Annual report pursuant to Section 13 and 15(d)

GOODWILL AND PURCHASED INTANGIBLE ASSETS

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GOODWILL AND PURCHASED INTANGIBLE ASSETS
 12 Months Ended
Jun. 30, 2024
Goodwill and Intangible Assets Disclosure [Abstract]  
GOODWILL AND PURCHASED INTANGIBLE ASSETS 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 business combinations. As of June 30, 2024, we have three reportable segments, five operating segments and six reporting units.
The following table presents the carrying value of goodwill and the movements by reporting unit during the fiscal years ended June 30, 2024 and 2023:
(In thousands) Wafer Inspection and Patterning
Global Service and Support (“GSS”)
Specialty Semiconductor Process PCB and Display PCB Display Component Inspection Total
Balances as of June 30, 2022
Goodwill $ 1,003,307  $ 25,908  $ 826,037  $ 985,441  $ —  $ —  $ 13,575  $ 2,854,268 
Accumulated impairment losses (277,570) —  (144,179) (112,470) —  —  —  (534,219)
725,737  25,908  681,858  872,971  —  —  13,575  $ 2,320,049 
Activity for the year ended June 30, 2023
Acquired goodwill 6,776  —  —  —  —  —  —  6,776 
Goodwill disposal from sale of business(1)
—  —  —  (42,622) —  —  —  (42,622)
Goodwill adjustments (5,337) —  —  —  —  —  —  (5,337)
Foreign currency adjustment (46) —  —  —  —  —  —  (46)
Balances as of June 30, 2023
Goodwill 1,004,700  25,908  826,037  942,819  —  —  13,575  2,813,039 
Accumulated impairment losses (277,570) —  (144,179) (112,470) —  —  —  (534,219)
727,130  25,908  681,858  830,349  —  —  13,575  2,278,820 
Activity for the year ended June 30, 2024
Goodwill impairment —  —  —  (192,600) —  (70,474) (263,074)
Reallocation due to change in reporting units —  —  —  (637,749) 567,275  70,474  — 
Foreign currency adjustments (20) —  —  —  —  —  —  (20)
Balances as of June 30, 2024
Goodwill 1,004,680  25,908  826,037  —  567,275  70,474  13,575  2,507,949 
Accumulated impairment losses (277,570) —  (144,179) —  —  (70,474) —  (492,223)
$ 727,110  $ 25,908  $ 681,858  $ —  $ 567,275  $ —  $ 13,575  $ 2,015,726 
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(1)Refer to the Business Dispositions section of Note 6 “Business Combinations and Dispositions” for more information on the sale of Orbograph.
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.
During the second quarter of fiscal 2024, we noted a significant deterioration of the long-term forecast for our PCB and manufacturing flat and flexible panel displays (“Display”) businesses, which are a part of our PCB and Display operating segment, as the company initiated its annual strategic planning process. The downward revision of financial outlook for the PCB and Display businesses triggered a goodwill impairment test. In addition, in the second quarter of fiscal 2024, we began to evaluate strategic options for our Display business. Effective from the second quarter of fiscal 2024, our PCB and Display operating segment is comprised of two reporting units, 1) PCB and 2) Display while, prior to the change, the PCB and Display operating segment represented a single reporting unit. As a result of our quantitative assessment, we recorded a total goodwill impairment charge of $192.6 million for the PCB and Display reporting unit in the quarter ended December 31, 2023. The goodwill balances of the new PCB and Display reporting units were determined based on their relative fair values. We assessed for impairment subsequent to the reporting unit change and noted no impairment.
To determine the fair value of a reporting unit, we utilized income and market 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 this 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, discount 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 using a perpetual nominal growth rate, which is based on projected long-range inflation and long-term industry projections. The discount rates are calculated as the weighted average cost of capital of comparable peer companies, adjusted for company-specific risk. The market approach estimates the fair value of the reporting unit by utilizing the market comparable method, which uses revenue and earnings multiples from comparable companies.
