Annual report pursuant to Section 13 and 15(d)

Note 8 - Goodwill and Intangible Assets

v3.21.1
Note 8 - Goodwill and Intangible Assets
12 Months Ended
Oct. 31, 2020
Notes to Financial Statements  
Goodwill and Intangible Assets Disclosure [Text Block]

Note 8. Goodwill and Intangible Assets

 

The Company recognized goodwill and certain intangible assets in connection with business combinations (see Note 4 - Business Combinations).

 

During the second quarter of fiscal 2020, the Company identified a triggering event resulting from a sustained decline in its stock price and deterioration in general economic conditions resulting from COVID-19. As a result, the Company, with the assistance of a third party valuation specialist, performed an interim impairment test on its indefinite-lived trade name intangible assets and goodwill as of April 30, 2020.

 

The valuation methodology used to value the trade-names was based on the relief-from-royalty method which is an income based measure that derives the value from total revenue growth projected and what percentage is attributable to the trade name. As a result of the analysis, the Company identified that the fair value of its Brundage-Bone Concrete Pumping trade name was approximately 11.8% below its carrying value and as such, recorded a non-cash impairment charge of $5.0 million in intangibles impairment in its consolidated statements of operations for the year ended October 31, 2020. The impaired trade name has a remaining value of $37.3 million as of October 31, 2020. In addition, the Company concluded that the fair values of its Eco-Pan and Capital Pumping trade names exceeded their carrying values by approximately 7.8% and 109.1%, respectively, and their remaining values are $7.7 million and $5.5 million as of October 31, 2020, respectively.

 

The goodwill impairment test was performed on the Company’s U.S. Concrete Pumping, U.S. Concrete Waste Management Services, and U.K. Operations reporting units. The valuation methodologies used to value the reporting units included the discounted cash flow method (income approach) and the guideline public company method (market approach). As a result of the goodwill impairment analysis, the Company identified that the fair values of its U.S. Concrete Pumping and U.K. Operations reporting units were approximately 6.9% and 14.8% below their carrying values, respectively. As such, the Company recorded non-cash impairment charges of $38.5 million and $14.4 million to its U.S. Concrete Pumping and U.K. Operations reporting units, respectively, in goodwill impairment in its consolidated statements of operations for the year ended  October 31, 2020. In addition, the Company concluded that the fair value of its U.S. Concrete Waste Management Services reporting unit exceeded its carrying value by approximately 4.5% and, as such, no impairment charge was recorded.

 

The factors leading to the impairment of the Company's goodwill and intangibles were primarily due to (1) lower anticipated future net revenues and earnings in its estimate of future cash flows resulting from COVID-19 and (2) a higher discount rate applied to future cash flows as a result of uncertainties of the overall economic impact from COVID-19. There is inherent uncertainty associated with key assumptions used by the Company in its impairment analyses including the duration of the economic downturn associated with COVID-19 and the recovery period.

 

A qualitative impairment assessment was done on the annual assessment date and no impairment was identified for the remainder of fiscal 2020. The Company will continue to evaluate its goodwill and intangible assets in future quarters. Additional impairments may be recorded based on events and circumstances, including those related to COVID-19 discussed in Note 1.

 

The following table summarizes the composition of intangible assets at October 31, 2020 and at October 31, 2019:

 

   

October 31,

   

October 31,

 
   

2020

   

2019

 
   

Gross

                   

Foreign

Currency

   

Net

   

Gross

           

Foreign

Currency

   

Net

 
   

Carrying

           

Accumulated

   

Translation

   

Carrying

   

Carrying

   

Accumulated

   

Translation

   

Carrying

 

(in thousands)

 

Value

   

Impairments

   

Amortization

   

Adjustment

   

Amount

   

Value

   

Amortization

   

Adjustment

   

Amount

 

Customer relationship

  $ 193,585     $ -     $ (64,676 )   $ (106 )   $ 128,803     $ 193,594     $ (31,861 )   $ (62 )   $ 161,671  

Trade name

    5,432       -       (1,020 )     (14 )     4,398       5,434       (483 )     (7 )     4,944  

Trade name (indefinite life)

    55,500       (5,000 )     -       -       50,500       55,500       -       -       55,500  

Noncompete agreements

    200       -       (62 )     -       138       200       (22 )     -       178  

Total intangibles

  $ 254,717     $ (5,000 )   $ (65,758 )   $ (120 )   $ 183,839     $ 254,728     $ (32,366 )   $ (69 )   $ 222,293  

 

Amortization expense for the Successor year ended  October 31, 2020 was $33.4 million. Amortization expense for the Successor period from December 6, 2018 to October 31, 2019 was $32.4 million. Amortization expense for the Predecessor from November 1, 2018 to December 5, 2018 was $0.7 million. The estimated aggregate amortization expense for intangible assets over the next five fiscal years ending October 31 and thereafter is as follows:

 

(in thousands)

       

2021

  $ 26,852  

2022

    21,606  

2023

    17,173  

2024

    13,792  

2025

    11,159  

Thereafter

    42,758  

Total

  $ 133,340  

 

The changes in the carrying value of goodwill by reportable segment for the twelve months ended October 31, 2020 are as follows:

 

(in thousands)

  U.S. Concrete Pumping    

U.K. Operations

    U.S. Concrete Waste Management Services    

Corporate

   

Total

 
Balance at October 31, 2018 (Predecessor)   $ 49,374     $ 18,368     $ 6,914     $ -     $ 74,656  

Foreign currency translation

    -       (12 )     -       -       (12 )
Balance at December 5, 2018 (Predecessor)   $ 49,374     $ 18,356     $ 6,914     $ -     $ 74,644  
                                         
Balance at December 6, 2018 (Successor)   $ -     $ -     $ -     $ -     $ -  
Acquired goodwill     185,782       40,554       49,133       -       275,469  
Foreign currency translation     -       619       -       -       619  

Balance at October 31, 2019 (Successor)

  $ 185,782     $ 41,173     $ 49,133     $ -     $ 276,088  

Measurement-period adjustments

    200       -       -       -       200  

Impairments

    (38,500 )     (14,444 )     -       -       (52,944 )
Foreign currency translation     -       (190 )     -       -       (190 )

Balance at October 31, 2020 (Successor)

  $ 147,482     $ 26,539     $ 49,133     $ -     $ 223,154