Annual report pursuant to Section 13 and 15(d)

Goodwill and Intangible Assets

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Goodwill and Intangible Assets
12 Months Ended
Jan. 31, 2012
Goodwill and Intangible Assets

7. Goodwill and Intangible Assets

 

At January 31, 2012 and 2011, we had goodwill of $63.6 million and $64.7 million, respectively. The change in the carrying amount of goodwill for the years ended January 31, 2012 and 2011 are as follows:

 

    Software     Media Services     Total  
                   
Balance at January 31, 2010   $ 35,696     $ 19,586     $ 55,282  
VividLogic acquisition     10,025       -       10,025  
Cumulative translation adjustment     (464 )     (164 )     (628 )
                         
Balance at January 31, 2011     45,257       19,422       64,679  
Cumulative translation adjustment     (842 )     (197 )     (1,039 )
Balance at January 31, 2012   $ 44,415     $ 19,225     $ 63,640  

 

The Goodwill balance excludes $594,000 of goodwill assigned based on a relative fair value calculation to the divestiture of the broadcast servers and storage business unit that is included in non-current assets related to discontinued operations in the Consolidated Balance Sheet.

 

As of August 1, 2011, we reviewed the recoverability of goodwill associated with our previously reported three segments, Software, Servers and Storage, and Media Services, and determined that there was no goodwill impairment. Following the divestiture of a portion of the broadcast servers and storage product lines, the Software and VOD server product line was organized in the one business reporting segment. Reportable segments were determined based upon the nature of the products offered to customers, the market characteristics of each operating segment and the Company’s management structure. During the fourth quarter of fiscal 2012, we evaluated the impairment analysis and updated for the change in its estimates from August 1, 2011 to January 31, 2012. While no impairment charges resulted from the analyses performed during the fourth quarter of fiscal 2012, impairment charges may occur in the future due to changes in projected revenue growth rates, projected operating margins or estimated discount rates, among other factors.

 

At January 31, 2012 and 2011, we have recorded net intangible assets of $ 23.8 million and $30.3 million respectively, consisting of patents, customer contracts, non-compete agreements, completed technology, in-process research and development and trademarks.

 

Intangible assets, net, consisted of the following:

 

          January 31, 2012     January 31, 2011  
    Weighted average remaining life (Years)     Gross     Accumulated Amortization     Net     Gross     Accumulated Amortization     Net  
          (in thousands)     (in thousands)  
Finite-lived intangible assets:                                                        
Customer contracts     5.5     $ 34,106     $ (17,131 )   $ 16,975     $ 34,576     $ (14,291 )   $ 20,285  
Non-compete agreements     1.5       2,673       (1,869 )     804       2,742       (1,104 )     1,638  
Completed technology     4.4       12,294       (6,646 )     5,648       11,976       (4,775 )     7,201  
Trademarks and other     0.9       2,345       (2,211 )     134       2,384       (1,946 )     438  
Total finite-lived intangible assets           $ 51,418     $ (27,857 )   $ 23,561     $ 51,678     $ (22,116 )   $ 29,562  
                                                         
Infinite-lived intangible assets:                                                        
In-process research and development     Infinite                               544               544  
Trade names     Infinite     $ 200     $ -     $ 200     $ 200     $ -     $ 200  
Total intangible assets           $ 51,618     $ (27,857 )   $ 23,761     $ 52,422     $ (22,116 )   $ 30,306  

 

Estimated useful lives and the amortization basis for the intangible assets are as follows:

 

     Estimated Useful Life and Amortization Basis 
Customer contracts   1 - 8 years using economic consumption life basis
Non compete agreements   2 - 3 years economic life of the agreement
Completed technology   4 - 6 years using economic consumption life basis
Trademarks and other   5 years using economic consumption life basis
In-process R & D   indefinite life
Trade names   indefinite life

 

Amortization expense for intangible assets was $6.1 million, $5.4 million and $3.5 million for fiscal 2012, 2011 and 2010, respectively. In fiscal 2012, 2011 and 2010, $2.2 million, $2.0 million, and $638,000, respectively, were charged to cost of product revenues. In fiscal 2012, 2011 and 2010, $3.9 million, $3.4 million and $2.8 million, respectively, were charged to operating expense. The total amortization expense for each of the next five fiscal years is as follows:

 

    Amortization  
    Expense  
    (in thousands)  
Fiscal 2013   $ 5,805  
Fiscal 2014     4,661  
Fiscal 2015     4,324  
Fiscal 2016     3,499  
Fiscal 2017 and thereafter     5,272  
Total Future Amortization   $ 23,561  

 

Actual amounts may change from such estimated amounts due to fluctuations in foreign currency exchange rates, additional intangible asset acquisitions, potential impairment, accelerated amortization, or other events.