the sum of estimated undiscounted future cash flows attributable to those long-lived assets to their carrying value.
As of September 30, 2024, there were no impairment indicators for purchased intangible assets.
Amortization expense for purchased intangible assets for the periods indicated below was as follows:
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | |
(In thousands) | 2024 | | 2023 | | | | |
Amortization expense - Costs of revenues | $ | 44,099 | | | $ | 46,088 | | | | | |
Amortization expense - SG&A | 12,654 | | | 17,216 | | | | | |
| | | | | | | |
Total | $ | 56,753 | | | $ | 63,304 | | | | | |
Based on the purchased intangible assets gross carrying amount recorded as of September 30, 2024, the remaining estimated annual amortization expense is expected to be as follows:
| | | | | |
Fiscal year ending June 30: | Amortization (In thousands) |
2025 (remaining nine months) | $ | 161,654 | |
2026 | 198,078 | |
2027 | 125,517 | |
2028 | 48,849 | |
2029 | 34,530 | |
2030 and thereafter | 14,142 | |
Total | $ | 582,770 | |
NOTE 7 – DEBT
The following table summarizes our debt as of September 30, 2024 and June 30, 2024:
| | | | | | | | | | | | | | | | | | | | | | | |
| As of September 30, 2024 | | As of June 30, 2024 |
| Amount (In thousands) | | Effective Interest Rate | | Amount (In thousands) | | Effective Interest Rate |
Fixed-rate 4.650% Senior Notes due on November 1, 2024 | $ | 750,000 | | | 4.682 | % | | $ | 750,000 | | | 4.682 | % |
Fixed-rate 5.650% Senior Notes due on November 1, 2034 | 250,000 | | | 5.670 | % | | 250,000 | | | 5.670 | % |
Fixed-rate 4.100% Senior Notes due on March 15, 2029 | 800,000 | | | 4.159 | % | | 800,000 | | | 4.159 | % |
Fixed-rate 5.000% Senior Notes due on March 15, 2049 | 400,000 | | | 5.047 | % | | 400,000 | | | 5.047 | % |
Fixed-rate 3.300% Senior Notes due on March 1, 2050 | 750,000 | | | 3.302 | % | | 750,000 | | | 3.302 | % |
Fixed-rate 4.650% Senior Notes due on July 15, 2032 | 1,000,000 | | | 4.657 | % | | 1,000,000 | | | 4.657 | % |
Fixed-rate 4.950% Senior Notes due on July 15, 2052 | 1,450,000 | | | 5.023 | % | | 1,450,000 | | | 5.023 | % |
Fixed-rate 5.250% Senior Notes due on July 15, 2062 | 800,000 | | | 5.259 | % | | 800,000 | | | 5.259 | % |
Fixed-rate 4.700% Senior Notes due on February 1, 2034 | 500,000 | | | 4.777 | % | | 500,000 | | | 4.777 | % |
| | | | | | | |
Total | 6,700,000 | | | | | 6,700,000 | | | |
Unamortized discount/premium, net | (24,453) | | | | | (24,866) | | | |
Unamortized debt issuance costs | (44,191) | | | | | (44,999) | | | |
Total | $ | 6,631,356 | | | | | $ | 6,630,135 | | | |
Reported as: | | | | | | | |
Current portion of long-term debt | $ | 749,984 | | | | | $ | 749,936 | | | |
Long-term debt | 5,881,372 | | | | | 5,880,199 | | | |
Total | $ | 6,631,356 | | | | | $ | 6,630,135 | | | |
Senior Notes and Debt Redemption
In February 2024, we issued $750.0 million aggregate principal amount of senior, unsecured notes as follows: $500.0 million of 4.700% senior, unsecured notes (the “2024 Senior Notes”) due February 1, 2034; and an additional $250.0 million of 4.950% senior, unsecured notes due July 15, 2052 which was originally issued in June 2022, resulting in an aggregate principal amount of $1.45 billion. The net proceeds will be used for general corporate purposes, including repayment of outstanding indebtedness at or prior to maturity.
Prior to February 2024, the following aggregate principal amounts of senior, unsecured long-term notes were issued in the following periods: $3.00 billion in June 2022 (the “2022 Senior Notes”), $750.0 million in February 2020 (the “2020 Senior Notes”), $1.20 billion in March 2019 (the “2019 Senior Notes”) and $2.50 billion in November 2014 (the “2014 Senior Notes”). These, along with the 2024 Senior Notes, are collectively referred to as the “Senior Notes.”
