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Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
10-Q
(Mark one)
☒QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2020
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,California95035
(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 classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $0.001 par value per shareKLACThe 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 and posted 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 19, 2020, there were 154,459,817 shares of the registrant’s Common Stock, $0.001 par value, outstanding.

Table of Contents
INDEX
 
  Page
Number
PART IFINANCIAL INFORMATION
Item 1
6
Item 2
Item 3
Item 4
PART IIOTHER INFORMATION
Item 1
Item 1A
Item 2
Item 3
Item 4
Item 5
Item 6


 
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PART I. FINANCIAL INFORMATION

ITEM 1.     FINANCIAL STATEMENTS
KLA CORPORATION
Condensed Consolidated Balance Sheets
(Unaudited)
 
(In thousands)September 30,
2020		June 30,
2020
ASSETS
Current assets:
Cash and cash equivalents$1,215,820 $1,234,409 
Marketable securities827,633 746,063 
Accounts receivable, net1,028,883 1,107,413 
Inventories1,394,225 1,310,985 
Other current assets288,138 324,675 
Total current assets4,754,699 4,723,545 
Land, property and equipment, net561,852 519,824 
Goodwill2,045,432 2,045,402 
Deferred income taxes245,614 236,797 
Purchased intangible assets, net1,340,913 1,391,413 
Other non-current assets371,586 362,979 
Total assets$9,320,096 $9,279,960 
LIABILITIES, NON-CONTROLLING INTEREST AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable$254,458 $264,280 
Deferred system revenue253,604 336,237 
Deferred service revenue241,219 233,493 
Other current liabilities999,547 865,776 
Total current liabilities1,748,828 1,699,786 
Non-current liabilities:
Long-term debt3,420,403 3,469,670 
Deferred tax liabilities656,876 660,885 
Deferred service revenue84,953 96,325 
Other non-current liabilities646,691 672,284 
Total liabilities6,557,751 6,598,950 
Commitments and contingencies (Notes 9, 14 and 15)
Stockholders’ equity:
Common stock and capital in excess of par value2,072,715 2,090,268 
Retained earnings753,915 654,930 
Accumulated other comprehensive income (loss)(79,446)(79,774)
Total KLA stockholders’ equity2,747,184 2,665,424 
Non-controlling interest in consolidated subsidiaries15,161 15,586 
Total stockholders’ equity2,762,345 2,681,010 
Total liabilities and stockholders’ equity$9,320,096 $9,279,960 
 
See accompanying notes to Condensed Consolidated Financial Statements (unaudited).
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KLA CORPORATION
Condensed Consolidated Statements of Operations
(Unaudited)
 
 Three Months Ended
September 30,
(In thousands, except per share amounts)20202019
Revenues:
Product$1,145,495 $1,057,975 
Service393,125 355,439 
Total revenues1,538,620 1,413,414 
Costs and expenses:
Costs of revenues620,562 604,241 
Research and development219,038 210,580 
Selling, general and administrative172,631 188,345 
Interest expense39,386 40,350 
Other expense (income), net3,197 (1,618)
Income before income taxes483,806 371,516 
Provision for income taxes63,664 25,120 
Net income420,142 346,396 
Less: Net loss attributable to non-controlling interest(425)(129)
Net income attributable to KLA$420,567 $346,525 
Net income per share attributable to KLA
Basic$2.71 $2.18 
Diluted$2.69 $2.16 
Weighted-average number of shares:
Basic155,281 158,697 
Diluted156,442 160,131 

