MaxLinear, Inc. Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

Goodwill and Intangible Assets Notes

Goodwill and Intangible Assets Notes

12 Months Ended

Dec. 31, 2017

Goodwill and Intangible Assets Disclosure [Abstract]

The following table presents future amortization of the Company’s finite-lived intangible assets at December 31, 2017:



	Amortization (in thousands)
2018	$	68,041
2019	57,191
2020	56,325
2021	55,542
2022	38,012
Thereafter	35,534
Total	$	310,645

Goodwill and Intangible Assets

Goodwill

Goodwill arises from the acquisition method of accounting for business combinations and represents the excess of the purchase price over the fair value of the net tangible assets and other identifiable intangible assets acquired. The fair values of net tangible assets and intangible assets acquired are based upon preliminary valuations and the Company's estimates and assumptions are subject to change within the measurement period (potentially up to one year from the acquisition date). During the year ended December 31, 2017, the Company adjusted its allocation of purchase price for the acquisition of the wireless infrastructure backhaul business (Note 3) related to a decrease in an assumed liability and a corresponding decrease in goodwill of $0.3 million, which is reflected in "adjustments" in the table below.

The following table presents the changes in the carrying amount of goodwill for the periods indicated:



	Years Ended December 31,
	2017			2016
	(in thousands)
Beginning balance	$	76,015		$	49,779
Acquisitions	162,318			26,236
Adjustments	(341		)	—
Ending balance	$	237,992		$	76,015

The Company performs an annual goodwill impairment assessment on October 31st each year. In evaluating goodwill, the Company utilizes a two-step quantitative assessment. Step one is the identification of potential impairment. This involves comparing the fair value of each reporting unit, which the Company has determined to be the entity itself, with its carrying amount, including goodwill. If the fair value of a reporting unit exceeds the carrying amount, the goodwill of the reporting unit is considered not impaired and the second step of the impairment test is unnecessary. If the carrying amount of a reporting unit exceeds its fair value, the second step of the impairment test is performed to measure the amount of impairment loss, if any.

The Company determined there were no indications of impairment associated with goodwill. As a result, no goodwill impairment was recognized as of October 31, 2017. In addition to its annual review, the Company performs a test of impairment when indicators of impairment are present. As of December 31, 2017, there were no indications of impairment of the Company's goodwill balances.

Acquired Intangibles

Finite-lived Intangible Assets

The following table sets forth the Company’s finite-lived intangible assets resulting from business acquisitions and other purchases, which continue to be amortized:



		December 31, 2017							December 31, 2016
	Weighted Average Useful Life (in Years)	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Value		Accumulated Amortization			Net Carrying Amount
		(in thousands)
Licensed technology	3.7	$	2,070	$	(575	)	$	1,495	$	3,311	$	(2,957	)	$	354
Developed technology	6.9	241,561		(39,252		)	202,309		77,800		(13,550		)	64,250
Trademarks and trade names	6.1	13,800		(1,992		)	11,808		1,700		(405		)	1,295
Customer relationships	4.6	121,100		(26,661		)	94,439		20,000		(4,782		)	15,218
Covenants non-compete	3.0	1,100		(506		)	594		900		(156		)	744
	6.1	$	379,631	$	(68,986	)	$	310,645	$	103,711	$	(21,850	)	$	81,861

The following table sets forth amortization expense associated with finite-lived intangible assets, which is included in the consolidated statements of operations as follows:



		Years Ended December 31,
		2017		2016		2015
	(in thousands)
Cost of net revenue		$	25,316	$	8,512	$	4,263
Research and development		551		619		679
Selling, general and administrative		28,827		6,953		24,989
		$	54,694	$	16,084	$	29,931

Amortization of finite-lived intangible assets in cost of net revenue in the consolidated statements of operations results primarily from acquired developed technology.

The following table sets forth the Company’s activities related to finite-lived intangible assets resulting from acquisitions, other additions, transfers to developed technology from IPR&D, and the related amortization of acquired finite-lived intangible assets:



	Years Ended December 31,
	2017			2016
	(in thousands)
Beginning balance	$	81,861		$	48,155
Acquisitions	245,500			46,300
Other additions	5,378			390
Transfers to developed technology from IPR&D	32,600			3,100
Amortization	(54,694		)	(16,084		)
Ending balance	$	310,645		$	81,861

The Company regularly reviews the carrying amounts of its long-lived assets subject to depreciation and amortization, as well as the related useful lives, to determine whether indicators of impairment may exist which warrant adjustments to carrying values or estimated useful lives. An impairment loss is recognized when the sum of the expected future undiscounted net cash flows is less than the carrying amount of the asset. Should impairment exist, the impairment loss is measured based on the excess of the carrying amount of the asset over the asset’s fair value. During the years ended December 31, 2017 and 2016, no impairment losses related to finite-lived intangible assets were recognized.

The following table presents future amortization of the Company’s finite-lived intangible assets at December 31, 2017:



	Amortization (in thousands)
2018	$	68,041
2019	57,191
2020	56,325
2021	55,542
2022	38,012
Thereafter	35,534
Total	$	310,645

Indefinite-lived Intangible Assets

The following table sets forth the Company’s activities related to the indefinite-lived intangible assets resulting from additions to IPR&D through acquisitions, transfers to developed technology from IPR&D and impairment losses:



	Years Ended December 31,
	2017			2016
	(in thousands)
Beginning balance	$	22,400		$	3,200
Acquisitions	16,600			23,600
Transfers to developed technology from IPR&D	(32,600		)	(3,100		)
Impairment losses	$	(2,000	)	$	(1,300	)
Ending balance	$	4,400		$	22,400

The Company performs its annual assessment of indefinite-lived intangible assets on October 31 each year or more frequently if events or changes in circumstances indicate that the asset might be impaired utilizing a qualitative test as a precursor to the quantitative test comparing the fair value of the assets with their carrying amount. Based on the qualitative test, if it is more likely than not that indicators of impairment exists, the Company proceeds to perform a quantitative analysis. Based on the Company’s assessment as of October 31, 2017, no additional impairment of indefinite-lived intangible assets was recorded during the year ended December 31, 2017. Impairment losses from indefinite lived intangible assets of $2.0 million for the year ended December 31, 2017 was recognized in the three months ended September 30, 2017 and related to a single IPR&D project of Exar, which was abandoned. Impairment losses from indefinite lived intangible assets of $1.3 million for the year ended December 31, 2016 related to the Company's abandonment of IPR&D of the wireless infrastructure access business.

The Company also recorded $21.6 million in IPR&D impairment losses during the year ended December 31, 2015, of which $17.8 million related to partial impairment of an IPR&D asset acquired from Entropic and $3.8 million related to impairment of an IPR&D asset acquired from Physpeed.

- 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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