Goodwill and Other Intangible Assets

3 Months Ended

Mar. 31, 2016

Goodwill and Intangible Assets Disclosure [Abstract]

At acquisition, the Company estimates and records the fair value of purchased intangible assets. The fair values of these intangible assets are estimated based on our assessment. Goodwill is the excess of the purchase price over the fair value of identifiable net assets acquired in business combinations. Goodwill and certain other intangible assets having indefinite lives are not amortized to earnings, but instead are subject to periodic testing for impairment. Intangible assets determined to have definite lives are amortized over their remaining useful lives.

We assess the impairment of long‑lived assets, intangibles assets and goodwill whenever events or changes in circumstances indicate that full recoverability of net asset balances through future cash flows is in question. Goodwill and indefinite-lived intangible assets are assessed at least annually, but also whenever events or changes in circumstances indicate the carrying values may not be recoverable. Factors that could trigger an impairment review include: (a) significant underperformance relative to historical or projected future operating results; (b) significant changes in the manner of use of the acquired assets or the strategy for our overall business; (c) significant negative industry or economic trends; (d) significant decline in our stock price for a sustained period; and (e) a decline in our market capitalization below net book value. No impairment indicators were noted in the first quarter of 2016 which would trigger the need for testing for both definite and indefinite lived assets.

Management's forecasts of planned revenue are largely dependent on the market acceptance and continued channel expansion of the Company's recently launched HyperSound Clear™ 500P product to generate the projected revenue in subsequent years. If the performance of the Company's HyperSound Clear 500P product in the hearing healthcare market does not meet expectations based on initial market data, a future impairment charge could result for a portion or all of the remaining goodwill. The amount of any impairment is dependent on the performance of the business which is dependent upon a number of variables which cannot be predicted with certainty.

Acquired Intangible Assets

Acquired identifiable intangible assets, and related accumulated amortization, as of March 31, 2016 and December 31, 2015 consist of:



	March 31, 2016
	Gross Carrying Value			Accumulated Amortization			Net Book Value
	(in thousands)
Customer relationships	$	5,796		$	3,377		$	2,419
Non-compete agreements	177			177			—
In-process Research and Development	27,100			2,037			25,063
Developed technology	8,880			268			8,612
Trade names	170			75			95
Patent and trademarks	864			46			818
Foreign Currency	$	(598	)	$	(381	)	$	(217	)
Total Intangible Assets	$	42,389		$	5,599		$	36,790


	December 31, 2015
	Gross Carrying Value			Accumulated Amortization			Net Book Value
	(in thousands)
Customer relationships	$	5,796		$	3,213		$	2,583
Non-compete agreements	177			177			—
In-process Research and Development	27,100			1,018			26,082
Developed technology	8,880			225			8,655
Trade names	170			67			103
Patent and trademarks	730			37			693
Foreign Currency	$	(463	)	$	(303	)	$	(160	)
Total Intangible Assets	$	42,390		$	4,434		$	37,956

In October 2012, VTB acquired Lygo International Limited, subsequently renamed TB Europe Ltd. The acquired intangible assets relating to customer relationships and non-compete agreements are being amortized over an estimated useful life of thirteen years and two years, respectively, with the amortization being included within sales and marketing expense.

In January 2014, the merger between VTBH and Turtle Beach (f/k/a Parametric Sound Corporation) was completed. The acquired intangible assets relating to developed technology, customer relationships and trade name are subject to amortization. Developed technology is being amortized over an estimated economic useful life of approximately seven years with the amortization being included within cost of revenue. Customer relationships and trade name are being amortized over an estimated useful life of two years and five years, respectively, with the amortization being included within sales and marketing expense. In-process Research and Development (“IPR&D”) was considered an indefinite-lived intangible asset until the completion or abandonment of the associated research and development efforts. In October 2015, the purchased in-process technology for research projects, primarily related to directed audio solutions that beam sound to a specific listening area without the ambient noise of traditional speakers, reached technological feasibility and was reclassified as an amortizable finite-lived asset and is being amortized over an estimated useful life of approximately eight years with the amortization being included within cost of revenue.

Amortization expense related to definite lived intangible assets of $1.2 million and $0.2 million was recognized in the three months ended March 31, 2016 and 2015, respectively.

As of March 31, 2016, estimated annual amortization expense related to definite lived intangible assets in future periods is as follows:



	(in thousands)
2016	$	7,160
2017	6,526
2018	6,024
2019	5,601
2020	4,907
Thereafter	6,789
Total	$	37,007

Goodwill

Changes in the carrying values of goodwill for the three months ended March 31, 2016 are as follows:



	(in thousands)
Balance as of January 1, 2016	$	31,152
	—
Balance as of March 31, 2016	$	31,152

- Definition

The entire disclosure for the aggregate amount of goodwill and a description of intangible assets, which may include (a) for amortizable intangible assets (also referred to as finite-lived intangible assets), the carrying amount, the amount of any significant residual value, and the weighted-average amortization period, (b) for intangible assets not subject to amortization (also referred to as indefinite-lived intangible assets), the carrying amount, and (c) the amount of research and development assets acquired and written off in the period, including the line item in the income statement in which the amounts written off are aggregated, if not readily apparent from the income statement. Also discloses (a) for amortizable intangibles assets in total and by major class, the gross carrying amount and accumulated amortization, the total amortization expense for the period, and the estimated aggregate amortization expense for each of the five succeeding fiscal years, (b) for intangible assets not subject to amortization the carrying amount in total and by major class, and (c) for goodwill, in total and for each reportable segment, the changes in the carrying amount of goodwill during the period (including the aggregate amount of goodwill acquired, the aggregate amount of impairment losses recognized, and the amount of goodwill included in the gain (loss) on disposal of a reporting unit). If any part of goodwill has not been allocated to a reportable segment, discloses the unallocated amount and the reasons for not allocating. For each impairment loss recognized related to an intangible asset (excluding goodwill), discloses: (a) a description of the impaired intangible asset and the facts and circumstances leading to the impairment, (b) the amount of the impairment loss and the method for determining fair value, (c) the caption in the income statement or the statement of activities in which the impairment loss is aggregated, and (d) the segment in which the impaired intangible asset is reported. For each goodwill impairment loss recognized, discloses: (a) a description of the facts and circumstances leading to the impairment, (b) the amount of the impairment loss and the method of determining the fair value of the associated reporting unit, and (c) if a recognized impairment loss is an estimate not finalized and the reasons why the estimate is not final. May also disclose the nature and amount of any significant adjustments made to a previous estimate of an impairment loss.

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