Goodwill and Intangible Assets
Goodwill. Goodwill balances and activity during fiscal year 2013 were as follows (in thousands):
|
| | | |
| Carrying Amount |
Balance as of December 30, 2012 | $ | 201,735 |
|
Acquisition | 115,775 |
|
Adjustment | 601 |
|
Balance as of December 29, 2013 | $ | 318,111 |
|
Goodwill increased by approximately $115.8 million due to the Company’s acquisition of SMART Storage Systems (“SMART Storage”) during the third quarter of fiscal year 2013. See Note 15, “Business Acquisition” regarding this acquisition. In addition, goodwill increased by $0.6 million during the first quarter of fiscal year 2013 due to the resolution of a legal contingency matter during the measurement period for an acquisition from fiscal year 2012.
Goodwill is not amortized, but is reviewed and tested for impairment at least annually, on the first day of the Company’s fourth quarter and whenever events or circumstances occur that indicate that goodwill might be impaired. Impairment of goodwill is tested at the Company’s reporting unit level. The Company has the option to first assess qualitative factors to determine whether events and circumstances indicate that it is more likely than not that the goodwill is impaired and determine whether further action is needed (“Step 0”). For the year ended December 29, 2013, the Company performed a Step 0 qualitative assessment of its goodwill and did not identify any events or circumstances that would indicate an impairment of goodwill. As such, the Company did not perform any further goodwill impairment testing.
Intangible Assets. Intangible asset balances were as follows (in thousands):
|
| | | | | | | | | | | | | | | |
| December 29, 2013 |
| Gross Carrying Amount | | Accumulated Amortization | | Impairment | | Net Carrying Amount |
Developed product technology | $ | 348,385 |
| | $ | (121,304 | ) | | $ | (44,216 | ) | | $ | 182,865 |
|
Customer relationships | 20,650 |
| | (14,426 | ) | | — |
| | 6,224 |
|
Trademarks | 14,200 |
| | (3,634 | ) | | (2,812 | ) | | 7,754 |
|
Covenants not to compete | 3,100 |
| | (2,959 | ) | | — |
| | 141 |
|
Acquisition-related intangible assets | 386,335 |
| | (142,323 | ) | | (47,028 | ) | | 196,984 |
|
Technology licenses and patents | 133,909 |
| | (89,289 | ) | | — |
| | 44,620 |
|
Total intangible assets subject to amortization | 520,244 |
| | (231,612 | ) | | (47,028 | ) | | 241,604 |
|
Acquired in-process research and development | 42,500 |
| | — |
| | (36,200 | ) | | 6,300 |
|
Total intangible assets | $ | 562,744 |
| | $ | (231,612 | ) | | $ | (83,228 | ) | | $ | 247,904 |
|
|
| | | | | | | | | | | | | | | |
| December 30, 2012 |
| Gross Carrying Amount | | Accumulated Amortization | | Impairment | | Net Carrying Amount |
Developed product technology | $ | 200,960 |
| | $ | (68,104 | ) | | $ | — |
| | $ | 132,856 |
|
Core technology | 79,800 |
| | (79,800 | ) | | — |
| | — |
|
Customer relationships | 13,050 |
| | (10,043 | ) | | — |
| | 3,007 |
|
Trademarks | 5,700 |
| | (1,870 | ) | | — |
| | 3,830 |
|
Covenants not to compete | 3,100 |
| | (1,618 | ) | | — |
| | 1,482 |
|
Acquisition-related intangible assets | 302,610 |
| | (161,435 | ) | | — |
| | 141,175 |
|
Technology licenses and patents | 133,909 |
| | (65,690 | ) | | — |
| | 68,219 |
|
Total intangible assets subject to amortization | 436,519 |
| | (227,125 | ) | | — |
| | 209,394 |
|
Acquired in-process research and development | 38,385 |
| | — |
| | (860 | ) | | 37,525 |
|
Total intangible assets | $ | 474,904 |
| | $ | (227,125 | ) | | $ | (860 | ) | | $ | 246,919 |
|
Gross acquisition-related intangible assets and acquired in-process research and development (“IPR&D”) increased $168.5 million in fiscal year 2013 due to the acquisition of SMART Storage. During the fiscal year ended December 29, 2013, the Company reclassified $1.3 million of acquired IPR&D to developed product technology and commenced amortization.
The Company performs tests for impairment of long-lived assets whenever events or circumstances suggest that long-lived assets may be impaired. In the third quarter of fiscal year 2013, the Company performed impairment tests on the amortizable intangible and IPR&D assets from the Pliant Technology, Inc. (“Pliant”) acquisition. The Company performed impairment tests on these assets due to the recent SMART Storage acquisition and the decision to integrate more of the SMART Storage architecture into its future enterprise product roadmap, and due to additional product delays in the development timeline related to an IPR&D project from this acquisition. In conducting an impairment review of the Pliant amortizable intangible assets, the Company first compared the undiscounted cash flows to the carrying value of these amortizable intangible assets. Since the undiscounted cash flows were less than the carrying value, the Company then compared the estimated fair value based upon forecasted discounted cash flows to the carrying value and determined there was an impairment of $47.0 million. In addition, the Company performed an impairment analysis for the IPR&D by comparing the estimated fair value based upon forecasted discounted cash flows related to the Pliant IPR&D to the carrying value and determined there was a full impairment of $36.2 million. The Company recorded an impairment of the amortizable intangible assets and IPR&D assets totaling $83.2 million in the third quarter of fiscal year 2013, which was included in Impairment of acquisition-related intangible assets in the Consolidated Statements of Operations. The Company will continue to monitor for any events or circumstances that could indicate whether an impairment of the remaining Pliant acquisition-related intangible assets is required. The amortization schedule for the remaining Pliant acquisition-related intangible assets has been adjusted to be fully amortized by the end of fiscal year 2014, based upon the estimated remaining cash flows.
Acquired IPR&D is accounted for as an indefinite-lived intangible asset. Indefinite-lived intangible assets are reviewed for impairment at least annually until technological feasibility is achieved or development is complete. Upon completion of development, the acquired IPR&D is considered an amortizable finite-lived intangible asset. Amortization expense of technology licenses and patents is recorded to cost of revenue or R&D based upon the use of the technology. In fiscal year 2012, the Company discontinued a project related to an IPR&D indefinite-lived intangible asset, which resulted in an impairment of $0.9 million which was included in Impairment of acquisition-related intangible assets in the Consolidated Statement of Operations.
Amortization expense of intangible assets totaled $84.3 million, $76.5 million and $65.5 million in fiscal years 2013, 2012 and 2011, respectively.
The annual expected amortization expense of intangible assets subject to amortization as of December 29, 2013, is as follows (in thousands):
|
| | | | | | | |
| Acquisition-related Intangible Assets | | Technology Licenses and Patents |
Fiscal year: | | | |
2014 | $ | 83,671 |
| | $ | 21,231 |
|
2015 | 48,114 |
| | 20,056 |
|
2016 | 40,544 |
| | 3,333 |
|
2017 | 24,655 |
| | — |
|
Total intangible assets subject to amortization | $ | 196,984 |
| | $ | 44,620 |
|
