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

6 Months Ended

Jul. 31, 2017

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. At July 31, 2017 and January 31, 2017, we had goodwill of $24.7 million and $23.3 million, respectively. The change in the carrying amount of goodwill for the six months ended July 31, 2017 is due to the impact of foreign currency translation adjustments related to goodwill balances that are recorded in currencies other than the U.S. dollar. The following table represents the changes in the carrying amount of goodwill for the six months ended July 31, 2017 (amounts in thousands):

Balance as of February 1, 2017:
Goodwill, gross	$	62,566
Accumulated impairment losses		(39,279	)
Goodwill, net		23,287
Cumulative translation adjustment		1,381
Balance as of July 31, 2017:
Goodwill, gross		63,947
Accumulated impairment losses		(39,279	)
Goodwill, net	$	24,668

We considered potential impairment indicators of goodwill as of July 31, 2017, and noted no indicators that would require us to perform an impairment test. However, at the time of this report, the Company is in the process of its annual goodwill impairment testing and expects it to be completed by the end of the third quarter of fiscal 2018.

In the second quarter of fiscal 2017, triggering events prompted us to perform “Step 1” 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 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 1” 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.

During the third quarter of fiscal 2017, we finalized our “Step 1” 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 were required to perform “Step 2” of the impairment test during which we compare the implied fair value of our goodwill to its carrying value.

We determined based on “Step 1” of our fiscal 2017 annual impairment test, that the fair value of our reporting unit was less than its carrying value, which was $102.5 million at August 1, 2016. As a result, we performed “Step 2” of the impairment test. In “Step 2” of the impairment test we compared the implied fair value of our goodwill to its carrying value. After adjusting the carrying value of all assets, liabilities and equity to fair value at August 1, 2016, the estimated implied fair value of goodwill was calculated to be $22.3 million. Since the implied fair value of goodwill of $22.3 million is less than the carrying value of $45.8 million as of August 1, 2016, we recorded an impairment charge of $23.5 million to loss on impairment of long-lived assets in our consolidated statements of operations and comprehensive loss in January 2017.

Intangible Assets

Intangible assets, net, consisted of the following at July 31, 2017 and January 31, 2017:

			As of July 31, 2017							As of January 31, 2017
	Weighted average remaining life (Years)		Gross		Accumulated Amortization			Net		Gross		Accumulated Amortization			Net
	(Amounts in thousands)
Finite-life intangible assets:
Customer contracts		2.3	$	31,114	$	(29,547	)	$	1,567	$	30,056	$	(28,019	)	$	2,037
Non-compete agreements		0.8		2,537		(2,525	)		12		2,374		(2,356	)		18
Completed technology		2.5		11,097		(10,695	)		402		10,496		(9,997	)		499
Trademarks, patents and other		2.8		7,164		(7,117	)		47		7,125		(7,076	)		49
Total finite-life intangible assets		2.4	$	51,912	$	(49,884	)	$	2,028	$	50,051	$	(47,448	)	$	2,603

As of July 31, 2017, the estimated future amortization expense for our finite-life intangible assets is as follows (amounts in thousands):

	Estimated
	Amortization
Fiscal Year Ended January 31,	Expense
2018 (for the remaining six months)	$	854
2019		862
2020		305
2021		7
2022		—
2023 and thereafter		—
Total	$	2,028

- 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.

+ References + Details