NOTE J – INTANGIBLE ASSETS

Impairment Charges

During the second quarter of 2016, management evaluated and determined that the Omnilink and Do-It-Yourself (DIY) product lines and reporting units should be tested for impairment as a result of lower than expected operating results, which were related to strategic changes and delays associated with the launch of a new personal tracking product line. Management initiated a quantitative two-step goodwill impairment test by comparing the carrying value of the net assets of the respective units to their fair values based on a discounted cash flow analysis. Based on our assessment under the two-step impairment test, we determined that the fair values of these reporting units were less than the respective carrying values; therefore we performed Step 2 of the impairment test, which indicated that goodwill was impaired, and we recorded $4.2 million in impairment charges. 

We elected to change our annual goodwill impairment testing measurement date from October 1 to December 1 effective October 1, 2016, primarily to better align our measurement date with our financial projections, as well as our annual strategic, financial planning, and budgeting processes. There was no impact on our analysis from the change in measurement date.

As part of our annual assessment of goodwill at December 1, 2016, the carrying values of our Omnilink and DIY reporting units were found to be greater than the calculated fair values. Significant assumptions used in our assessment included the discount rates, growth rate assumptions, long term growth rates assumptions, and EBITDA margins. Accordingly, we performed a Step 2 analysis for these reporting units and recorded goodwill impairment of $7.4 million for our Omnilink reporting unit. No impairment was recorded for DIY goodwill as no impairment was indicated in the Step 2 analysis. As part of our December 1, 2016 assessment we also recorded $0.4 million of impairment related to the Omnilink Trade Name. The decrease in the fair value of the DIY reporting unit was principally due to the reporting unit not generating results of operations consistent with our expectations and previous forecasts. The decrease in the fair value of the Omnilink reporting unit was due to two customer contracts which were not renewed during December 2016.

We recorded a total of $2.7 million in impairment charges for goodwill and other intangible assets during the year ended December 31, 2015.

During 2015, our Do-It-Yourself (DIY) product line and reporting unit did not generate results of operations consistent with our expectations and previous forecasts and management was evaluating different strategic options for the reporting unit. These factors were triggering events that it was more likely than not that the fair value of the DIY reporting unit was less than its carrying amount. As a result, we performed our initial assessment of goodwill for impairment, along with other intangible assets of the DIY reporting unit, in the period ended September 30, 2015. Based on preliminary Step 2 calculations, we recorded impairment charges of $0.9 million for goodwill and $0.3 million for patents during the period ended September 30, 2015. We recorded an additional $0.1 million impairment charge for customer relationship intangible assets upon finalizing the Step 2 calculation during the three months ended December 31, 2015.

As part of our annual assessment of goodwill and other intangible assets for impairment as of October 1, 2015, we determined that technology and indefinite-lived trade names acquired in the merger with Omnilink were each impaired by $0.7 million. The decrease in the fair value of both trade names and technology was principally due to a change in the projected revenues and financial returns on intangible assets from the amounts originally projected at the date of the merger.

Changes in values are summarized as follows (in thousands):

Intangible Assets Other Than Goodwill

Intangible assets other than goodwill are summarized as follows (dollars in thousands):

Remaining useful lives in the preceding table were calculated on a weighted average basis as of December 31, 2016. We did not incur costs to renew or extend the term of acquired intangible assets during the year ended December 31, 2016. Amortization expense for intangible assets for the years ended December 31, 2016, 2015 and 2014 was $5.0 million, $5.1 million, and $4.6 million, respectively. In addition, $0.3 million of amortization expense for intangible assets is recorded in cost of subscription and support revenue in the accompanying consolidated statement of operations and comprehensive (loss) income for each of the years ended December 31, 2016 and 2015, and $0.2 million for the year ended December 31, 2014.

During the years ended December 31, 2016 and 2015, we capitalized approximately $1.6 million and $2.2 million, respectively, of internally developed software costs. Amortization expense for capitalized internally developed software for the years ended December 31, 2016, 2015 and 2014 was $1.9 million, $1.7 million and $1.4 million, respectively, included in total amortization expense disclosed above.

Amortization expense for the next five years is summarized as follows based on intangible assets as of December 31, 2016 (in thousands):

Goodwill and Trade Names

The carrying amount of goodwill and trade names for the years ended December 31, 2016 and 2015, are as follows (in thousands):

Our gross goodwill balance as of December 31, 2016, 2015, and 2014 was $48.7 million. Accumulated impairment losses were $15.1 million as of December 31, 2016, and $5.3 million as of December 31, 2015.