Goodwill and Intangible Assets (Notes)
|12 Months Ended|
Mar. 31, 2015
|Goodwill and Intangible Assets Disclosure [Abstract]|
|Goodwill and Intangible Assets Disclosure [Text Block]||
Goodwill and Intangible Assets:
The Company has recorded intangible assets, such as goodwill, trademark, developed technology, non-compete agreements, backlog, and customer relationships, and accounts for these in accordance with ASC 350. ASC 350 requires an annual test of goodwill and indefinite-lived assets for impairment, unless circumstances dictate more frequent assessments.
Goodwill resulted from the fiscal year 2013 ANTONE acquisition and the fiscal year 2014 Kentrox and CSI acquisitions.
Fiscal Year 2013 Evaluation
The Company performed its annual evaluation of goodwill for the combined reporting units consisting of Noran Tel and Westell on January 1, 2013 and determined that the full carrying amount of goodwill created from the acquisition of ANTONE of $2.9 million was impaired.
Fiscal Year 2014 Evaluation
The Company performed its annual evaluation of goodwill as of January 1, 2014. The Company assessed whether it was more likely than not that fair value of the Kentrox reporting unit, which made up all of the goodwill on that date, was less than its carrying amount including goodwill by considering the following factors: macroeconomic conditions, industry and market considerations, financial market considerations, key personnel, share price and overall financial performance. Based on these factors, the Company determined no indicators of impairment were present and therefore it was not necessary to perform a two-step goodwill impairment test.
Fiscal Year 2015 Evaluations
During fiscal year 2015, the Company experienced triggering events in the second and third quarters that resulted in the Company testing its goodwill for impairment. In the second quarter, continued deterioration in macroeconomic conditions, decline in market capitalization, continued operating losses, lower forecasted revenue and cash flows, and the overall decline in the Company’s net sales during the quarter, indicated that it was more likely than not that the fair value of certain reporting units was reduced to below the respective carrying amount. As a result, in connection with the preparation of the financial statements for the quarter ended September 30, 2014, the Company considered these factors as a triggering event and performed an interim evaluation of goodwill using a two-step quantitative assessment. The first step compared the fair value of the reporting units with the carrying value as of September 1, 2014. The IBW reporting unit's fair value was approximately 13% greater than its carrying value at that time. The IBW reporting unit had a goodwill balance of $20.5 million as of September 30, 2014. The CSG reporting unit's fair value was below its carrying value therefore the Company completed the second step of the evaluation, which compares the implied fair value of goodwill with the carrying value of goodwill to determine the amount of the impairment loss. Fair value of the reporting unit was determined using a combination of income and market approaches. Determining the fair value of the reporting unit and the allocation of that fair value to individual assets and liabilities within the reporting unit to determine the implied fair value of the goodwill is judgmental in nature and requires the use of significant estimates and assumptions. These estimates and assumptions include discount rate, terminal growth rate, selection of peer group companies and control premium applied as well as forecasts of revenue growth rates, gross margins, operating margins, and working capital requirements. The allocation requires analysis to determine the fair value of assets and liabilities including, among others, customer relationships, trade names, and property and equipment. Any changes in the judgments, estimates, or assumptions used could produce significantly different results. As a result of that goodwill impairment evaluation, a goodwill impairment charge of $11.5 million was recorded in the quarter ended September 30, 2014. This charge was comprised of 100% of the goodwill for the CSG segment.
During the third quarter ended December 31, 2014, due to the continuing decline in the market price of the Company’s stock, the market capitalization of the Company fell further below the carrying value, indicating the need to perform another interim evaluation of goodwill. As a result, in connection with preparation of the financial statements for the quarter ended December 31, 2014, the Company considered these factors as a triggering event and performed an interim evaluation of goodwill using a two-step quantitative assessment. The first step compared the fair value of the IBW reporting unit with the carrying value as of December 31, 2014, and determined that the unit's fair value was below its carrying value. Due to the timing and complexity of the second step of the evaluation, the Company was unable to finalize the amount of the impairment prior to the filing of Form 10-Q for the quarter ended December 31, 2014. The Company estimated that the goodwill related to the IBW segment was fully impaired and recorded an impairment charge of $20.5 million in the third quarter ended December 31, 2014. The Company finalized the second step of the goodwill assessment in the quarter ended March 31, 2015, with no changes to the third quarter estimate.
Changes in the carrying amounts of goodwill by reporting units are as follows:
(1) See Note 1 for restatement information.
(2) Certain amounts have been adjusted to reflect measurement period adjustments related to the CSI acquisition (see Note 2).
Intangible assets include customer relationships, trade names, developed technology and other intangibles. Intangible assets with determinable lives are amortized over the estimated useful lives of the assets. These intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Determination of recoverability is based on an estimate of undiscounted future cash flows resulting from the use of the asset and its eventual disposition. If the carrying amount of an asset exceeds its estimated future undiscounted cash flows, an impairment loss is recorded for the excess of the asset’s carrying amount over its fair value. Intangible asset impairment charges are presented in intangible amortization on the Consolidated Statements of Operations.
In fiscal year 2014, the Company determined that the Noran Tel trade name would be phased out over a one year period and therefore started to amortize the intangible asset over its remaining useful life. Indicators of impairment were present with the declining revenue from legacy products in the Westell segment and the Company performed an evaluation to test intangible assets related to those products for recoverability. The Company concluded that the transmission product technology intangible acquired with the Noran Tel acquisition was impaired. A $0.2 million charge resulted recorded in intangible amortization expense to reduce the value of the asset to $0.2 million which will be amortized over the remaining useful life of two years.
In fiscal year 2015, due to the indications of impairment noted above, the Company reviewed finite-lived assets for impairment. The review resulted in a $0.1 million impairment loss in the CSG segment.
The following table presents details of the Company’s intangibles from historical acquisitions, including the fiscal year 2013 ANTONE acquisition and fiscal year 2014 Kentrox and CSI acquisitions:
(1) Certain amounts have been adjusted to reflect measurement period adjustments related to the CSI acquisition (see Note 2).
The finite-lived intangibles are being amortized over periods of two to ten years using either a straight line method or the consumption period based on expected cash flows from the underlying intangible asset. Finite-lived intangible amortization and impairment expense from continuing operations was $6.4 million, $4.9 million and $0.9 million in fiscal years 2015, 2014 and 2013. The following is the expected future amortization by fiscal year:
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.
Reference 1: http://www.xbrl.org/2003/role/presentationRef