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Goodwill, Purchased Technology and Other Intangible Assets | 6 Months Ended
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Apr. 26, 2020
Goodwill and Intangible Assets Disclosure [Abstract] |
Goodwill, Purchased Technology and Other Intangible Assets | Goodwill, Purchased Technology and Other Intangible Assets Goodwill and Purchased Intangible Assets Applied’s methodology for allocating the purchase price relating to purchase acquisitions is determined through established and generally accepted valuation techniques. Goodwill is measured as the excess of the purchase price over the sum of the amounts assigned to tangible and identifiable intangible assets acquired less liabilities assumed. Applied assigns assets acquired (including goodwill) and liabilities assumed to one or more reporting units as of the date of acquisition. Typically, acquisitions relate to a single reporting unit and thus do not require the allocation of goodwill to multiple reporting units. If the products obtained in an acquisition are assigned to multiple reporting units, the goodwill is distributed to the respective reporting units as part of the purchase price allocation process. Goodwill and purchased intangible assets with indefinite useful lives are not amortized but are reviewed for impairment annually during the fourth quarter of each fiscal year and whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. The process of evaluating the potential impairment of goodwill and intangible assets requires significant judgment, especially in emerging markets. Applied regularly monitors current business conditions and considers other factors including, but not limited to, adverse industry or economic trends, restructuring actions and lower projections of profitability that may impact future operating results. To test goodwill for impairment, Applied first performs a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. If it is concluded that this is the case, Applied then performs the two-step goodwill impairment test. Otherwise, the two-step goodwill impairment test is not required. Under the two-step goodwill impairment test, Applied would in the first step compare the estimated fair value of each reporting unit to its carrying value. Applied determines the fair value of each of its reporting units based on a weighting of income and market approaches. If the carrying value of a reporting unit exceeds its fair value, Applied would then perform the second step of the impairment test in order to determine the implied fair value of the reporting unit’s goodwill. If Applied determines that the carrying value of a reporting unit’s goodwill exceeds its implied fair value, Applied would record an impairment charge equal to the difference. As of April 26, 2020, Applied’s reporting units include Semiconductor Products Group and Imaging and Process Control Group, which combine to form the Semiconductor Systems reporting segment, Applied Global Services, Display and Adjacent Markets and Corporate and Other. The evaluation of goodwill and intangible assets for impairment requires the exercise of significant judgment. In the event of future changes in business conditions, Applied will be required to reassess and update its forecasts and estimates used in future impairment analyses. If the results of these future analyses are lower than current estimates, a material impairment charge may result at that time. Details of goodwill as of April 26, 2020 and October 27, 2019 were as follows:
| April 26, 2020 |  |  |  |  |  | October 27, 2019 |  |  |  |
| (In millions) |  |  |  |  |  |  |  |  |  |
Semiconductor Systems | $ | 2,182 |  |  |  |  |  |  | $ | 2,182 |  |  |  |  |
Applied Global Services | 1,018 |  |  |  |  |  |  | 1,018 |  |  |  |  |
Display and Adjacent Markets | 199 |  |  |  |  |  |  | 199 |  |  |  |  |
Corporate and Other | 27 |  |  |  |  |  |  | — |  |  |  |  |
Carrying amount | $ | 3,426 |  |  |  |  |  |  | $ | 3,399 |  |  |  |  |
From time to time, Applied makes acquisitions of companies related to existing or new markets for Applied. During the first half of fiscal 2020, goodwill increased by $27 million primarily due to the preliminary purchase accounting for an acquisition completed in the second quarter of fiscal 2020, which was not material to Applied’s results of operations. A summary of Applied’s purchased technology and intangible assets is set forth below:
| April 26, 2020 |  | October 27, 2019
| (In millions) |  |
Purchased technology, net | $ | 55 |  |  | $ | 71 |
Intangible assets - finite-lived, net | 77 |  |  | 85 |
Total | $ | 132 |  |  | $ | 156 |
