Goodwill and Other Intangible Assets

9 Months Ended

Sep. 29, 2012

Note 6 – Goodwill and Other Intangible Assets

Intangible assets are as follows (in thousands):


	As of September 29, 2012
	Gross Amount		Accumulated Amortization			Net Amount
Current technology	$	18,978	$	(11,975	)	$	7,003
Patent and patent rights		27,972		(14,175	)		13,797
Customer relationships		20,493		(2,276	)		18,217

Other intangibles, net	$	67,443	$	(28,426	)	$	39,017


Amortization expense for the nine months ended September 29, 2012			$	3,210



	As of December 31, 2011
	Gross Amount		Accumulated Amortization			Net Amount
Current technology	$	12,718	$	(11,403	)	$	1,315
Patent and patent rights		23,392		(12,079	)		11,313
Customer relationships		1,773		(1,734	)		39

Other intangibles, net	$	37,883	$	(25,216	)	$	12,667

Amortization expense for the nine months ended October 1, 2011			$	2,514

On July 13, 2012, we acquired intangible assets in the amount of $29,560,000 for patents, technology and customer relationships. These intangible assets have an estimated useful life ranging from 5 to 9 years. See Note 18 Business Combinations for specific information regarding the acquisition. In addition, during 2012, Zebra has paid $3,000,000 towards intangible asset commitments accrued and recorded as of December 31, 2011.

We test goodwill for impairment on an annual basis or more frequently if we believe indicators of impairment exist. Factors considered that may trigger an impairment review consist of:

•

Significant underperformance relative to historical or projected future operating results,

•

Significant changes in the manner of use of the acquired assets or the strategy for the overall business,

•

Significant negative industry or economic trends,

•

Significant decline in Zebra’s stock price for a sustained period, and

•

Significant decline in market capitalization relative to net book value.

If we believe that one or more of the above indicators of impairment have occurred, we perform an impairment test. The performance of the test involves a two-step process. The first step of the impairment test involves comparing the fair values of the applicable reporting units with their aggregate carrying values, including goodwill. We generally determine the fair value of our reporting units using three valuation methods: Income Approach – Discounted Cash Flow Analysis, Market Approach – Guideline Public Company Method, and Market Approach – Comparative Transactions Method. If the carrying amount of a reporting unit exceeds the reporting unit’s fair value, we perform the second step of the goodwill impairment test to determine the amount of impairment loss. The second step of the goodwill impairment test involves comparing the implied fair value of the affected reporting unit’s goodwill with the carrying value of that goodwill.

We performed our annual impairment test in June 2012 and determined that our goodwill was not impaired as of the end of May 2012. Zebra has two reporting units required for its annual goodwill impairment test. As of our May 2012 testing date, the larger of the two reporting units’ fair value exceeded its carrying value by a significant amount; whereas the second, smaller reporting unit, the amount by which the fair value exceeded the carrying value ranged from approximately 8% under the Income Approach to 31% under the Market Approach. Key assumptions used in the first step of the goodwill impairment test were determined by management utilizing the internal operating plan. The key assumptions utilized included forecasted growth rates for revenues and operating expenses as well as a discount rate which is determined by looking at current risk-free rates of capital, current market interest rates, and the evaluation of risk premium relevant to the business segment. Due to the deterioration in the smaller reporting unit’s operating results during the third quarter our fair value calculation for the smaller reporting unit changed and we determined our goodwill associated with the smaller reporting unit to be impaired. The above impairment indicators led us to conclude an interim goodwill test was necessary. Zebra performed the first step of the impairment test and failed. As a result, Zebra performed a preliminary second step analysis and recorded an estimated goodwill impairment charge of $9,114,000 as of September 29, 2012. This amount is an estimate and could be adjusted upon completion of a detailed impairment analysis. After this impairment charge, there is no remaining goodwill in the smaller reporting unit.

Changes in the net carrying value amount of goodwill were as follows (in thousands):


Unamortized intangible assets:	Total
Goodwill at gross	$	180,731
Impairment charge – 2008		(101,028	)

Goodwill as of December 31, 2011		79,703
Acquisitions – LaserBand		24,756
Impairment charge – 2012		(9,114	)

Goodwill as of September 29, 2012	$	95,345

- 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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