Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is intended to facilitate an understanding of our business and results of operations. This MD&A should be read in conjunction with our Consolidated Financial Statements and the accompanying Notes to Consolidated Financial Statements included elsewhere in this Form 10-K. The following discussion contains forward-looking statements and should also be read in conjunction with the cautionary statement set forth at the beginning of this Form 10-K.
The following section generally discusses 2025 and 2024 items and year-to-year comparisons between 2025 and 2024. Discussions of 2024 items and year-to-year comparisons between 2024 and 2023 that are not included in this Form 10-K can be found in “Management's Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended October 27, 2024, filed on December 13, 2024.
Overview
We provide equipment, services and software to the semiconductor and related industries. Our customers include manufacturers of semiconductor wafers and chips and other electronic devices. Our customers’ products are used in a wide variety of products such as personal computing devices, mobile phones, artificial intelligence (AI) and data center servers, automobiles, connected devices, industrial applications and consumer electronics. Each of our segments is subject to variable industry conditions, as demand for equipment and services can change depending on supply and demand for chips and other electronic devices, as well as other factors, such as global economic, political and market conditions, and the nature and timing of technological advances in fabrication processes.
Our strategic priorities include developing products that help solve customers’ challenges at technology inflections, growing our service business, and expanding our served market opportunities in the semiconductor industry. Our long-term growth strategy requires continued development of new materials engineering capabilities, including products and platforms that enable expansion into new and adjacent markets. Our significant investments in research, development and engineering (RD&E) are intended to enable us to deliver new products and technologies before the emergence of strong demand, allowing customers to incorporate these products into their manufacturing plans during early-stage technology selection. We collaborate closely with our global customers to design systems and processes to meet their technical and production requirements.
Our future operating results depend to a considerable extent on our ability to maintain a competitive advantage in the equipment and service products we provide. Development cycles depend on whether the product is an enhancement of an existing product, which typically has a shorter development cycle, or a new product, which typically has a longer development cycle. Most of our existing products resulted from internal development activities and innovations involving new technologies, materials and processes. In certain instances, we acquire technologies, either in existing or new product areas, to complement our existing technology capabilities and to reduce time to market. Product development and manufacturing activities occur primarily in the United States, Europe, Israel, and Asia. Our portfolio of equipment and service products are highly technical and are sold primarily through a direct sales force.
We believe that it is critical to make substantial investments in RD&E to assure the availability of innovative technology that meets the current and projected requirements of our customers’ most advanced designs. We have and continue to invest in RD&E in order to continue to offer new products and technologies.
We operate in two reportable segments: Semiconductor Systems and Applied Global Services® (AGS). As of October 26, 2025, management no longer considers Display a significant operating segment for separate reporting purposes. The financial results of our other operating segments that do not meet the requirements for a reportable segment, including our Display operating segment, are included in Corporate and Other. Prior-year Corporate and Other balances have been recast to include Display financial results. A summary of financial information for each reportable segment is found in Note 15 of Notes to Consolidated Financial Statements. A discussion of factors that could affect our operations is set forth under “Risk Factors” in Part I, Item 1A, which is incorporated herein by reference.
Our results are driven primarily by customer spending on capital equipment and services to support key technology transitions or to increase production volume in response to worldwide demand for semiconductors.
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The Semiconductor Systems segment is comprised primarily of capital equipment used to fabricate semiconductor chips. Spending by semiconductor customers, which include companies that operate in the foundry, logic, memory, and other semiconductor chip markets, is driven by demand for products such as smartphones, mobile devices, personal computers (PC), servers for artificial intelligence (AI) and data centers, automobiles, clean energy, storage, and other products, and the nature and timing of technological advances in fabrication processes. The growth of data and emerging end-market drivers such as AI, the internet of things, robotics and smart vehicles are also creating the next wave of growth for the industry. As a result, products within the Semiconductor Systems segment are subject to significant changes in customer requirements, including transitions to smaller dimensions, increasingly complex chip architectures, new materials and an increasing number of applications. Spending can also depend on customer facility readiness and timeline for installation of capital equipment at customer sites. Development efforts are focused on solving customers’ key technical challenges in patterning, transistor, interconnect, process control, and packaging performance.
