Note 6 - Goodwill and Other Intangible Assets

9 Months Ended

Dec. 31, 2012

Goodwill and Intangible Assets Disclosure [Text Block]

Note 6. Goodwill and Other Intangible Assets

Goodwill and other intangible assets consist of the excess over the fair value of assets acquired (goodwill) and other intangible assets (customer relationships, trademarks, group purchasing organization (“GPO”) contracts, non-competition agreements, software, intellectual property and supply agreements). Values assigned to the respective assets are determined in accordance with ASC 805, Business Combinations and ASC 350, Intangibles – Goodwill and Other.

Goodwill is calculated as the excess of the cost of purchased businesses over the value of their underlying net assets.

Goodwill and intangible assets with indefinite useful lives are required to be tested for impairment at least annually or more frequently if an event occurs or circumstances change that could more likely than not reduce the fair value of a reporting unit below its carrying amount. Intangible assets with estimable useful lives are required to be amortized over their respective estimated useful lives and reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.

The Company tests its goodwill and intangible assets with indefinite lives as of December 31 of each year and on an interim date should factors or indicators become apparent that would require an interim test. The Company assesses the impairment of its goodwill by determining its fair value and comparing the fair value to its carrying value. For determining fair value, the Company has determined that it operates under one reporting unit.

The Company’s annual step-one impairment testing indicated that the fair value of the Company was estimated to be less than its related carrying value. The fair value of the Company was estimated using a discounted cash flow and guideline company model. As a result of the step-one testing, management has determined that the goodwill balance of the Company was impaired and step-two testing was necessary.

Step-two of the goodwill test consists of performing a hypothetical purchase price allocation, under which the estimated fair value of the Company is allocated to its tangible and intangible assets based on their estimated fair values, with any residual amount being assigned to goodwill. During the step-two analysis, it was determined that book value approximated fair value for the components of working capital. Owned real estate and buildings were valued using recently completed real estate appraisals. Other property, plant and equipment items were valued using current market value estimates. The intangible assets related to customer relationships were valued using a present value of debt-free cash flow model and the trade names were valued using the relief-from-royalty model.

The models used to determine the fair value of the Company in step-one and the intangible assets in step-two relied heavily on management’s assumptions. These assumptions, which are significant to the calculated fair values, are considered Level 3 inputs under the fair value hierarchy established by ASC 820 – Fair value measurement and disclosures, as they are unobservable. The assumptions in step-one included a discount rate, revenue growth rates, tax rates and operating margins. In addition, the step-two assumptions included customer attrition rates and royalty rates. The discount rate represents the expected return on capital. The discount rate was determined using a target structure of 15% debt and 85% equity. We used the 20-year U.S. Treasury bond yield to determine the risk-free rate in our weighted average cost of capital calculation. The projected growth rates and terminal growth rates are primarily driven by management’s estimate of future performance, giving consideration to historical performance and existing and anticipated economic and market conditions. Attrition assumptions used to value customer relationships are based on historical experience and management estimates based on historical financial information. To determine the royalty rates used to value trade names, the Company used industry benchmarks from licensing transactions. The assumption for tax rates are based on management’s estimates of blended federal and state income tax rates. Operating margin assumptions are based management’s estimate of future performance, giving consideration to historical performance and projected economic and competitive conditions.

The preliminary impairment analysis concluded that $78,609 of goodwill was impaired and was recorded in the condensed consolidated statements of operations for the three and nine months ended December 31, 2012. Due to the complexity of the analysis which involves completion of fair value analyses and the resolution of certain significant assumptions, we will finalize this goodwill impairment charge in the fourth quarter of fiscal 2013. The Company had not previously recorded impairments of goodwill and therefore the amounts of impairment recorded during the three and nine months ended December 31, 2012 represents the cumulative amount of goodwill impairment charges as of December 31, 2012.

The change in the carrying amount of goodwill is as follows:

	December 31, 2012
Net beginning balance	$	107,801
Goodwill impairment charge		(78,609	)
Net ending balance	$	29,192

The Company's annual assessment of its intangible assets with indefinite lives, which consist of certain trademarks totaling $1,266, indicated that there was no impairment of such assets as of December 31, 2012.

At December 31, 2012, other intangible assets consisted of the following:

	Gross Carrying Value		Accumulated Amortization		Total Net Book Value

Trademarks/tradenames not subject to amortization	$	1,266	$	-	$	1,266
Trademarks subject to amortization (5 years)		2,100		980		1,120
Customer relationships (20 years)		43,200		8,387		34,813
Intellectual property (7 years)		400		354		46
Total other intangible assets, net	$	46,966	$	9,721	$	37,245

At March 31, 2012, other intangible assets consisted of the following:

	Gross Carrying Value		Accumulated Amortization		Total Net Book Value

Trademarks/tradenames not subject to amortization	$	1,266	$	-	$	1,266
Trademarks subject to amortization (5 years)		2,100		665		1,435
Customer relationships (20 years)		43,200		6,767		36,433
Intellectual property (7 years)		400		311		89
Total other intangible assets, net	$	46,966	$	7,743	$	39,223

The Company recorded amortization expense related to the above amortizable intangible assets of $659 for both three month periods ended December 31, 2012 and 2011, and $1,978 for both nine month periods ended December 31, 2012 and 2011. The estimated aggregate amortization expense for each of the succeeding years ending December 31, 2017 is as follows:

Fiscal Year	Amount
2013	$	2,626
2014		2,580
2015		2,440
2016		2,160
2017		2,160
	$	11,966

- 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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