Intangible Assets, Goodwill, and Acquisitions
Intangible assets, excluding goodwill, include acquired licensed and core technologies, customer relationships, license agreements, and trade name. Amortization for intangible assets is generally recorded on a straight-line basis over their useful lives.
Identifiable intangible assets consisted of the following (in millions):
|
| | | | | | | | | | | | | | | | | | | | | | | |
| December 30, 2018 | | December 31, 2017 |
| Gross Carrying Amount | | Accumulated Amortization | | Intangibles, Net | | Gross Carrying Amount | | Accumulated Amortization | | Intangibles, Net |
Licensed technologies | $ | 95 |
| | $ | (83 | ) | | $ | 12 |
| | $ | 95 |
| | $ | (74 | ) | | $ | 21 |
|
Core technologies | 331 |
| | (172 | ) | | 159 |
| | 300 |
| | (161 | ) | | 139 |
|
Customer relationships | 32 |
| | (27 | ) | | 5 |
| | 32 |
| | (25 | ) | | 7 |
|
License agreements | 14 |
| | (9 | ) | | 5 |
| | 14 |
| | (8 | ) | | 6 |
|
Trade name | 9 |
| | (5 | ) | | 4 |
| | 7 |
| | (5 | ) | | 2 |
|
Total intangible assets, net | $ | 481 |
| | $ | (296 | ) | | $ | 185 |
| | $ | 448 |
| | $ | (273 | ) | | $ | 175 |
|
The estimated annual amortization of intangible assets for the next five years is shown in the following table (in millions). Actual amortization expense to be reported in future periods could differ from these estimates as a result of acquisitions, divestitures, and asset impairments, among other factors.
|
| | | |
| Estimated Annual Amortization |
2019 | $ | 37 |
|
2020 | 30 |
|
2021 | 26 |
|
2022 | 22 |
|
2023 | 20 |
|
Thereafter | 50 |
|
Total | $ | 185 |
|
Changes to goodwill from January 1, 2017 through December 30, 2018 were as follows (in millions):
|
| | | |
| Goodwill |
Balance as of January 1, 2017 | $ | 776 |
|
GRAIL deconsolidation | (5 | ) |
Balance as of December 31, 2017 | 771 |
|
Acquisitions | 60 |
|
Balance as of December 30, 2018 | $ | 831 |
|
On May 14, 2018, we acquired Edico Genome, a provider of data analysis acceleration solutions for next-generation sequencing (NGS) for total cash consideration of $100 million, net of cash acquired. As a result of this transaction, we recorded $56 million as goodwill within the Core Illumina reportable segment. In addition, we recorded developed technology of $45 million and a trade name of $1 million, with useful lives of 10 and 3 years, respectively.
On November 1, 2018, we entered into an Agreement and Plan of Merger (the Merger Agreement) to acquire Pacific Biosciences of California, Inc. (PacBio) for an all-cash price of approximately $1.2 billion (or $8.00 per share). The transaction, which is expected to close mid-2019, is subject to certain customary closing conditions, including PacBio shareholder approval and the receipt of certain required antitrust approvals. The Merger Agreement contains certain termination rights and provides that, upon termination of the Merger Agreement under specified circumstances, including but not limited to, a termination of the Merger Agreement in connection with PacBio accepting a superior offer or due to the withdrawal by PacBio’s board of directors of its recommendation of the merger, PacBio will pay us a cash termination fee of $43 million. In certain other circumstances related to antitrust approvals, we may be required to pay PacBio a termination fee of $98 million assuming the other closing conditions not related to antitrust or competition laws have been satisfied.
About Goodwill & Intangibles Disclosures
Goodwill and intangible asset disclosures reveal the premium paid in acquisitions and how management assesses whether that premium retains its value. Since goodwill is no longer amortized under US GAAP, the annual impairment test is the only mechanism that adjusts carrying values downward — making the assumptions behind that test critically important for investors.
Key signals: a history of goodwill impairments suggests management consistently overpays for acquisitions. Watch the gap between reporting unit fair value and carrying amount — when fair value exceeds carrying amount by less than 10-20%, a small decline in business performance could trigger a write-down. For finite-lived intangibles, examine useful life assumptions across customer relationships, technology, and trade names; aggressive estimates inflate near-term earnings. Compare total intangibles-to-total-assets ratios against peers to assess acquisition dependency. Rising goodwill as a percentage of equity can signal balance sheet fragility.