See accompanying notes to Condensed Consolidated Financial Statements (unaudited).
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KLA CORPORATION
Condensed Consolidated Statements of Comprehensive Income
(Unaudited)
Three Months Ended
September 30,
(In thousands)20202019
Net income $420,142 $346,396 
Other comprehensive income (loss):
Currency translation adjustments:
Cumulative currency translation adjustments5,440 (2,438)
Income tax (provision) benefit(403)393 
Net change related to currency translation adjustments5,037 (2,045)
Cash flow hedges:
Net unrealized gains (losses) arising during the period(918)(742)
Reclassification adjustments for net (gains) losses included in net income(54)1,527 
Income tax (provision) benefit208 (24)
Net change related to cash flow hedges(764)761 
Net change related to unrecognized losses and transition obligations in connection with defined benefit plans(3,119)729 
Available-for-sale securities:
Net unrealized gains (losses) arising during the period(951)1,183 
Reclassification adjustments for net (gains) losses included in net income(101)4 
Income tax (provision) benefit226 542 
Net change related to available-for-sale securities(826)1,729 
Other comprehensive income (loss)328 1,174 
Less: Comprehensive loss attributable to non-controlling interest(425)(129)
Total comprehensive income attributable to KLA$420,895 $347,699 

See accompanying notes to Condensed Consolidated Financial Statements (unaudited).
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KLA CORPORATION
Condensed Consolidated Statements of Stockholders’ Equity
(Unaudited)
Common Stock and
Capital in Excess of
Par Value		Retained
Earnings		Accumulated
Other
Comprehensive
Income (Loss)		Total KLA
Stockholder's
Equity		Non-
Controlling
Interest		Total
Stockholders'
Equity
(In thousands, except per share amounts)SharesAmount
Balance as of June 30, 2020155,461 $2,090,268 $654,930 $(79,774)$2,665,424 $15,586 $2,681,010 
Adoption of ASC 326— — (5,530)— (5,530)— (5,530)
Net income attributable to KLA— — 420,567 — 420,567 — 420,567 
Other comprehensive income — — — 328 328 — 328 
Net loss attributable to non-controlling interest— — — — — (425)(425)
Net issuance under employee stock plans172 (25,145)— — (25,145)— (25,145)
Repurchase of common stock(1,027)(19,400)(174,497)— (193,897)— (193,897)
Cash dividends ($0.90 per share) and dividend equivalents declared
— — (141,555)— (141,555)— (141,555)
Stock-based compensation expense26,992 — — 26,992 — 26,992 
Balance as of September 30, 2020154,606 $2,072,715 $753,915 $(79,446)$2,747,184 $15,161 $2,762,345 


Common Stock and
Capital in Excess of
Par Value		Retained
Earnings		Accumulated
Other
Comprehensive
Income (Loss)		Total KLA
Stockholder's
Equity		Non-
Controlling
Interest		Total
Stockholders'
Equity
(In thousands, except per share amounts)SharesAmount
Balance as of June 30, 2019159,475 $2,017,312 $714,825 $(73,029)$2,659,108 $18,585 $2,677,693 
Net income attributable to KLA— — 346,525 — 346,525 — 346,525 
Net loss attributable to non-controlling interest— — — — — (129)(129)
Other comprehensive income — — — 1,174 1,174 — 1,174 
Net issuance under employee stock plans281 (23,423)— — (23,423)— (23,423)
Repurchase of common stock(1,659)(20,988)(207,508)— (228,496)— (228,496)
Cash dividends ($0.75 per share) and dividend equivalents declared
— — (120,669)— (120,669)— (120,669)
Stock-based compensation expense— 26,944 — — 26,944 — 26,944 
Balance as of September 30, 2019158,097 $1,999,845 $733,173 $(71,855)$2,661,163 $18,456 $2,679,619 

