QUANTUM CORP /DE/QMCO
QUANTUM CORP /DE/ Goodwill & Intangibles Disclosure
INTANGIBLE ASSETS AND GOODWILL
Intangible Assets
Acquired intangible assets are amortized over their estimated useful lives, which generally range from one to eight years. In estimating the useful lives of intangible assets, we considered the following factors:
• | The cash flow projections used to estimate the useful lives of the intangible assets showed a trend of growth that was expected to continue for an extended period of time; |
• | Our tape automation products, disk backup systems and scale-out storage solutions, in particular, have long development cycles; these products have experienced long product life cycles; and |
• | Our ability to leverage core technology into data protection and scale-out storage solutions and, therefore, to extend the lives of these technologies. |
Following is the weighted average amortization period for our amortizable intangible assets:
Amortization (Years) | |
Purchased technology | 6.3 |
Trademarks | 6.0 |
Customer lists | 8.2 |
All intangible assets | 6.8 |
Intangible assets amortization within our Consolidated Statements of Operations for the years ended March 31, 2017, 2016 and 2015 was $0.2 million, $0.3 million, and $3.7 million, respectively.
The following table provides a summary of the carrying value of intangible assets (in thousands):
As of March 31, | |||||||||||||||||||||||
2017 | 2016 | ||||||||||||||||||||||
Gross Amount | Accumulated Amortization | Net Amount | Gross Amount | Accumulated Amortization | Net Amount | ||||||||||||||||||
Purchased technology | $ | 177,177 | $ | (176,901 | ) | $ | 276 | $ | 178,292 | $ | (177,841 | ) | $ | 451 | |||||||||
Trademarks | 3,900 | (3,900 | ) | — | 3,900 | (3,900 | ) | — | |||||||||||||||
Customer lists | 64,701 | (64,701 | ) | — | 64,701 | (64,701 | ) | — | |||||||||||||||
$ | 245,778 | $ | (245,502 | ) | $ | 276 | $ | 246,893 | $ | (246,442 | ) | $ | 451 | ||||||||||
The total expected future amortization related to amortizable intangible assets is provided in the table below (in thousands):
Amortization | |||
Fiscal 2018 | $ | 138 | |
Fiscal 2019 | 103 | ||
Fiscal 2020 | 35 | ||
Total as of March 31, 2017 | $ | 276 | |
We evaluate our amortizable intangible and other long-lived assets for impairment whenever indicators of impairment exist and concluded the carrying amount of our long-lived assets was recoverable and there was no impairment in fiscal 2017, 2016 and 2015. $1.1 million and $3.2 million of fully amortized intangible assets related to prior acquisitions were written-off in 2016 and 2017, respectively.
Goodwill
During the fourth quarter of fiscal 2016, our stock price dropped to a low closing price of $3.52 per share, down from $7.44 per share at December 31, 2015. Our annual impairment evaluation for goodwill in the fourth quarter of fiscal 2015 did not indicate any impairment of our goodwill in fiscal 2015. As a result, during the fourth quarter of fiscal 2016 we determined it was more likely than not that the fair value of our goodwill was less than its carrying amount and performed a second step to quantify the amount of goodwill impairment. No impairment evaluation was performed in fiscal 2017.
We determined the fair value of our single reporting unit using the income approach derived from a discounted cash flow methodology and other valuation techniques, as well as necessary estimates and assumptions about the future to determine fair value. We allocated the fair value of our single reporting unit to all tangible and intangible assets and liabilities in a hypothetical sale transaction to determine the implied fair value of our goodwill. After performing our analysis, we determined our goodwill was impaired and recorded an impairment charge of $55.6 million in fiscal 2016.
Inherent in the development of our cash flow projections using the income approach are assumptions and estimates derived from a review of our operating results, approved business plans, expected growth, cost of capital and income tax rates. We also made certain assumptions about future economic conditions, applicable interest rates and other market data. Many of the factors used in assessing fair value are outside of our control. Future period results could differ from these estimates and assumptions, which could materially affect the determination of fair value of the company and future amounts of potential impairment. The following significant assumptions were used to determine fair value under the income approach: expected future revenue growth; operating profit margins; working capital levels; asset lives used to generate future cash flows; a discount rate; a terminal value multiple; an income tax rate; and utilization of net operating loss carryforwards.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2017 | Jun 1, 2017 | Showing above |
| 2016 | Jun 3, 2016 | |
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.