KLA Corporation Quarterly report pursuant to Section 13 or 15(d)

Quarterly report pursuant to Section 13 or 15(d)

Goodwill and Purchased Intangible Assets

Goodwill and Purchased Intangible Assets

9 Months Ended

Mar. 31, 2019

Goodwill and Intangible Assets Disclosure [Abstract]

GOODWILL AND PURCHASED INTANGIBLE ASSETS

NOTE 7 – GOODWILL AND PURCHASED INTANGIBLE ASSETS

Goodwill

We currently have four reporting units: Wafer Inspection, Patterning, Global Service and Support (“GSS”), and Others. The assignment of goodwill associated with Orbotech Acquisition to the reporting units has not yet been completed and therefore shown as a separate component. Refer to Note 17 “Segment Reporting and Geographic Information” for additional details. The following table presents goodwill carrying value and the movements during the nine months ended March 31, 2019:



(In thousands)	Wafer Inspection			Patterning		GSS		Others		Orbotech		Total
Balance as of June 30, 2018	$	281,005		$	53,255	$	8,039	$	12,399	$	—	$	354,698
Acquired goodwill	—			24,863		17,318		1,176		1,773,544		1,816,901
Foreign currency and other adjustments	(14		)	—		—		—		1,317		1,303
Balance as of March 31, 2019	$	280,991		$	78,118	$	25,357	$	13,575	$	1,774,861	$	2,172,902

The change in goodwill during the nine months ended March 31, 2019 resulted primarily from $1.77 billion related to the Orbotech Acquisition and $43.4 million related to the acquisition of the privately-held companies during the period. For additional details, refer to Note 6 “Business Combinations”.

We performed a qualitative assessment of the goodwill for our wafer inspection, patterning, GSS, and others reporting units during the three months ended March 31, 2019. Based on this assessment we concluded that it was more likely than not that the fair value of each of the reporting units exceeded its carrying amount. As a result of our determination based on our qualitative assessment, it was not necessary to perform the quantitative goodwill impairment test at this time. In assessing the qualitative factors, we considered the impact of key factors, including changes in the industry and competitive environment, market capitalization, stock price, earnings multiples, budgeted-to-actual revenue performance from prior year, gross margin and cash flows from operating activities. In addition, for goodwill associated with the Orbotech acquisition, no impairment indicators were identified as part of our goodwill impairment process.

Based on our assessment, goodwill in the reporting units was not impaired as of March 31, 2019 or 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 March 31, 2019						As of June 30, 2018
Category	Range of Useful Lives	Gross Carrying Amount		Accumulated Amortization, Impairment, and Other		Net Amount		Gross Carrying Amount		Accumulated Amortization and Impairment		Net Amount
Existing technology	4-8 years	$	1,238,037	$	161,827	$	1,076,210	$	160,859	$	144,202	$	16,657
Trade name/Trademark	5-7 years	115,573		21,638		93,935		20,993		20,060		933
Customer relationships	4-9 years	370,665		59,740		310,925		56,680		55,136		1,544
Backlog and other	<1-8.5 years	35,437		5,267		30,170		660		461		199
Intangible assets subject to amortization		1,759,712		248,472		1,511,240		239,192		219,859		19,333
In-process research and development		183,500		427		183,073		—		—		—
Total		$	1,943,212	$	248,899	$	1,694,313	$	239,192	$	219,859	$	19,333

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 recoverable. The change in purchased intangible assets gross carrying amount resulted primarily from the Orbotech Acquisition and the acquisition of the privately-held companies. For additional details, refer to Note 6 “Business Combinations.”

Amortization expense for purchased intangible assets for the periods indicated below was as follows:



	Three months ended				Nine months ended
	March 31,				March 31,
(In thousands)	2019		2018		2019		2018
Amortization expense- Cost of revenues	$	15,770	$	1,122	$	17,628	$	3,366
Amortization expense- Selling, general and administrative	10,086		65		10,973		220
Amortization expense- Research and development	12		—		12		—
Total	$	25,868	$	1,187	$	28,613	$	3,586

Based on the purchased intangible assets gross carrying amount recorded as of March 31, 2019, the underlying assets, the remaining estimated annual amortization expense is expected to be as follows:



Fiscal year ending June 30:	Amortization (In thousands)
2019 (remaining 3 months)	$	59,114
2020	216,956
2021	196,915
2022	196,915
2023	195,691
Thereafter	645,649
Total	$	1,511,240