Note 2 – Goodwill and intangible assets

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

Goodwill represents the excess of the cost of an acquisition over the fair value of the net assets acquired. The Company tests goodwill and had tested 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 2013, the annual assessment date, the Company’s test did not indicate impairment at the Clinical Lab’s reporting unit.

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 fiscal 2012 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:

Intangible assets consist of the following:

At July 31, 2013 information with respect to the intangibles acquired is as follows:

At July 31, 2013, the weighted average useful lives of amortizable intangible assets were approximately six years.

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

Amortization expense for the years ended July 31, 2013, 2012, and 2011 was $1,990, $1,660, and $1,507, 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 values by $5.7 million primarily due to declines in projected revenues and in connection with future plans resulting from a 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 of fiscal 2012. As a result of the reclassification of trademarks from indefinite lived to a 5 year life, annual amortization of trademarks is estimated to be $0.6 million per year. 0 impairment was determined to exist at May 1, 2013.

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.