Audiovox 2010 Annual Report Download - page 66

Audiovox Corporation and Subsidiaries
Notes to Consolidated Financial Statements, continued
February 28, 2010
(Dollars in thousands, except share and per share data)
k) Goodwill and Other Intangible Assets
Goodwill and other intangible assets consist of the excess over the fair value of assets acquired (goodwill) and other
intangible assets (patents, contracts, trademarks/tradenames and customer relationships). Values assigned to the
respective assets are determined in accordance with ASC 805 “Business Combinations” (“ASC 805”) and Statement of
ASC 350 “Intangibles – Goodwill and Other” (“ASC 350”).
Goodwill is calculated as the excess of the cost of purchased businesses over the value of their underlying net assets.
Generally, the primary valuation method used to determine the Fair Value (“FV”) of acquired businesses is the
Discounted Future Cash Flow Method (“DCF”). A five-year period is analyzed using a risk adjusted discount rate.
The value of potential intangible assets separate from goodwill are evaluated and assigned to the respective
categories. The largest categories from recent acquired businesses are Trademarks and Customer Relationships. The
FV’s of trademarks acquired are determined using the Relief from Royalty Method based on projected sales of the
trademarked products. The FV’s of customer relationships are determined using the Multi-Period Excess Earnings
Method which includes a DCF analysis, adjusted for a required return on tangible and intangible assets. The guidance in
ASC 350, including management’s business intent for its use; ongoing market demand for products relevant to the
category and their ability to generate future cash flows; legal, regulatory or contractual provisions on its use or
subsequent renewal, as applicable; and the cost to maintain or renew the rights to the assets; are considered in
determining the useful life of all intangible assets. If the Company determines that there are no legal, regulatory,
contractual, competitive, economic or other factors which limit the useful life of the asset, an indefinite life will be
assigned and evaluated for impairment as indicated below. Goodwill and other intangible assets that have an indefinite
useful life are not amortized. Intangible assets that have a definite useful life are amortized over their estimated useful
life.
Goodwill and intangible assets with indefinite useful lives are required to be tested for impairment at least annually or
more frequently if an event occurs or circumstances change that could more likely than not reduce the fair value of a
reporting unit below its carrying amount. Intangible assets with estimable useful lives are required to be amortized over
their respective estimated useful lives and reviewed for impairment.
The Company’s goodwill balance at February 28, 2010 consisted solely of preliminary goodwill associated with its
recent acquisition of Invision for which the Company is in the process of completing its purchase price allocation. As
such, the goodwill was not tested for impairment. For intangible assets not associated with goodwill, primarily
trademarks, the Company compared the fair value of the intangible asset with its carrying amount. To compute the fair
value, various considerations were evaluated including current sales associated with these brands, management’s
expectations for future sales, performance of the business group and proximity to acquisition date fair values. At the
present time, management intends to continue the development, marketing and selling of products associated with its
intangible assets and there are no known restrictions on the continuation of their use.
The cost of other intangible assets with definite lives are amortized on a straight-line basis over their respective
lives. Management has determined that the current lives of these assets are appropriate. Intangible assets with indefinite
lives were not deemed to be impaired at February 28, 2010. The Company recorded an impairment charge of $38.8
million in the fourth quarter of Fiscal 2009, $28.8 million related to goodwill and resulted in the entire balance being
written off. The expected future cash flows related to intangible assets with definite lives exceeded their carrying values
and as such, were not impaired. The cost of other intangible assets with definite lives are amortized on a straight-line
basis over their respective lives. Management has determined that the current lives of these assets are appropriate.
Intangible assets with indefinite lives were deemed to be impaired. As a result, an impairment of $9,976 was recorded.
All impairment charges were reflected in pre-tax operating income on the Company’s financial statements.
Goodwill
The change in the carrying amount of goodwill is as follows:
February 28, February 28,
2010 2009
Net beginning balance $ - $ 23,427
Technuity purchase price allocation - 5,411
Goodwill impairment charge - (28,838)
Invision purchase price allocation 7,389 -
Source: AUDIOVOX CORP, 10-K, May 14, 2010 Powered by Morningstar® Document Research℠