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

Quarterly report pursuant to Section 13 or 15(d)

Fair Value Measurements

Fair Value Measurements

3 Months Ended

Sep. 30, 2018

NOTE 3 – FAIR VALUE MEASUREMENTS

The Company’s financial assets and liabilities are measured and recorded at fair value, except for its debt and certain equity investments in privately-held companies. Prior to July 1, 2018, the equity investments were generally accounted for under the cost method of accounting and were periodically assessed for other-than-temporary impairment when an event or circumstance indicated that an other-than-temporary decline in value may have occurred. Effective July 1, 2018, equity investments without a readily available fair value are accounted for using the measurement alternative. The measurement alternative is calculated as cost minus impairment, if any, plus or minus changes resulting from observable price changes.

The Company’s non-financial assets, such as goodwill, intangible assets, and land, property and equipment, are recorded at cost and are assessed for impairment when an event or circumstance indicates that an other-than-temporary decline in value may have occurred.

Fair Value of Financial Instruments. The Company has evaluated the estimated fair value of financial instruments using available market information and valuations as provided by third-party sources. The use of different market assumptions and/or estimation methodologies could have a significant effect on the estimated fair value amounts. The fair value of the Company’s cash equivalents, accounts receivable, accounts payable and other current assets and liabilities approximate their carrying amounts due to the relatively short maturity of these items.

Fair Value Hierarchy. The authoritative guidance for fair value measurements establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are described below:



Level 1		Valuations based on quoted prices in active markets for identical assets or liabilities that the entity has the ability to access.

Level 2		Valuations based on quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable data for substantially the full term of the assets or liabilities.

Level 3		Valuations based on inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.

As of September 30, 2018, the types of instruments valued based on quoted market prices in active markets included money market funds, certain U.S. Treasury securities and U.S. Government agency securities. Such instruments are generally classified within Level 1 of the fair value hierarchy. The types of instruments valued based on other observable inputs included corporate debt securities, sovereign securities, certain U.S. Treasury securities and U.S. Government agency securities. The market inputs used to value these instruments generally consist of market yields, reported trades and broker/dealer quotes. Such instruments are generally classified within Level 2 of the fair value hierarchy.

The principal market in which the Company executes its foreign currency contracts is the institutional market in an over-the-counter environment with a relatively high level of price transparency. The market participants generally are large financial institutions. The Company’s foreign currency contracts’ valuation inputs are based on quoted prices and quoted pricing intervals from public data sources and do not involve management judgment. These contracts are typically classified within Level 2 of the fair value hierarchy.

The fair value of contingent consideration payable, which relates to the acquisitions of privately-held companies, was classified as Level 3 and estimated using significant inputs that were not observable in the market.

Financial assets (excluding cash held in operating accounts and time deposits) and liabilities measured at fair value on a recurring basis, as of the date indicated below, were presented on the Company’s Condensed Consolidated Balance Sheet as follows:



As of September 30, 2018 (In thousands)	Total			Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)			Little or no market activity Inputs (Level 3)
Assets
Cash equivalents:
U.S. Treasury securities	$	17,357		$	—	$	17,357		$	—
Money market funds and other	1,118,051			1,118,051		—			—
U.S. Government agency securities	22,354			—		22,354			—
Marketable securities:
Corporate debt securities	595,096			—		595,096			—
U.S. Government agency securities	245,228			245,228		—			—
Sovereign securities	17,205			—		17,205			—
U.S. Treasury securities	271,554			271,554		—			—
Total cash equivalents and marketable securities⁽¹⁾	2,286,845			1,634,833		652,012			—
Other current assets:
Derivative assets	9,988			—		9,988			—
Other non-current assets:
Executive Deferred Savings Plan	203,370			146,388		56,982			—
Total financial assets⁽¹⁾	$	2,500,203		$	1,781,221	$	718,982		$	—
Liabilities
Other current liabilities:
Derivative liabilities	$	(1,393	)	$	—	$	(1,393	)	$	—
Contingent consideration payable	(3,102		)	—		—			(3,102		)
Total financial liabilities	$	(4,495	)	$	—	$	(1,393	)	$	(3,102	)

________________

(1) Excludes cash of $467.6 million held in operating accounts and time deposits of $25.8 million as of September 30, 2018.



As of June 30, 2018 (In thousands)	Total			Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)
Assets
Cash equivalents:
U.S. Treasury securities	$	1,996		$	—	$	1,996
Corporate debt securities	4,995			—		4,995
Money market funds and other	863,115			863,115		—
U.S. Government agency securities	7,675			—		7,675
Marketable securities:
Corporate debt securities	735,408			—		735,408
Sovereign securities	17,142			—		17,142
U.S. Government agency securities	316,022			299,501		16,521
U.S. Treasury securities	405,654			364,574		41,080
Total cash equivalents and marketable securities⁽¹⁾	2,352,007			1,527,190		824,817
Other current assets:
Derivative assets	5,385			—		5,385
Other non-current assets:
Executive Deferred Savings Plan	197,213			143,580		53,633
Total financial assets⁽¹⁾	$	2,554,605		$	1,670,770	$	883,835
Liabilities
Other current liabilities:
Derivative liabilities	$	(6,828	)	$	—	$	(6,828	)
Total financial liabilities	$	(6,828	)	$	—	$	(6,828	)

________________

(1) Excludes cash of $473.8 million held in operating accounts and time deposits of $54.5 million as of June 30, 2018.

There were no transfers between Level 1 and Level 2 fair value measurements during the three months ended September 30, 2018. The Company generally did not have any assets or liabilities measured at fair value on a recurring basis within Level 3 fair value measurements as of June 30, 2018.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

+ References + Details