The original discounts on the Senior Notes are being amortized over the life of the debt. Interest is payable as follows: semi-annually on February 1 and August 1 of each year for the 2024 Senior Notes; semi-annually on January 15 and July 15 of each year for the 2022 Senior Notes; semi-annually on March 1 and September 1 of each year for the 2020 Senior Notes; semi-annually on March 15 and September 15 of each year for the 2019 Senior Notes; and semi-annually on May 1 and November 1 of each year for the 2014 Senior Notes. The relevant indentures for the Senior Notes (collectively, the “Indenture”) include covenants that limit our ability to grant liens on our facilities and enter into sale and leaseback transactions.
In certain circumstances involving a change of control followed by a downgrade of the rating of a series of Senior Notes by at least two of Moody’s Investors Service, S&P Global Ratings and Fitch Inc., unless we have exercised our rights to redeem the Senior Notes of such series, we will be required to make an offer to repurchase all or, at the holder’s option, any part, of each holder’s Senior Notes of that series pursuant to the offer described below (the “Change of Control Offer”). In the Change of Control Offer, we will be required to offer payment in cash equal to 101% of the aggregate principal amount of Senior Notes repurchased plus accrued and unpaid interest, if any, on the Senior Notes repurchased, up to, but not including, the date of repurchase.
Based on the trading prices of the Senior Notes on the applicable dates, the fair value of the Senior Notes as of September 30, 2024 and June 30, 2024 was $6.59 billion and $6.26 billion, respectively. While the Senior Notes are recorded at cost, the fair value of the long-term debt was determined based on quoted prices in markets that are not active; accordingly, the long-term debt is categorized as Level 2 for purposes of the fair value measurement hierarchy.
As of September 30, 2024, we were in compliance with all of our covenants under the Indenture associated with the Senior Notes.
Revolving Credit Facility
We have in place a Credit Agreement dated June 8, 2022 (“Credit Agreement”) for an unsecured Revolving Credit Facility (“Revolving Credit Facility”) having a maturity date of June 8, 2027 that allows us to borrow up to $1.50 billion. Subject to the terms of the Credit Agreement, the Revolving Credit Facility may be increased by an amount up to $250.0 million in the aggregate. As of September 30, 2024, we had no outstanding borrowings under the Revolving Credit Facility.
We may borrow, repay and reborrow funds under the Revolving Credit Facility until the maturity date, at which time we may exercise two one-year extension options with the consent of the lenders. We may prepay outstanding borrowings under the Revolving Credit Facility at any time without a prepayment penalty.
Borrowings under the Revolving Credit Facility can be made as Term Secured Overnight Financing Rate (“SOFR”) Loans or Alternate Base Rate (“ABR”) Loans, at the Company’s option. In the event that Term SOFR is unavailable, any Term SOFR elections will be converted to Daily Simple SOFR, if available. Each Term SOFR Loan will bear interest at a rate per annum equal to the applicable Adjusted Term SOFR rate, which is equal to the applicable Term SOFR rate plus 10 bps that shall not be less than zero, plus a spread ranging from 75 bps to 125 bps, as determined by the Company’s credit ratings at the time. Each ABR Loan will bear interest at a rate per annum equal to the ABR plus a spread ranging from 0 bps to 25 bps, as determined by the Company’s credit ratings at the time. We are also obligated to pay an annual commitment fee on the daily undrawn balance of the Revolving Credit Facility, which ranges from 4.5 bps to 12.5 bps, subject to an adjustment in conjunction with changes to our credit rating. The applicable interest rates and commitment fees are also subject to adjustment based on the Company’s performance against certain environmental sustainability key performance indicators (“KPI”) related to greenhouse gas emissions and renewable electricity usage. Our performance against these KPIs in calendar year 2023 resulted in reductions to the fees associated with our Revolving Credit Facility. As of September 30, 2024, we elected to pay interest on borrowings under the Revolving Credit Facility at the applicable Adjusted Term SOFR rate plus a spread of 82.5 bps and the applicable commitment fee on the daily undrawn balance of the Revolving Credit Facility was 5.5 bps.
Under the Credit Agreement, the maximum leverage ratio on a quarterly basis is 3.50 to 1.00, covering the trailing four consecutive fiscal quarters for each fiscal quarter, which may be increased to 4.00 to 1.00 for a period of time in connection with a material acquisition or a series of material acquisitions. As of September 30, 2024, our maximum allowed leverage ratio was 3.50 to 1.00.
We were in compliance with all covenants under the Credit Agreement as of September 30, 2024.
