SeaChange International, Inc. Quarterly report pursuant to Section 13 or 15(d)

Quarterly report pursuant to Section 13 or 15(d)

Goodwill and Intangible Assets

Goodwill and Intangible Assets

9 Months Ended

Oct. 31, 2016

Goodwill and Intangible Assets Disclosure [Abstract]

6.	Goodwill and Intangible Assets

Goodwill

Goodwill represents the difference between the purchase price and the estimated fair value of identifiable assets acquired and liabilities assumed. We are required to perform impairment tests related to our goodwill annually, which we perform during the third quarter of each fiscal year, or when we identify certain triggering events or circumstances that would more likely than not reduce the estimated fair value of the goodwill of the Company below its carrying amount. Changes in the carrying amount of goodwill for the nine months ended October 31, 2016 were as follows (amounts in thousands):


Balance as of February 1, 2016
Goodwill	$	55,962
Accumulated impairment losses		(15,787	)

		40,175
Acquisition of DCC Labs		5,401
Cumulative translation adjustment		113

Balance as of October 31, 2016
Goodwill		61,476
Accumulated impairment losses		(15,787	)

	$	45,689

Preliminary goodwill is reported at $5.4 million as of October 31, 2016, related to the acquisition of DCC Labs based on the preliminary allocation of the estimated purchase price. We will continue to evaluate certain assets, liabilities and tax estimates that are subject to change within the measurement period (up to one year from the acquisition date).

In the second quarter of fiscal 2017, triggering events prompted us to perform step one of the goodwill impairment test. The triggering events included; a sustained decrease in our stock price during the period, the withdrawal of the permanent reinvestment assertion on earnings generated by our Irish operations (see Note 12, “Income Taxes” to our consolidated financial statements for more information) and a decline in actual revenue for the quarter compared to projected amounts, which was previously reported in a Current Report on Form 8-K furnished to the SEC on August 23, 2016. The outcome of that preliminary step one analysis revealed that as of July 31, 2016, the fair value of the net assets exceeded its carrying value by a range of $15.4 million to $25.0 million, or 15.0% to 24.4% of the carrying value of our net assets.

In the third quarter of fiscal 2017, we finalized our step one analysis of the goodwill impairment test. Our forecast indicated that the estimated fair value of net assets may be less than the carrying value which is a potential indicator of impairment. As such, we are required to perform step two of the impairment test during which we compare the implied fair value of our goodwill to its carrying value. We currently continue to work through various restructuring actions and execute on other strategic plans which has not enabled us to complete the step two testing at this time. We expect to complete the goodwill impairment testing of our reporting unit during the fourth quarter of fiscal 2017. To the extent that the finalization of this assessment of goodwill requires recognition of an impairment loss, such adjustment would be recorded in the fourth quarter of fiscal 2017. We have estimated the range of impairment loss to be between $0 and $45.7 million and have not recognized an impairment loss in the third quarter of fiscal 2017. See “Critical Accounting Policies and Significant Judgment and Estimates – Goodwill,” in Part I, Item 2 of this Form 10Q for more information on the impairment testing.

Intangible Assets

Intangible assets, net, consisted of the following at October 31, 2016 and January 31, 2016:


		As of October 31, 2016							As of January 31, 2016
	Weighted average remaining life (Years)	Gross		Accumulated Amortization			Net		Gross		Accumulated Amortization			Net
	(Amounts in thousands)
Finite-life intangible assets:
Customer contracts	4.3	$	31,454	$	(27,797	)	$	3,657	$	29,956	$	(26,284	)	$	3,672
Non-compete agreements	1.8		2,483		(2,410	)		73		2,365		(2,365	)		—
Completed technology	6.0		11,509		(10,029	)		1,480		10,075		(9,621	)		454
Trademarks, patents and other	4.8		7,267		(7,092	)		175		7,068		(7,068	)		—

Total finite-life intangible assets	4.7	$	52,713	$	(47,328	)	$	5,385	$	49,464	$	(45,338	)	$	4,126

As of October 31, 2016, the estimated future amortization expense for our finite-life intangible assets is as follows (amounts in thousands):


Fiscal Year Ended January 31,	Estimated Amortization Expense
2017 (for the remaining three months)	$	635
2018		1,721
2019		1,038
2020		524
2021		389
2022 and thereafter		1,078

Total	$	5,385

- 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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