See accompanying notes to Condensed Consolidated Financial Statements (unaudited)
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KLA CORPORATION
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Three Months Ended
 September 30,
(In thousands)20202019
Cash flows from operating activities:
Net income$420,142 $346,396 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization80,066 98,588 
Loss (gain) on unrealized foreign exchange and other(12,907)10,313 
Asset impairment charges865 2,481 
Stock-based compensation expense26,992 26,944 
Changes in assets and liabilities, net of assets acquired and liabilities assumed in business acquisitions:
Accounts receivable73,000 (75,214)
Inventories(85,991)(5,091)
Other assets5,103 (8,930)
Accounts payable(9,822)18,885 
Deferred system revenue(82,633)(4,833)
Deferred service revenue(3,646)(4,337)
Other liabilities101,002 91,043 
Net cash provided by operating activities512,171 496,245 
Cash flows from investing activities:
Proceeds from sale of assets1,114 — 
Business acquisitions, net of cash acquired— (78,530)
Capital expenditures(55,925)(32,566)
Purchases of available-for-sale securities(231,821)(263,767)
Proceeds from sale of available-for-sale securities53,249 25,449 
Proceeds from maturity of available-for-sale securities95,835 198,751 
Purchases of trading securities(18,630)(9,021)
Proceeds from sale of trading securities21,244 11,905 
Proceeds from other investments614 1,086 
Net cash used in investing activities(134,320)(146,693)
Cash flows from financing activities:
Repayment of debt(50,000)— 
Common stock repurchases(187,897)(228,496)
Payment of dividends to stockholders(141,164)(121,636)
Issuance of common stock— 114 
Tax withholding payments related to vested and released restricted stock units(25,145)(23,538)
Payment of contingent consideration payable— (57)
Net cash used in financing activities(404,206)(373,613)
Effect of exchange rate changes on cash and cash equivalents7,766 (3,585)
Net (decrease) increase in cash and cash equivalents(18,589)(27,646)
Cash and cash equivalents at beginning of period1,234,409 1,015,994 
Cash and cash equivalents at end of period$1,215,820 $988,348 
Supplemental cash flow disclosures:
Income taxes paid$54,185 $19,862 
Interest paid$40,071 $26,347 
Non-cash activities:
Contingent consideration (receivable) payable - financing activities$(2,987)$9,366 
Dividends payable - financing activities$391 $1,552 
Unsettled common stock repurchase - financing activities$6,000 $8,000 
Accrued purchases of land, property and equipment - investing activities$23,388 $16,074 
 
See accompanying notes to Condensed Consolidated Financial Statements (unaudited).
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KLA CORPORATION
Notes to Condensed Consolidated Financial Statements
(Unaudited)

