Goodwill |
9 Months Ended | ||||||||||||||||||||||||||||||||||||
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Sep. 30, 2022 | |||||||||||||||||||||||||||||||||||||
| Goodwill and Intangible Assets Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||
| Goodwill |
Note I – Goodwill
The changes in the carrying amount of goodwill were as follows:
During the second quarter of 2022, there was a significant and prolonged decline in the Company’s market capitalization driven by general economic conditions, including heightened inflation, rising interest rates and volatility in the capital markets, which indicated that recorded goodwill may be impaired. As a result, the Company performed an interim quantitative goodwill impairment test in accordance with ASC 350 for all reporting units. The fair value of the Company’s reporting units was determined using a combination of an income approach based on a discounted cash flow model as well as two market approaches based on (i) guideline public company revenues and earnings before interest, tax, depreciation and amortization multiples and (ii) guideline transactions, whereby consideration is given to prices paid in market comparable transactions. Fair value estimates result from a complex series of judgments about future events and uncertainties and rely heavily on estimates and assumptions that have been deemed reasonable by management as of the measurement date.
Based on the interim impairment test, the Company determined that the estimated fair value of the Mission Solutions reporting unit was lower than its carrying value as of June 30, 2022. Accordingly, the Company recorded a non-cash, pre-tax and post-tax impairment charge of $39.3 million, which reduced the reporting unit’s goodwill balance to $10.7 million during the second quarter of 2022. The impairment of goodwill on the Mission Solutions reporting unit was primarily attributable to a significant decline in discounted future cash flows, primarily attributable to a decrease in forecasted revenues as well as increased production costs and subcontractor delays that have extended the timeline for fulfillment of existing performance obligations and deferred pipeline realization. Subsequent to the second quarter of 2022, the Company concluded that there were no indicators of impairment requiring further impairment testing.
As of September 30, 2022, the Company’s gross goodwill balance and accumulated impairment was $96.0 million and $39.3 million, respectively. In comparison, the Company’s goodwill balance was $96.3 million with no accumulated impairment as of December 31, 2021.
Impairment activities during the second quarter of 2022 did not have any impact on the Company’s compliance with the Adams Street Credit Agreement or other contract related covenants.
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