The AGS segment provides services, spares and factory automation software to customer fabrication plants globally to help customers optimize performance of our large, global installed base of semiconductor and other equipment. The AGS segment also includes 200 millimeter (200mm) and other equipment, which is shipped to many customers globally that serve the non-leading-edge end markets. Effective the first quarter of fiscal 2026, our 200mm equipment business will be moved to our Semiconductor Systems segment. Demand for AGS’ service and spares is driven by our large and growing installed base of manufacturing systems, and customers’ needs to shorten ramp times, improve system performance, and optimize factory output and operating costs. Industry conditions that affect AGS’ sales of spares and services are primarily characterized by changes in semiconductor manufacturers’ wafer starts and utilization rates, growth of the installed base of equipment and growing service intensity of newer tools. Our strategy is to continue to shift the AGS’ service and spares business to a subscription agreement model, improving customer factory performance and optimizing operating costs, and providing us a more predictable revenue stream.
The Corporate and Other category includes revenues and costs of product not included in our reportable segments, as well as certain operating expenses that are not allocated to our reportable segments and are managed separately at the corporate level. These operating expenses include costs for certain management, finance, legal, human resources, and RD&E functions performed at the corporate level; and unabsorbed information technology and occupancy. In addition, we do not allocate to our reportable segments charges associated with restructuring actions, such as employee severance costs and asset impairment charges, unless the restructuring actions pertain to a specific reportable segment.
The United States government has implemented export regulations for U.S. semiconductor technology sold or provided to customers in China, which have limited our ability to provide certain products and services to customers in China, over the past several years. The U.S. government continues to issue new export licensing requirements, and additional updates and other requirements that have had the effect of further limiting our ability to provide certain products and services to customers outside the U.S., including in China. Also, the United States has announced changes to its trade policy, including increased tariffs on imports. These actions have caused substantial uncertainty and have resulted in retaliatory measures, including new tariffs on U.S. goods imposed by China and other countries. Some of these actions have been followed by announcements of limited exemptions and temporary pauses. For a description of these risks, see the risk factors entitled “ Business and Industry Risks - Global trade issues and changes in and uncertainties with respect to trade policies and export regulations, including import and export license requirements, trade sanctions, tariffs and international trade disputes, have adversely impacted and could further adversely impact our business and operations, and reduce the competitiveness of our products and services relative to local and global competitors ” and “ Business and Industry Risks - We are to risks and uncertainty related to changes in trade policies, and increased tariffs and trade ” in Part I, Item 1A, “Risk Factors.”
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Results of Operations
Our fiscal 2025 and 2024 each contained 52 weeks.
The following table presents certain significant measurements for the periods presented:
Change
2025 over 2024
(In millions, except per share amounts and percentages)
Net revenue
Gross margin
1.2 points
Operating income
Operating margin
0.3 points
Net income
Earnings per diluted share
Net revenue by segment for the periods presented were as follows:
Change
2025 over 2024
(In millions, except percentages)
Semiconductor Systems
Applied Global Services
Corporate and Other
Total
Net revenue for Semiconductor Systems by market for the periods presented were as follows:
Foundry, logic and other
Dynamic random-access memory (DRAM)
Flash memory (NAND)
Net revenue in fiscal 2025 increased as compared to the prior year. Gross margin increased primarily driven by higher net revenue, favorable changes in customer and product mix, an increase in average selling prices, and lower material and manufacturing costs.
Semiconductor Systems net revenue increased in fiscal 2025 as compared to the prior year as customers continued to make strategic investments in new capacity and new technology transitions. Foundry and logic customers’ spending in fiscal 2025 increased driven primarily by higher customer investments in leading-edge manufacturing technologies. Memory customers’ spending in fiscal 2025 was higher due to increased customer investments in NAND fabrication equipment upgrades. Investments by semiconductor equipment customers are expected to remain strong with growth in the adoption of high-bandwidth memory and other forms of advanced packaging, continued demand for AI and data center computing, and for non-leading edge nodes. The Semiconductor Systems segment continued to represent the largest contributor of net revenue.
Our AGS net revenue in fiscal 2025 increased compared to the prior year primarily due to higher customer spending on long-term service agreements and spares, partially offset by lower customer spending on 200mm equipment. Demand for services is expected to grow as our installed base of systems and chambers increases and customers renew long-term service agreements.
Over the longer term, we believe secular drivers such as data center AI, edge AI and the internet of things, robotics and electric and autonomous vehicles will continue to create the next wave of growth for semiconductors and expand our served market opportunities. We believe device refresh cycles, such as those for PCs and smartphones, will also contribute to the next wave of growth.