NOTE 1 – BASIS OF PRESENTATION
Basis of Presentation. For purposes of this report, “KLA,” the “Company,” “we,” “our,” “us,” 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 (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations.
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, 2020.
The Condensed Consolidated Financial Statements include the accounts of KLA and its majority-owned subsidiaries. All significant intercompany balances and transactions have been eliminated. On February 20, 2019 ("Acquisition Date"), we completed the acquisition of Orbotech, Ltd. ("Orbotech") hereinafter referred to as the "Orbotech Acquisition".
The results of operations for the three months ended September 30, 2020 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, 2021.
Certain reclassifications have been made to the prior year’s Condensed Consolidated Financial Statements to conform to the current year presentation. The reclassifications did not have material effects on the prior year’s Condensed Consolidated Balance Sheets, Statements of Operations, Comprehensive Income and Cash Flows.
Management Estimates. The preparation of the Condensed Consolidated Financial Statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions in applying our accounting policies that affect the reported amounts of assets and liabilities (and related disclosure of contingent assets and liabilities) at the date of the Condensed Consolidated Financial Statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.
Comparability. Effective July 1, 2020, we adopted Accounting Standard Codification ("ASC") 326, Financial Instruments - Credit Losses. Prior periods were not retrospectively recast and accordingly, the Consolidated Balance Sheet as of June 30, 2020, and the Condensed Consolidated Statement of Operations for the three months ended September 30, 2019 were prepared using accounting standards that were different than those in effect for the three months ended September 30, 2020.
Significant Accounting Policies. With the exception of the change for the accounting of credit losses as a result of the adoption of ASC 326, Financial Instruments - Credit Losses, there have been no other material changes to our significant accounting policies in Note 1 “Description of Business and Summary of Significant Accounting Policies” of the Notes to the Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended June 30, 2020.
Credit Losses
Cash Equivalents and Marketable Securities. All highly liquid debt instruments with original or remaining maturities of less than three months at the date of purchase are cash equivalents. Marketable securities are generally classified as available-for-sale for use in current operations, if required, and are reported at fair value, with unrealized gains and non-credit related unrealized losses, net of tax, presented as a separate component of stockholders’ equity under the caption “Accumulated other comprehensive income (loss)” (“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 collectibility 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.
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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 earnings; and the amount that is not credit-related is recognized in other comprehensive income (loss). If we have the intent to sell the security or it is more likely than not that we will be required to sell the security before recovery of its entire amortized cost basis, we first write off any previously recognized allowance for credit losses with an offsetting entry to the security’s amortized cost basis. If the allowance has been fully written off and fair value is less than amortized cost basis, we write down the amortized cost basis of the security to its fair value with an offsetting entry to net income.
There were no credit losses on available-for-sale debt securities recognized for the three months ended September 30, 2020 and 2019.
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 expense in the Condensed Consolidated Statements of Income. We assess collectibility 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 collectibility issues. The estimate of expected credit losses considers historical credit loss information that is adjusted for current conditions and reasonable and supportable forecasts. The allowance for credit losses is reviewed on a quarterly basis to assess the adequacy of the allowance.
For the three months ended September 30, 2020, our assessment considered the impact of COVID-19 and estimates of expected credit and collectability trends. The credit losses recognized were not significant for the three months ended September 30, 2020 and 2019.
Volatility in market conditions and evolving credit trends are difficult to predict and may cause variability and volatility that may have a material impact on our allowance for credit losses in future periods.
Recent Accounting Pronouncements
Recently Adopted
As explained above, on July 1, 2020 we adopted ASC 326, which was issued by the Financial Accounting Board (“FASB”) in June 2016 as Accounting Standards Update ("ASU") No 2016-13 Financial Instruments – Credit Losses (ASC 326): Measurement of Credit Losses on Financial Instruments. The ASU replaced previous incurred loss impairment guidance and established a single expected credit losses allowance framework for financial assets carried at amortized cost. It also eliminated the concept of other-than-temporary impairment and requires credit losses related to certain available-for-sale debt securities to be recorded through an allowance for credit losses. We adopted ASC 326 using the modified retrospective method, which requires a cumulative-effect adjustment to the opening balance of retained earnings to be recognized on the date of adoption and, accordingly, recorded a net decrease of $5.5 million to retained earnings as of July 1, 2020. Please see the “Credit Losses” accounting policy in the “Significant Accounting Policies” section above.
In August 2018, the FASB issued an accounting standard update which modifies the existing accounting standards for the fair value measurement disclosure. This update eliminates the disclosures of the amount of and reasons for transfers between level 1 and level 2 of the fair value hierarchy, and the policy for the timing of transfers between levels. We adopted this update beginning in the first quarter of our fiscal year ending June 30, 2021 on a retrospective basis and the adoption had no material impact on our Condensed Consolidated Financial Statements.
In August 2018, the FASB issued an accounting standard update to amend the disclosure requirements related to defined benefit pension and other post-retirement plans. Some of the changes include adding a disclosure requirement for significant gains and losses related to changes in the benefit obligation for the period and removing the amounts in accumulated other comprehensive income expected to be recognized as components of net periodic benefit cost over the next fiscal year. We adopted this update beginning in the first quarter of the fiscal year ending June 30, 2021 on a retrospective basis and the adoption had no material impact on our Condensed Consolidated Financial Statements.
In August 2018, the FASB issued an accounting standard update to align the requirements for capitalizing implementation costs incurred in a cloud computing arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The guidance clarifies which costs should be capitalized including the cost to acquire the license and the related implementation costs. We adopted this update beginning in the first quarter of our fiscal year ending June 30, 2021 on a prospective basis, and the adoption had no material impact on our Condensed Consolidated Financial Statements.
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Updates Not Yet Effective
In December 2019, the FASB issued an accounting standard update to simplify the accounting for income taxes in ASC 740, Income Taxes (“ASC 740”). This amendment removes certain exceptions and improves consistent application of accounting principles for certain areas in ASC 740. The update is effective for us beginning in the first quarter of our fiscal year ending June 30, 2022, and early adoption is permitted. We are currently evaluating the impact of this accounting standard update on our Consolidated Financial Statements.
In August 2020, the FASB issued an accounting standard update to simplify the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity. The standard eliminates beneficial conversion feature and cash conversion models resulting in more convertible instruments being accounted for as a single unit; and modifies the guidance on the computation of earnings per share for convertible instruments and contracts on an entity’s own equity. The update is effective for us in the first quarter of our fiscal year ending June 30, 2023 and can be adopted either on a fully retrospective basis or modified retrospective basis. Early adoption is permitted from our first quarter of fiscal year ending June 30, 2022. We are currently evaluating the impact of this accounting standard update on our Condensed Consolidated Financial Statements.

