Annual report pursuant to Section 13 and 15(d)

Goodwill and intangible assets

v2.4.0.6
Goodwill and intangible assets
12 Months Ended
Jul. 31, 2012
Goodwill and Intangible Assets Disclosure [Text Block]

Note 2 – Goodwill and intangible assets


The Company’s change in the net carrying amount of goodwill by business segment is as follows:


 

 

 

 

 

 

 

 

 

 

 

 

 

Enzo Life
Sciences

 

Enzo
Clinical
Labs

 

Total

 

 

 


 


 


 

August 1, 2010

 

$

17,491

 

$

7,452

 

$

24,943

 

Additional purchase price consideration

 

 

1,150

 

 

 

 

1,150

 

Foreign currency translation

 

 

1,280

 

 

 

 

1,280

 

 

 



 



 



 

July 31, 2011

 

 

19,921

 

 

7,452

 

 

27,373

 

Foreign currency translation

 

 

(1,083

)

 

 

 

(1,083

)

Impairment charge

 

 

(18,838

)

 

 

 

(18,838

)

 

 



 



 



 

July 31, 2012

 

$

 

$

7,452

 

$

7,452

 

 

 



 



 



 


Goodwill represents the excess of the cost of an acquisition over the fair value of the net assets acquired. The Company tests goodwill and other indefinite lived intangibles for impairment annually as of the first day of the fourth quarter, or more frequently if indicators of potential impairment exist. Goodwill is reviewed for impairment utilizing a two-step process. The first step of the impairment test requires the identification of the reporting units and comparison of the fair value of each of these reporting units to their respective carrying value. If the carrying value of the reporting unit is less than its fair value, no impairment exists and the second step is not performed. If the carrying value of the reporting unit is higher than its fair value, the second step must be performed to compute the amount of the goodwill impairment, if any. In the second step, the impairment is computed by comparing the implied fair value of the reporting unit goodwill with the carrying amount of that goodwill. If the carrying amount of the reporting unit goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized for the excess.


The Company estimates the fair value of a reporting unit using a forward-looking discounted cash flow methodology. The assumptions included in the discounted cash flow methodology included among others; forecasted revenues based on historical and recent revenue trends, gross profit margins, operating income margins, working capital cash flow, perpetual growth rates, and long-term discount rates, all of which require significant judgments by management. As of the first day of the fourth quarter of 2012, the annual assessment date, the Company’s test did not indicate impairment at any of the Company’s reporting units.


As a result of decline in the Company's market capitalization, relating to the decline in the Company's stock price of 44% from May 1 to July 31, 2012, declining results in the fourth quarter and results from the completion of the refocusing of the Enzo Life Sciences reporting unit, the Company determined that these impairment factors required the completion of an interim impairment test as of July 31, 2012. Based upon the results of the interim impairment test as of July 31, 2012, the carrying value of the Enzo Life Sciences reporting unit was determined to be higher than its fair value and, accordingly, the Company performed a step two impairment analysis. The results of the step two impairment analysis for the Enzo life Sciences reporting unit indicated that goodwill was fully impaired. As a result of the analysis the Company recognized a total non-cash impairment charge of $18.8 million ($18.0 net of related taxes) as of July 31, 2012. The impairment charge did not impact the Company's consolidated cash flows, liquidity, and capital resources. The fair value of the Enzo Clinical Lab reporting unit was higher than its carrying value and therefore a step-two analysis was not required.


Intangible assets


The Company’s change in the net carrying amount of intangible assets, all in the Life Sciences segment is as follows:


 

 

 

 

 

 

 

 

 

 

 

 

 

Gross

 

Accumulated Amortization

 

Net

 

 

 


 


 


 

August 1, 2010

 

$

33,940

 

 

(13,572

)

 

20,368

 

Amortization expense

 

 

 

 

(1,507

)

 

(1,507

)

Foreign currency translation

 

 

898

 

 

226

 

 

1,124

 

 

 



 



 



 

July 31, 2011

 

 

34,838

 

 

(14,853

)

 

19,985

 

Amortization expense

 

 

 

 

(1,660

)

 

(1,660

)

Foreign currency translation

 

 

(1,232

)

 

389

 

 

(843

)

Trademark impairment charge

 

 

(5,702

)

 

 

 

(5,702

)

 

 



 



 



 

July 31, 2012

 

$

27,904

 

$

(16,124

)

$

11,780

 

 

 



 



 



 


Intangible assets consist of the following:


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

July 31, 2012

 

July 31, 2011

 

 

 


 


 

 

 

Gross

 

Accumulated
Amortization

 

Net

 

Gross

 

Accumulated
Amortization

 

Net

 

 

 




 


 




 


 

Finite-lived intangible assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Patents

 

$

11,027

 

$

(10,439

)

$

588

 

$

11,027

 

$

(10,278

)

$

749

 

Customer relationships

 

 

12,304

 

 

(4,356

)

 

7,948

 

 

12,789

 

 

(3,472

)

 

9,317

 

Website and acquired content

 

 

1,019

 

 

(874

)

 

145

 

 

1,063

 

 

(748

)

 

315

 

Licensed technology and other

 

 

485

 

 

(300

)

 

185

 

 

649

 

 

(355

)

 

294

 

Trademarks, gives effect for impairment charge and reclassification to finite-lived as of May 1, 2012

 

 

3,069

 

 

(155

)

 

2,914

 

 

9,310

 

 

 

 

9,310

 

 

 






 



 






 



 

Total

 

$

27,904

 

$

(16,124

)

$

11,780

 

$

34,838

 

$

(14,853

)

$

19,985

 

 

 






 



 






 



 


At July 31, 2012 information with respect to the intangibles acquired is as follows:


 

 

 

 

 

 

 

 

 

 

 

 

 

Useful life
assigned

 

 

 

 

 

 

 


 

 

 

 

 

 

 

Minimum

 

Maximum

 

 

 

Weighted average
remaining useful life

 

 

 


 


 

 

 


Customer relationships

 

 

8

 

15

 

 

 

8 years

Trademarks

 

 

 

 

 

 

5

 

5 years

Other intangibles

 

 

4

 

5

 

 

 

2 years


At July 31, 2012, the weighted average useful lives of amortizable intangible assets were approximately seven years.


Estimated amortization expense related to these finite-lived intangible assets for the five succeeding fiscal years ending July 31 is as follows:


 

 

 

 

 

 

 

2013

 

$

1,911

 

 

2014

 

 

1,796

 

 

2015

 

 

1,755

 

 

2016

 

 

1,729

 

 

2017

 

 

1,515

 


Amortization expense for the years ended July 31, 2012, 2011, and 2010 was $1,660, $1,507, and $1,542, respectively.


In connection with the annual assessment of indefinite-lived intangibles as of May 1, 2012, the Company determined the estimated fair value of trademarks, relating to the Enzo Life Science reporting unit, were less than their carrying value by $5.7 million primarily due to declines in projected revenues and in connection with future plans resulting from the aforementioned strategic review. As a result of this impairment, which included a change in the future branding strategy, the useful life of the trademarks were reassessed and determined to have an estimated economic life of 5 years. A non-cash impairment charge of $5.7 million, ($4.4 million net of related taxes) was recorded for the trademark impairment in the fourth quarter. As a result of the reclassification of trademarks from indefinite lived to a 5 year life, annual amortization of trademarks is estimated to $0.6 million per year.


The aggregate goodwill and indefinite lived-intangible impairment charge recorded in the fiscal 2012 fourth quarter was $24.5 million, ($22.4 million net of related taxes). These charges did not affect consolidated cash flows, current liquidity or capital resources.