| Aggregate Purchase Consideration and Preliminary Purchase Price Allocation |
The aggregate purchase price of the other fiscal 2019 acquisitions was allocated on a preliminary basis as follows:
|
|
|
|
|
(In thousands) |
Fair Value |
Net tangible assets (including Cash and cash equivalents of $2.6 million) |
$ |
13,214 |
|
Identifiable intangible assets |
75,130 |
|
Goodwill |
45,380 |
|
Total |
$ |
133,724 |
|
The purchase price of the fiscal 2020 acquisition was allocated on a preliminary basis as follows:
|
|
|
|
|
(In thousands) |
Fair Value |
Net tangible assets (including cash and cash equivalents of $6.6 million)
|
$ |
7,196 |
|
Deferred tax liabilities |
(15,265 |
) |
Intangible assets |
47,931 |
|
Goodwill |
54,001 |
|
Total |
$ |
93,863 |
|
The total purchase consideration has been allocated as follows (in thousands):
|
|
|
|
|
Purchase Price |
|
Cash for outstanding Orbotech shares(1)
|
$ |
1,901,948 |
|
Fair value of KLA common stock issued for outstanding Orbotech shares(2)
|
1,324,657 |
|
Cash for Orbotech equity awards(3)
|
9,543 |
|
Fair value of KLA common stock issued to settle Orbotech equity awards(4)
|
6,129 |
|
Stock options and RSUs assumed(5)
|
13,281 |
|
Total purchase consideration |
3,255,558 |
|
Less: cash acquired |
(215,640 |
) |
Total purchase consideration, net of cash acquired |
$ |
3,039,918 |
|
|
|
Allocation |
|
Accounts receivable, net |
$ |
197,873 |
|
Inventories |
330,325 |
|
Contract assets |
63,181 |
|
Other current assets |
70,622 |
|
Property, plant and equipment, net |
97,664 |
|
Goodwill |
1,845,728 |
|
Intangible assets |
1,553,570 |
|
Other non-current assets |
73,179 |
|
Accounts payable |
(53,015 |
) |
Accrued liabilities |
(173,507 |
) |
Other current liabilities(6)
|
(73,057 |
) |
Deferred tax liabilities(7)
|
(786,671 |
) |
Other non-current liabilities(6)
|
(86,789 |
) |
Non-controlling interest |
(19,185 |
) |
|
$ |
3,039,918 |
|
________________
|
|
(1) |
Represents the total cash paid to settle 48.9 million outstanding Orbotech shares as of February 20, 2019 at $38.86 per Orbotech share.
|
|
|
(2) |
Represents the fair value of 12.2 million shares of our common stock issued to settle 48.9 million outstanding Orbotech shares. KLA issued 0.25 shares for each Orbotech share. The fair value of KLA’s common stock was $108.26 per share on the Acquisition Date.
|
|
|
(3) |
Represents primarily cash consideration for the settlement of the vested stock options and restricted stock units for which services were rendered by the employees of Orbotech prior to the closing, and a small portion for the settlement of fractional shares. |
|
|
(4) |
Represents the fair value of share of 56,614 shares of KLA common stock issued to settle the vested Orbotech stock options. The fair value of KLA’s common stock was $108.26 per share on the Acquisition Date.
|
|
|
(5) |
Represents the fair value of the assumed stock options and RSUs to the extent those related to services provided by the employee of Orbotech prior to closing. Also refer to Note 10, “Equity, Long-Term Incentive Compensation Plans and Non-Controlling Interest” of the Condensed Consolidated Financial Statements for additional information about assumed stock options and RSUs. |
|
|
(6) |
On December 24, 2018, Orbotech, as part of its strategy to invest in the high growth area of the software business within the Printed Circuit Boards (“PCB”) industry, acquired the remaining 50% shares of Frontline from Mentor Graphics Development Services (Israel) Ltd. Prior to the acquisition, Frontline was an equity investee. Orbotech acquired all of the joint venture interests it did not previously own for $85.0 million in cash on hand and agreed to pay an additional $10.0 million in cash over four years plus a cash earn-out of not less than $5.0 million and up to $20.0 million. The earn out amounts are based on revenues from a Frontline product currently under development. As of February 20, 2019, the estimated fair market values of the four-year cash payment and the earn-out were $8.8 million and $7.1 million, respectively. As of December 31, 2019, the estimated fair market values of the four-year cash payment and the earn-out were $6.5 million and $3.1 million, respectively, and these amounts have been included in current and non-current liabilities at $2.3 million and $7.3 million respectively.
|
(7)
Primarily related to tax impact on the future amortization of intangible assets acquired and inventory fair value adjustments.
|
| Estimated Fair Value and Weighted Average Useful Life of Acquired Intangible Assets |
The estimated fair value and weighted average useful life of the Orbotech intangible assets are as follows:
|
|
|
|
|
|
|
(In thousands) |
Fair Value |
|
Weighted Average Useful Lives (in years) |
Existing technology(1)
|
$ |
1,008,000 |
|
|
8 |
Customer-related assets(2)
|
227,000 |
|
|
8 |
Backlog(3)
|
37,500 |
|
|
1 |
Trade name(4)
|
91,500 |
|
|
7 |
|
Off market leases(5)
|
2,070 |
|
|
7 |
Total identified finite-lived intangible assets |
1,366,070 |
|
|
|
In-process research and development(6)
|
187,500 |
|
|
N/A |
Total identified intangible assets |
$ |
1,553,570 |
|
|
|
________________
|
|
(1) |
Existing technology was identified from the products of Orbotech 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 contracts and related relationships represent the fair value of the existing relationships with the Orbotech 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 attrition rates. |
|
|
(3) |
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 canceled by the customer, often without penalty. Orbotech’s backlog consists of these arrangements with assigned shipment dates expected, in most cases, within three to twelve 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 primarily relates to the “Orbotech” trade 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 name. |
|
|
(5) |
The favorable / unfavorable components of the acquired leases were determined using the Income Approach which involves present valuing the difference in future cash flows between the contracted lease payments and the rent payable to a market participant over the lease terms. The economic useful life is based on the remaining lease term. |
(6) The fair value of in-process research and development (“IPR&D”) 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.
|
| Unaudited Pro Forma Information |
The unaudited pro forma information presented below is for informational purposes only and is not necessarily indicative of our consolidated results of operations of the combined business had the acquisitions actually occurred at the beginning of fiscal year 2018 or of the results of our future operations of the combined businesses.
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Six Months Ended |
(In thousands) |
December 31, 2018 |
Revenues |
1,372,783 |
|
|
$ |
2,721,012 |
|
Net income attributable to KLA |
405,693 |
|
|
$ |
783,112 |
|
|