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Net revenue by geographic region, determined by the location of customers’ facilities to which products were shipped and services were performed, was as follows:
Change
2025 over 2024
(In millions, except percentages)
China
Korea
Taiwan
Japan
Southeast Asia
Asia Pacific
United States
Europe
Total
The changes in net revenue from customers in all regions for fiscal 2025 primarily reflected changes in investments in semiconductor equipment.
Operating Expenses
Operating expenses for the periods presented were as follows:
Change
2025 over 2024
(In millions)
Research, development and engineering (RD&E)
Marketing and selling
General and administrative (G&A)
Restructuring charges
The year-over-year change in RD&E expenses was primarily due to additional headcount to support our ongoing investments in product development initiatives and higher depreciation expenses, consistent with our growth strategy. We continued to prioritize RD&E investments in technical capabilities and critical RD&E programs in current and new markets.
Marketing and selling expenses for fiscal 2025 increased primarily due to higher employee related expenses.
General and administrative expenses in fiscal 2025 decreased primarily due to lower spending on professional services, partially offset by an impairment of goodwill of $41 million recognized during the fourth quarter of fiscal 2025.
In the fourth quarter of fiscal 2025, we approved a workforce reduction plan (Fiscal 2025 Restructuring Plan) to position us for continued growth as a more competitive and productive organization and expect approximately 4% of our global workforce to be impacted under this plan. In the fourth quarter of fiscal 2025, we recognized $181 million of restructuring charges consisting primarily of severance and other employment termination benefits to be paid in cash, and other non-cash related charges. We expect to complete the plan in fiscal 2026.
Interest Expense and Interest and Other Income (expense), net
Interest expense and interest and other income (expense), net for the periods presented were as follows:
Change
2025 over 2024
(In millions)
Interest expense
Interest and other income (expense), net
Interest expense incurred was primarily associated with senior unsecured notes. Interest expense in fiscal 2025 increased slightly as a result of the issuance of senior unsecured notes in June 2024.
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Interest and other income (expense), net in fiscal 2025 increased primarily driven by higher net gain on equity investments, partially offset by lower interest income driven by lower cash balances and a decrease in market interest rates.
Income Taxes
Provision for income taxes and effective tax rates for the periods indicated were as follows:
Change
2025 over 2024
(In millions, except percentages)
Provision for income taxes
Effective income tax rate
12.5 points
Our provision for income taxes and effective tax rate are affected by the geographical composition of pre-tax income which includes jurisdictions with differing tax rates, conditional reduced tax rates and other income tax incentives. It is also affected by events that vary from period to period, such as changes in income tax laws and the resolution of prior years’ income tax filings.
Our effective tax rate for fiscal 2025 was higher than the prior fiscal year primarily due to a $659 million remeasurement of deferred tax assets resulting from new tax incentive agreements in Singapore and the recognition of a $407 million valuation allowance against deferred tax assets related to corporate alternative minimum tax (CAMT) credits. These credits are not expected to be realized as a result of changes in the timing of future tax deductions, following the enactment of the One Big Beautiful Bill Act. No prudent and feasible tax-planning strategies are currently available. The amount of the valuation allowance may be adjusted in future quarters if estimates of future taxable income change.
Segment Operating Income (Loss)
Operating income (loss) by segment for the periods presented were as follows:
Change
2025 over 2024
(In millions, except percentages and ratios)
Operating income (loss)
Semiconductor Systems
Applied Global Services
Corporate and Other
Total
Operating margin
Semiconductor Systems
0.4 points
Applied Global Services
(1.0) points
Semiconductor Systems’ operating margin for fiscal 2025 increased compared to the same period in the prior year primarily driven by higher net revenue, favorable changes in customer and product mix, lower material and manufacturing costs, and an increase in average selling prices, partially offset by increased RD&E expenses.
AGS’ operating margin for fiscal 2025 decreased compared to the same periods in the prior year primarily due to a decrease in 200mm equipment net revenue, higher expense related to an increase in headcount to support business growth, and higher excess and obsolete inventory charges, partially offset by higher net revenue from services and spares.