NOTE 2 – REVENUE

Contract Balances

The following table represents the opening and closing balances of accounts receivables, net, contract assets and contract liabilities for the indicated periods.
As ofAs of
(In thousands, except for percentage)September 30, 2020June 30, 2020$ Change% Change
Accounts receivable, net$1,028,883 $1,107,413 $(78,530)(7)%
Contract assets$97,751 $99,876 $(2,125)(2)%
Contract liabilities$579,776 $666,055 $(86,279)(13)%
Our payment terms and conditions vary by contract type, although the terms generally include a requirement of payment of 70% to 90% of total contract consideration within 30 to 60 days of product shipment, with the remainder payable within 30 days of acceptance.
The change in contract assets during the three months ended September 30, 2020 was mainly due to $40.9 million of contract assets reclassified to net accounts receivable as our right to consideration for these contract assets became unconditional, partially offset by $38.6 million of revenue recognized for which the payment is subject to conditions other than passage of time. Contract assets are included in Other current assets on our Condensed Consolidated Balance Sheets.
During the three months ended September 30, 2020, we recognized revenue of $314.8 million that was included in contract liabilities as of July 1, 2020. This was partially offset by the value of products and services billed to customers for which control of the products and service has not transferred to the customers. Contract liabilities are included in current and non-current liabilities on our Condensed Consolidated Balance Sheets.

Remaining Performance Obligations
As of September 30, 2020, we had $2.20 billion of remaining performance obligations, which represents our obligation to deliver products and services, and consists primarily of sales orders where written customer requests have been received. We expect to recognize approximately 5% to 15% of these performance obligations as revenue beyond the next twelve months, subject to risk of delays, pushouts, and cancellation by the customer, usually with limited or no penalties.
Refer to Note 18 “Segment Reporting and Geographic Information” of the Notes to the Condensed Consolidated Financial Statements for information related to revenue by geographic region as well as significant product and service offerings.

