Goodwill and Purchased Intangible Assets
|12 Months Ended|
Jun. 30, 2020
|Goodwill and Intangible Assets Disclosure [Abstract]|
|GOODWILL AND PURCHASED INTANGIBLE ASSETS||GOODWILL AND PURCHASED INTANGIBLE ASSETS
Following an update of the organizational structure during the fiscal year 2019, we have four reportable segments and six operating segments. The operating segments are determined to be the same as reporting units. The following table presents goodwill carrying value and the movements by reporting unit during the fiscal years ended June 30, 2020 and 2019(1):
(1)No goodwill was assigned to the Other reporting unit, and accordingly is not disclosed in the table above.
Goodwill is not subject to amortization but is tested for impairment annually during the third fiscal quarter as well as whenever events or changes in circumstances indicate that the carrying value may not be recoverable. We performed the required annual goodwill impairment test as of February 28, 2020. We completed qualitative assessments for all reporting units and concluded that goodwill was not impaired for the Wafer Inspection and Patterning, Global Service and Support, and Component Inspection reporting units. However, due to the downward revision of the financial outlook for the Specialty Semiconductor Process and PCB and Display reporting units as well as the impact of elevated risk and macroeconomic slowdown driven by the COVID-19 pandemic, we performed a quantitative goodwill impairment assessment for these two reporting units. As a result of the assessment, we recorded $144.2 million and $112.5 million in impairment charges in the Specialty Semiconductor Process and PCB and Display reporting units, respectively, during the quarter ended March 31, 2020.
We determined the fair values of these reporting units using the results derived from income and market valuation approaches and applied a weighting of 75 percent and 25 percent, respectively. The income approach is estimated through discounted cash flow analysis. The estimated fair value of each reporting unit was computed by adding the present value of the estimated annual discounted cash flows over a discrete projection period to the residual value of the business at the end of the projection period. This valuation technique requires us to use significant estimates and assumptions, including long-term growth rates, discounts rates and other inputs. The estimated growth rates for the projection period are based on our internal forecasts of anticipated future performance of the business. The residual value is estimated based on a perpetual nominal growth rate, which is based on projected long-range inflation and long-term industry projections. Discount rates are based on a weighted average cost of capital (“WACC”), which represents the average rate a business must pay its providers of debt and equity, plus a risk premium. The WACC used to test goodwill is derived from a group of comparable peer companies. The market approach estimates the fair value of the reporting unit by utilizing the market comparable method, which is based on revenue and earnings multiples from comparable companies. There can be no assurance that these estimates and assumptions
will prove to be an accurate prediction of the future, and a downward revision of these estimates and/or assumptions would decrease the fair value of our reporting units, which could result in additional impairment charges in the future.
Goodwill as of June 30, 2020 is net of accumulated impairment losses of $534.2 million. $277.6 million was included in the Wafer Inspection and Patterning reporting unit, $144.2 million was included in the Specialty Semiconductor Process reporting unit, and $112.5 million was included in the PCB and Display reporting unit.
Goodwill as of June 30, 2019 and 2018 is net of accumulated impairment losses of $277.6 million, which were recorded prior to the fiscal year ended June 30, 2014. As of June 30, 2019, all of accumulated impairment losses were included in the Wafer Inspection and Patterning reporting unit. As of June 30, 2018, approximately $1.0 million and $276.6 million of accumulated impairment losses were included in the Wafer Inspection reporting unit and the Patterning reporting unit, respectively.
There have been no significant events or circumstances affecting the valuation of goodwill subsequent to the assessment performed in the third quarter of the fiscal year ended June 30, 2020. The next annual assessment of goodwill by reporting unit is scheduled to be performed in the third quarter of the fiscal year ending June 30, 2021.
Purchased Intangible Assets
The components of purchased intangible assets as of the dates indicated below were as follows:
Purchased 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 fully recoverable. The impairment indicator primarily includes the declines in our operating cash flows from the use of these assets. If the impairment indicators are present, we are required to perform a recoverability test by comparing the sum of the estimated undiscounted future cash flows attributable to these long-lived assets to their carrying value.
As of February 28, 2020, no impairment indicator was present except for intangible assets acquired from Orbotech acquisition due to the downward revision of its financial outlook and the impact of elevated risk and macroeconomic slowdown driven by the COVID- 19 pandemic. We performed the required recoverability test and concluded that there was no impairment based on the assessment.
To perform a recoverability test, we are required to group long-lived assets and liabilities at the lowest levels for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. For the intangible assets acquired from Orbotech, the asset group levels at which we performed the recoverability test were the Specialty Semiconductor Process and PCB and Display business level.
The change in the gross carrying amounts of intangible assets is due to the acquisition of certain privately held companies. For additional details, refer to Note 6 “Business Combinations.”
Amortization expense for purchased intangible assets for the periods indicated below was as follows:
Based on the purchased intangible assets' gross carrying value recorded as of June 30, 2020, the remaining estimated annual amortization expense is expected to be as follows:
The entire disclosure for goodwill and intangible assets.
Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef