Annual report pursuant to Section 13 and 15(d)

Segment Reporting and Geographic Information

v3.19.2
Segment Reporting and Geographic Information
 12 Months Ended
Jun. 30, 2019
Segment Reporting [Abstract]  
SEGMENT REPORTING AND GEOGRAPHIC INFORMATION
NOTE 17 — SEGMENT REPORTING AND GEOGRAPHIC INFORMATION
ASC 280, Segment Reporting, establishes standards for reporting information about operating segments. Operating segments are defined as components of an enterprise about which separate financial information is evaluated regularly by the chief operating decision maker (“CODM”) in deciding how to allocate resources and in assessing performance. Our CODM is our Chief Executive Officer.
As a result of the Orbotech Acquisition, we updated our organizational structure resulting in four reportable segments: Semiconductor Process Control; Specialty Semiconductor Process; PCB, Display and Component Inspection; and Other. The reportable segments are determined based on several factors including, but not limited to, customer base, homogeneity of products, technology, delivery channels and similar economic characteristics.
Semiconductor Process Control.
The Semiconductor Process Control (“SPC”) segment offers comprehensive portfolio of inspection, metrology and data analytics products, and related service, which helps integrated circuit manufacturers achieve target yield throughout the entire semiconductor fabrication process-from research and development (“R&D”) to final volume production. Our differentiated products and services are designed to provide comprehensive solutions that help our customers accelerate development and production ramp cycles, achieve higher and more stable semiconductor die yields and improve their overall profitability. This reportable segment is comprised of two operating segments.
Specialty Semiconductor Process
The Specialty Semiconductor Manufacturing segment develops and sells advanced vacuum deposition and etching process tools, which are used by a broad range of specialty semiconductor customers, including manufacturers of microelectromechanical systems (“MEMS”), radio frequency (“RF”) communication chips, and power semiconductors for automotive and industrial applications. This reportable segment is comprised of one operating segment.
PCB, Display and Component Inspection
The PCB, Display and Component Inspection segment enable electronic device manufacturers to inspect, test and measure printed circuit boards (“PCBs”), flat panel displays (“FPDs”) and ICs to verify their quality, pattern the desired electronic circuitry on the relevant substrate and perform three-dimensional shaping of metalized circuits on multiple surfaces. This segment also engages in the development and marketing of character recognition solutions to banks, financial and other payment processing institutions and healthcare providers. This reportable segment is comprised of two operating segments.
Other
We engage in the research, development and marketing of products for the deposition of thin film coating of various materials on crystalline silicon photovoltaic wafers for solar energy panels. This reportable segment is comprised of one operating segment.
The CODM assesses the performance of each operating segment and allocates resources to those segments based on total revenue and segment gross margin and does not evaluate the segments using discrete asset information. Segment gross margin excludes corporate allocation and effects of foreign exchange rates, amortization of intangible assets, amortization of inventory fair value adjustments, and transaction costs associated with our acquisitions related to costs of revenues.
The following is a summary of results for each of our four reportable segments for the indicated periods:
 
Year ended June 30,
(In thousands)
2019
 
2018
 
2017
Semiconductor Process Control:
 
 
 
 
 
Revenue
$
4,080,822

 
$
3,944,015

 
$
3,408,876

Segment gross margin
$
2,590,434

 
$
2,554,223

 
$
2,160,747

Specialty Semiconductor Process:
 
 
 
 
 
Revenue
$
151,164

 
$
—

 
$
—

Segment gross margin
$
78,800

 
$
—

 
$
—

PCB, Display and Component Inspection:
 
 
 
 
 
Revenue
$
332,810

 
$
92,516

 
$
71,557

Segment gross margin
$
155,765

 
$
38,428

 
$
30,914

Other:
 
 
 
 
 
Revenue
$
4,676

 
$
—

 
$
—

Segment gross margin
$
1,102

 
$
—

 
$
—

Totals:
 
 
 
 
 
Revenue
$
4,569,472

 
$
4,036,531

 
$
3,480,433

Segment gross margin
$
2,826,101

 
$
2,592,651

 
$
2,191,661


The following table reconciles total reportable segment revenue to total revenue for the indicated periods:
 
Year ended June 30,
(In thousands)
2019
 
2018
 
2017
Total revenue for reportable segments
$
4,569,472

 
$
4,036,531

 
$
3,480,433

Corporate allocation and effects of foreign exchange rates
(568
)
 
170

 
(419
)
Total revenue
$
4,568,904

 
$
4,036,701

 
$
3,480,014


The following table reconciles total segment gross margin to total income before income taxes for the indicated periods:
 