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NOTE 3 – FAIR VALUE MEASUREMENTS
Our financial assets and liabilities are measured and recorded at fair value, except for our debt and certain equity investments in privately-held companies. Equity investments without a readily available fair value are accounted for using the measurement alternative. The measurement alternative is calculated as cost minus impairment, if any, plus or minus changes resulting from observable price changes.
Our non-financial assets, such as goodwill, intangible assets, and land, property and equipment, are assessed for impairment when an event or circumstance indicates that an other-than-temporary decline in value may have occurred.
Fair Value of Financial Instruments. We have evaluated the estimated fair value of financial instruments using available market information and valuations as provided by third-party sources. The use of different market assumptions and/or estimation methodologies could have a significant effect on the estimated fair value amounts. The fair value of our cash equivalents, accounts receivable, accounts payable and other current assets and liabilities approximate their carrying amounts due to the relatively short maturity of these items.
Fair Value Hierarchy. The authoritative guidance for fair value measurements establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are described below:
Level 1  Valuations based on quoted prices in active markets for identical assets or liabilities that the entity has the ability to access.
Level 2  Valuations based on quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable data for substantially the full term of the assets or liabilities.
Level 3  Valuations based on inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.
As of September 30, 2020, the types of instruments valued based on quoted market prices in active markets included money market funds, certain U.S. Treasury securities and U.S. Government agency securities. Such instruments are generally classified within Level 1 of the fair value hierarchy.
The types of instruments valued based on other observable inputs included corporate debt securities, sovereign securities, municipal securities, and certain U.S. Treasury securities. The market inputs used to value these instruments generally consist of market yields, reported trades and broker / dealer quotes. Such instruments are generally classified within Level 2 of the fair value hierarchy.
The principal market in which we execute our foreign currency contracts is the institutional market in an over-the-counter environment with a relatively high level of price transparency. The market participants generally are large financial institutions. Our foreign currency contracts’ valuation inputs are based on quoted prices and quoted pricing intervals from public data sources and do not involve management judgment. These contracts are typically classified within Level 2 of the fair value hierarchy.
The fair value of deferred payments and contingent consideration payable, the majority of which were recorded in connection with business combinations, were classified as Level 3 and estimated using significant inputs that were not observable in the market. See Note 6 “Business Combinations” of the Notes to the Condensed Consolidated Financial Statements for additional information.
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Financial assets (excluding cash held in operating accounts and time deposits) and liabilities measured at fair value on a recurring basis, as of the date indicated below, were presented on our Condensed Consolidated Balance Sheets as follows:
Quoted Prices in Active Markets for Identical AssetsSignificant Other Observable InputsLittle or No Market Activity Inputs
As of September 30, 2020 (In thousands)Total (Level 1) (Level 2) (Level 3)
Assets
Cash equivalents:
Corporate debt securities$4,019 $— $4,019 $— 
Money market funds and other682,785 682,785 — — 
U.S. Treasury securities8,400 — 8,400 — 
Marketable securities:
Corporate debt securities400,277 — 400,277 — 
Municipal securities35,629 — 35,629 — 
U.S. Government agency securities137,487 137,487 — — 
U.S. Treasury securities169,777 131,786 37,991 — 
Total cash equivalents and marketable securities(1)
1,438,374 952,058 486,316 — 
Other current assets:
Derivative assets3,198 — 3,198 — 
Other non-current assets:
Executive Deferred Savings Plan223,986 172,226 51,760 — 
Total financial assets(1)
$1,665,558 $1,124,284 $541,274 $— 
Liabilities
Derivative liabilities$(2,886)$— $(2,886)$— 
Deferred payments(6,825)— — (6,825)
Contingent consideration payable(12,974)— — (12,974)
Total financial liabilities$(22,685)$— $(2,886)$(19,799)
________________
(1) Excludes cash of $471.2 million held in operating accounts and time deposits of $133.8 million as of September 30, 2020.

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Financial assets (excluding cash held in operating accounts and time deposits) and liabilities measured at fair value on a recurring basis, as of the date indicated below, were presented on our Condensed Consolidated Balance Sheets as follows:  
Quoted Prices in Active Markets for Identical AssetsSignificant Other Observable InputsLittle or No Market Activity Inputs
As of June 30, 2020 (In thousands)Total(Level 1)(Level 2)(Level 3)
Assets
Cash equivalents:
Money market funds and other$694,950 $694,950 $— $— 
Marketable securities:
Corporate debt securities381,957 — 381,957 — 
Municipal securities29,110 — 29,110 — 
Sovereign securities2,017 — 2,017 — 
U.S. Government agency securities106,336 106,336 — — 
U.S. Treasury securities181,193 151,210 29,983 — 
Total cash equivalents and marketable securities(1)
1,395,563 952,496 443,067 — 
Other current assets:
Derivative assets2,077 — 2,077 — 
Other non-current assets:
Executive Deferred Savings Plan213,487 166,000 47,487 — 
Total financial assets(1)
$1,611,127 $1,118,496 $492,631 $— 
Liabilities
Derivative liabilities$(1,410)$— $(1,410)$— 
Deferred payments(6,750)— — (6,750)
Contingent consideration payable(15,513)— — (15,513)
Total financial liabilities$(23,673)$— $(1,410)$(22,263)
________________
(1) Excludes cash of $460.8 million held in operating accounts and time deposits of $78.7 million as of June 30, 2020.
There were no transfers between Level 1, Level 2 and Level 3 fair value measurements during the three months ended September 30, 2020. See Note 8 “Debt” of the Notes to the Condensed Consolidated Financial Statements for disclosure of the fair value of our Senior Notes.


