6. Goodwill and Intangible Assets
Goodwill
The changes in the carrying amount of goodwill for the years ended December 31, 2013 and 2012 were as follows (in thousands):
|
| | | | | | | | | | | | |
Reporting Unit | | Balance at December 31, 2012 | | Acquisitions | | Balance at December 31, 2013 |
CdTe Components | | $ | 393,365 |
| | $ | 10,055 |
| | $ | 403,420 |
|
Crystalline Silicon Components | | — |
| | 6,097 |
| | 6,097 |
|
Systems | | 65,444 |
| | 3,389 |
| | 68,833 |
|
Accumulated impairment losses | | (393,365 | ) | | — |
| | (393,365 | ) |
Total | | $ | 65,444 |
| | $ | 19,541 |
| | $ | 84,985 |
|
|
| | | | | | | | | | | | |
Reporting Unit | | Balance at December 31, 2011 | | Acquisitions | | Balance at December 31, 2012 |
CdTe Components | | $ | 393,365 |
| | $ | — |
| | $ | 393,365 |
|
Systems | | 65,444 |
| | — |
| | 65,444 |
|
Accumulated impairment losses | | (393,365 | ) | | — |
| | (393,365 | ) |
Total | | $ | 65,444 |
| | $ | — |
| | $ | 65,444 |
|
2013 Goodwill Impairment Testing
Our annual impairment analysis was performed in the fourth quarter of 2013. We elected to perform the first-step of the two-step goodwill impairment test instead of first performing a qualitative goodwill impairment test. The first-step in the two-step impairment test is the comparison of the fair value of a reporting unit with its carrying amount, including goodwill. We have historically defined our reporting units to be consistent with our reportable segments: systems and components. This year, in connection with the TetraSun acquisition, we determined that the TetraSun business also constitutes a reporting unit within the components reportable segment and we now assess whether goodwill impairment exists at the crystalline silicon components reporting unit. In determining fair value, we primarily use discounted future cash flows and operating results based on a comparative multiple of earnings or revenues.
Significant estimates used in our fair value calculation using discounted future cash flows include: (i) estimates of future revenue and expense growth by reporting unit; (ii) future estimated effective tax rates, which we estimate to be between 10% and 40%; (iii) future estimated capital expenditures and future required investments in working capital; (iv) estimated discount rates, which we estimate to range between 10% and 14%; and (v) the future terminal value of the reporting unit, which is based on its ability to exist into perpetuity. Additionally, the underlying assumptions used in the first step of our 2013 impairment test considered our market capitalization as of October 1, 2013 and the current solar industry market conditions when determining the fair value of our reporting units.
As of October 1, 2013, we determined that the estimated fair value of our reporting units exceeded their carrying value and, therefore, we noted no indicators of impairment at our reporting units.
We will continuously monitor market trends in our business, the related expected cash flows and our calculation of market capitalization for purposes of identifying possible indicators of impairment. If our book value per share exceeds our market price per share or if we have other indicators of impairment, we will be required to perform an interim step one impairment analysis, which may lead to a step two analysis and possible impairment of our goodwill. Additionally, we would then be required to review our remaining long-lived assets for impairment.
2012 Goodwill Impairment Testing
We performed our annual impairment analysis in the fourth quarter of 2012, and determined that the carrying amount of our goodwill for our systems reporting unit was recoverable and the results of the impairment test indicated a fair value significantly in excess of the carrying value. The underlying assumptions used in the first step of our 2012 impairment test considered our market capitalization as of October 1, 2012 and the current solar industry market conditions when determining the fair value of our reporting units.
2011 Goodwill Impairment Testing
During the first step of our annual impairment analysis in the fourth quarter of 2011, we determined that the fair value of our systems reporting unit exceeded the carrying value by a significant amount indicating no impairment. We also determined that the carrying value of the goodwill related to our components reporting unit might not have been recoverable. Thus, the second step of the impairment test was performed to determine the implied fair value of goodwill for the components reporting unit based on allocating the fair value of the components reporting unit determined in the first step to all of the assets and liabilities including any unrecognized intangible assets of the components reporting unit. Based on the second step results, we determined the implied fair value of goodwill in the component reporting unit was zero. As a result, we impaired all of the goodwill in the components reporting unit and recorded $393.4 million of impairment expense, which also represents our accumulated goodwill impairment losses.
Intangible Assets
Included in “Other assets” on our consolidated balance sheets are acquired intangible assets primarily as part of our GE and TetraSun acquisitions described in Note 5 “Business Acquisitions,” and our internally-generated intangible assets, substantially all of which are patents on technologies related to our products and production processes. We record an asset for patents, after the patent has been issued, based on the legal, filing, and other costs incurred to secure them. We amortize intangible assets on a straight-line basis over their estimated useful lives once the intangible assets meet the criteria to be amortized. $112.8 million of the $123.7 million of gross intangible assets, as of December 31, 2013 consists of IPR&D related to assets that were acquired as part of the TetraSun and GE acquisitions. Such assets will be amortized over their estimated useful lives upon successful completion of the project or expensed earlier if impaired.
Amortization expense for our intangible assets was $0.9 million, $2.1 million, and $2.0 million for the years ended December 31, 2013, 2012, and 2011, respectively. The following table summarizes our intangible assets as of December 31, 2013 and 2012 (in thousands):
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| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Gross Intangible Assets | | Accumulated Amortization | | |
| | Balance as of December 31, 2012 | | Acquisitions | | Balance as of December 31, 2013 | | Balance as of December 31, 2012 | | Additions Charged to Expense | | Balance as of December 31, 2013 | | Net Intangibles at December 31, 2013 |
Patents | | $ | 9,139 |
| | $ | 1,041 |
| | $ | 10,180 |
| | $ | (5,404 | ) | | $ | (393 | ) | | $ | (5,797 | ) | | $ | 4,383 |
|
Trade names | | — |
| | 700 |
| | 700 |
| | — |
| | (467 | ) | | (467 | ) | | 233 |
|
In-process research and development | | — |
| | 112,800 |
| | 112,800 |
| | — |
| | — |
| | — |
| | 112,800 |
|
Total | | $ | 9,139 |
| | $ | 114,541 |
| | $ | 123,680 |
| | $ | (5,404 | ) | | $ | (860 | ) | | $ | (6,264 | ) | | $ | 117,416 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Gross Intangible Assets | | Accumulated Amortization | | |
| | Balance as of December 31, 2011 | | Acquisitions | | Balance as of December 31, 2012 | | Balance as of December 31, 2011 | | Additions Charged to Expense | | Balance as of December 31, 2012 | | Net Intangibles at December 31, 2012 |
Patents | | $ | 6,135 |
| | $ | 3,004 |
| | $ | 9,139 |
| | $ | (3,280 | ) | | $ | (2,124 | ) | | $ | (5,404 | ) | | $ | 3,735 |
|
Estimated future amortization expense for our intangible assets is as follows at December 31, 2013 (in thousands):
|
| | | | |
2014 | | $ | 730 |
|
2015 | | 496 |
|
2016 | | 493 |
|
2017 | | 461 |
|
2018 | | 458 |
|
Thereafter | | 1,978 |
|
Total estimated future amortization expense | | $ | 4,616 |
|
The above estimated future amortization expense does not include $112.8 million of IPR&D, which will be reclassified as a definite-lived intangible asset upon successful completion of individual projects and amortized over the useful lives of approximately 8 to 12 years. The first project is scheduled for completion in 2014.
