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Goodwill and Other Intangible Assets
 9 Months Ended
Sep. 30, 2023
Goodwill and Intangible Assets Disclosure [Abstract]  
Goodwill and Intangible Assets Disclosure
Note G — Goodwill and Other Intangible Assets
As a result of acquisitions of various businesses, the Company has significant intangible assets on its balance sheet that include goodwill and indefinite-lived intangibles. The Company’s goodwill and indefinite-lived intangibles are tested and reviewed for impairment annually as of March 31st or more frequently if facts and circumstances warrant by comparing the fair value of each reporting unit to its carrying value. Each of the Company’s businesses represent a reporting unit.
Goodwill
Annual Impairment Testing
The Company uses a qualitative approach to test goodwill and indefinite lived intangible assets for impairment by first assessing qualitative factors to determine whether it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform quantitative goodwill impairment testing.
2023 Interim Impairment Testing
Velocity Outdoor - The Company performed interim quantitative impairment testing of goodwill at Velocity at August 31, 2023. As a result of operating results that were below the forecast that we used in the quantitative impairment test of Velocity Outdoor at March 31, 2023, the Company determined that a triggering event had occurred at Velocity in the third quarter of 2023 and performed an interim impairment test as of August 31, 2023. The Company used an income approach for the impairment test, whereby we estimate the fair value of the reporting unit based on the present value of future cash flows. Cash flow projections are based on management's estimate of revenue growth rates and operating margins, and take into consideration industry and market conditions as well as company
specific economic factors. The Company used a weighted average cost of capital of 17% in the income approach. The discount rate used was based on the weighted average cost of capital adjusted for the relevant risk associated with business specific characteristics and Velocity's ability to execute on projected cash flows. Based on the results of the impairment test, the fair value of Velocity did not exceed its carrying value. The Company recorded goodwill impairment of $32.6 million in the quarter ending September 30, 2023.
2023 Annual Impairment Testing
The Company determined that the Velocity reporting unit required additional quantitative testing because we could not conclude that the fair value of the reporting unit exceeded its carrying value based on qualitative factors alone. For the reporting units that were tested only on a qualitative basis for the 2023 annual impairment testing, the results of the qualitative analysis indicated that it is more likely than not that the fair value exceeded the carrying value of these reporting units.
The quantitative test of Velocity was performed using an income approach to determine the fair value of the reporting unit. The discount rate used in the income approach was 15% and the results of the quantitative impairment testing indicated that the fair value of the Velocity reporting unit exceeded the carrying value by 21%.
2022 Annual Impairment Testing
The results of the qualitative analysis indicated that it was more-likely-than-not that the fair value of each of our reporting units exceeded their carrying value for the 2022 annual impairment testing.
Interim Impairment Testing
2022 Interim Impairment Testing
Ergobaby - The Company performed interim quantitative impairment testing at Ergobaby of goodwill and the indefinite lived tradename at December 31, 2022. As a result of operating results that were below historical and forecast amounts, the Company determined that a triggering event had occurred at Ergobaby. The Company used an income approach for the impairment test, whereby we estimate the fair value of the reporting unit based on the present value of future cash flows. Cash flow projections are based on management's estimate of revenue growth rates and operating margins, and take into consideration industry and market conditions as well as company specific economic factors. The Company used a weighted average cost of capital of 16% in the income approach. The discount rate used was based on the weighted average cost of capital adjusted for the relevant risk associated with business specific characteristics and Ergobaby's ability to execute on projected cash flows. Based on the results of the impairment test, the fair value of Ergobaby did not exceed its carrying value. We recorded goodwill impairment of $20.6 million at December 31, 2022. For the indefinite lived tradename, quantitative testing indicated that the fair value exceeded the carrying value.
The following is a summary of the net carrying amount of goodwill at September 30, 2023 and December 31, 2022, is as follows (in thousands):
September 30, 2023December 31, 2022
Goodwill - gross carrying amount$1,152,334 $1,145,023 
Accumulated impairment losses (1)
(110,865)(78,297)
Goodwill - net carrying amount$1,041,469 $1,066,726 
(1) Includes accumulated goodwill impairment expense of $20.6 million recorded at Ergobaby, $65.4 million at Velocity and $24.9 million at Arnold. In the nine months ended September 30, 2023, the Company recorded $32.6 million of goodwill impairment expense at Velocity, and in the year ended December 31, 2022, the Company recorded $20.6 million in goodwill impairment expense at Ergobaby.
The following is a reconciliation of the change in the carrying value of goodwill for the nine months ended September 30, 2023 by operating segment (in thousands):
Balance at January 1, 2023Acquisitions/Measurement Period AdjustmentsGoodwill ImpairmentBalance at September 30, 2023
5.11$92,966 $— $— $92,966 
BOA254,153 — — 254,153 
Ergobaby40,896 — — 40,896 
Lugano86,337 — — 86,337 
Marucci75,719 8,114 — 83,833 
PrimaLoft291,150 (803)— 290,347 
Velocity Outdoor39,773 — (32,568)7,205 
Altor91,129 — — 91,129 
Arnold 39,267 — — 39,267 
Sterno55,336 — — 55,336 
Total$1,066,726 $7,311 $(32,568)$1,041,469 
Long lived assets
Annual indefinite lived impairment testing
The Company used a qualitative approach to test indefinite lived intangible assets for impairment by first assessing qualitative factors to determine whether it is more-likely-than-not that the fair value of an indefinite lived intangible asset is impaired as a basis for determining whether it is necessary to perform quantitative impairment testing. The Company evaluated the qualitative factors of each indefinite lived intangible asset in connection with the annual impairment testing for 2023 and 2022. Results of the qualitative analysis indicate that it is more likely than not that the fair value of the reporting units that maintain indefinite lived intangible assets exceeded the carrying value.
Other intangible assets are comprised of the following at September 30, 2023 and December 31, 2022 (in thousands):
September 30, 2023December 31, 2022
Gross Carrying AmountAccumulated AmortizationNet Carrying AmountGross Carrying AmountAccumulated AmortizationNet Carrying Amount
Customer relationships$785,303 $(283,325)$501,978 $785,303 $(239,752)$545,551 
Technology and patents226,866 (64,947)161,919 211,648 (52,811)158,837 
Trade names, subject to amortization487,843 (141,556)346,287 483,179 (118,684)364,495 
Non-compete agreements6,424 (4,515)1,909 4,637 (3,824)813 
Other contractual intangible assets1,960 (1,523)437 1,960 (1,185)775 
Total1,508,396 (495,866)1,012,530 1,486,727 (416,256)1,070,471 
Trade names, not subject to amortization56,965 — 56,965 56,965 — 56,965 
In-process research and development (1)
500 — 500 500 — 500 
Total intangibles, net$1,565,861 $(495,866)$1,069,995 $1,544,192 $(416,256)$1,127,936 
(1) In-process research and development is considered indefinite lived until the underlying technology becomes viable, at which point the intangible asset will be amortized over the expected useful life.
Amortization expense related to intangible assets was $26.7 million and $79.7 million for the three and nine months ended September 30, 2023, respectively, and $25.2 million and $67.2 million for the three and nine months ended September 30, 2022, respectively.
Estimated charges to amortization expense of intangible assets for the remainder of 2023 and the next four years, is as follows (in thousands):
20232024202520262027
$26,523 $104,523 $99,241 $92,863 $82,000