GOODWILL AND INDEFINITE-LIVED INTANGIBLES

The Company tests for impairment of Indefinite-lived intangibles and Goodwill in the

second

quarter of each year and when events or circumstances indicate that the carrying amount of Goodwill exceeds its fair value and

may

not

be recoverable. The Company’s qualitative assessment of impairment for indefinite-lived assets at

May 31, 2018,

followed the guidance in ASC

350

18A

and

18B

and determined there was

impairment of indefinite-lived intangibles at that time.

Under current accounting guidance, CUI Global is

not

required to calculate the fair value of a reporting unit unless the entity determines, based on a qualitative assessment, that it is more likely than

not

that its fair value is less than its carrying amount. The guidance includes a number of factors to consider in conducting the qualitative assessment. The Company tests for Goodwill impairment in the

second

quarter of each year and whenever events or changes in circumstances indicate that the carrying amount of the asset exceeds its fair value and

may

not

be recoverable.

As detailed in ASC

350

3A,

in performing its testing for impairment of Goodwill as of

May 31, 2018,

management completed a qualitative analysis to determine whether it was more likely than

not

that the fair value of a reporting unit is less than its carrying amount, including Goodwill. To complete the qualitative review, management follows the steps in ASC

350

to evaluate the fair values of the Goodwill and considers all known events and circumstances that might trigger an impairment of Goodwill.

During the Company's review of Goodwill as of

May 31, 2018,

the Company determined that there were indicators present to suggest that it was more likely than

not

that the fair value of the Orbital-UK reporting unit was less than its carrying amount.

The significant changes for the Orbital-UK reporting unit subsequent to the most recent impairment test performed as of

December 31, 2017

included a decline in the

2018

actual revenue, operating income and cash flows compared to prior forecasts for the same period and a negative change in the

2018

forecasted revenue, operating income and cash flows for the remainder of the year due in part to the longer than expected temporary halt in shipping of its GasPT product to a major customer in Italy and market uncertainty due to the continuing effects of Brexit.

To test the Orbital-UK reporting unit for impairment as of

May 31, 2018,

the Company used a quantitative test. The Company estimated the fair value of the Orbital-UK reporting unit using a blend of a market approach and an income approach, which was deemed to be the most indicative of fair value in an orderly transaction between market participants. Under the income approach, the Company determined fair value based on estimated future cash flows of the Orbital-UK reporting unit discounted by an estimated weighted-average cost of capital, reflecting the overall level of inherent risk of the Orbital-UK reporting unit and the rate of return an outside investor would expect to earn. The Company based its cash flow projections for the Orbital-UK reporting unit using a forecast of cash flows and a terminal value developed by capitalizing an assumed stabilized cash flow figure. The forecast and related assumptions were derived from an updated financial forecast prepared during the

second

quarter of

2018.

At this time, a key assumption related to the recoverability of the Orbital-UK reporting unit Goodwill is the resumption of delivery of GasPT product to

one

of the Company's major customers and continued strengthening of the Company's integration revenues. Under the market approach, appropriate valuation multiples were derived from the historical operating data of selected guideline companies. The valuation multiples were evaluated and adjusted based on the strengths and weaknesses of the Company relative to the selected guideline companies and the multiple was then applied to the appropriate operating data of the Company to arrive at an indication of fair market value. As a result of the analysis, the Company concluded that the carrying value of the Orbital-UK reporting unit exceeded its estimated fair value. The quantitative test for the Orbital-UK reporting unit resulted in an impairment for the Orbital-UK reporting unit, and the Company recorded a Goodwill impairment charge of

$1.3

million during the

second

quarter of

2018.

During the

fourth

quarter of

2018,

the Company determined there were indicators present to suggest that it was more likely than

not

that the fair value of the Orbital-UK reporting unit was less than its carrying amount. The significant changes for the Orbital-UK reporting unit subsequent to the annual Goodwill impairment test performed as of

May 31, 2018

were driven by a slower recovery in the Energy segment than originally forecasted. Actual GasPT revenue continued to lag behind forecasted revenue as acceptance of the technology continued to be slower than anticipated and delays associated with existing customer contracts that have

not

yet resumed. This slower than expected recovery, led to lower

2018

Energy segment revenue, operating income and cash flows than originally forecasted.

To test the Orbital-UK reporting unit for impairment, the Company used a quantitative test similar to the

one

used at

May 31, 2018

with updated financial forecasts and assumptions based on the information available at

December 31, 2018.

As a result of the analysis, the Company concluded that the carrying value of the Orbital-UK reporting unit exceeded its estimated fair value. The quantitative test for the Orbital-UK reporting unit resulted in an impairment for the Orbital-UK reporting unit, and the Company recorded a Goodwill impairment charge of

$3.1

million during the

fourth

quarter of

2018,

which was a write-off of the remaining Energy segment Goodwill. In addition, the reporting units in the Power and Electromechanical segment were also tested for impairment due to the overall decrease in market capitalization experienced in

2018.

As of

March

31,

2019

and

December 31, 2018,

there was Goodwill remaining for CUI Inc., CUI-Canada and CUI-Japan reporting units, which are included in the Power and Electromechanical segment.

The carrying value of Goodwill and the activity for the

three

months ended

March 31, 2019

are as follows:

(in thousands)	Power and Electro - Mechanical		Energy		Other		Total
Balance, December 31, 2018	$	13,089	$	—	$	—	$	13,089
Balance, March 31, 2019	$	13,089	$	—	$	—	$	13,089