Year ended June 30,
(In thousands)
2019
 
2018
 
2017
Total segment gross margin
$
2,826,101

 
$
2,592,651

 
$
2,191,661

Merger and acquisition-related charges, corporate allocation, and effects of foreign exchange rates(1)
126,574

 
1,991

 
(2,138
)
Research and development
711,030

 
608,531

 
526,688

Selling, general and administrative
599,124

 
442,304

 
388,211

Interest expense
124,604

 
114,376

 
122,476

Other expense (income), net
(31,462
)
 
(30,482
)
 
(16,822
)
Income before income taxes
$
1,296,231

 
$
1,455,931

 
$
1,173,246


__________________
(1)
Acquisition-related charges primarily include amortization of intangible assets, amortization of inventory fair value adjustments, and other acquisition-related costs classified or presented as part of costs of revenues. Merger-related charges are associated with the merger agreement terminated during the fiscal year ended June 30, 2017 between KLA and Lam Research Corporation (“Lam”) primarily includes employee retention-related expenses associated with costs of revenues.
Our significant operations outside the United States include manufacturing facilities in China, Germany, Israel and Singapore and sales, marketing and service offices in Japan, the rest of the Asia Pacific region and Europe. For geographical revenue reporting, revenues are attributed to the geographic location in which the customer is located. Long-lived assets consist of land, property and equipment, net and are attributed to the geographic region in which they are located.
The following is a summary of revenues by geographic region, based on ship-to location, for the indicated periods:
(Dollar amounts in thousands)
Year ended June 30,
2019
 
2018
 
2017
Revenues:
 
 
 
 
 
 
 
 
 
 
 
China
$
1,215,807

 
27
%
 
$
643,033

 
16
%
 
$
412,098

 
12
%
Taiwan
1,105,726

 
24
%
 
636,363

 
16
%
 
1,104,307

 
32
%
North America
596,452

 
13
%
 
494,330

 
12
%
 
523,024

 
14
%
Korea
584,091

 
13
%
 
1,178,601

 
29
%
 
688,094

 
20
%
Japan
581,529

 
13
%
 
638,358

 
16
%
 
351,202

 
10
%
Europe and Israel
305,924

 
7
%
 
300,883

 
7
%
 
263,789

 
8
%
Rest of Asia
179,375

 
3
%
 
145,133

 
4
%
 
137,500

 
4
%
Total
$
4,568,904

 
100
%
 
$
4,036,701

 
100
%
 
$
3,480,014

 
100
%

The following is a summary of revenues by major products for the indicated periods:
(Dollar amounts in thousands)
Year ended June 30,
2019
 
2018
 
2017
Revenues:
 
 
 
 
 
 
 
 
 
 
 
Wafer Inspection
$
1,657,753

 
36
%
 
$
1,731,809

 
43
%
 
$
1,600,889

 
46
%
Patterning
1,134,409

 
25
%
 
1,116,022

 
28
%
 
917,178

 
26
%
Specialty Semiconductor Process
129,854

 
3
%
 
—

 
—
%
 
—

 
—
%
PCB, Display and Component Inspection
238,275

 
5
%
 
85,836

 
2
%
 
66,399

 
2
%
Services
1,176,661

 
26
%
 
876,030

 
22
%
 
776,080

 
22
%
Other
231,952

 
5
%
 
227,004

 
5
%
 
119,468

 
4
%
Total
$
4,568,904

 
100
%
 
$
4,036,701

 
100
%
 
$
3,480,014

 
100
%


Wafer Inspection, and Patterning products are offered in Semiconductor Process Control segment. Services are offered in multiple segments. Other includes primarily refurbished systems, remanufactured legacy systems, and enhancements and upgrades for previous-generation products which are part of Semiconductor Process Control segment.
In the fiscal year ended June 30, 2019, one customer accounted for approximately 15% of total revenues. In the fiscal year ended June 30, 2018, one customer accounted for approximately 21% of total revenues. In the fiscal year ended June 30, 2017, two customers accounted for approximately 23% and 16% of total revenues.
Long-lived assets by geographic region as of the dates indicated below were as follows:
 
As of June 30,
(In thousands)
2019
 
2018
Long-lived assets:
 
 
 
United States
$
253,255

 
$
187,352

Israel
66,082

 
26,980

Europe
62,027

 
12,924

Singapore
49,523

 
47,009

Rest of Asia
17,912

 
12,041

Total
$
448,799

 
$
286,306