MaxLinear, Inc. Quarterly report pursuant to Section 13 or 15(d)

Quarterly report pursuant to Section 13 or 15(d)

Goodwill and Intangible Assets

Goodwill and Intangible Assets

9 Months Ended

Sep. 30, 2017

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 three months ended March 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. During the three months ended September 30, 2017, the Company adjusted its allocations of purchase price for the acquisitions of Exar and the G.hn business. Refer to Note 3 for amounts and details of such adjustments.

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



	Carrying Amount
	(in thousands)
Balance as of December 31, 2016	$	76,015
Acquisitions	163,999
Adjustments	(341		)
Balance as of September 30, 2017	$	239,673

Goodwill is not amortized, but is assessed for impairment on an annual basis on October 31 each year and whenever events or changes in circumstances indicate that the carrying value may not be recoverable. The recoverability of goodwill is measured at the reporting unit level by comparing the reporting unit’s carrying amount, including goodwill, to the fair market value of the reporting unit. No goodwill impairment was recognized for the three and nine months ended September 30, 2017 and 2016.

Acquired Intangibles

Finite-lived Intangible Assets

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



		September 30, 2017							December 31, 2016
	Weighted Average Useful Life (in Years)	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
		(in thousands)
Licensed technology	3.7	$	4,891	$	(3,263	)	$	1,628	$	3,311	$	(2,957	)	$	354
Developed technology	6.9	224,461		(30,690		)	193,771		77,800		(13,550		)	64,250
Trademarks and trade names	6.1	13,800		(1,427		)	12,373		1,700		(405		)	1,295
Customer relationships	4.6	121,100		(19,415		)	101,685		20,000		(4,782		)	15,218
Covenants non-compete	3.0	1,100		(415		)	685		900		(156		)	744
Backlog	0.5	31,337		(30,570		)	767		26,600		(26,600		)	—
		$	396,689	$	(85,780	)	$	310,909	$	130,311	$	(48,450	)	$	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:



	Three Months Ended September 30,				Nine Months Ended September 30,
	2017		2016		2017		2016
	(in thousands)				(in thousands)
Cost of net revenue	$	7,907	$	2,571	$	16,851	$	5,940
Research and development	137		137		412		481
Selling, general and administrative	9,924		3,082		20,067		4,039
	$	17,968	$	5,790	$	37,330	$	10,460

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 activity during the nine months ended September 30, 2017 related to finite-lived intangible assets resulting from acquisitions, other additions, transfers to developed technology from in-process research and development, or IPR&D and amortization:



	Carrying Amount
	(in thousands)
Balance as of December 31, 2016	$	81,861
Acquisitions	245,500
Additions	5,378
Transfers to developed technology from IPR&D	15,500
Amortization	(37,330		)
Balance as of September 30, 2017	$	310,909

The Company regularly reviews the carrying amount of its long-lived assets subject to depreciation and amortization, as well as the 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 three and nine months ended September 30, 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 September 30, 2017:



	Amount
	(in thousands)
2017 (3 months)	$	17,167
2018	65,598
2019	54,748
2020	53,882
2021	53,099
Thereafter	66,415
Total	$	310,909

Indefinite-lived Intangible Assets

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



	Gross Carrying Amount
	(in thousands)
Balance as of December 31, 2016	$	22,400
Acquisitions	16,600
Transfers to developed technology from IPR&D	(15,500		)
Impairment losses	(2,000		)
Balance as of September 30, 2017	$	21,500

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. Impairment losses related to indefinite-lived intangible assets for the three and nine months ended September 30, 2017 were $2.0 million and related to a single IPR&D project of Exar, which was abandoned. Impairment losses related to indefinite-lived intangible assets for the three and nine months ended September 30, 2016 were $1.3 million and consisted of all of the IPR&D of the wireless infrastructure access business.

- 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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