Goodwill and intangible assets

12 Months Ended

Oct. 31, 2011

Goodwill and intangible assets [Abstract]

Goodwill and intangible assets

Note 17 — Goodwill and intangible assets

Goodwill is the excess of purchase price over the fair value of tangible and identifiable intangible net assets acquired in various business combinations. Goodwill is not amortized but is tested for impairment annually at the reporting unit level, or more often if indications of impairment exist. We assess the fair value of reporting units on a non-recurring basis using a combination of two valuation methods, a market approach and an income approach, to estimate the fair value of our reporting units. The implied fair value of our reporting units is determined based on significant unobservable inputs; accordingly, these inputs fall within Level 3 of the fair value hierarchy.

Our reporting units are the Adhesive Dispensing Systems segment, the Industrial Coating Systems segment and one level below the Advanced Technology Systems segment.

The goodwill impairment test is a two-step process. In the first step, performed in the fourth quarter of each year, we calculate a fair value using a discounted cash flow valuation methodology and compare the result against the carrying value for net assets of each reporting unit. Indications of value derived for each reporting unit using the market approach are corroborated with the results of the discounted cash flow approach. If the carrying value of a reporting unit exceeds its fair value, then a second step is performed to determine if goodwill is impaired. In the second step, a hypothetical purchase price allocation of the reporting unit’s assets and liabilities is performed using the fair value calculated in step one. The difference between the fair value of the reporting unit and the hypothetical fair value of assets and liabilities is the implied goodwill amount. Impairment is recorded if the carrying value of the reporting unit’s goodwill is higher than its implied goodwill. Based upon results of step one in 2011 and 2010, the second step of the goodwill impairment test was not necessary.

We acquired Value Plastics on August 26, 2011, subsequent to the measurement date for impairment testing. Determination of the preliminary fair value associated with this acquisition was completed with the assistance of an independent valuation specialist on October 5, 2011. Since the date of valuation, no events or changes in circumstances have occurred that would more likely than not reduce the fair value of Value Plastics below its carrying value. For valuation purposes, Value Plastics will be a component of EFD.

In 2009, the second step of the goodwill impairment test was performed and we recognized an impairment charge related to a reduction in the carrying value of goodwill in the amount of $232,789, relating to six reporting units as follows: Dage $166,916, Picodostec $7,530, YESTech $26,149, March Plasma Systems $16,449, UV Curing $12,129, and Industrial Coating Systems $3,616. These amounts represented the accumulated impairment losses at October 31, 2011 and 2010.

On November 1, 2010 we completed the acquisition of Micromedics that resulted in $13,312 of goodwill. On June 30, 2011 we completed the acquisition of Verbruggen that resulted in $8,461 of goodwill. On August 26, 2011, we completed the acquisition of Value Plastics that resulted in $179,050 of goodwill.

Changes in the carrying amount of goodwill during 2011 by operating segment follow:

	Adhesive Dispensing Systems			Advanced Technology Systems			Industrial Coating Systems		Total
Balance at October 31, 2010	$	33,783		$	313,543		$	—	$	347,326
Acquisitions/Adjustment		8,638			192,362			—		201,000
Currency effect		(459	)		(41	)		—		(500	)
Balance at October 31, 2011	$	41,962		$	505,864		$	—	$	547,826

Information regarding intangible assets subject to amortization follows:

	October 31, 2011
	Carrying Amount		Accumulated Amortization		Net Book Value
Patent/technology costs	$	43,235	$	11,571	$	31,664
Customer relationships		78,324		11,843		66,481
Noncompete agreements		5,042		3,727		1,315
Trade name		22,143		1,530		20,613
Other		1,437		811		626
Total	$	150,181	$	29,482	$	120,699

	October 31, 2010
	Carrying Amount		Accumulated Amortization		Net Book Value
Patent/technology costs	$	23,429	$	9,084	$	14,345
Customer relationships		30,630		8,273		22,357
Noncompete agreements		5,982		4,857		1,125
Trade name		1,684		479		1,205
Other		1,432		636		796
Total	$	63,157	$	23,329	$	39,828

In 2010 and 2009, indefinite-lived intangible assets consisted of trademarks and trade names. These assets were not subject to amortization but needed to be tested for impairment annually or more often if indications of impairment existed. The impairment test consisted of a comparison of the fair value of the intangible asset with its carrying amount. If the carrying amount of an intangible asset exceeded its fair value, an impairment charge was recognized in an amount equal to that excess. After an impairment charge was recognized, the adjusted carrying amount of the intangible asset became its new accounting basis. Subsequent reversal of a previously recognized impairment charge is prohibited.

The common valuation technique for determining the fair value of trademark and trade names is the “relief from royalty method” which is based on significant unobservable inputs; accordingly, these inputs fall within Level 3 of the fair value hierarchy. The theory is that these assets relieve the owner from having to pay a hypothetical royalty attributable to an exclusive license for selling products under the trademark or trade name. The value of the hypothetical exclusive license is based upon the present value of a stream of hypothetical royalty payments, using assumptions for revenue growth (the same as for goodwill testing), discount rates (slightly more risk premium than for goodwill testing), royalty rates (based on market data), and tax amortization benefits (based upon statutory guidance). No impairment charges were recorded in 2010. In 2009, this testing resulted in impairment charges totaling $8,282 as follows by reporting unit: Dage $5,365, Picodostec $157, YESTech $350, and TAH Industries $2,410. The charge for the TAH trade name was due to our branding program, under which TAH product lines are being integrated into and marketed as “Nordson EFD” over the next several years. Accordingly, the TAH trade name was converted to a finite-lived asset.

At October 31, 2010, $3,099 of trademark and trade name intangible assets were not subject to amortization. Effective November 1, 2010, the Dage trade name was converted from an indefinite lived asset to a finite lived asset with a remaining life of 20 years.

Amortization expense for 2011 and 2010 was $8,018 and $6,263, respectively.

Estimated amortization expense for each of the five succeeding years follows:

Year	Amounts
2012	$	10,359
2013	$	9,713
2014	$	8,881
2015	$	8,330
2016	$	7,793