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Recent Accounting Pronouncements
Accounting Standards Not Yet Adopted
Targeted Improvements to the Accounting for Internal-Use Software. In September 2025, the Financial Accounting Standards Board (FASB) issued an accounting standard update to increase the operability of the recognition guidance considering different methods of software development by replacing the current stage-based capitalization model with a principles-based approach. Under the new guidance, costs are capitalized once management authorizes and commits to funding the software project, it is probable that the project will be completed and the software will be used to perform the function intended. This authoritative guidance will be effective for us beginning with our interim and annual reporting for fiscal year 2029, with early adoption permitted. We are evaluating the effect of this guidance on our consolidated financial statements and related disclosures.
Measurement of Credit Losses for Accounts Receivable and Contract Assets . In July 2025, the FASB issued an accounting standard update to provide a practical expedient that simplifies the calculation of expected credit losses (Topic 326). The practical expedient allows an entity to assume that current conditions as of the balance sheet date do not change for the remaining life of the asset, therefore, an entity will no longer need to develop reasonable and supportable forecasts of future economic conditions. This authoritative guidance will be effective for us beginning with our interim and annual reporting for fiscal year 2027, with early adoption permitted. Although this guidance will simplify our process of calculating expected credit losses on accounts receivable and contract assets, we do not expect this guidance to materially impact our consolidated financial statements or related disclosures.
Disaggregation of Income Statements Expenses . In November 2024, the FASB issued an accounting standard update to improve income statement expenses disclosures (Subtopic 220-40). The standard requires more detailed information related to the types of expenses, including (among other items) the amounts of purchases of inventory, employee compensation, depreciation and intangible asset amortization included within each interim and annual income statement’s expense caption, as applicable. This authoritative guidance can be applied prospectively or retrospectively and will be effective for us in fiscal 2028 for annual periods and in the first quarter of fiscal 2029 for interim periods, with early adoption permitted. We are evaluating the effect of this guidance on our consolidated financial statements and related disclosures.
Improvements to Income Tax Disclosures . In December 2023, the FASB issued an accounting standard update to improve income tax disclosures (Topic 740). The standard prescribes specific categories for the components of the effective tax rate reconciliation, requires disclosure of income taxes paid by jurisdiction, and modifies other income tax-related disclosures. This authoritative guidance will be effective for us beginning with our annual reporting for fiscal year 2026. We are evaluating the effect of this guidance on our consolidated financial statements and related disclosures.
Accounting Standards Adopted
For a description of recently adopted accounting standards, including the date of adoption and the effect, if any, on our consolidated financial statements, see Note 1, “Summary of Significant Accounting Policies,” of the Notes to Consolidated Financial Statements.
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Financial Condition, Liquidity and Capital Resources
Our cash, cash equivalents and investments consisted of the following:
October 26,
October 27,
(In millions)
Cash and cash equivalents
Short-term investments
Long-term investments
Total cash, cash-equivalents and investments
Sources and Uses of Cash
A summary of cash provided by (used in) operating, investing, and financing activities was as follows:
(In millions)
Cash provided by operating activities
Cash used in investing activities
Cash used in financing activities
Operating Activities
Cash from operating activities for fiscal 2025 was $8.0 billion, which reflects net income adjusted for the effect of non-cash charges and changes in working capital components. Significant non-cash charges included depreciation, amortization, gain or loss on investments or asset sale, share-based compensation, deferred income taxes and restructuring charges. Cash provided by operating activities in fiscal 2025 was lower primarily due to higher payments for income taxes and inventory.
We have agreements with various financial institutions to sell accounts receivable and discount promissory notes from selected customers. We sell our accounts receivable generally without recourse. From time to time, we also discount letters of credit issued by customers through various financial institutions. The discounting of letters of credit depends on many factors, including the willingness of financial institutions to discount the letters of credit and the cost of such arrangements. We sold $501 million and $444 million of accounts receivable during fiscal 2025 and 2024, respectively. We did not discount letters of credit issued by customers in fiscal 2025 and 2024. There was no discounting of promissory notes in each of fiscal 2025 and 2024.
Our working capital was $12.9 billion at October 26, 2025 and $12.8 billion at October 27, 2024.
Days sales outstanding of our accounts receivable at the end of fiscal 2025 and 2024 was 69 days and 68 days, respectively. Days sales outstanding varies due to the timing of shipments and payment terms. The slight increase in days sales outstanding was primarily due to unfavorable revenue linearity.
