Goodwill and intangible assets

12 Months Ended

Jul. 31, 2014

10. Goodwill and intangible assets

Goodwill

The carrying value of our goodwill at July 31, 2014 and 2013 was $57.0 million and $50.1 million, respectively. The difference between the two periods relates to goodwill associated with the acquisition of PocketSonics of $6.9 million. Upon the acquisition of PocketSonics, we recorded goodwill of $2.8 million, representing the value of the opportunity of further strengthening our competitive position. The goodwill associated with the acquisition was increased by an additional $4.1 million for the deferred tax liability on the IPR&D, recorded at PocketSonics. Please refer to Note 3. Business Combinations for more information on the acquisition of PocketSonics.

The total amount of goodwill expected to be deductible for tax purposes was $3.7 million, for both fiscal years 2014 and 2013.

Intangible assets

Intangible assets include the value assigned to intellectual property and other technology, patents, customer contracts and relationships, trade names, and in-process research and development. The estimated useful lives for all of these intangible assets, excluding trade names and in-process research and development, as these are considered to have an indefinite life, are between 1 to 14 years. The carrying values of our indefinite lived intangible assets were $7.6 million and $9.5 million at July 31, 2014 and 2013, respectively.

Intangible assets at July 31, 2014 and 2013 consisted of the following:


		July 31, 2014						July 31, 2013
(in millions)	Weighted-Average Amortization Period	Cost		Accumulated Amortization		Net		Cost		Accumulated Amortization		Net
Developed technologies	10 years	$	29.6	$	9.0	$	20.6	$	18.1	$	6.6	$	11.5
Customer relationships	13 years		43.9		15.1		28.8		43.9		10.2		33.7
Trade names	3 years*		8.5		0.5		8.0		8.5		0.1		8.4
In-process research and development	—		—		—		—		1.9		—		1.9

Total intangible assets		$	82.0	$	24.6	$	57.4	$	72.4	$	16.9	$	55.5

*	$7.6 Million of Trade names are Non-Amortizable

Amortization expense related to intangible assets was $7.8 million, $4.1 million, and $3.1 million for fiscal years 2014, 2013 and 2012, respectively.

The estimated future amortization expenses related to intangible assets for succeeding fiscal years is expected to be as follows:


(in millions)
2015	$	8.7
2016		7.8
2017		7.1
2018		6.1
2019		4.9
Thereafter		15.2

	$	49.8

We performed the annual impairment test for our goodwill and other intangible assets with indefinite lives as of December 31, 2013. The goodwill as of December 31, 2013 relates to our acquisitions of Copley Controls in April 2008, Ultrasonix in March 2013 and PocketSonics in September 2013. In accordance with U.S. GAAP, we elected to bypass the qualitative assessment and proceeded to step one of the impairment test by comparing the fair value of the reporting units to their carrying values. The goodwill from the acquisition of Copley Controls, of $1.9 million, is included in our OEM reporting unit under the Medical Imaging segment. For purposes of assessing our annual impairment, the goodwill from the acquisitions of Ultrasonix and PocketSonics, of $55.1 million, is included in our Ultrasound reporting unit. Our impairment assessment considered both the market approach and income approach with different probabilities assigned to each. Under the market approach, the fair value of the reporting unit is based on trading multiples and a control premium, which was determined based on an analysis of control premiums for recent relevant acquisitions. Under the income approach, the fair value of the reporting unit is based on the present value of estimated future cash flows. The income approach is dependent on a number of significant management assumptions including estimates of future sales, future gross margin percentage, and discount rates. We determined that the fair values of the OEM and Ultrasound reporting units were in excess of their carrying values, and therefore it was not necessary for us to perform step two of the impairment test.

We compared the fair value of the Copley tradename using the relief from royalty approach to its carrying value as of December 31, 2013. The relief from royalty approach utilized an after-tax royalty rate and a discount rate. The after-tax royalty rate was determined based on royalty research and margin analysis while the discount rate was determined after consideration of market rates of return on debt and equity capital, the weighted average return on invested capital and the risk associated with achieving forecasted sales for the Copley tradename. We determined that the fair value of the Copley tradename was in excess of its carrying value.

Our IPR&D asset arises from our acquisition of PocketSonics. We determined the fair value of the IPR&D using a probability-adjusted cash flow model. We compared the fair value of the IPR&D using the income approach to its carrying value at December 31, 2013 and determined there was no impairment. In May 2014, the IPR&D was completed and we performed a qualitative assessment and determined that there was no impairment. Accordingly, the carrying amount of the IPR&D asset of $11.5 million was reclassified as developed technology and will be amortized over its estimated useful life of 10 years. We expect to utilize this IPR&D asset in our Ultrasound segment.

The current economic environment and the uncertainties regarding its impact on our business and our estimates for forecasted revenue and spending levels, made for purposes of our goodwill and trade name impairment testing during the second quarter of fiscal year 2014 may not be accurate predictions of the future. If our assumptions regarding forecasted revenue or margin growth rates of the reporting unit and trade name are not achieved, we may be required to record an impairment charge for the goodwill and trade name in future periods, whether in connection with our next annual impairment testing in the second quarter of the fiscal year ending July 31, 2015, or prior to that if any such change constitutes a triggering event outside of the quarter from when the annual goodwill and trade name impairment test is performed. It is not possible at this time to determine if any such future impairment charge would result or, if it does, whether such charge would be material.

- 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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