Goodwill and Intangible Assets
|9 Months Ended|
Sep. 30, 2012
|Goodwill and Intangible Assets [Abstract]|
|Goodwill and Intangible Assets||
(8) Goodwill and Intangible Assets
Changes in goodwill for the nine months ended September 30, 2012 are as follows (in thousands):
We review goodwill for impairment annually at the beginning of the fourth fiscal quarter and whenever events or changes in circumstances indicate the carrying value of goodwill may not be recoverable. The goodwill impairment test involves a two-step process. In the first step, we compare the fair value of each reporting unit to its carrying value. If the fair value of the reporting unit exceeds its carrying value, goodwill is not impaired and no further testing is required. If the fair value of the reporting unit is less than the carrying value, we must perform the second step of the impairment test to measure the amount of impairment loss. In the second step, the reporting unit's fair value is allocated to all of the assets and liabilities of the reporting unit, including any unrecognized intangible assets, in a hypothetical analysis that calculates the implied fair value of goodwill in the same manner as if the reporting unit was being acquired in a business combination. If the implied fair value of the reporting unit's goodwill is less than the carrying value, the difference is recorded as an impairment loss.
During the third quarter of fiscal 2012, we determined that sufficient indicators of potential impairment existed to require an interim goodwill impairment analysis for two reporting units, one in our Infrastructure segment, Integrated Concepts and Research Corporation ("ICRC"), and one in our IT, Energy and Management Consulting segment, Akimeka, LLC ("Akimeka"). We estimated the fair value of ICRC and Akimeka using a weighting of fair values derived from the income approach, market approach, and comparative transactions approach with the heaviest weighting placed on the income approach. Under the income approach, we calculate the fair value of a reporting unit based on the present value of estimated future cash flows. Cash flow projections are based on our estimates of revenue growth rates and operating margins, taking into consideration industry and market conditions. The discount rate used is based on a weighted average cost of capital adjusted for the relevant risk associated with the characteristics of the business and the projected cash flows.
Based on the results of the first step, we determined that the carrying amounts of ICRC and Akimeka exceeded their fair values, indicating that potential goodwill impairments existed. As a result, we performed the second step and recorded a goodwill impairment charge for ICRC of $2.4 million. The outcome of the test was impacted primarily by the recent suspension of the ICRC's Port of Anchorage Intermodal Expansion Project contract in Alaska due to technical difficulties encountered and lack of sufficient funding. The impairment charge is included in impairment of goodwill and intangible assets in the Unaudited Condensed Consolidated Statements of Income. Accumulated goodwill impairment as of September 30, 2012 is approximately $2.4 million.
During the step two allocation of the fair values to assets and liabilities of ICRC and Akimeka, we determined the carrying values of the contract-related intangible assets of ICRC and Akimeka and the trade name ICRC were impaired. The fair value of the contract-related intangible assets were determined by utilizing both the discounted cash flow and excess earnings models and the fair value of the trade name ICRC was determined by utilizing a relief from royalties model. During the three months ended September 30, 2012, we recorded an impairment charge of approximately $1.1 million related to the contract-related intangible assets of ICRC and Akimeka and $420 thousand related to the trade name ICRC. The impairment charge is included in impairment of goodwill and intangible assets in the Unaudited Condensed Consolidated Statements of Income. Accumulated intangible asset impairment as of September 30, 2012 is approximately $1.5 million.
Intangible assets consist of the value of contract-related intangible assets and trade names acquired in the acquisitions of ICRC, G&B Solutions, Inc. ("G&B"), Akimeka, and WBI. Intangible assets with indefinite lives, not subject to amortization, consist of ICRC and G&B trade names of approximately $2.4 million as of September 30, 2012 and December 31, 2011. The trade names acquired in the Akimeka and WBI acquisitions are being amortized over nine years. Amortization expense for the three- and nine- months ended September 30, 2012 was approximately $2.8 million and $8.4 million, respectively. Amortization expense for the three-and nine-months ended September 30, 2011 was approximately $2.8 million and $5.1 million, respectively.
Goodwill and intangible assets annual and interim valuations are based on unobservable inputs and as such, are considered level 3 fair value measurements.
Intangible assets consisted of the following (in thousands):