Investing Activities
We used $2.8 billion and $2.3 billion of cash in investing activities in fiscal 2025 and 2024, respectively. Capital expenditures in fiscal 2025 and 2024 were $2.3 billion and $1.2 billion, respectively. Capital expenditures were primarily for investments in real property and improvements, demonstration and testing equipment, manufacturing and network equipment. Purchases of investments, net of proceeds from sales and maturities of investments, for 2025 and 2024 were $526 million and $1.1 billion, respectively. Net proceeds from asset sale were $33 million, and net cash paid for acquisition was $29 million in fiscal 2025. Investing activities also included investments in technology to allow us to access new market opportunities or emerging technologies.
Our investment portfolio consists principally of investment grade money market mutual funds, U.S. Treasury and agency securities, municipal bonds, corporate bonds and mortgage-backed and asset-backed securities, as well as equity securities. We regularly monitor the credit risk in our investment portfolio and take appropriate measures, which may include the sale of certain securities, to manage such risks prudently in accordance with our investment policies.
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Financing Activities
We used $6.0 billion of cash in financing activities in fiscal 2025, consisting primarily of repurchases of common stock of $4.9 billion, cash dividends to stockholders of $1.4 billion, repayment of $700 million senior notes and tax withholding payments for vested equity awards of $248 million, partially offset by net proceeds received from the issuance of senior unsecured notes of $991 million and proceeds received from common stock issuances under our employee stock purchase plan of $261 million.
We used $4.5 billion of cash in financing activities in fiscal 2024, consisting primarily of repurchases of common stock of $3.8 billion, cash dividends to stockholders of $1.2 billion and tax withholding payments for vested equity awards of $291 million, and net payments of principal on financing leases of $102 million, partially offset by net proceeds received from the issuance of senior unsecured notes of $694 million and proceeds received from common stock issuances under our employee stock purchase plan of $243 million.
In March 2025, our Board of Directors approved a common stock repurchase program authorizing $10.0 billion in repurchases, which supplemented the previous $10.0 billion authorization approved in March 2023. At October 26, 2025, approximately $14.0 billion remained available for future stock repurchases under the repurchase program.
During each of fiscal 2025 and 2024, we paid four quarterly cash dividends, totaling $1.4 billion and $1.2 billion, respectively. We currently anticipate that cash dividends will continue to be paid on a quarterly basis, although the declaration of any future cash dividend is at the discretion of the Board of Directors and will depend on our financial condition, results of operations, capital requirements, business conditions and other factors, as well as a determination by the Board of Directors that cash dividends are in the best interests of our stockholders.
We have credit facilities for unsecured borrowings in various currencies of up to an aggregate amount of $4.1 billion. These credit facilities consist of a $2.0 billion five-year committed revolving credit agreement with a group of banks (Five-Year Credit Agreement), a $2.0 billion 364-day committed revolving credit agreement with a group of banks (364-Day Credit Agreement), and revolving credit facilities with Japanese banks pursuant to which we may borrow up to approximately $53 million in aggregate at any time. The Five-Year Credit Agreement is scheduled to expire in February 2030, unless extended as permitted under the terms of the agreement. The 364-Day Credit Agreement is scheduled to expire in September 2026, provided, however, if any loans are outstanding on the maturity date, we may convert all or part of such loans to term loans that will mature in September 2027, subject to payment of a fee by us and other customary conditions. The Five-Year Credit Agreement and the 364-Day Credit Agreement each includes financial and other covenants with which we were in compliance as of October 26, 2025. No amounts were outstanding under any of these credit facilities as of October 26, 2025 and October 27, 2024. See Note 9, Borrowing Facilities and Debt, of the Notes to the Consolidated Financial Statements for further discussion related to our credit facilities.
We have a short-term commercial paper program under which we may issue unsecured commercial paper notes up to a total of $4.0 billion. We increased the amount of commercial paper notes we may issue to $4.0 billion in the fourth quarter of fiscal 2025, subsequent to increasing the amount from $1.5 billion to $2.0 billion in the third quarter of fiscal 2025. The proceeds from the issuances of commercial paper are used for general corporate purposes. At October 26, 2025, we had $100 million of commercial paper notes outstanding.
