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

6 Months Ended

Dec. 31, 2019

Goodwill and Intangible Assets Disclosure [Abstract]

GOODWILL AND PURCHASED INTANGIBLE ASSETS

NOTE 7 – 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. We have four reportable segments and six reporting units. For additional details, refer to Note 18, “Segment Reporting and Geographic Information” of the Condensed Consolidated Financial Statements. The following table presents goodwill carrying value and the movements during the six months ended December 31, 2019⁽¹⁾:



(In thousands)	Wafer Inspection and Patterning			Global Service and Support (“GSS”)		Specialty Semiconductor Process		PCB and Display		Component Inspection		Total
Balance as of June 30, 2019	$	360,615		$	25,908	$	821,842	$	989,918	$	13,575	$	2,211,858
Acquired goodwill	54,001			—		—		—		—		54,001
Goodwill adjustments	—			—		—		33,968		—		33,968
Foreign currency adjustments	(46		)	—		—		—		—		(46		)
Balance as of December 31, 2019	$	414,570		$	25,908	$	821,842	$	1,023,886	$	13,575	$	2,299,781

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(1)	No goodwill was assigned to the Other reporting unit, and accordingly was excluded in the table above.

As of December 31, 2019, there have been no significant events or circumstances affecting the valuation of goodwill subsequent to the qualitative assessment performed in the third and fourth quarters of the fiscal year ended June 30, 2019. Goodwill is not subject to amortization but is tested for impairment on an annual basis during the third fiscal quarter or whenever events or changes in circumstances indicate the carrying amount of these assets may not be recoverable. Events or changes in circumstances that could affect the likelihood that we will be required to recognize an impairment charge for goodwill include, but are not limited to, declines in our stock price or market capitalization, declines in our market share, and declines in revenues or profits at our reporting units. Any impairment charges could have a material adverse effect on our operating results and net asset value in the quarter in which we recognize the impairment charge. For additional details, refer to Note 7 “Goodwill and Purchased Intangible Assets,” of the Notes to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2019. The next annual assessment of goodwill by reporting unit is scheduled to be performed in the third quarter of the fiscal year ending June 30, 2020.

Purchased Intangible Assets

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



(In thousands)		As of December 31, 2019						As of June 30, 2019
Category	Range of Useful Lives (in years)	Gross Carrying Amount		Accumulated Amortization, and Impairment		Net Amount		Gross Carrying Amount		Accumulated Amortization and Impairment		Net Amount
Existing technology	4-8	$	1,251,282	$	268,785	$	982,497	$	1,224,629	$	196,582	$	1,028,047
Customer relationships	4-9	305,017		82,488		222,529		297,250		66,471		230,779
Trade name / Trademark	4-7	117,133		32,094		85,039		114,573		25,052		89,521
Backlog and other	<1-9	50,405		38,555		11,850		43,969		19,146		24,823
Intangible assets subject to amortization		1,723,837		421,922		1,301,915		1,680,421		307,251		1,373,170
In-process research and development		190,635		100		190,535		187,500		—		187,500
Total		$	1,914,472	$	422,022	$	1,492,450	$	1,867,921	$	307,251	$	1,560,670

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. Events or changes in circumstances that could affect the likelihood that we will be required to recognize an impairment charge for the purchased intangible assets primarily include declines in our operating cash flows from the use of these assets. Any impairment charges could have a material adverse effect on our operating results and net asset value in the quarter in which we recognize the impairment charge.

The change in the gross carrying amounts of intangible assets is due to acquisition of certain assets and liabilities of privately-held companies. For additional details, refer to Note 6 “Business Combinations” of the Condensed Consolidated Financial Statements.

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



	Three Months Ended				Six Months Ended
	December 31,				December 31,
(In thousands)	2019		2018		2019		2018
Amortization expense - Cost of revenues	$	36,364	968		$	71,985	$	1,858
Amortization expense - Selling, general and administrative	20,257		343		42,513		887
Amortization expense - Research and development	131		—		162		—
Total	$	56,752	$	1,311	$	114,660	$	2,745

Based on the purchased intangible assets gross carrying amount recorded as of December 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)
2020 (remaining 6 months)	$	104,770
2021	194,901
2022	192,323
2023	191,232
2024	188,714
2025 and thereafter	429,975
Total	$	1,301,915