We performed the required annual goodwill impairment testing for all reporting units as of February 29, 2024, and concluded that goodwill was not impaired, except for the Display reporting unit. As a result of this qualitative assessment, we determined that it was not necessary to perform a quantitative assessment for the reporting units subject to testing other than Display. In March 2024, we made the decision to exit the Display business by announcing the end of manufacturing of most Display products by December 31, 2024, but we will continue to provide services to the installed base of Display products for existing customers. The exit of the business does not qualify as a discontinued operation under the relevant accounting guidance, but the decision triggered a quantitative impairment assessment for the Display reporting unit, which resulted in a total goodwill impairment charge of $70.5 million in the quarter ended March 31, 2024.
To determine the fair value of the reporting unit, we utilized an income approach estimated through a discounted cash flow analysis, by adding the present value of the estimated annual discounted cash flows over a discrete projection period. This valuation technique requires us to use significant estimates and assumptions, including discount rates and internal forecasts of the anticipated future performance of the business. The discount rates are calculated as the weighted average cost of capital of comparable peer companies, adjusted for company-specific risk. There can be no assurance that these estimates and assumptions will prove to be an accurate prediction of the future.
We performed the required annual goodwill impairment test as of February 28, 2023 and concluded that goodwill was not impaired. As a result of our qualitative assessments, we determined that it was not necessary to perform a quantitative assessment at that time.
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, 2024. 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, 2025.
Purchased Intangible Assets
The components of purchased intangible assets as of the dates indicated below were as follows:
(In thousands) As of June 30, 2024 As of June 30, 2023
Category Range of
Useful Lives
(in years)		 Gross
Carrying
Amount		 Accumulated
Amortization and Impairment		 Net
Amount		 Gross
Carrying
Amount		 Accumulated
Amortization and Impairment		 Net
Amount
Existing technology
4-8
 $ 1,552,074  $ 1,045,585  $ 506,489  $ 1,536,826  $ 841,815  $ 695,011 
Customer relationships
4-9
 358,567  248,106  110,461  358,567  205,037  153,530 
Trade name/trademark
4-7
 119,083  97,106  21,977  116,583  78,749  37,834 
Order backlog and other
<1-7
 83,336  82,740  596  85,836  82,264  3,572 
Intangible assets subject to amortization
 2,113,060  1,473,537  639,523  2,097,812  1,207,865  889,947 
IPR&D 46,074  16,833  29,241  61,322  15,966  45,356 
Total $ 2,159,134  $ 1,490,370  $ 668,764  $ 2,159,134  $ 1,223,831  $ 935,303 
Refer to Note 1 “Description of Business and Summary of Significant Accounting Policies” for our policy of testing purchased intangible assets for impairment.
In connection with the evaluation of the goodwill impairment in the PCB and Display reporting unit during the second quarter of fiscal 2024, due to the downward revision of financial outlook for the businesses as noted above, the Company assessed tangible and intangible assets for impairment prior to performing the goodwill impairment test. The Company first performed a recoverability test for each asset group identified in the PCB and Display operating segment by comparing projected undiscounted cash flows from the use and eventual disposition of each asset group to its carrying value. This test indicated that the undiscounted cash flows were not sufficient to recover the carrying value of the asset groups. We then compared the carrying value of the individual long-lived assets within those asset groups against their fair value in order to measure the impairment loss. As a result of this assessment, we recorded a total purchased intangible asset impairment charge of $26.4 million. No impairment was identified for other long-lived assets in the three months ended December 31, 2023.
The total impairment charges for goodwill and purchased intangible assets of $219.0 million during the three months ended December 31, 2023, as well as the goodwill impairment charge of $70.5 million in the three months ended March 31, 2024, were recognized as separate charges and included in income (loss) from operations.
As of June 30, 2024 and 2023, there were no impairment indicators for purchased intangible assets.
Amortization expense for purchased intangible assets for the periods indicated below was as follows:
Year Ended June 30,
(In thousands) 2024 2023 2022
Amortization expense - Cost of revenues $ 182,970  $ 181,405  $ 168,957 
Amortization expense - SG&A 56,302  79,089  60,017 
Amortization expense - R&D —  125  124 
Total $ 239,272  $ 260,619  $ 229,098 
Based on the purchased intangible assets’ gross carrying value recorded as of June 30, 2024, the remaining estimated annual amortization expense is expected to be as follows:
Fiscal Year Ending June 30: Amortization
(In thousands)
2025 $ 218,639 
2026 197,846 
2027 125,517 
2028 48,849 
2029 34,530 
Thereafter 14,142 
Total $ 639,523