In September 2025, we issued $550 million in aggregate principal amount of 4.000% senior unsecured notes due 2031 and $450 million in aggregate principal amount of 4.600% senior unsecured notes due 2036, in a registered public offering. In October 2025, we used a portion of the net proceeds from the offering to repay the outstanding $700 million in aggregate principal amount of our 3.900% senior unsecured notes due October 1, 2025. The remaining net proceeds from the issuance of the senior unsecured notes are intended for general corporate purposes.
We had senior unsecured notes in the aggregate principal amount of $6.5 billion outstanding as of October 26, 2025. See Note 9 of the Notes to the Consolidated Financial Statements for additional discussion of existing debt. We may seek to refinance our existing debt and may incur additional indebtedness depending on our capital requirements, general corporate purposes and the availability of financing.
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Others
On December 22, 2017, the U.S. government enacted the Tax Cuts and Jobs Act (Tax Act). The Tax Act requires a one-time transition tax on certain unrepatriated earnings of foreign subsidiaries. The transition tax expense has been paid in installments starting with fiscal 2018, and as of October 26, 2025, we had one remaining payment of $255 million, payable in February of 2026.
On August 9, 2022, the U.S. government enacted the U.S. CHIPS and Science Act (CHIPS Act). The CHIPS Act creates a 25% investment tax credit for certain investments in domestic semiconductor manufacturing. The credit is provided for qualifying property, which is placed in service after December 31, 2022, for which construction begins before January 1, 2027, and is treated as a government grant recognized against property, plant and equipment and a reduction of income taxes payable. We recognize this investment tax credit when there is reasonable assurance that we will qualify for the credit and the benefit will be received. As of October 26, 2025, our current income taxes payable was reduced by $233 million, and future income taxes payable will be reduced by $548 million, both of which are due to the investment tax credit.
On July 4, 2025, the U.S. government enacted the One Big Beautiful Bill Act (OBBBA). The OBBBA includes a broad range of tax reform provisions including extending and modifying certain key Tax Act provisions and expanding certain Chips Act incentives. These changes include full expensing of domestic research costs, immediate expensing of qualifying property and increasing the investment tax credit for certain investments in domestic semiconductor manufacturing from 25% to 35%. Key tax provisions of the OBBBA are designed to accelerate tax deductions but that may have a detrimental impact on our ability to use certain tax credits. The use of certain tax credits may not be economically viable if it requires electing to forgo significant tax deductions. Most of the provisions are effective beginning in fiscal years 2026 or 2027, with immediate expensing of qualifying property being effective in fiscal 2025. We will continue to evaluate the full impact of these legislative changes as more guidance becomes available.
Various countries where we do business have enacted or plan to enact new tax laws to implement the global minimum tax regimes based on the Organization for Economic Cooperation and Development Base Erosion and Profit Shifting Project, and where enacted, the rules began to be effective in fiscal 2025. The impact of the currently enacted legislation is not material to our fiscal 2025 financial results. We continue to monitor developments and evaluate impacts, if any, of these rules on our results of operations and cash flows. The adoption and effective dates of these rules vary by country and could increase tax complexity and uncertainty and may adversely affect our provision for income taxes in future years.
We have been granted additional conditional reduced tax rates in Singapore that expire beginning in fiscal 2030.
Although cash requirements will fluctuate based on the timing and extent of factors such as those discussed above, our management believes that cash generated from operations, together with the liquidity provided by existing cash balances and borrowing capability, will be sufficient to satisfy our liquidity requirements for the next 12 months. For further details regarding our operating, investing and financing activities, see the Consolidated Statements of Cash Flows in this report.
For details on standby letters of credit, guarantee instruments and other agreements with banks, see Off-Balance Sheet Arrangements below.
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Contractual Obligations and Off-Balance Sheet Arrangements
We have certain on-balance sheet and off-balance sheet obligation arrangements to make future payments under various contracts. Certain contractual arrangements which are recorded on our balance sheet include borrowing facilities and debts and lease obligations.
Borrowing Facilities and Debt Obligations
As of October 26, 2025, we had $6.5 billion in aggregate principal amount of senior unsecured notes with varying maturities, which are due beyond 12 months. Future interest payments associated with these unsecured notes were $2.9 billion, of which $246 million is due within 12 months and the remaining interest payments are due beyond 12 months. See Note 9 , Borrowing Facilities and Debt, of the Notes to the Consolidated Financial Statements for further discussion related to our borrowing facilities and debt obligations.
