31
value of the reporting unit is less than its carrying value. Such indicators include a sustained, significant decline in the Company’s
stock price and market capitalization, a decline in the Company’s expected future cash flows, a significant adverse change in legal
factors or in the business climate, unanticipated competition, and/or slower expected growth, among others. After completing our
assessment of such qualitative factors, and if it is determined that it is more likely than not that the fair value of a reporting unit is less
than its carrying value we perform a two-step process. The first step requires a comparison of the book value of net assets to the fair
value of the reporting units that have goodwill assigned to them. If the fair value is determined to be less than the book value, a second
step is performed to compute the amount of the impairment. In the second step, a fair value for goodwill is estimated, based in part on
the fair value of the reporting unit used in the first step, and is compared to its carrying value. The shortfall of the fair value below
carrying value, if any, would represent the amount of goodwill impairment.
For goodwill impairment testing, we have four reporting units. In 2013, we reorganized the Commercial Segment in order to
better conform and integrate the product lines and create efficiencies, so that one management team is now responsible for all
Commercial
Platforms & Applications
other than the 9-1-1
Safety and Security
part of the Commercial Segment. Previously, our
Commercial Segment was comprised of
Navigation
and
Other Commercial
reporting units. Our two Government Segment reporting
units, the
Government Solutions Group
(“GSG”) unit and the
Cyber Intelligence
unit, remain the same.
Our year-end goodwill balances by reporting unit were:
2013
Platforms and Applications.................................................................... $
27.9
Safety and Security Group.....................................................................
22.0
Government Solutions Group ................................................................
26.1
Cyber Intelligence..................................................................................
28.2
Total goodwill .............................................................................. $
104.2
2012
Navigation .............................................................................................. $
22.1
Other Commercial ..................................................................................
36.1
Government Solutions Group .................................................................
26.1
Cyber Intelligence...................................................................................
28.2
Total goodwill ............................................................................... $
112.5
Following our fourth quarter 2013 testing, we wrote down the values of our Platforms and Applications reporting unit’s goodwill
and long-lived assets from a carrying value of $65.4 million to their estimated fair value of $33.4 million at December 31, 2013,
resulting in an impairment charge of $32.0 million. We valued the existing technology using a discounted cash flow method to
determine whether a write-down was necessary, and after concluding that a write-down was necessary, used a relief from royalty
method to value the licensable technology. We then used a discounted cash flow method to determine the fair value of our Platforms
and Applications reporting unit. We consulted with a third party valuation firm to assist in the work.
In performing our 2013 testing for our Safety and Security and Cyber Intelligence reporting units, we used a discounted cash
flow method as well as a market approach based on observable public comparable company multiples of revenue and earnings before
interest, taxes, depreciation, and amortization (“EBITDA”) and weighted the results from the two methods to estimate the reporting
units’ fair values. For our Government Solutions Group we used only a discounted cash flow method. Determining fair value requires
the exercise of significant judgment, including judgment about appropriate discount rates, the amount and timing of expected future
cash flows, as well as relevant comparable company multiples for the market comparable approach and the relevant weighting of the
methods utilized.
For the market comparable approaches, we evaluated comparable company public trading values and valued our reporting units
using multiples of EBITDA ranging from approximately 6 to 8 times. Comparable company public trading values are based on the
market’s view of future industry conditions and the comparable companies’ future financial results. Adverse changes in any of these
variables would negatively influence the valuation of our reporting units. It is not possible to determine the impact of such potential
adverse changes on the valuation of our reporting units.
Our discounted cash flow models are based on our most recent long-range forecast and, for years beyond the forecast, we
estimated terminal values based on estimated exit multiples ranging from approximately 6 to 7 times the final forecasted year
EBITDA. They reflect management’s expectation of future market conditions and expected levels of financial performance for our
reporting units, as well as discount rates and estimated terminal values that would be used by market participants in an arms-length
transaction. Business operational risks which could impact profits are detailed in our “Risk Factors” disclosures. Discount rates used
were intended to reflect the risks inherent in the future cash flows of the respective reporting units and were between 13% and 15%.