Finite-Lived Purchased Intangible Assets Applied amortizes purchased intangible assets with finite lives using the straight-line method over the estimated economic lives of the assets, ranging from 1 to 15 years. Applied evaluates long-lived assets for impairment whenever events or changes in circumstances indicate the carrying value of an asset group may not be recoverable. Applied assesses the fair value of the assets based on the amount of the undiscounted future cash flow that the assets are expected to generate and recognizes an impairment loss when estimated undiscounted future cash flow expected to result from the use of the asset, plus net proceeds expected from disposition of the asset, if any, are less than the carrying value of the asset. When Applied identifies an impairment, Applied reduces the carrying value of the group of assets to comparable market values, when available and appropriate, or to its estimated fair value based on a discounted cash flow approach. Intangible assets, such as purchased technology, are generally recorded in connection with a business acquisition. The value assigned to intangible assets is usually based on estimates and judgments regarding expectations for the success and life cycle of products and technology acquired. Applied evaluates the useful lives of its intangible assets each reporting period to determine whether events and circumstances require revising the remaining period of amortization. In addition, Applied reviews intangible assets for impairment when events or changes in circumstances indicate their carrying value may not be recoverable. Management considers such indicators as significant differences in actual product acceptance from the estimates, changes in the competitive and economic environments, technological advances, and changes in cost structure. Details of finite-lived intangible assets were as follows:
| April 26, 2020 |  |  |  |  |  | October 27, 2019 |  |  |  |
| Purchased Technology |  | Other Intangible Assets |  | Total |  | Purchased Technology |  | Other Intangible Assets |  | Total
| (In millions) |  |  |  |  |  |  |  |  |  |
Gross carrying amount: |  |  |  |  |  |  |  |  |  |  |
Semiconductor Systems | $ | 1,449 |  |  | $ | 252 |  |  | $ | 1,701 |  |  | $ | 1,449 |  |  | $ | 252 |  |  | $ | 1,701 |
Applied Global Services | 35 |  |  | 44 |  |  | 79 |  |  | 33 |  |  | 44 |  |  | 77 |
Display and Adjacent Markets | 163 |  |  | 38 |  |  | 201 |  |  | 163 |  |  | 38 |  |  | 201 |
Corporate and Other | — |  |  | 9 |  |  | 9 |  |  | — |  |  | 9 |  |  | 9 |
Gross carrying amount | $ | 1,647 |  |  | $ | 343 |  |  | $ | 1,990 |  |  | $ | 1,645 |  |  | $ | 343 |  |  | $ | 1,988 |
Accumulated amortization: |  |  |  |  |  |  |  |  |  |  |
Semiconductor Systems | $ | (1,411) |  |  | $ | (176) |  |  | $ | (1,587) |  |  | $ | (1,400) |  |  | $ | (168) |  |  | $ | (1,568) |
Applied Global Services | (30) |  |  | (44) |  |  | (74) |  |  | (30) |  |  | (44) |  |  | (74) |
Display and Adjacent Markets | (151) |  |  | (37) |  |  | (188) |  |  | (144) |  |  | (37) |  |  | (181) |
Corporate and Other | — |  |  | (9) |  |  | (9) |  |  | — |  |  | (9) |  |  | (9) |
Accumulated amortization | $ | (1,592) |  |  | $ | (266) |  |  | $ | (1,858) |  |  | $ | (1,574) |  |  | $ | (258) |  |  | $ | (1,832) |
Carrying amount | $ | 55 |  |  | $ | 77 |  |  | $ | 132 |  |  | $ | 71 |  |  | $ | 85 |  |  | $ | 156 |
Details of amortization expense by segment were as follows:
| Three Months Ended |  |  |  | Six Months Ended |  |
| April 26, 2020 |  | April 28, 2019 |  | April 26, 2020 |  | April 28, 2019
| (In millions) |  |  |  |  |  |
Semiconductor Systems | $ | 9 |  |  | $ | 10 |  |  | $ | 19 |  |  | $ | 21 |
Applied Global Services | — |  |  | 1 |  |  | — |  |  | 1 |
Display and Adjacent Markets | 3 |  |  | 3 |  |  | 7 |  |  | 6 |
Total | $ | 12 |  |  | $ | 14 |  |  | $ | 26 |  |  | $ | 28 |
Amortization expense was charged to the following categories:
| Three Months Ended |  |  |  | Six Months Ended |  |
| April 26, 2020 |  | April 28, 2019 |  | April 26, 2020 |  | April 28, 2019
| (In millions) |  |  |  |  |  |
Cost of products sold | $ | 8 |  |  | $ | 10 |  |  | $ | 17 |  |  | $ | 19 |
Marketing and selling | 4 |  |  | 4 |  |  | 9 |  |  | 9 |
Total | $ | 12 |  |  | $ | 14 |  |  | $ | 26 |  |  | $ | 28 |
As of April 26, 2020, future estimated amortization expense is expected to be as follows:
| Amortization Expense
| (In millions)
2020 (remaining 6 months) | $ | 25 |
2021 | 40 |
2022 | 24 |
2023 | 12 |
2024 | 11 |
Thereafter | 20 |
Total | $ | 132 |

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- Definition The entire disclosure for goodwill and intangible assets. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 350 -URI http://asc.fasb.org/topic&trid=2144416 + Details
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