Quarterly report pursuant to Section 13 or 15(d)

Goodwill and Intangible Assets

v3.20.2
Goodwill and Intangible Assets
 6 Months Ended
Jun. 30, 2020
Goodwill and Intangible Assets Disclosure [Abstract]  
Goodwill and Intangible Assets Goodwill and Intangible Assets

Changes in goodwill for the six months ended June 30, 2020 are as follows (in thousands):
 
 
Fleet
 
Federal and Defense
 
Aviation
 
Total
Balance as of December 31, 2019
 
$
63,190

 
$
30,883

 
$
182,377

 
$
276,450

Impairment charge
 
—

 
—

 
(30,945
)
 
(30,945
)
Decrease from divestiture
 
—

 
—

 
(7,379
)
 
(7,379
)
Balance as of June 30, 2020
 
$
63,190

 
$
30,883

 
$
144,053

 
$
238,126



We perform an annual review of goodwill for impairment during the fourth quarter and whenever events or other changes in circumstances indicate that the carrying value may not be fully recoverable. As a result of the decline in the macroeconomic environment caused by the COVID-19 pandemic and the decrease in our market capitalization, we performed an interim impairment analysis during the first quarter of 2020, utilizing a qualitative approach. We concluded it was more likely than not that the fair value exceeded the carrying value of our reporting units with the exception of our VSE Aviation reporting unit, which required a quantitative impairment test. The result of the quantitative impairment test indicated that the reporting unit was not impaired.

Due to the ongoing impact of the COVID-19 pandemic, we performed an interim impairment analysis during the second quarter of 2020, utilizing a quantitative approach. The result of the impairment analysis indicated that the fair value of our reporting units, with the exception of our VSE Aviation reporting unit, exceeded their carrying values and no impairment charge was required. The estimated fair value of our VSE Aviation reporting unit was determined to be below its carrying value, which resulted in a $30.9 million goodwill impairment charge for the three and six months ended June 30, 2020. This impairment charge resulted from changes to our estimates and assumptions of the expected future cash flows for the reporting unit due to the adverse impacts of the COVID-19 pandemic on the reporting unit revenues during the second quarter of 2020 as well as updated assumptions related to the timing of recovery and the speed at which recovery from the pandemic could occur.

We will continue to evaluate these reporting units as it relates to goodwill impairment as market conditions evolve.

In the first quarter of 2020, we completed the sale of our Prime Turbines subsidiary and certain related inventory assets and recognized a loss on the sale of the business and inventory. Prime Turbines was reported within our Aviation segment. As part of determining the loss on sale, goodwill of $7.4 million was allocated to the disposal group on a relative fair value basis and was written-off upon the completion of the sale.


Intangible assets, net comprised the following (in thousands):
 
 
Cost
 
Accumulated Amortization
 
Accumulated
Impairment Loss
 
Net Intangible Assets
June 30, 2020
 
 
 
 
 
 
 
 
Contract and customer-related
 
$
213,194

 
$
(103,739
)
 
$
(3,814
)
 
$
105,641

Acquired technologies
 
12,400

 
(10,224
)
 
—

 
2,176

Trade names
 
18,770

 
(14,675
)
 
—

 
4,095

Total
 
$
244,364

 
$
(128,638
)
 
$
(3,814
)
 
$
111,912

 
 
 
 
 
 
 
 
 
December 31, 2019
 
 

 
 

 
 

 
 

Contract and customer-related
 
$
227,594

 
$
(102,169
)
 
$
(1,025
)
 
$
124,400

Acquired technologies
 
12,400

 
(9,660
)
 
—

 
2,740

Trade names
 
18,770

 
(13,735
)
 
—

 
5,035

Total
 
$
258,764

 
$
(125,564
)
 
$
(1,025
)
 
$
132,175



Amortization expense related to intangible assets was approximately $4.5 million and $9.2 million for the three and six months ended June 30, 2020, respectively, and $5.0 million and $10.0 million for the three and six months ended June 30, 2019, respectively.

During the second quarter of 2020, we completed the sale of all of the inventory of the CT Aerospace subsidiary, which is reported within our Aviation segment. As a result of the sale, we concluded that the useful life of certain long-lived assets, which represented the intangible assets acquired in the acquisition of the subsidiary, was zero and that there was no ongoing expected future cash flows related to these long-lived assets and no residual value. As a result, such assets were determined to be fully impaired and an impairment charge of approximately $2.8 million, representing the carrying value of these intangible assets, was recorded during the quarter ended June 30, 2020. As the sale did not represent a disposition of a business, no goodwill was allocated to the disposal group.