Quarterly report pursuant to Section 13 or 15(d)

Goodwill and Purchased Intangible Assets

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Goodwill and Purchased Intangible Assets
3 Months Ended
Sep. 30, 2015
Goodwill and Intangible Assets Disclosure [Abstract]  
Goodwill and Purchased Intangible Assets
NOTE 5 – 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 prior business combinations.
The Company has made certain organizational changes and consolidated its product divisions effective in the first quarter of fiscal year 2016, in response to changing customer requirements in the industry. As required by the authoritative guidance, when an entity reorganizes its reporting structure in a manner that changes the composition of one or more of its reporting units, goodwill is reassigned to the affected reporting units using a relative fair value allocation approach. The fair value of each reporting unit is compared to the fair value of the business immediately prior to the reorganization. The fair value for the Company’s reporting units was determined using a weighted combination of market-based and income-based approach. The Company has four reporting units as of September 30, 2015: Wafer Inspection, Patterning, Global Service and Support, and Others. The goodwill balance by reporting units as of September 30, 2015 were as follows:
(In thousands)
 
Wafer Inspection
 
Patterning
 
Others
 
Total
Balance as of June 30, 2015
 
$
332,783

(1) 
$
2,480

(2) 
$

 
$
335,263

Goodwill allocation
 
(51,671
)
(3) 
50,775

(3) 
896

(3) 

Goodwill adjustment
 
(45
)
 

 

 
(45
)
Balance as of September 30, 2015
 
$
281,067

 
$
53,255

 
$
896

 
$
335,218

__________________ 
(1)
The balance as of June 30, 2015, reflects goodwill for the Defect Inspection reporting unit under the old reporting structure which was renamed as Wafer Inspection under the new reporting structure after certain components were allocated out.
(2)
The balance as of June 30, 2015, reflects goodwill for the Metrology reporting unit under the old reporting structure which was renamed as Patterning under the new reporting structure after certain components were allocated in.
(3)
The reorganization resulted in certain goodwill balances to be reallocated as noted above.
The changes in the gross goodwill balance during the three months ended September 30, 2015 resulted from foreign currency translation adjustments.
The Company performed a qualitative assessment of the goodwill by reporting unit during the three months ended December 31, 2014 and as of September 30, 2015 as a result of the organizational change and the reallocation of goodwill as discussed above. The Company concluded that it was more likely than not that the fair value of each of the reporting units exceeded its carrying amount. In assessing the qualitative factors, the Company considered the impact of key factors including change in industry and competitive environment, market capitalization, stock price, earnings multiples, budgeted-to-actual revenue performance from prior year, gross margin and cash flow from operating activities. As such, it was not necessary to perform the two-step quantitative goodwill impairment test at that time. In addition, we assessed for any impairment indicators during the three months ended September 30, 2015 as a result of the change in reporting units as discussed above and concluded no potential impairment indicators exist requiring further analysis. Other than that, there have been no significant events or circumstances affecting the valuation of goodwill subsequent to the qualitative assessment performed in the second quarter of the fiscal year ended June 30, 2015. The next annual assessment of the goodwill by reporting unit will be performed in the second quarter of the fiscal year ending June 30, 2016.
Purchased Intangible Assets
The components of purchased intangible assets as of the dates indicated below were as follows:
(In thousands)
 
 
As of
September 30, 2015
 
As of
June 30, 2015
Category
Range of
Useful Lives
 
Gross
Carrying
Amount
 
Accumulated
Amortization
and
Impairment
 
Net
Amount
 
Gross
Carrying
Amount
 
Accumulated
Amortization
and
Impairment
 
Net
Amount
Existing technology
4-7 years
 
$
141,659

 
$
136,660

 
$
4,999

 
$
141,659

 
$
134,664

 
$
6,995

Patents
6-13 years
 
57,648

 
57,648

 

 
57,648

 
56,998

 
650

Trade name/Trademark
4-10 years
 
19,893

 
19,260

 
633

 
19,893

 
18,899

 
994

Customer relationships
6-7 years
 
54,980

 
52,370

 
2,610

 
54,980

 
51,724

 
3,256

Total
 
 
$
274,180

 
$
265,938

 
$
8,242

 
$
274,180

 
$
262,285

 
$
11,895


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.
For the three months ended September 30, 2015 and 2014, amortization expense for intangible assets was $3.7 million and $4.1 million, respectively. Based on the intangible assets recorded as of September 30, 2015, and assuming no subsequent additions to, or impairment of, the underlying assets, the remaining estimated amortization expense is expected to be as follows:
Fiscal year ending June 30:
Amortization
(In thousands)
2016 (remaining 9 months)
$
3,911

2017
2,806

2018
1,525

Total
$
8,242