Goodwill and Other Purchased Intangible Assets

6. Goodwill and Other Purchased Intangible Assets

Goodwill

Goodwill is not amortized, but is evaluated for impairment on an annual basis or when impairment indicators are present. The Company performs its annual impairment test of goodwill as of October 1st of each year. The potential impairment is identified if the fair value of the reporting unit to which goodwill applies is less than the recorded book value of the related reporting entity, including such goodwill. Where the book value of a reporting entity, including related goodwill, is greater than the reporting entity’s fair value, the second step of the goodwill impairment test is performed to measure the amount of impairment loss, if any. There have been no significant events or circumstances affecting the valuation of goodwill subsequent to the impairment test performed on October 1, 2013. As a result, the Company did not record any impairment related to its goodwill for the period ended September 30, 2014.

The following is a roll-forward of the activity that affected goodwill during the first nine months of 2014 (in thousands):


Goodwill as of December 31, 2013	$	51,962
Acquisition of legodo ag		4,582
Foreign currency translation		(608	)

Goodwill as of September 30, 2014	$	55,936

Other purchased intangible assets consist of the following (in thousands):


	September 30, 2014												December 31, 2013
	Gross Carrying Amount			Acquisition of legodo ag			Accumulated Amortization			Net Carrying Amount			Gross Carrying Amount			Accumulated Amortization			Net Carrying Amount
Customer lists	$	22,350		$	1,769		$	(19,603	)	$	4,516		$	22,350		$	(18,539	)	$	3,811
Purchased technologies		17,325			2,722			(13,787	)		6,260			17,325			(12,527	)		4,798
Leases		47			—			(42	)		5			47			(35	)		12
Foreign currency impact		(33	)		(18	)		4			(47	)		(33	)		—			(33	)

	$	39,689		$	4,473		$	(33,428	)	$	10,734		$	39,689		$	(31,101	)	$	8,588

Amortization expense of purchased technology and other intangible assets was approximately $794,000 and $634,000 for the quarters ended September 30, 2014 and 2013, respectively. Of this total, approximately $430,000 and $333,000 was related to the amortization of purchased technology for the quarters ended September 30, 2014 and 2013, respectively. Amortization expense of purchased intangible assets was approximately $2.3 million and $1.9 million for the nine months ended September 30, 2014 and 2013, respectively. Of this total, approximately $1.3 million and $1 million was related to the amortization of purchased technologies for the nine months ended September 30, 2014 and 2013, respectively. Purchased identifiable intangible assets are amortized on a straight-line basis over their useful lives. The estimated useful economic lives of the acquired customer lists and purchased technologies are seven years. The estimated economic useful life of favorable leases is five years. Amortization of purchased technology is included in cost of license fees in the accompanying condensed consolidated statements of income.

During the first quarter of 2014, the Company recorded additions to its purchased intangible assets of approximately $4.5 million related to the acquisition of legodo ag. For additional discussion, see Note 2 of this Form 10-Q.

The expected remaining annual amortization expense is summarized as follows (in thousands):


Fiscal Year (in thousands):	Purchased Technology and Intangibles
2014 (remainder of year)	$	794
2015		3,169
2016		3,166
2017		1,111
2018		925
2019 and thereafter		1,569

	$	10,734

- 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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