Note 11 - Goodwill and Intangible Assets

9 Months Ended

Sep. 30, 2022

Notes to Financial Statements

Goodwill Disclosure [Text Block]

NOTE 11 – Goodwill and Intangible Assets:

Goodwill

Beginning with the second quarter of fiscal 2022, the Company realigned its reportable segments to Branded Products, Healthcare Apparel and Contact Centers. Refer to Note 10 for further information on the Company’s reportable segments. As a result of this re-segmentation, and in accordance with ASC 350, the Company performed a quantitative goodwill impairment test.

During the third quarter of fiscal 2022, the Company determined that a triggering event occurred in relation to the depressed market price of the Company's common stock and corresponding significant decline in the Company’s market capitalization. As a result, the Company performed a quantitative goodwill impairment test.

The fair value of goodwill in each impairment test was determined using a combination of an income approach, which estimates fair value based upon projections of future revenues, expenses, and cash flows discounted to their respective present values, and a market approach. The valuation methodology and underlying financial information included in the Company’s determination of fair value required significant judgments by management. The principal assumptions used in the Company’s discounted cash flow analysis consisted of (a) long-term projections of financial performance and (b) the weighted-average cost of capital of market participants, adjusted for the risk attributable to the Company and the industry in which it operates. Under the market approach, the principal assumption included an estimate of a control premium.

Based on the goodwill impairment analysis performed, the Company determined that the estimated fair values of the previous Uniforms and Related Products segment and current Branded Products segment were lower than their carrying value primarily as the result of current market conditions, decline in expected cash flows and/or decrease in the Company’s stock price. Consequently, the Company recorded a non-cash goodwill impairment charge of $21.5 million and $45.9 million during the three and nine months ended September 30, 2022, respectively. 

We have reclassified prior period goodwill disclosures to conform to the current period presentation. The following table presents the carrying amounts of goodwill attributable to each of the Company’s reportable segments (dollars in thousands):

	Branded Products			Healthcare Apparel			Total
As of December 31, 2021:
Gross goodwill	$	19,111		$	20,323		$	39,434
Accumulated impairment losses		-			-			-
Net goodwill	$	19,111		$	20,323		$	39,434
Additions	$	6,463		$	-		$	6,463
Impairment charge		(25,595	)		(20,323	)		(45,918	)
Foreign currency translation		21			-			21
Net goodwill, September 30, 2022	$	-		$	-		$	-
As of September 30, 2022:
Gross goodwill	$	25,595		$	20,323		$	45,918
Accumulated impairment losses		(25,595	)		(20,323	)		(45,918	)
Net goodwill	$	-		$	-		$	-

Intangible Assets

In conjunction with the Company’s realignment of its reportable segments during the second quarter of 2022, the Company began an effort to centralize certain branding and go-to-market strategies under the BAMKO brand and determined that it would no longer use certain trade names associated with branded products. The Company’s rebranding efforts resulted in a $5.6 million impairment of indefinite-lived trade names related to its Branded Products segment during the nine months ended September 30, 2022. The carrying amounts of indefinite-lived trade names as of September 30, 2022 and December 31, 2021 are summarized as follows (dollars in thousands):

Indefinite-lived Intangible Assets	Segment		Carrying Amount, December 31, 2021		Impairment Charges			Carrying Amount, September 30, 2022
Trade names:
HPI	Branded Products	$	4,700	$	-		$	4,700
BAMKO	Branded Products		8,900		-			8,900
Public Identity	Branded Products		470		(470	)		-
Tangerine	Branded Products		3,200		(3,200	)		-
Gifts By Design	Branded Products		1,170		(1,170	)		-
Sutter’s Mill	Branded Products		741		(741	)		-
CID Resources	Healthcare Apparel		14,160		-			14,160
Total		$	33,341	$	(5,581	)	$	27,760

Intangible assets as of September 30, 2022 and December 31, 2021 are summarized as follows (dollars in thousands):

			September 30, 2022					December 31, 2021
Item	Weighted Average Life (In years)		Gross Carrying Amount		Accumulated Amortization			Gross Carrying Amount		Accumulated Amortization
Definite-lived intangible assets:
Customer relationships (7-15 year life)		11.7	$	50,198	$	(22,114	)	$	45,198	$	(18,772	)
Non-compete agreements (3-7 year life)		5.4		1,712		(1,303	)		1,536		(1,121	)
Trademarks		10.0		332		(57	)		275		(37	)
Trade names		2.0		710		(148	)		-		-
Total			$	52,952	$	(23,622	)	$	47,009	$	(19,930	)
Indefinite-lived intangible assets:
Trade names			$	27,760				$	33,341
Total intangible assets			$	80,712	$	(23,622	)	$	80,350	$	(19,930	)