Goodwill and Identified Intangible Assets

3 Months Ended

Apr. 01, 2016

Goodwill and Intangible Assets Disclosure [Abstract]

Goodwill and Identified Intangible Assets

GOODWILL AND IDENTIFIED INTANGIBLE ASSETS

Goodwill

Goodwill represents the difference between the purchase price and the estimated fair value of the identifiable assets acquired and liabilities assumed. The Company tests for goodwill impairment at the reporting unit level on an annual basis, or more frequently if events or changes in circumstances indicate that the asset is more likely than not impaired. The Company’s annual goodwill impairment test is performed in the fiscal fourth quarter, with a testing date at the end of October.

In the three months ended April 1, 2016, the Company preliminary recorded additional goodwill of $39.2 million related to the TVN acquisition based on the preliminary allocation of the estimated purchase consideration. (See Note 3, “Business Acquisition” for additional information). The Company will continue to evaluate certain assets, liabilities and tax estimates that are subject to change within the measurement period (up to one year from the acquisition date). Goodwill from the TVN acquisition was assigned to the Video reporting unit.

The following table presents goodwill by reportable segments (in thousands):



	Video		Cable Edge			Total
As of December 31, 2015	$	136,904	$	60,877		$	197,781
Preliminary estimate of goodwill from TVN acquisition	39,206		—			39,206
Foreign currency translation adjustment	933		(21		)	912
As of April 1, 2016	$	177,043	$	60,856		$	237,899

The Company performs its annual goodwill impairment review of its two reporting units, which are the same as its operating segments, during the fourth fiscal quarter of 2015. The 2015 annual testing concluded that goodwill was not impaired as the Video and Cable Edge reporting units had estimated fair values in excess of their carrying value by approximately 87% and 42%, respectively.

Application of the goodwill impairment test requires judgment, including the identification of reporting units, assigning assets and liabilities to reporting units, assigning goodwill to reporting units, and determining the fair value of each reporting unit. Significant judgments by management are required to estimate the fair value of reporting units include estimating future cash flows and determining appropriate discount rates, growth rates, an appropriate control premium and other assumptions. Changes in these estimates and assumptions could materially affect the determination of fair value for each reporting unit which could trigger impairment. If the Company’s assumptions and related estimates change in the future, or if the Company’s reporting structure changes or other events and circumstances change (e.g. such as a sustained decrease in the Company’s stock price), the Company may be required to record impairment charges in future periods. Any impairment charges that the Company may take in the future could be material to its results of operations and financial condition.

The Company’s market capitalization has declined as of April 1, 2016. A significant decline in a company’s stock price may suggest that an adverse change in the business climate may have caused the fair value of one or more reporting units to fall below their carrying value. At April 1, 2016, the Company performed an assessment considering various factors, in accordance with the accounting guidance, for any potential impairment indicators. Significant judgments by management have been applied to determine whether stock price declines are a short-term swing or a long-term trend. The Company reviewed the duration and severity of the stock declines and noted its market capitalization was below the carrying value of its reporting units for a short period of time and the Company believes that this condition will not be sustained. Additionally, the Company believes that the fluctuation in market capitalization is driven by general market movement and not Company specific factors. The Company believes that the fair value established during the 2015 annual goodwill impairment testing for its Video and Cable Edge reporting units were reasonable and no triggering event existed at April 1, 2016. However, a sustained decline in the Company’s stock price may lead to a triggering event for goodwill impairment later in 2016.

The Company has not recorded any impairment charges related to goodwill for any prior periods.

Intangible Assets

In the three months ended April 1, 2016, intangible assets increased $44.8 million due to the TVN acquisition. The following is a summary of intangible assets (in thousands):



		April 1, 2016							December 31, 2015
	Weighted Average Remaining Life (Years)	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Developed core technology	3.9	$	31,488	$	(11,416	)	$	20,072	$	10,987	$	(10,987	)	$	—
Customer relationships/contracts	4.4	48,164		(27,286		)	20,878		29,200		(25,752		)	3,448
Trademarks and trade names	3.9	605		(13		)	592		—		—			—
Maintenance agreements and related relationships	0.5	5,500		(5,080		)	420		5,500		(4,851		)	649
Order Backlog	0.4	3,690		(615		)	3,075		—		—			—
In-process R&D	n/a	1,005		—			1,005		—		—			—
Total identifiable intangibles		$	90,452	$	(44,410	)	$	46,042	$	45,687	$	(41,590	)	$	4,097

Amortization expense for the identifiable purchased intangible assets for the three months ended April 1, 2016 and April 3, 2015 was allocated as follows (in thousands):



	Three months ended
	April 1, 2016		April 3, 2015
Included in cost of revenue	$	418	$	461
Included in operating expenses	2,365		1,446
Total amortization expense	$	2,783	$	1,907

The estimated future amortization expense of purchased intangible assets with definite lives is as follows (in thousands):



	Cost of Revenue		Operating Expenses		Total
Year ended December 31,
2016 (remaining nine months)	$	3,844	$	8,747	$	12,591
2017	5,125		4,195		9,320
2018	5,125		4,195		9,320
2019	5,125		4,195		9,320
2020	854		4,006		4,860
Thereafter	—		631		631
Total future amortization expense	$	20,073	$	25,969	$	46,042

- 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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