SeaChange International, 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

Jan. 31, 2017

Goodwill and Intangible Assets Disclosure [Abstract]

Goodwill and Intangible Assets

6. Goodwill and Intangible Assets

Goodwill, net

At January 31, 2017 and 2016, we had goodwill of $23.3 million and $40.2 million, respectively. The following table represents the changes in goodwill for the fiscal year ended January 31, 2017 (amounts in thousands):


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

Goodwill, net		40,175
Acquisition of DCC Labs		7,255
Goodwill impairment charge		(23,492	)
Cumulative translation adjustment		(651	)

Balance as of January 31, 2017
Goodwill, gross		61,707
Accumulated impairment losses		(39,279	)

Goodwill, net	$	23,287

The valuation of goodwill related to the DCC Labs acquisition was finalized in the fourth quarter of fiscal 2017 based on the final allocation of the purchase price.

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 (see Note 12, “Income Taxes” to this Form 10-K 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 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.

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. Since the estimated fair value of our reporting unit was less than its carrying value, we determined that it was necessary to perform “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.

Intangible assets, net

Intangible assets, net, consisted of the following at January 31, 2017 and 2016:


			January 31, 2017							January 31, 2016
	Weighted average remaining life (Years)		Gross		Accumulated Amortization			Net		Gross		Accumulated Amortization			Net
	(Amounts in thousands)
Finite-lived intangible assets:
Customer contracts		2.4	$	30,056	$	(28,019	)	$	2,037	$	29,956	$	(26,284	)	$	3,672
Non-compete agreements		1.3		2,374		(2,356	)		18		2,365		(2,365	)		—
Completed technology		2.4		10,496		(9,997	)		499		10,075		(9,621	)		454
Trademarks, patents and other		3.3		7,125		(7,076	)		49		7,068		(7,068	)		—

Total finite-lived intangible assets		2.4	$	50,051	$	(47,448	)	$	2,603	$	49,464	$	(45,338	)	$	4,126

Amortization expense for intangible assets was $3.3 million, $4.8 million and $5.2 million for fiscal 2017, 2016 and 2015, respectively.

The total amortization expense for each of the next five fiscal years is as follows (amounts in thousands):


For the Fiscal Years Ended January 31,	Estimated Amortization Expense
2018	$	1,412
2019		931
2020		257
2021		3
2022		—
2023 and thereafter		—

Total	$	2,603

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

- 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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