6. Intangible assets and goodwill

Intangible assets

Intangible assets include the value assigned to intellectual property and other technology, patents, customer contracts and relationships, and trade names. The estimated useful lives for all of these intangible assets, excluding a trade name determined to have an indefinite life, range between 1 to 14 years. Indefinite-lived intangible assets consist of trade names acquired in business combinations. The carrying values of our indefinite-lived intangible assets were $7.6 million at both January 31, 2017 and July 31, 2016.

Finite-lived intangible assets are summarized as follows:


			As of January 31, 2017						As of July 31, 2016
(in millions)	Weighted Average Amortization Period		Cost		Accumulated Amortization/ Write-Offs		Net		Cost		Accumulated Amortization		Net
Developed technologies		10 years	$	29.2	$	16.5	$	12.7	$	29.9	$	15.1	$	14.8
Customer relationships		13 years		46.8		27.2		19.6		47.1		25.2		21.9
Trade names		3 years		1.8		1.1		0.7		1.9		1.0		0.9

Total finite-lived intangible assets			$	77.8	$	44.8	$	33.0	$	78.9	$	41.3	$	37.6

Amortization expense related to acquired intangible assets was $2.0 million and $4.0 million for the three and six months ended January 31, 2017, respectively. Amortization expense related to acquired intangible assets was $2.0 million and $4.0 for the three and six months ended January 31, 2016, respectively.

During the second quarter of fiscal year 2017, management noted impairment indicators related to the Pathfinder intangible assets which had a carrying value of $0.6 million. Pathfinder is part of our Security and Detection operating segment. Management performed an impairment test based on the projected future cash flows and recorded an impairment charge of $0.6 million, including a write-off of developed technology of $0.5 million and a write-off of trade name of $0.1 million. We recorded these amounts in the asset impairment charges caption in our accompanying unaudited condensed consolidated statements of operations.

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


(in millions)	Estimated Future Amortization Expense
Remaining 2017	$	3.9
2018		6.8
2019		5.6
2020		5.2
2021		4.8
Thereafter		6.7

	$	33.0

Goodwill

Analogic has goodwill balances of $64.1 million at January 31, 2017 and $73.9 million at July 31, 2016. We review periodically or more frequently if indicators are present or changes in circumstances suggest that it is more likely than not that impairment may exist and we perform a formal goodwill impairment test in the second quarter of each fiscal year.

Changes in the carrying amount of goodwill by reportable segments for the six months ended January 31, 2017 are as follows:


(in millions)	Medical Imaging		Ultrasound			Security and Detection		Total Goodwill
Balance as of July 31, 2016 Goodwill	$	1.9	$	71.5		$	0.5	$	73.9
Impairment losses		—		(9.8	)		—		(9.8	)
Balance as of January 31, 2017 Goodwill		1.9		71.5			0.5		73.9
Accumulated impairment losses		—		(9.8	)		—		(9.8	)

	$	1.9	$	61.7		$	0.5	$	64.1

We have four reporting units with goodwill—Medical Imaging, Ultrasound, Oncura, and Security and Detection and three reportable segments—Medical Imaging, Ultrasound, and Security and Detection. We performed the annual impairment test for our goodwill and other intangible assets with indefinite lives as of December 31, 2016. We first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value and as a basis for determining whether it is necessary to perform the quantitative impairment test. Alternatively, we may elect to bypass the qualitative assessment and proceed to the two-step quantitative impairment test. If we choose to perform a qualitative assessment and determine it is more likely than not that the carrying value of the net assets is more than the fair value of the related operations, the two-step impairment process is then performed; otherwise, no further testing is required.

Our quantitative impairment assessment considered both the market approach and income approach to calculate the fair value of the reporting unit, with different weights assigned to each. Under the market approach, the fair value of the reporting unit is based on trading multiples of a peer group of companies, which was determined based on an analysis of the selected guideline public companies’ business enterprise value (“BEV”) plus 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, which are determined, based upon the Company’s most recent strategic operating plan and considering market participant assumptions. The income approach is dependent on a number of significant management assumptions including estimates of future revenues, costs and expenses, and a number of significant valuation inputs including discount rates, working capital rates and tax rates. For our Medical Imaging, Ultrasound, Oncura and Security and Detection reporting units, we used the two-step quantitative impairment test. For the Security and Detection reporting unit, we performed the market approach and determined that the fair value of our Security and Detection reporting unit was in excess of its carrying value, and concluded that there was no impairment. For our Medical Imaging and Ultrasound reporting units we used both the market approach and income approach and determined that there was no impairment of goodwill. For our Medical Imaging reporting unit, we determined that the estimated fair value of the Medical Imaging reporting unit substantially exceeds its carrying value. For our Ultrasound reporting unit, we determined that our Ultrasound reporting unit was at risk of failing the first step of the goodwill impairment test in future reporting periods due to forecast revisions and changes in strategy in our ultrasound business. For example, an increase in the discount rate applied to the Ultrasound cash flows of 300 basis points could result in a failure of Step 1 of the impairment test. Also, a decrease in the revenue compound annual growth rate within the Ultrasound cash flow forecast of 200 basis points could result in a failure of Step 1 of the impairment test. Our Ultrasound reporting unit had excess fair value over carrying value of approximately 25% as of our annual test date and held $55.1 million of allocated goodwill as of December 31, 2016.

For our Oncura reporting unit, recent changes in our strategy caused us to decrease future forecasted revenues from our prior estimates. As a result, we determined that the associated goodwill was impaired and recorded an estimated charge of $9.8 million in the second quarter of fiscal year 2017. We recorded this amount in the asset impairment charges caption in our accompanying unaudited condensed consolidated statements of operations. The amount of this charge is subject to finalization in the third quarter of fiscal year 2017. We would recognize any necessary adjustment to this estimate in the third quarter of fiscal year 2017, as we finalize the second step of the goodwill impairment test, in accordance with ASC Topic 350, Intangibles -Goodwill and Other. Also as a result of our decreased revenue forecast for Oncura, we recorded an adjustment to the associated contingent considerations liability, which resulted in a gain of $8.1 million recorded within General and Administrative expenses.

The aggregate amount of goodwill that remains associated with our Oncura reporting unit is $6.6 million as of January 31, 2017. In addition, the remaining book value of our other intangible assets allocated to our Oncura reporting unit is approximately $3.3 million as of January 31, 2017. In accordance with ASC Topic 360, we tested our Oncura amortizable intangible assets as of December 31, 2016 for recoverability on an undiscounted cash flow basis, and determined that these assets were recoverable.

We compared the fair value of a tradename that has an indefinite life using the relief from royalty approach to its carrying value as of December 31, 2016. 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 tradename. We determined that the fair value of the tradename was in excess of its carrying value.

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 may not be accurate predictions of the future. If our assumptions regarding forecasted revenue or margin growth rates of each 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, 2018, 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. Changes in our forecasts, or decreases in the value of our common stock could cause book values of certain operations to exceed their fair values which may result in goodwill impairment charges in future periods. 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.