GOODWILL AND PURCHASED INTANGIBLE ASSETS |
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| 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. 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 2025, in connection with our annual strategic planning process, we noted a continued deterioration of the long-term forecast for our Printed Circuit Board (“PCB”) business, which is part of our PCB and Component Inspection reportable segment. In addition, in the second quarter of fiscal 2025, we completed an internal reorganization affecting the composition of reporting units within our Specialty Semiconductor Process and PCB and Component Inspection reportable segments. The downward revision of financial outlook for PCB and the reorganization of reporting units triggered goodwill impairment tests.
The following table presents changes in goodwill carrying value by reportable segment during the six months ended December 31, 2024:
As a result of our quantitative assessment before reorganization, we recorded a total goodwill impairment charge of $230.4 million in the PCB reporting unit, which is part of the PCB and Component Inspection reportable segment, in the three months ended December 31, 2024. No goodwill impairment was identified in the Specialty Semiconductor Process reportable
segment. We assessed for impairment subsequent to the reorganization and noted no impairment. The goodwill balances of our new reporting units after reorganization were allocated on a relative fair value basis.
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 the 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 based on a perpetual nominal growth rate, which is based on projected long-range inflation and long-term industry projections. The discount rates are based on the weighted average cost of capital of comparable peer companies adjusted for the company-specific risk. 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.
During the second quarter of fiscal 2024, we identified an impairment indicator within our PCB and Component Inspection reportable segment due to the deterioration in long-term forecast for the PCB and Display businesses. As a result of our quantitative assessment, we recorded a total goodwill impairment charge of $192.6 million in the three months ended December 31, 2023. The fair values of the relevant reporting units were determined using the same approach described above.
As of June 30, 2024, Goodwill is net of accumulated impairment losses of $277.6 million, $144.2 million and $70.5 million in the Semiconductor Process Control, Specialty Semiconductor Process and PCB and Component Inspection reportable segments, respectively. As of December 31, 2024, following the internal reorganization noted above, Goodwill is net of accumulated impairment losses of $277.6 million and $70.5 million in the Semiconductor Process Control and PCB and Component Inspection reportable segments, respectively.
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. We identified an impairment indicator for the long-lived assets in our PCB and Component Inspection reportable segment during the second quarter of fiscal 2025 due to the downward revision of financial outlook for the PCB business as noted above. The internal reorganization described above was also considered a trigger for impairment analysis of the long-lived assets of the Specialty Semiconductor Process and PCB and Component Inspection reportable segments.
In connection with the evaluation of goodwill impairment, we assessed tangible and intangible assets for impairment prior to performing the goodwill impairment tests. We first performed a recoverability test for each affected asset group by comparing projected undiscounted cash flows from the use and eventual disposition of each asset group to its carrying value. The tests indicated that the undiscounted cash flows of all asset groups in the Specialty Semiconductor Process reportable segment were sufficient to recover the carrying value of the asset groups. However, the tests indicated that the undiscounted cash flows were not sufficient to recover the carrying value of the asset groups in the PCB and Component Inspection reportable segment. 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. Determining the fair value involved the use of significant estimates and assumptions, including revenue forecasts, terminal growth rate, tax rate and a weighted average cost of capital adjusted for company-specific risk.
We recorded a total purchased of $8.7 million for the three months ended December 31, 2024. No impairment was identified for other long-lived asset groups of the Company in the three months ended December 31, 2024.
As part of the evaluation of goodwill impairment in the PCB and Component Inspection reportable segment in the second quarter of fiscal 2024 noted above, the Company assessed long-lived assets for impairment prior to performing the goodwill impairment test. As a result, we recorded a total purchased of $26.4 million for the three months ended December 31, 2023.
Total impairment charges for goodwill and purchased intangible assets of $239.1 million and $219.0 million were recognized as separate charges and included in income (loss) from operations in the three months ended December 31, 2024 and December 31, 2023, respectively.
Amortization expense for purchased intangible assets was $58.9 million and $115.6 million for the three and six months ended December 31, 2024, respectively, and $59.4 million and $122.7 million for the three and six months ended December 31, 2023, respectively.
Based on the purchased intangible assets gross carrying amount recorded as of December 31, 2024, the remaining estimated annual amortization expense is expected to be as follows:
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