Goodwill and Identified Intangible Assets

9 Months Ended

Sep. 30, 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 first quarter of 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. Following the first quarter of 2016, the Company made further updates to the valuation of certain assets, liabilities and tax estimate and goodwill was adjusted to $41.7 million at end of September 30, 2016 primarily due to an approximate $4.6 million reduction to the fair value of tangible and intangible assets acquired and liabilities assumed, offset in part by a $2.1 million reduction in the estimate of the contingent 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	41,670		—			41,670
Foreign currency translation adjustment	515		(86		)	429
As of September 30, 2016	$	179,089	$	60,791		$	239,880

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.

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. During the second quarter of 2016, the sustained decline in the Company’s stock price led to a triggering event for goodwill impairment assessment. As of July 1, 2016, with a closing stock price of $3.01 on the NASDAQ stock exchange, the Company’s market capitalization was approximately $235 million. As this market capitalization was less than the Company’s net book value, further analysis was performed to determine if an impairment exists. When assessing goodwill for impairment, the Company used multiple valuation methodologies to determine its enterprise value. The valuation methods used included the Company’s market capitalization adjusted for a control premium and the Company’s discounted cash flow analysis, which involves making significant assumptions and estimates, including expectations of the Company’s future financial performance, the Company’s weighted average cost of capital and the Company’s interpretation of currently enacted tax laws. Based on the impairment test performed, management determined that the Company’s goodwill was not impaired as of July 1, 2016. As of September 30, 2016, the Company’s closing stock price was $5.93.

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

Intangible Assets

In the nine months ended September 30, 2016, the gross amount for intangible assets increased $41.8 million of which $41.1 million was due to the TVN acquisition and the remainder $0.7 million was due to foreign exchange effect. The following is a summary of intangible assets (in thousands):



		September 30, 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	3.4	$	33,057	$	(14,112	)	$	18,945	$	10,987	$	(10,987	)	$	—
Customer relationships/contracts	4.4	44,659		(31,004		)	13,655		29,200		(25,752		)	3,448
Trademarks and trade names	3.4	610		(89		)	521		—		—			—
Maintenance agreements and related relationships	N/A	5,500		(5,500		)	—		5,500		(4,851		)	649
Order Backlog	N/A	3,661		(3,661		)	—		—		—			—
Total identifiable intangibles		$	87,487	$	(54,366	)	$	33,121	$	45,687	$	(41,590	)	$	4,097

The TVN in-process research and development efforts were completed by the end of the second quarter of 2016 and the Company determined that it has become a finite lived intangible asset (developed technology) with an estimated useful life of four years.

Amortization expense for the identifiable purchased intangible assets for the three and nine months ended September 30, 2016 and October 2, 2015 was allocated as follows (in thousands):



	Three months ended				Nine months ended
	September 30, 2016		October 2, 2015		September 30, 2016		October 2, 2015
Included in cost of revenue	$	1,380	$	86	$	3,105	$	633
Included in operating expenses	3,009		1,446		9,606		4,338
Total amortization expense	$	4,389	$	1,532	$	12,711	$	4,971

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 three months)	$	1,380	$	811	$	2,191
2017	5,517		3,244		8,761
2018	5,517		3,244		8,761
2019	5,517		3,244		8,761
2020	1,014		3,117		4,131
Thereafter	—		516		516
Total future amortization expense	$	18,945	$	14,176	$	33,121

- 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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