BUSINESS COMBINATIONS AND DISPOSITIONS
|12 Months Ended|
Jun. 30, 2022
|Business Combinations and Dispositions [Abstract]|
|BUSINESS COMBINATIONS AND DISPOSITIONS||BUSINESS COMBINATIONS AND DISPOSITIONS
Fiscal 2022 Acquisitions
On May 1, 2022, we acquired the outstanding shares of a privately held company for total purchase consideration of $8.6 million, paid in cash. We allocated the purchase price to the tangible and identified intangible assets acquired and liabilities assumed based on their preliminary estimated fair values, and residual goodwill was allocated to the Wafer Inspection and Patterning reporting unit. The goodwill recognized was not deductible for tax purposes.
On February 28, 2022, we completed the acquisition of 100% of the outstanding shares of ECI Technology, Inc. (“ECI”), a privately held company, for aggregate purchase consideration of $431.5 million, paid in cash. ECI is a provider of chemical management systems for semiconductor, photovoltaic and PCB industries. KLA acquired ECI to extend and enhance our portfolio of products and services.
The aggregate purchase consideration has been preliminarily allocated as follows (in thousands):
The purchase price was allocated to tangible and identified intangible assets acquired and liabilities assumed based on their preliminary estimated fair values, which were determined using generally accepted valuation techniques based on estimates and assumptions made by management at the time of the acquisition. These estimates and assumptions are subject to change during the measurement period, which is not expected to exceed one year. Any adjustments to our preliminary purchase price allocation identified during the measurement period will be recognized in the period in which the adjustments are determined.
The $271.8 million of goodwill was assigned to the Wafer Inspection and Patterning reporting unit, and the amount recognized was not deductible for tax purposes. The goodwill was primarily attributable to the assembled workforce of the acquired company and planned growth in new markets.
The estimated fair value and weighted-average useful life of the acquired intangible assets are as follows:
(1)Existing technology was identified from the products of ECI and its fair value was determined using the Relief-from-Royalty method under the income approach, which estimates the cost savings generated by a company related to the ownership of an asset for which it would otherwise have had to pay royalties or license fees on revenues earned through the use of the asset. The discount rate used was determined at the time of measurement based on an analysis of the implied internal rate of return of the transaction, weighted-average cost of capital and weighted-average return on assets. The economic useful life was determined based on the technology cycle related to each developed technology, as well as the cash flows over the forecast period.
(2)Customer relationships represent the fair value of the existing relationships with ECI’s customers and its fair value was determined using the Multi-Period Excess Earning Method which involves isolating the net earnings attributable to the asset being measured based on present value of the incremental after-tax cash flows (excess earnings) attributable solely to the intangible asset over its remaining useful life. The economic useful life was determined based on historical customer turnover rates.
(3)Order backlog primarily relates to the dollar value of purchase arrangements with customers, effective as of a given point in time, that are based on mutually agreed terms which, in some cases, may still be subject to completion of written documentation and may be changed or cancelled by the customer, often without penalty. ECI’s backlog consists of these arrangements with assigned shipment dates expected, in most cases, within 12 months. The fair value was determined
using the Multi-Period Excess Earning Method. The economic useful life is based on the time to fulfill the outstanding order backlog obligation.
(4)Trade name / trademark primarily relates to ECI’s name. The fair value was determined by applying the Relief-from-Royalty Method under the income approach. The economic useful life was determined based on the expected life of the trade names, trademarks and domain names.
We believe the amounts of purchased intangible assets recorded above represent the fair values and approximate the amounts a market participant would pay for these intangible assets as of the acquisition date.
On July 1, 2021, we acquired Anchor Semiconductor Inc., a privately held company, primarily to expand our products and services offerings, for a total purchase consideration of $81.7 million, including post-closing working capital adjustments, as well as the fair value of the promise to pay an additional consideration up to $35.0 million contingent on the achievement of certain revenue milestones. As of June 30, 2022, the estimated fair value of the additional consideration was $13.5 million, which was classified as a current liability on the Consolidated Balance Sheet. The total purchase consideration was allocated as follows: $31.7 million to identifiable intangible assets, $26.4 million to net tangible assets, $8.0 million to deferred tax liabilities, and $31.5 million to goodwill. The goodwill was assigned to the Wafer Inspection and Patterning reporting unit, and the amount recognized was not deductible for tax purposes.
We have included the financial results of the fiscal 2022 acquisitions in our Consolidated Financial Statements from their respective acquisition dates, and these results were not material to our Consolidated Financial Statements.
As of June 30, 2022, we have $23.7 million of contingent consideration recorded for the Anchor acquisition and other acquisitions from the fiscal year ended June 30, 2019, of which $17.2 million is classified as a current liability and $6.5 million as a non-current liability on the Consolidated Balance Sheet.
Fiscal 2020 Acquisitions
On April 24, 2020, we acquired a product line from a public company for total purchase consideration of $11.4 million, of which $2.2 million was allocated to goodwill. Goodwill recognized was assigned to the Wafer Inspection and Patterning reporting unit, and was deductible for income tax purposes.
On August 22, 2019, we acquired the outstanding shares of Qoniac GmbH, a privately held company, primarily to expand our products and services offerings, for a total purchase consideration of $94.0 million inclusive of measurement period adjustments of $0.2 million as well as the fair value of the promise to pay an additional consideration up to $60.0 million contingent on the achievement of certain revenue milestones. As of June 30, 2022, the estimated fair value of the additional consideration was zero. The $54.2 million of goodwill was assigned to the Wafer Inspection and Patterning reporting unit and was not deductible for income tax purposes.
We have included the financial results of the fiscal 2020 acquisitions in our Consolidated Financial Statements from their respective acquisition dates, and these results were not material to our Consolidated Financial Statements.
Our acquisition-related costs are primarily included within SG&A expenses in our Consolidated Statements of Operations. We incurred insignificant acquisition-related costs for the fiscal 2022 and fiscal 2020 acquisitions.
Assets Held for Sale
In the third quarter of fiscal 2022, management committed to a plan to sell Orbograph Ltd. (“Orbograph”), a non-core business engaged in the development and marketing of character recognition solutions to banks, financial and other payment processing institutions and healthcare providers, of which we own approximately 94% as of June 30, 2022. We determined that all of the criteria for held-for-sale accounting were met and, consequently, we designated the net assets and liabilities of Orbograph, which is in our PCB, Display and Component Inspection segment, as held for sale. We expect to complete the sale in the next 12 months. In addition, based on available information, we determined that the carrying value of net assets held for sale did not exceed fair value less costs to sell; therefore, no impairment was recorded in the three months ended June 30, 2022.
As of June 30, 2022 the balances of Orbograph's net assets held for sale were as follows (in thousands):
The entire disclosure for business combinations, including leverage buyout transactions (as applicable), and divestitures. This may include a description of a business combination or divestiture (or series of individually immaterial business combinations or divestitures) completed during the period, including background, timing, and assets and liabilities recognized and reclassified or sold. This element does not include fixed asset sales and plant closings.
Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef