InfuSystem Holdings, Inc. Quarterly report pursuant to sections 13 or 15(d)

Quarterly report pursuant to sections 13 or 15(d)

Goodwill And Intangible Assets

Goodwill And Intangible Assets

6 Months Ended

Jun. 30, 2011

5.	Goodwill and Intangible Assets

In accordance with the provisions of ASC 350, "Intangibles—Goodwill and Other, " we apply a fair value based impairment test to the net book value of goodwill and indefinite-lived assets on an annual basis and, if certain events or circumstances indicate that an impairment loss may have been incurred, on an interim basis. The analysis of potential impairments of goodwill requires a two-step process. The first step is an estimation of fair value of the Company. If step one indicates that impairment potentially exists, the second step is performed to measure the amount of impairment, if any. Impairment exists when the fair value of goodwill or indefinite-lived assets is less than the carrying value.

As of June 30, 2011, based on a combination of factors, including a decline in our market capitalization, updated business forecasts, and the expiration of our warrants, we concluded that there were sufficient indicators to require us to perform an interim goodwill and indefinite lived intangibles impairment analysis. For the purposes of this analysis, our estimates of fair value are based on a combination of the income approach, which estimates the fair value based on the future discounted cash flows, and the market approach, which estimates the fair value based on comparable market prices. As of the filing of our Quarterly Report on Form 10-Q for the second quarter of fiscal 2011, we had not completed this analysis due to the complexities involved in determining the implied fair value of the goodwill and indefinite-lived intangibles. However, based on the work performed to date, we have concluded that an impairment loss is probable and can be reasonably estimated. Accordingly, we have recorded a $44.2 million non-cash asset impairment charge, representing our best estimate of the impairment loss for the quarter ended June 30, 2011.

Based on the preliminary impairment analysis performed by the Company as of June 30, 2011, the following table outlines the impairment charges by asset category (in thousands). :


	Goodwill			Trade Names
Value as of December 31, 2010	$	64,092		$	5,500
Impairment charge		(42,813	)		(1,400	)

Value as of June 30, 2011	$	21,279		$	4,100

These impairment charges are based on a preliminary analysis and may be subject to further adjustments. The analysis will be finalized and any further adjustment will be included in the next reporting period.

The following tables present the methods used to establish fair value measurements for each of the intangibles (in thousands):


			Fair Value Measurements at Reporting Date Using
Description	June 30, 2011		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Goodwill	$	21,279	$	—	$	—	$	21,279
Tradenames		4,100		—		—		4,100

Total	$	25,379	$	—	$	—	$	25,379

In accordance with ASC 820, Fair Value Measurements and Disclosures, the estimated fair values of the goodwill and trade names were estimated based primarily upon discounted cash flow methodologies reflecting the Company's own assumptions resulting in a Level 3 classification.

Identifiable Intangible Assets

The carrying amount and accumulated amortization of intangible assets as of June 30, 2011 and December 31, 2010 were as follows (in thousands):


	June 30, 2011			December 31, 2010
Nonamortizable intangible assets
Trade names	$	4,100		$	5,500
Amortizable intangible assets
Physician and customer relationships		32,865			32,400
Non-competition agreements		848			760
Software		1,371			980

Total nonamortizable and amortizable intangible assets		39,184			39,640
Less accumulated amortization		(7,715	)		(6,388	)

Total identifiable intangible assets	$	31,469		$	33,252

Amortization expense for intangible assets for the three and six months ended June 30, 2011 was $663 thousand and $1,309 thousand, respectively. Amortization expense for intangible assets for the three and six months ended June 30, 2010 was $534 thousand and $991 thousand, respectively. The expenses for all periods were recorded in operating expenses. Expected annual amortization expense for intangible assets recorded as of June 30, 2011 is as follows (in thousands):


	2011		2012		2013		2014		2015
Amortization expense	$	2,809	$	2,766	$	2,635	$	2,360	$	2,343

- 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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