Lease Obligations
As of October 26, 2025, our operating lease obligation was $565 million related to various operating lease arrangements for certain facilities, of which $104 million is payable within 12 months and the remaining amount is payable beyond 12 months.
Purchase Obligations
As of October 26, 2025, we had $10.6 billion of purchase obligations for goods and services, of which $7.3 billion is payable within 12 months and the remaining amount is payable beyond 12 months.
Deemed Repatriation Tax Payable
As of October 26, 2025, we had one remaining payment of $255 million, payable in February of 2026. This transition tax liability is associated with the deemed repatriation of accumulated foreign earnings as a result of the enactment of the Tax Act.
Other Long-term Liabilities
We also have the obligation to fund our pension, postretirement and deferred compensation plans. We evaluate the need to make contributions to our pension and postretirement benefit plans after considering the funded status of the plans, movements in the discount rate, performance of the plan assets and related tax consequences. Payments to the plans would be dependent on these factors and could vary across a wide range of amounts and time periods. Payments for deferred compensation plans are dependent on activity by participants, making the timing of payments uncertain. As of October 26, 2025, the total of our future expected benefit payments for the pension plans and the postretirement plan over the next ten fiscal years were $250 million, of which $19 million is payable within 12 months and the remaining amount is payable beyond 12 months.
As of October 26, 2025, the gross liability for unrecognized tax benefits that was not expected to result in payment of cash within one year was $452 million. Interest and penalties related to uncertain tax positions that were not expected to result in payment of cash within one year of October 26, 2025 was $118 million. At this time, we are unable to reliably estimate the timing of payments due to uncertainties in the timing of tax audit outcomes.
Off-Balance Sheet Arrangements
In the ordinary course of business, we provide standby letters of credit or other guarantee instruments to third parties as required for certain transactions initiated by either us or our subsidiaries. These include agreements with various banks to facilitate subsidiary banking operations worldwide, including overdraft arrangements. We also have agreements with various banks to facilitate subsidiary banking operations worldwide, including overdraft arrangements, issuance of bank guarantees, and letters of credit. See Note 14, Guarantees, Commitments and Contingencies, of the Notes to the Consolidated Financial Statements for further discussion relating to these arrangements.
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Critical Accounting Estimates
The preparation of consolidated financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America requires management to make judgments, assumptions and estimates that affect the amounts reported.
Estimates and assumptions about future events and their effects cannot be determined with certainty. We base our estimates on historical experience and on various other assumptions believed to be applicable and reasonable under the circumstances. These estimates may change as new events occur, as additional information is obtained and as our operating environment changes. These changes have historically been minor and have been included in the consolidated financial statements as soon as they became known. In addition, management is periodically faced with uncertainties, the outcomes of which are not within our control and will not be known for prolonged periods of time. These uncertainties include those discussed in Part I, Item 1A, “Risk Factors.”
Management believes that the following is a critical accounting estimate:
Income Taxes
We are subject to income taxes in the U.S. and numerous foreign jurisdictions. The calculation of our provision for income taxes and effective tax rate involves significant judgment in estimating the impact of uncertainties in the application of complex and evolving tax laws. Resolution of these uncertainties in a manner inconsistent with our expectations could have a material impact on our results of operations and financial condition. We recognize a current tax liability for the estimated amount of income taxes payable on tax returns for the current fiscal year. Deferred tax assets and liabilities are recognized for the estimated future tax effects of temporary differences between the book and tax bases of assets and liabilities. Deferred tax assets are also recognized for net operating loss and tax credit carryovers. Deferred tax assets and liabilities are adjusted to reflect the effects of enacted changes in tax rates, laws and status, including changes in tax incentives. We record a valuation allowance against deferred tax assets when it is more likely than not that some portion, or all, of the assets will not be realized. In making this assessment, we weigh all available positive and negative evidence, including expected future taxable income, existing taxable temporary differences, carryback potential and prudent and feasible tax-planning strategies.
The acceleration of tax deductions for U.S. tax purposes, under the One Big Beautiful Bill Act, limits our ability to use our corporate minimum tax credits. As a result, we have recorded a full valuation allowance against this deferred tax asset. We reviewed potential tax-planning strategies to accelerate income recognition within a reasonable time, but none were prudent and feasible. We will continue to evaluate new strategies as additional One Big Beautiful Bill Act guidance is issued.
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