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BUSINESS COMBINATIONS AND DISPOSITIONS | 9 Months Ended
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Mar. 31, 2022
Business Combinations and Dispositions [Abstract] |
BUSINESS COMBINATIONS AND DISPOSITIONS | BUSINESS COMBINATIONS AND DISPOSITIONSOn 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 printed circuit board industries. KLA acquired ECI to extend and enhance our portfolio of products and services. Preliminary Purchase Price Allocation The aggregate purchase consideration has been preliminarily allocated as follows (in thousands):
Total purchase consideration | $ | 443,176 |
Less: cash acquired | (11,652) |
Total purchase consideration, net of cash acquired | $ | 431,524 |
Allocation |
Accounts receivable | 15,044 |
Inventory | 13,552 |
Goodwill | 271,783 |
Intangible assets | 208,400 |
Other assets | 5,188 |
Accrued officers' bonus | (23,889) |
Other liabilities | (12,759) |
Deferred tax liabilities | (45,795) |
| $ | 431,524 |
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. The primary tasks that are required to be completed include validation of business-level forecasts and customer attrition rates expected to be derived from the acquisition, including any related tax impacts. 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 operating results of ECI have been included in our Condensed Consolidated Financial Statements for the three and nine months ended March 31, 2022 from the acquisition date. The goodwill was primarily attributable to the assembled workforce of the acquired company and planned growth in new markets. 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. Intangible Assets The estimated fair value and weighted average useful life of the acquired intangible assets are as follows:
(In thousands) | Fair Value |  | Weighted Average Useful Lives
Existing technology(1) | $ | 117,900 |  |  | 8
Customer relationships(2) | 52,400 |  |  | 7
Order backlog(3) | 35,000 |  |  | 1.5
Trade name / trademark(4) | 3,100 |  |  | 3
Total identified intangible assets | $ | 208,400 |  |  |
_________________ (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 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 / 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. Our statement of operations for the three and nine months ended March 31, 2022 included revenue of $8.1 million and a net loss of $0.4 million from ECI. Other Fiscal 2022 Acquisitions On July 1, 2021, we acquired Anchor Semiconductor Inc. (the “Anchor acquisition”), a privately-held company, primarily to expand our products and services offerings, for a total purchase consideration of $81.7 million, including a 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 March 31, 2022, the estimated fair value of the additional consideration was $13.2 million, which was classified as a current liability on the Condensed 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 total purchase consideration is preliminary, and as additional information becomes available, we may further revise it during the remainder of the measurement period, which will not exceed 12 months from the closing of the acquisition. The $31.5 million of 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 acquisition in our Condensed Consolidated Financial Statements from the date of acquisition. These results were not material to our Condensed Consolidated Financial Statements. As of March 31, 2022, we have $22.5 million of contingent consideration recorded for the Anchor acquisition and other acquisitions from the fiscal year ended June 30, 2019, of which $16.1 million is classified as a current liability and $6.4 million as a non-current liability on the Condensed Consolidated Balance Sheet. For additional details, please refer to Note 6 “Business Combinations” to our Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended June 30, 2021. 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 March 31, 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 March 31, 2022. As of March 31, 2022 the balances of Orbograph's net assets held for sale were as follows (in thousands):
Cash | $ | 7,674 |
Trade and other receivables, net | 20,109 |
Fixed assets | 1,639 |
Intangible assets | 18,588 |
Goodwill | 42,622 |
Other long-term assets | 1,665 |
Trade and other payables | (4,099) |
Other liabilities | (7,776) |
Minority interest | (540) |
| $ | 79,882 |

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- Definition 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. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 205 -SubTopic 20 -URI http://asc.fasb.org/subtopic&trid=2122178 Reference 2: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -URI http://asc.fasb.org/topic&trid=2303972 + Details
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