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, 2018

Goodwill and Intangible Assets Disclosure [Abstract]

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 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, 2018, the Company adjusted its allocation of purchase price for the acquisition of Exar related to updates to estimates of certain tax-related assets acquired and liabilities assumed with a corresponding net increase in goodwill of $0.3 million.

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



	Years Ended December 31,
	2018		2017
	(in thousands)
Beginning balance	$	237,992	$	76,015
Acquisitions	—		162,318
Adjustments	338		(341		)
Ending balance	$	238,330	$	237,992

The Company performs an annual goodwill impairment assessment on October 31st each year, using 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, 2018. In addition to its annual review, the Company performs a test of impairment when indicators of impairment are present. As of December 31, 2018, 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, 2018							December 31, 2017
	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	$	(1,130	)	$	940	$	2,070	$	(575	)	$	1,495
Developed technology	6.9	238,961		(74,630		)	164,331		241,561		(39,252		)	202,309
Trademarks and trade names	6.1	13,800		(4,252		)	9,548		13,800		(1,992		)	11,808
Customer relationships	4.6	121,100		(55,647		)	65,453		121,100		(26,661		)	94,439
Non-compete covenants	3.0	1,100		(872		)	228		1,100		(506		)	594
	6.1	$	377,031	$	(136,531	)	$	240,500	$	379,631	$	(68,986	)	$	310,645

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,
		2018		2017		2016
	(in thousands)
Cost of net revenue		$	35,821	$	25,316	$	8,512
Research and development		150		551		619
Selling, general and administrative		31,976		28,827		6,953
		$	67,947	$	54,694	$	16,084

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 activity during the years ended December 31, 2018 and 2017 related to finite-lived intangible assets:



	Years Ended December 31,
	2018			2017
	(in thousands)
Beginning balance	$	310,645		$	81,861
Acquisitions	—			245,500
Other additions	—			5,378
Transfers to developed technology from IPR&D	—			32,600
Amortization	(67,947		)	(54,694		)
Impairment losses	(2,198		)	—
Ending balance	$	240,500		$	310,645

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. Impairment losses related to finite-lived intangible assets for the year ended December 31, 2018 were $2.2 million and related to acquired developed technology. 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, 2018:



	Amortization (in thousands)
2019	$	56,819
2020	55,954
2021	55,171
2022	37,641
2023	25,446
Thereafter	9,469
Total	$	240,500

Indefinite-lived Intangible Assets

Indefinite-lived intangible assets consist entirely of acquired in-process research and development technology, or IPR&D. The following table sets forth the Company’s activities related to the indefinite-lived intangible assets:



	Years Ended December 31,
	2018		2017
	(in thousands)
Beginning balance	$	4,400	$	22,400
Acquisitions	—		16,600
Transfers to developed technology from IPR&D	—		(32,600		)
Impairment losses	—		(2,000		)
Ending balance	$	4,400	$	4,400

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, 2018, no indicators of impairment were identified. In the year ended December 31, 2018, no IPR&D impairment losses were recorded. In the year ended December 31, 2017, the Company recognized impairment losses of $2.0 million related to a single IPR&D project, which was abandoned. In the year ended December 31, 2016, the Company recognized impairment losses of $1.3 million related to the Company's abandonment of a single IPR&D project.