Enzo Biochem, Inc. Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

Goodwill and intangible assets

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.

- Definition

The entire disclosure for the aggregate amount of goodwill and a description of intangible assets, which may include (a) for amortizable intangible assets (also referred to as finite-lived intangible assets), the carrying amount, the amount of any significant residual value, and the weighted-average amortization period, (b) for intangible assets not subject to amortization (also referred to as indefinite-lived intangible assets), the carrying amount, and (c) the amount of research and development assets acquired and written off in the period, including the line item in the income statement in which the amounts written off are aggregated, if not readily apparent from the income statement. Also discloses (a) for amortizable intangibles assets in total and by major class, the gross carrying amount and accumulated amortization, the total amortization expense for the period, and the estimated aggregate amortization expense for each of the five succeeding fiscal years, (b) for intangible assets not subject to amortization the carrying amount in total and by major class, and (c) for goodwill, in total and for each reportable segment, the changes in the carrying amount of goodwill during the period (including the aggregate amount of goodwill acquired, the aggregate amount of impairment losses recognized, and the amount of goodwill included in the gain (loss) on disposal of a reporting unit). If any part of goodwill has not been allocated to a reportable segment, discloses the unallocated amount and the reasons for not allocating. For each impairment loss recognized related to an intangible asset (excluding goodwill), discloses: (a) a description of the impaired intangible asset and the facts and circumstances leading to the impairment, (b) the amount of the impairment loss and the method for determining fair value, (c) the caption in the income statement or the statement of activities in which the impairment loss is aggregated, and (d) the segment in which the impaired intangible asset is reported. For each goodwill impairment loss recognized, discloses: (a) a description of the facts and circumstances leading to the impairment, (b) the amount of the impairment loss and the method of determining the fair value of the associated reporting unit, and (c) if a recognized impairment loss is an estimate not finalized and the reasons why the estimate is not final. May also disclose the nature and amount of any significant adjustments made to a previous estimate of an impairment loss.

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