For additional details, refer to Note 8 “Debt” to our Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended June 30, 2024.
NOTE 8 – LEASES
We have operating leases for facilities, vehicles and other equipment. Our facility leases are primarily used for administrative functions, research and development (“R&D”), manufacturing, and storage and distribution. Our finance leases are not material.
Our existing leases do not contain significant restrictive provisions or residual value guarantees; however, certain leases contain provisions for the payment of maintenance, real estate taxes or insurance costs by us. Our leases have remaining lease terms ranging from less than one year to 28 years, including periods covered by options to extend the lease when it is reasonably certain that the option will be exercised.
Lease expense was $13.1 million and $12.4 million for the three months ended September 30, 2024 and 2023, respectively. Expenses related to short-term leases, which were not recorded on the Condensed Consolidated Balance Sheets, were not material for the three months ended September 30, 2024 and 2023. As of September 30, 2024 and June 30, 2024, the weighted-average remaining lease term was 6.5 and 6.7 years, respectively, and the weighted-average discount rate for operating leases was 4.22% and 4.30%, respectively.
Supplemental cash flow information related to leases was as follows:
| | | | | | | | | | | |
| Three Months Ended September 30, |
In thousands | 2024 | | 2023 |
Operating cash outflows from operating leases | $ | 10,856 | | | $ | 10,002 | |
Right of use assets obtained in exchange for new operating lease liabilities | $ | 9,649 | | | $ | 12,968 | |
Maturities of lease liabilities as of September 30, 2024 were as follows:
| | | | | |
Fiscal Year Ending June 30: | (In thousands) |
2025 (remaining nine months) | $ | 36,282 | |
2026 | 44,329 | |
2027 | 33,307 | |
2028 | 22,783 | |
2029 | 20,030 | |
2030 and thereafter | 71,131 | |
Total lease payments | 227,862 | |
Less imputed interest | (33,123) | |
Total | $ | 194,739 | |
As of September 30, 2024, we did not have material leases that had not yet commenced.
NOTE 9 – EQUITY AND LONG-TERM INCENTIVE COMPENSATION PLANS
Equity Incentive Program
On August 3, 2023, our Board of Directors adopted the KLA Corporation 2023 Incentive Award Plan (the “2023 Plan”), which replaced our 2004 Equity Incentive Plan (the “2004 Plan”) for grants of equity awards occurring on or after November 1, 2023. The new plan was approved by our stockholders at the annual meeting of stockholders held on November 1, 2023. As of September 30, 2024, 10.0 million shares remained available for issuance under our 2023 Plan. For details of the 2023 Plan, refer to Note 10 “Equity, Long-Term Incentive Compensation Plans and Non-Controlling Interest” to our Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended June 30, 2024.
Equity Incentive Plans - General Information
The following table summarizes the combined activity under our equity incentive plans:
| | | | | |
(In thousands) | Available For Grant(1) |
Balance as of June 30, 2024 | 10,240 | |
| |
Restricted stock units granted(2) | (292) | |
RSUs granted adjustment(3) | 62 | |
Restricted stock units canceled | 19 | |
| |
Balance as of September 30, 2024 | 10,029 | |
__________________
(1)The number of restricted stock units (“RSU”) reflects the application of the award multiplier of 2.0x to calculate the impact of the award on the shares reserved under the 2023 Plan.
(2)Includes RSUs granted to senior management during the three months ended September 30, 2024 with performance-based vesting criteria (in addition to service-based vesting criteria for any of such RSUs that are deemed to have been earned) (“performance-based RSU”). This line item includes all such performance-based RSUs granted during the three months ended September 30, 2024 reported at the maximum possible number of shares that may ultimately be issuable if all applicable performance-based criteria are achieved at their maximum levels and all applicable service-based criteria are fully satisfied (0.2 million shares for the three months ended September 30, 2024 reflects the application of the multiplier described above).
(3)Represents the portion of RSUs granted with performance-based vesting criteria and reported at the actual number of shares issued upon achievement of the performance vesting criteria during the quarter ended September 30, 2024.
The fair value of stock-based awards is measured at the grant date and is recognized as an expense over the employee’s requisite service period. The fair value for RSUs granted with “dividend equivalent” rights is determined using the closing price of our common stock on the grant date.
The following table shows stock-based compensation expense for the indicated periods:
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | |
(In thousands) | 2024 | | 2023 | | | | |
Stock-based compensation expense by: | | | | | | | |
Costs of revenues | $ | 9,789 | | | $ | |