Intangible Assets and Goodwill

12 Months Ended

Dec. 31, 2016

Goodwill and Intangible Assets Disclosure [Abstract]

Goodwill and Intangible Assets Disclosure [Text Block]

Note 5.

Intangible Assets and Goodwill

Identifiable intangible assets as of December 31, 2016, consist of the following (in thousands):

	Successor
	December 31, 2016
	Estimated			Accumulated
	Life	Cost		Amortization		Net

Customer relationships	8 years	$	26,380	$	6,136	$	20,244
Trade name	15 years		13,460		1,720		11,740
		$	39,840	$	7,856	$	31,984

Identifiable intangible assets as of December 31, 2015, consist of the following (in thousands):

	Successor
	December 31, 2015
	Estimated			Accumulated
	Life	Cost		Amortization		Net

Customer relationships	8 years	$	26,380	$	698	$	25,682
Trade name	15 years		13,460		154		13,306
		$	39,840	$	852	$	38,988

Amortization expense amounted to $7.0 million, $0.9 million, $0.7 million, and $0.6 million for the year ended December 31, 2016, the periods from November 24, 2015 through December 31, 2015 and January 1, 2015 through November 23, 2015, and the year ended December 31, 2014, respectively.

Estimated amortization of the intangible assets for subsequent years is as follows (in thousands):

Year Ending December 31,

2017	$	6,535
2018		5,600
2019		5,111
2020		4,537
2021		3,191
Thereafter		7,010
	$	31,984

The Company’s goodwill balance by reporting unit, consists of the following as of December 31 (in thousands):

	Predecessor		Predecessor		Predecessor		Successor
	DSTI		Seamast		Access		STG Group		Total

Balance, January 1, 2015, Predecessor	$	440	$	1,898	$	2,361	$	-	$	4,699
Impairment loss		-		-		(2,064)		-		(2,064)
Balance, November 23, 2015, Predecessor		440		1,898		297		-		2,635
Elimination of Predecessor goodwill		(440)		(1,898)		(297)		-		(2,635)
Acquisition of business		-		-		-		113,589		113,589
Balance, December 31, 2015, Successor		-		-		-		113,589		113,589
Impairment loss								(41,276)		(41,276)
Balance, December 31, 2016, Successor	$	-	$	-	$	-	$	72,313	$	72,313

During the Predecessor periods, the Company completed three acquisitions resulting in goodwill: DSTI, Seamast, and Access Systems. Subsequent to the Business Combination, the Company determined that there was one reporting unit and determined that the carrying value of the reporting unit was equal to its fair value on the Closing Date.

For the year ended December 31, 2016, the Company recorded an impairment loss of $41.3 million. For the year ended December 31, 2016, the Company’s third party valuation firm performed the first step of the annual goodwill impairment test in the fourth quarter of 2016 and determined that the estimated fair value of the Company’s sole reporting unit was lower than the carrying value, requiring further analysis under the second step of the impairment test. The decline in the estimated fair value of the Company was primarily due to significantly lower revenue in 2016 than planned. Growth rates in future years remain comparable to the prior planned growth however future revenue and related profits are less than the previous plan due to significantly lower 2016 revenue.

In performing the second step of the impairment testing, the Company’s third party valuation firm performed a theoretical purchase price allocation for the Company to determine the implied fair values of goodwill which were compared to the recorded amounts of goodwill for the Company’s sole reporting unit.

Upon completion of the second step of the goodwill impairment test, the Company recorded a noncash goodwill impairment charge of $41.3 million, or 36% of the total goodwill asset. Additional sensitivity testing was completed using assumptions of only achieving 90% and 85% of the 2017 forecasted plan with other major assumptions including growth rates, profit margins, and discount factors remaining the same. The result of this analysis was an estimated additional goodwill impairment of between $5 million and $8 million and $11 million and $14 million respectively. The Company also has some flexibility in its ability to control indirect costs during 2017 that could mitigate any shortfalls in our 2017 revenue and profit estimates.

The goodwill impairment charges are recorded as impairment charges in the consolidated statements of operations. The assumptions that have the most significant impact on determination of the reporting unit fair value are the revenue growth rate, including 3 percent in the terminal year, maintaining adjusted EBITDA margins of 10% throughout the forecast period, and the weighted average cost of capital (discount rate), of 15.08%. A change in any of these assumptions, individually or in the aggregate, or future financial performance that is below management expectations may result in the carrying value of this reporting unit exceeding its fair value, could result in additional impairment to goodwill and amortizable intangible assets in future periods.

For the period from January 1, 2015 through November 23, 2015, the Company recorded an impairment loss on Access Systems’ goodwill of $2.0 million. For the year ended December 31, 2014, the Company recorded an impairment loss on Access Systems’ goodwill of $3.5 million, and an impairment loss on DSTI’s goodwill of $1.7 million. The Company also recorded an impairment loss on the Access Systems customer relationships of $0.91 million during the period from January 1, 2015 through November 23, 2015 and $1.8 million for the year ended December 31, 2014, primarily due to declining profits on contracts.

The primary methods used to measure the impairment losses were the income method and the market approach. The significant unobservable inputs used were based on Company-specific information and included estimates of revenue, profit margins and discount rates. The Company used the two-step approach in measuring the impairment loss. In the second step, the implied value of the goodwill is estimated at the fair value of the reporting unit less the fair value of all other tangible and identifiable intangible assets of the reporting unit. If the carrying amount of the goodwill exceeds the implied fair value of the goodwill, an impairment loss is recognized in the amount equal to that excess, not to exceed the carrying amount of the goodwill. Following an assessment of revenue, profit, and cash flow projections and the relevant discount rates, the Company did not record any impairment charges for the Successor period during the period from November 24, 2015 through December 31, 2015.

Additionally, the Company performed an impairment test on its long-lived intangible assets. The first step of the impairment test is to compare the undiscounted cash flows of the asset group to the carrying amount. If the results of the test determine that the undiscounted cash flows of the asset group are less than the carrying amount, then an impairment exists and further testing is required. An impairment was not required as of December 31, 2016.

- 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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