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

3 Months Ended

Sep. 30, 2015

Goodwill and Intangible Assets Disclosure [Abstract]

Goodwill and Purchased Intangible Assets

NOTE 5 – 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 prior business combinations.

The Company has made certain organizational changes and consolidated its product divisions effective in the first quarter of fiscal year 2016, in response to changing customer requirements in the industry. As required by the authoritative guidance, when an entity reorganizes its reporting structure in a manner that changes the composition of one or more of its reporting units, goodwill is reassigned to the affected reporting units using a relative fair value allocation approach. The fair value of each reporting unit is compared to the fair value of the business immediately prior to the reorganization. The fair value for the Company’s reporting units was determined using a weighted combination of market-based and income-based approach. The Company has four reporting units as of September 30, 2015: Wafer Inspection, Patterning, Global Service and Support, and Others. The goodwill balance by reporting units as of September 30, 2015 were as follows:



(In thousands)	Wafer Inspection				Patterning			Others			Total
Balance as of June 30, 2015	$	332,783		⁽¹⁾	$	2,480	⁽²⁾	$	—		$	335,263
Goodwill allocation	(51,671		)	⁽³⁾	50,775		⁽³⁾	896		⁽³⁾	—
Goodwill adjustment	(45		)		—			—			(45		)
Balance as of September 30, 2015	$	281,067			$	53,255		$	896		$	335,218

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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 the 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 the new reporting structure after certain components were allocated in.


(3)	The reorganization resulted in certain goodwill balances to be reallocated as noted above.

The changes in the gross goodwill balance during the three months ended September 30, 2015 resulted from foreign currency translation adjustments.

The Company performed a qualitative assessment of the goodwill by reporting unit during the three months ended December 31, 2014 and as of September 30, 2015 as a result of the organizational change and the reallocation of goodwill as discussed above. The Company 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, we assessed for any impairment indicators during the three months ended September 30, 2015 as a result of the change in reporting units as discussed above and concluded no potential impairment indicators exist requiring further analysis. Other than that, 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, 2015. The next annual assessment of the goodwill by reporting unit will be performed in the second quarter of the fiscal year ending June 30, 2016.

Purchased Intangible Assets

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



(In thousands)		As of September 30, 2015						As of June 30, 2015
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	$	141,659	$	136,660	$	4,999	$	141,659	$	134,664	$	6,995
Patents	6-13 years	57,648		57,648		—		57,648		56,998		650
Trade name/Trademark	4-10 years	19,893		19,260		633		19,893		18,899		994
Customer relationships	6-7 years	54,980		52,370		2,610		54,980		51,724		3,256
Total		$	274,180	$	265,938	$	8,242	$	274,180	$	262,285	$	11,895

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 three months ended September 30, 2015 and 2014, amortization expense for intangible assets was $3.7 million and $4.1 million, respectively. Based on the intangible assets recorded as of September 30, 2015, and assuming no subsequent additions to, or impairment of, the underlying assets, the remaining estimated amortization expense is expected to be as follows:



Fiscal year ending June 30:	Amortization (In thousands)
2016 (remaining 9 months)	$	3,911
2017	2,806
2018	1,525
Total	$	8,242

- 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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