Annual report pursuant to section 13 and 15(d)

Goodwill

v2.4.0.8
Goodwill
12 Months Ended
Dec. 31, 2013
Goodwill

7. GOODWILL:

The changes in the carrying amount of goodwill for the years ended December 31, 2013 and 2012 are presented below. As more fully described in Note 2, the goodwill balance at December 31, 2012 has been retroactively adjusted in accordance with the relevant accounting standard for business combinations.

 

(in thousands)

   LED Replacement
Lamps and
Fixtures
    LED Signage
and Lighting
Strips
    Total  

Balance, January 1, 2012

   $ 1,989      $ —        $ 1,989   

Seesmart acquisition

     10,166        —          10,166   

Impairment loss

     (1,989     —          (1,989
  

 

 

   

 

 

   

 

 

 

Balance, December 31, 2012

     10,166        —          10,166   

Acquisition

     10,903        —          10,903   
  

 

 

   

 

 

   

 

 

 

Balance, December 31, 2013

   $ 21,069      $ —        $ 21,069   
  

 

 

   

 

 

   

 

 

 

Accumulated Balances:

      

Goodwill

   $ 23,058      $ 407      $ 23,465   

Accumulated impairment losses

     (1,989     (407     (2,396
  

 

 

   

 

 

   

 

 

 

Balance, December 31, 2013

   $ 21,069      $ —        $ 21,069   
  

 

 

   

 

 

   

 

 

 

During 2012, as a result of the Company’s deteriorating business and significantly reduced market value as of June 30, 2012, the Company performed the impairment test prescribed by ASC 350 for the Company’s LED replacement lamps and fixtures segment (which was also a reporting unit) and recorded a goodwill impairment charge totaling $1,989,000 for the quarter ended June 30, 2012.

During 2011, as a result of lowering the projected revenue growth and cash flows for the LED signage and lighting strips segment, the Company performed the annual impairment test prescribed by ASC 350 for the Company’s LED signage and lighting strips segment (which is also one of the Company’s reporting units) and recorded a goodwill impairment charge totaling $407,000 for the year ended December 31, 2011.

Goodwill impairment testing is a two-step process performed at the reporting unit level. Step one compares the fair value of the reporting unit to its carrying amount. The fair value of the reporting unit is determined by considering both the income approach and the market approach. The fair values calculated under the income approach and the market approach are weighted based on circumstances surrounding the reporting unit. Under the income approach, the Company determines fair value based on estimated future cash flows of the reporting unit, which are discounted to the present value using discount factors that consider the timing and risk of cash flows. For the discount rate, the Company relies on the capital asset pricing model approach, which includes an assessment of the risk-free interest rate, the rate of return from publicly traded stocks, the Company’s risk relative to the overall market, the Company’s size and industry and other Company specific risks. Other significant assumptions used in the income approach include the terminal value, growth rates, future capital expenditures and changes in future working capital requirements. The market approach uses key multiples from guideline businesses that are comparable and are traded on a public market. If the fair value of the reporting unit is greater than its carrying amount, there is no impairment. If the reporting unit’s carrying amount exceeds its fair value, then the second step must be completed to measure the amount of impairment, if any. Step two calculates the implied fair value of goodwill by deducting the fair value of all tangible and intangible net assets of the reporting unit from the fair value of the reporting unit as calculated in step one. In this step, the fair value of the reporting unit is allocated to all of the reporting unit’s assets and liabilities in a hypothetical purchase price allocation as if the reporting unit had been acquired on that date. If the carrying amount of goodwill exceeds the implied fair value of goodwill, an impairment loss is recognized.

In December, the Company performed step one of the impairment testing for the Seesmart and Relume reporting units, which indicated the fair value of the reporting units exceeded the net carrying amount of the net assets of the reporting units. Accordingly, step two was not performed.

Determining the fair value of a reporting unit is judgmental in nature and requires the use of significant estimates and assumptions, including revenue growth rates, strategic plans and future market conditions, among others. There can be no assurance that the Company’s estimates and assumptions made for purposes of the goodwill impairment testing will prove to be accurate predictions of the future.