Goodwill And Intangible Assets

12 Months Ended

Dec. 30, 2011

Goodwill And Intangible Assets [Abstract]

5. Goodwill and Intangible Assets

Goodwill

We report operating results for three segments: Broadband, Transport and Services, which are also our reporting units for goodwill impairment testing. As of December 30, 2011, only the Services segment had a goodwill balance.

We test each operating segment for possible goodwill impairment by comparing each segment's net book value with fair value. We review goodwill annually for impairment, unless potential interim indicators exist that could result in impairment. We calculate the fair value of each segment by using a blended analysis of the present value of future discounted cash flows and the market approach of valuation. We believe the blended approach, which weighs both valuations equally, is the best method for determining fair value because this approach compensates for inherent risks associated with either model on a stand-alone basis. The process of evaluating the potential impairment of goodwill is subjective because it requires the use of estimates and assumptions. The discounted cash flow method requires us to use estimates and judgments about the future cash flows of the operating segments. Although we base cash flow forecasts on assumptions that are consistent with plans and estimates we use to manage the underlying operating segments, there is significant judgment in determining the cash flows attributable to these operating segments, including markets and market share, sales volumes and mix, research and development expenses, tax rates, capital spending, discount rate and working capital changes. Cash flow forecasts are based on segment operating plans for the early years and business projections in later years. The market approach is based on a comparison of the Company to comparable publicly traded firms in similar lines of business. The estimates and judgments used to determine comparable companies include such factors as size, growth, profitability, risk and return on investment.

In the third quarter of 2011, we performed an interim review for the Broadband segment since we have continued to experience a significant decline in business volumes from a major customer that has had an adverse impact on the results of the Broadband segment, and our overall market capitalization continued to fall below book value. Step one of this review involved determining the Broadband segment's fair value using the present value of future cash flows based on estimates, judgments and assumptions that management believes are appropriate for the circumstances (Level 3 fair value assumptions, see Note 6, Fair Value Measurements). We determined that the fair value of the Broadband segment was below its carrying value, which necessitated a step two review to determine whether or not to record a goodwill impairment charge. The step two review involved determining the fair value of the identifiable net assets of the Broadband segment, excluding goodwill, and comparing this to the fair value from step one. We determined that the fair value of the identifiable net assets, excluding goodwill, was greater than the fair value of the segment, resulting in no value attributable to goodwill. Consequently, the financial results for the third quarter of 2011 included an impairment charge for the full amount of Broadband segment goodwill, amounting to $82.7 million. The Services segment did not incur an impairment of its goodwill since the fair value of the segment was determined to be greater than the carrying value.

During the fourth quarter of 2011, we tested the Services segment for possible goodwill impairment as part of our annual review. As the Services segment's fair value was greater than its book value and no impairment indicators existed, further impairment tests were not deemed necessary and no impairment loss was recorded.

In 2010, we reduced goodwill by $2.0 million to reflect a tax benefit for net operating losses from the acquisition of WiChorus. As a result, total goodwill from the acquisition of WiChorus was $82.7 million.

The allocation of goodwill and goodwill activity by segment follows:


	12/30/11
	Broadband			Transport		Services			Total
Beginning balance	$	82.7		$	—	$	122.2		$	204.9
Additions (reductions)		(82.7	)		—		—			(82.7	)
Currency translation adjustments		—			—		(0.2	)		(0.2	)
Ending balance	$	—		$	—	$	122.0		$	122.0


	12/31/10
	Broadband			Transport		Services			Total
Beginning balance	$	84.7		$	—	$	122.5		$	207.2
Additions (reductions)		(2.0	)		—		—			(2.0	)
Currency translation adjustments		—			—		(0.3	)		(0.3	)
Ending balance	$	82.7		$	—	$	122.2		$	204.9

Intangible Assets

We amortize intangible assets with finite lives on a straight-line basis over their estimated useful lives. Trade names/trademarks are amortized over 4 to 12 months; customer relationships/backlog over 6 months to 9 years; non-compete agreements from 1.5 to 3 years; developed technology over 2 to 7.5 years; and leasehold estates over 4 to 10 years.

During 2010, we acquired intangible assets related to the addition of a research and development team in Vancouver, British Columbia, Canada, that offers a unique talent pool to accelerate delivery of differentiated solutions to customers. As a result, we added $0.4 million related to developed technology amortized over 5 years. During 2009, we acquired intangible assets related to the purchase of WiChorus. Additions included $66.0 million related to developed technology amortized up to 7.5 years; $4.3 million for customer relationships amortized over 8 years; $0.2 million for trade names amortized over 1 year; $13.1 million for non-compete agreements amortized over 1.5 to 3 years and $20.0 million related to IPR&D.

We evaluate the carrying value of intangible assets and other long-lived assets for impairment whenever indicators of impairment exist. In the fourth quarter of 2011, we identified indicators of impairment related to our Broadband segment due to the potential exit from the mobile packet core market.

We tested the Broadband segment asset group for recoverability using pretax undiscounted cash flows. Although we base cash flow forecasts on assumptions that are consistent with plans and estimates we use to manage the underlying operating segments, there is significant judgment in determining the cash flows attributable to these operating segments, including markets and market share, sales volumes and mix, research and development expenses, capital spending and working capital changes. Cash flow forecasts are based on segment operating plans for the early years and business projections in later years. We compared the pretax undiscounted cash flows to the carrying value of the asset group. Based on our test as of December 30, 2011, the undiscounted cash flows exceeded the carrying value of the Broadband long-lived asset group and accordingly no impairment charge was recognized in our financial statements. No impairment was recorded in 2010.

Intangible assets with indefinite lives, which include IPR&D, are reviewed for impairment annually unless potential interim indicators exist that could result in impairment. In conjunction with the interim goodwill impairment review, we assessed the valuation of the IPR&D in the third quarter of 2011. For IPR&D, the review involves determining the present value of estimated future cash flows that reflects updated judgments and assumptions that management believes are appropriate for the circumstances (Level 3 fair value assumptions, see Note 6, Fair Value Measurements). Updated management projections, related to the IPR&D which reflected a significant decline in anticipated business volumes, resulted in an impairment charge in the third quarter of 2011 of $20.0 million.

The gross carrying amount and accumulated amortization of intangible assets subject to amortization are as follows:

12/30/11

Gross
Assets

Accumulated
Amortization

Net

Developed technology

212.8

(169.1

)

43.7

Customer relationships/backlog

35.2

(23.7

)

11.5

Trade names/trademarks

0.2

(0.2

)

—

Leasehold improvements¹

(2.7

)

2.3

(0.4

)

Non-compete arrangements

13.1

(10.8

)

2.3

Total

258.6

(201.5

)

57.1

¹	Leasehold improvements as of December 30, 2011, reflects a net reclass of $0.5 million to Restructuring and other charges due to the reduction of a facility.


	12/31/10
	Gross Assets			Accumulated Amortization			Net
Developed technology	$	215.6		$	(161.4	)	$	54.2
Customer relationships/backlog		35.2			(18.6	)		16.6
Trade names/trademarks		0.2			(0.2	)		—
Leasehold improvements		(3.2	)		2.0			(1.2	)
Non-compete arrangements		13.1			(6.0	)		7.1
IPR&D		20.0			—			20.0
Total	$	280.9		$	(184.2	)	$	96.7

The estimated amortization expense of intangible assets subject to amortization for each of the next five years follows:


2012	$	17.8
2013	$	15.5
2014	$	10.9
2015	$	5.3
2016	$	5.2
Thereafter	$	2.4

- 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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