KLA Corporation Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

Goodwill and Purchased Intangible Assets

Goodwill and Purchased Intangible Assets

12 Months Ended

Jun. 30, 2017

Goodwill and Intangible Assets Disclosure [Abstract]

GOODWILL AND PURCHASED INTANGIBLE ASSETS

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 the current and prior business combinations. The Company has four reporting units: Wafer Inspection, Patterning, GSS, and Others. The following table presents goodwill balances and the movements by reporting unit during the fiscal years ended June 30, 2017 and 2016:



(In thousands)	Wafer Inspection				Patterning			GSS		Others			Total
Balance as of June 30, 2015	$	332,783		⁽¹⁾	$	2,480	⁽²⁾	$	—	$	—		$	335,263
Goodwill reallocation	(51,671		)	⁽³⁾	50,775		⁽³⁾	—		896		⁽³⁾	—
Foreign currency adjustment	(86		)		—			—		—			(86		)
Balance as of June 30, 2016	281,026				53,255			—		896			335,177
Acquired goodwill	—				—			2,856		11,424			14,280
Foreign currency adjustment	69				—			—		—			69
Balance as of June 30, 2017	$	281,095			$	53,255		$	2,856	$	12,320		$	349,526

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(1)	The balance as of June 30, 2015, reflects goodwill for the Defect Inspection reporting unit under the old reporting structure which was renamed as Wafer Inspection under a new reporting structure after certain components were allocated out.


(2)	The balance as of June 30, 2015, reflects goodwill for the Metrology reporting unit under the old reporting structure which was renamed as Patterning under a new reporting structure after certain components were allocated in.


(3)	The Company made certain organizational changes and consolidated its product division effective in the first quarter of fiscal 2016. The reorganization resulted in the reallocation of certain goodwill balances as noted above.

Goodwill is net of accumulated impairment losses of $277.6 million, which were recorded prior to the fiscal year ended June 30, 2014. The acquired goodwill during the fiscal year ended June 30, 2017 resulted from the acquisition of certain assets and liabilities of a privately-held company. See Note 5 “Business Combination” for additional details.

The Company performed a qualitative assessment of the goodwill by reporting unit as of November 30, 2016 during the three months ended December 31, 2016 and concluded that it was more likely than not that the fair value of each of the reporting units exceeded its carrying amount. In assessing the qualitative factors, the Company considered the impact of key factors including change in industry and competitive environment, market capitalization, stock price, earnings multiples, budgeted-to-actual revenue performance from prior year, gross margin and cash flow from operating activities. As such, it was not necessary to perform the two-step quantitative goodwill impairment test at that time. In addition, there have been no significant events or circumstances affecting the valuation of goodwill subsequent to the qualitative assessment performed in the second quarter of the fiscal year ended June 30, 2017. The next annual assessment of goodwill by reporting unit is scheduled to be performed in the second quarter of the fiscal year ending June 30, 2018.

Purchased Intangible Assets

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



(In thousands)		As of June 30, 2017						As of June 30, 2016
Category	Range of Useful Lives	Gross Carrying Amount		Accumulated Amortization and Impairment		Net Amount		Gross Carrying Amount		Accumulated Amortization and Impairment		Net Amount
Existing technology	4-7 years	$	157,259	$	140,346	$	16,913	$	141,659	$	138,160	$	3,499
Trade name/Trademark	7 years	20,993		19,902		1,091		19,893		19,743		150
Customer relationships	7-8 years	55,680		54,959		721		54,980		54,298		682
Backlog	<1 year	260		22		238		—		—		—
Total		$	234,192	$	215,229	$	18,963	$	216,532	$	212,201	$	4,331

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 recoverable.

For the fiscal years ended June 30, 2017, 2016 and 2015, amortization expense for purchased intangible assets was $3.0 million, $7.6 million and $15.8 million, respectively. The increase in the gross carrying value resulted from the acquisition of a privately-held company. See Note 5 “Business Combination” for additional details. Based on the intangible assets recorded as of June 30, 2017, and assuming no subsequent additions to, or impairment of, the underlying assets, the remaining estimated annual amortization expense is expected to be as follows:



Fiscal year ending June 30:	Amortization (In thousands)
2018	$	4,172
2019	2,409
2020	2,409
2021	2,409
2022	2,409
Thereafter	5,155
Total	$	18,963

- Definition

The entire disclosure for the aggregate amount of goodwill and a description of intangible assets, which may include (a) for amortizable intangible assets (also referred to as finite-lived intangible assets), the carrying amount, the amount of any significant residual value, and the weighted-average amortization period, (b) for intangible assets not subject to amortization (also referred to as indefinite-lived intangible assets), the carrying amount, and (c) the amount of research and development assets acquired and written off in the period, including the line item in the income statement in which the amounts written off are aggregated, if not readily apparent from the income statement. Also discloses (a) for amortizable intangibles assets in total and by major class, the gross carrying amount and accumulated amortization, the total amortization expense for the period, and the estimated aggregate amortization expense for each of the five succeeding fiscal years, (b) for intangible assets not subject to amortization the carrying amount in total and by major class, and (c) for goodwill, in total and for each reportable segment, the changes in the carrying amount of goodwill during the period (including the aggregate amount of goodwill acquired, the aggregate amount of impairment losses recognized, and the amount of goodwill included in the gain (loss) on disposal of a reporting unit). If any part of goodwill has not been allocated to a reportable segment, discloses the unallocated amount and the reasons for not allocating. For each impairment loss recognized related to an intangible asset (excluding goodwill), discloses: (a) a description of the impaired intangible asset and the facts and circumstances leading to the impairment, (b) the amount of the impairment loss and the method for determining fair value, (c) the caption in the income statement or the statement of activities in which the impairment loss is aggregated, and (d) the segment in which the impaired intangible asset is reported. For each goodwill impairment loss recognized, discloses: (a) a description of the facts and circumstances leading to the impairment, (b) the amount of the impairment loss and the method of determining the fair value of the associated reporting unit, and (c) if a recognized impairment loss is an estimate not finalized and the reasons why the estimate is not final. May also disclose the nature and amount of any significant adjustments made to a previous estimate of an impairment loss.

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