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NOTE 4 – FINANCIAL STATEMENT COMPONENTS
Condensed Consolidated Balance Sheets
As ofAs of
(In thousands)September 30, 2020June 30, 2020
Accounts receivable, net:
Accounts receivable, gross$1,046,329 $1,119,235 
Allowance for credit losses(17,446)(11,822)
$1,028,883 $1,107,413 
Inventories:
Raw materials$541,846 $478,594 
Customer service parts316,795 338,608 
Work-in-process368,270 334,965 
Finished goods167,314 158,818 
$1,394,225 $1,310,985 
Other current assets:
Contract assets$97,751 $99,876 
Prepaid expenses88,128 74,955 
Deferred costs of revenue57,488 77,219 
Prepaid income and other taxes24,767 56,809 
Other current assets20,004 15,816 
$288,138 $324,675 
Land, property and equipment, net:
Land$67,864 $67,858 
Buildings and leasehold improvements433,525 405,238 
Machinery and equipment695,577 677,627 
Office furniture and fixtures31,121 29,964 
Construction-in-process109,211 93,736 
1,337,298 1,274,423 
Less: accumulated depreciation(775,446)(754,599)
$561,852 $519,824 
Other non-current assets:
Executive Deferred Savings Plan(1)
$223,986 $213,487 
Operating lease right of use assets98,754 100,790 
Other non-current assets48,846 48,702 
$371,586 $362,979 
Other current liabilities:
Compensation and benefits$346,266 $251,379 
Executive Deferred Savings Plan225,542 215,167 
Customer credits and advances128,484 114,896 
Other accrued expenses159,713 183,435 
Income taxes payable75,323 35,640 
Interest payable34,801 36,265 
Operating lease liabilities29,418 28,994 
$999,547 $865,776 
Other non-current liabilities:
Income taxes payable$357,074 $383,447 
Pension liabilities81,612 78,911 
Operating lease liabilities69,431 70,885 
Other non-current liabilities138,574 139,041 
$646,691 $672,284 
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(1)We have a non-qualified deferred compensation plan (known as “Executive Deferred Savings Plan” or “EDSP”) under which certain employees and non-employee directors may defer a portion of their compensation. The expense (benefit) associated with changes in the EDSP liability included in selling, general and administrative expense was $13.2 million and $1.9 million during the three months ended September 30, 2020 and 2019, respectively. The amount of net gains (losses) associated with changes in the EDSP assets included in selling, general and administrative expense was $13.3 million and $2.3 million during the three months ended September 30, 2020 and 2019, respectively. For additional details, refer to Note 1 “Description of Business and Summary of Significant Accounting Policies” of the Notes to the Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended June 30, 2020.
Accumulated Other Comprehensive Income (Loss)
The components of accumulated other comprehensive income (loss) (“OCI”) as of the dates indicated below were as follows:
(In thousands)Currency Translation AdjustmentsUnrealized Gains (Losses) on Available-for-Sale SecuritiesUnrealized Gains (Losses) on Cash Flow HedgesUnrealized Gains (Losses) on Defined Benefit PlansTotal
Balance as of September 30, 2020$(38,920)$2,857 $(24,014)$(19,369)$(79,446)
Balance as of June 30, 2020$(43,957)$3,683 $(23,250)