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Goodwill and Other Intangibles
9 Months Ended
Sep. 30, 2012
Goodwill and Other Intangibles [Abstract]  
Goodwill and Other Intangibles

Note 5 – Goodwill and Other Intangibles

Changes in the carrying amount of goodwill as of September 30, 2012 and December 31, 2011 were as follows:

 

                         
    Gross
Amount
    Accumulated
Impairment
Losses
    Net
Carrying
Value
 

December 31, 2011

  $ 21,238,512     $ (7,508,941   $ 13,729,571  

Impairment charge

    —         (3,041,000     (3,041,000
   

 

 

   

 

 

   

 

 

 

September 30, 2012

  $ 21,238,512     $ (10,549,941   $ 10,688,571  
   

 

 

   

 

 

   

 

 

 

 

Goodwill and intangible assets with indefinite lives must be tested for impairment at least once a year. Carrying values are compared with fair values, and when the carrying value exceeds the fair value, the carrying value of the impaired asset is reduced to its fair value. The Company tests goodwill for impairment on an annual basis in the fourth quarter or more frequently if management believes indicators of impairment exist. The performance of the test involves a two-step process. The first step of the impairment test involves comparing the fair values of the applicable reporting units with their aggregate carrying values, including goodwill. The Company generally determines the fair value of its reporting units using the income approach methodology of valuation that includes the discounted cash flow method as well as other generally accepted valuation methodologies. If the carrying amount of a reporting unit exceeds the reporting unit’s fair value, the Company performs the second step of the goodwill impairment test to determine the amount of impairment loss. The second step of the goodwill impairment test involves comparing the implied fair value of the affected reporting unit’s goodwill with the carrying value of that goodwill.

Based on the Company’s current sleep study trends and forecasted cash flows at each business unit, management determined that impairment indicators existed during the second quarter of 2012. Based on assumptions similar to those that market participants would make in valuing the Company’s business units, the Company determined that the carrying value of goodwill related to the Company’s sleep centers exceeded their fair value. Accordingly, in June 2012, the Company recorded a noncash impairment charge on goodwill of $3.0 million.

The carrying amount of intangible assets as of September 30, 2012 and December 31, 2011 follows:

 

                 
    September 30,
2012
    December 31,
2011
 

Gross amount

  $ 2,135,000     $ 2,135,000  

Accumulated impairment losses

    (365,945     (365,945
   

 

 

   

 

 

 

Carrying value

  $ 1,769,055     $ 1,769,055  
   

 

 

   

 

 

 

Intangible assets as of September 30, 2012 and December 31, 2011 include the following:

 

                                     
   

Useful

Life

(Years)

  September 30, 2012     December 31,
2011
Net
 
      Carrying
Value
    Accumulated
Amortization
    Net    

Customer relationships

  8 –15   $ 1,139,333     $ (386,656   $ 752,677     $ 819,699  

Covenants not to compete

  3 – 15     210,111       (174,001     36,110       65,055  

Trademark

  10 – 15     229,611       (76,752     152,859       169,434  

Payor contracts

  15     190,000       (39,055     150,945       160,445  
       

 

 

   

 

 

   

 

 

   

 

 

 

Total

      $ 1,769,055     $ (676,464   $ 1,092,591     $ 1,214,633  
       

 

 

   

 

 

   

 

 

   

 

 

 

Amortization expense for the three months ended September 30, 2012 and 2011 was approximately $39,000 and $52,000, respectively. Amortization expense for the nine months ended September 30, 2012 and 2011 was approximately $122,000 and $156,000, respectively. Amortization expense for the next five years related to these intangible assets is expected to be as follows:

 

         
Twelve months ended September 30,      

2013

  $ 139,733  

2014

    139,734  

2015

    125,845  

2016

    115,668  

2017

    113,641