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Goodwill and Intangible Assets | 12 Months Ended
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Dec. 31, 2018
Goodwill and Intangible Assets |
Goodwill and Intangible Assets | Note 6 — Goodwill and Intangible Assets Goodwill represents the future economic benefits arising from assets acquired in a business combination that are not individually identified and separately recognized. The following table presents the changes in goodwill balances during the years indicated:
|  | Gross carrying |  | Accumulated |  |
|  | amount |  | impairment |  | Net amount
|  | (in thousands)
Balance at December 31, 2016 |  | $ | 238,108 |  | $ | 123,200 |  | $ | 114,908
Acquisition |  |  | 192,223 |  |  | — |  |  | 192,223
Balance at December 31, 2017 |  |  | 430,331 |  |  | 123,200 |  |  | 307,131
Impairment |  |  | — |  |  | 122,829 |  |  | (122,829)
Balance at December 31, 2018 |  | $ | 430,331 |  | $ | 246,029 |  | $ | 184,302
The Company performs its annual goodwill impairment test at the beginning of the fourth quarter each year. As the Company maintains a single goodwill reporting unit, it determines the fair value of its reporting unit based upon the Company’s adjusted market capitalization. The adjusted market capitalization is calculated by multiplying the average share price of the Company’s common stock for the last ten trading days prior to the measurement date by the number of outstanding common shares and adding a control premium. The control premium is estimated using historical transactions in similar industries. The annual test performed at the beginning of the fourth quarter of fiscal 2017 and 2018 did not result in any potential impairment as the fair value of the reporting unit was determined to exceed the carrying amount of the reporting unit. As a result of a significant decline in the Company’s stock price during the fourth quarter, the Company concluded it was appropriate to perform an interim goodwill impairment test as of the end of the fourth quarter. The fair value of its reporting unit, as calculated using the adjusted market capitalization approach noted above, was determined to be below the carrying value of the reporting unit, and the Company recorded an impairment charge equal to the excess of carrying value over fair value, or $122.8 million, for the year ended December 31, 2018. The impairment charge is included in “Asset impairment” in the Consolidated Statements of Operations. The valuation of goodwill will continue to be subject to changes in the Company’s market capitalization and observable market control premiums. This analysis is sensitive to changes in the Company’s stock price and absent other qualitative factors, the Company may be required to record additional goodwill impairment charges in future periods if the stock price declines and remains depressed for an extended period of time. The components of purchased intangible assets were as follows:
|  |  |  | December 31, 2018 |  | December 31, 2017
|  | Weighted |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  | Average |  |  |  |  | Accumulated |  |  |  |  |  |  |  | Accumulated |  |  |
|  | Remaining |  | Gross |  | Amortization |  |  |  | Gross |  | Amortization |  |
|  | Amortization |  | Carrying |  | and |  | Net |  | Carrying |  | and |  | Net
|  | Period |  | Amount |  | Impairment |  | Amount |  | Amount |  | Impairment |  | Amount
|  | (in years) |  | (in thousands)
Technology |  | 6.4 |  | $ | 337,218 |  | $ | 290,808 |  | $ | 46,410 |  | $ | 307,588 |  | $ | 133,121 |  | $ | 174,467
Customer relationships |  | 10.2 |  |  | 164,595 |  |  | 136,126 |  |  | 28,469 |  |  | 164,595 |  |  | 39,336 |  |  | 125,259
In-process R&D |  | — |  |  | 13,710 |  |  | 10,530 |  |  | 3,180 |  |  | 43,340 |  |  | — |  |  | 43,340
Trademarks and tradenames |  | 5.4 |  |  | 30,910 |  |  | 23,899 |  |  | 7,011 |  |  | 30,910 |  |  | 4,321 |  |  | 26,589
Other |  | 1.3 |  |  | 3,686 |  |  | 3,607 |  |  | 79 |  |  | 3,686 |  |  | 3,498 |  |  | 188
Total |  | 7.3 |  | $ | 550,119 |  | $ | 464,970 |  | $ | 85,149 |  | $ | 550,119 |  | $ | 180,276 |  | $ | 369,843
Other intangible assets primarily consist of patents, licenses, and backlog. During the second quarter of 2018, the Company lowered its projected results for the Ultratech asset group, which were significantly below the projected results at the time of the acquisition. The reduced projections were based on lower than expected unit volume of certain smartphones, which incorporate advanced packaging methods such as fan-out wafer level packaging (“FOWLP”), and a delay in the adoption of FOWLP advanced packaging by other electronics manufacturers, both of which slowed orders and reduced revenue projections for the Company’s advanced packaging lithography systems. In addition, there has been a delay in the build out of 28nm facilities by companies in China who were expected to purchase the Company’s Laser Spike Anneal systems. Taken together, the reduced projections identified during the second quarter of 2018 required the Company to assess the Ultratech asset group for impairment. As a result of the analysis, which included projected cash flows that required the use of unobservable inputs, the Company recorded non-cash impairment charges of $216.4 million and $35.9 million related to definite-lived intangible assets and in-process research and development assets, respectively, during the second quarter of 2018. The impairment charge is included in “Asset impairment” in the Consolidated Statement of Operations. Subsequently, certain in-process research and development projects were completed and moved to the “Technology” line in the above table. During 2016, the Company decided to reduce future investments in certain technologies and, as a result, recorded a non-cash impairment charge of $54.3 million for the related intangible purchased technology. The impairment charge was based on projected cash flows that required the use of unobservable inputs and was recorded in “Asset impairment” in the Consolidated Statements of Operations. Based on the intangible assets recorded at December 31, 2018, and assuming no subsequent additions to or impairment of the underlying assets, the remaining estimated annual amortization expense, excluding in-process R&D, is expected to be as follows:
|  | Amortization
|  | (in thousands)
2019 |  | $ | 16,820
2020 |  |  | 15,894
2021 |  |  | 12,772
2022 |  |  | 10,438
2023 |  |  | 8,675
Thereafter |  |  | 17,370
Total |  | $ | 81,969

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