Goodwill, Trademarks and Other Intangible Assets

6 Months Ended

Jun. 29, 2014

Goodwill, Trademarks and Other Intangible Assets

Goodwill, Trademarks and Other Intangible Assets

Note 8 Goodwill, Trademarks and Other Intangible Assets

Goodwill

Goodwill is tested for impairment annually as of the beginning of the Company’s fourth fiscal quarter, or when events or circumstances indicate that its value may have declined. Impairment exists when the carrying amount of goodwill exceeds its fair market value. Management estimates the fair value of each reporting unit primarily using the income approach. Specifically the discounted cash flow (“DCF”) model was utilized for the valuation of each reporting unit. Management develops cash flow forecasts based on existing firm orders, expected future orders, contracts with suppliers, labor agreements and general market conditions. The Company discounts the cash flow forecasts using the weighted-average cost of capital method at the date of evaluation. The Company also calculates the fair value of its reporting units using the market approach in order to corroborate its DCF model results. These methodologies used in the current year are consistent with those used in the prior year.

The following table sets forth the changes in the carrying amount of goodwill for the Company as of and for the six months ended June 29, 2014:

	Total
Balance at December 31, 2013	$	51,225
Effect of foreign currency translation	(37		)
Balance at June 29, 2014	$	51,188

Trademarks

In connection with the Merger, the Company recorded an indefinite-lived intangible asset of $50,100 for the Colt brand and related trademarks. The Company, with the assistance of a third party valuation firm, valued the Colt brand and related trademarks by comparing the value of the royalty rate inherent in the prepaid license fee to the current market rate for such a license based upon both the value of the Colt brand and related trademarks in both the defense and the commercial marketplace utilizing a relief from royalty methodology.

Impairment Evaluation

During the first six months of 2014, the Company has seen a continued decrease in the demand for commercial rifles. The Company concluded that a triggering event had occurred and an interim impairment test for indefinite lived intangible assets, Goodwill and Trademarks, was required as of June 29, 2014. Management developed cash flow forecasts based on existing firm orders, expected future orders, contracts with suppliers, labor agreements and general market conditions. The Company, with the assistance of a third party valuation firm, discounted the cash flow forecasts using the weighted-average cost of capital method as of June 29, 2014. The Company also calculated the fair value of its reporting units using the market approach in order to corroborate its DCF model results. Based on completion of Step 1 of the impairment analysis for indefinite lived intangible assets the fair value of the Company’s indefinite lived intangible assets exceeds the book value and therefore the Company concluded no impairment existed as of June 29, 2014. While the Company concluded there was no current impairment to the extent that demand for commercial rifles continues to decline, or does not recover when we have predicted it will, impairment charges may be required in the future.

Intangible Assets

The Company reviews long-lived assets, including intangible assets subject to amortization, for impairment whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. Impairment losses, where identified, are determined as the excess of the carrying value over the estimated fair value of the long-lived asset. The Company assesses the recoverability of the carrying value of assets held for use based on a review of projected, undiscounted cash flows. When long-lived assets are reclassified to “held for sale”, the Company compares the asset’s carrying amount to its estimated fair value less cost to sell to evaluate impairment. No long-lived assets have been reclassified to held for sale for any period presented.

In connection with the Merger, the Company recorded finite-lived intangible assets of $9,340 which includes $5,240 of existing license agreements which represents the estimated fair value of New Colt license agreements for licensing the Colt trademarks to various third parties, $2,970 of developed technology which represents the estimated fair value of designs, trade secrets, materials, specifications and other proprietary intellectual property included in the technical data packages and related manufacturing processes and know-how and $1,130 of backlog which represents the estimated fair value of unfilled contractual orders from customers. The weighted average useful lives of the acquired existing license agreements, developed technology and backlog were 6 years, 20 years and 3 years, respectively.

The net carrying value of the Company’s intangible assets with finite lives follows:

	As of June 29, 2014
	Gross							Estimated
	Carrying		Accumulated					Useful
	Amount		Amortization			Net		Life
Customer relationship Canadian Government	$	2,360	$	(714	)	$	1,646	30
Customer relationships other	6,137		(4,229		)	1,908		20
License agreements	5,240		(1,614		)	3,626		6
Backlog	1,720		(916		)	804		3
Technology-based intangibles	6,580		(2,798		)	3,782		15-20
	$	22,037	$	(10,271	)	$	11,766

	As of December 31, 2013
	Gross							Estimated
	Carrying		Accumulated					Useful
	Amount		Amortization			Net		Life
Customer relationship Canadian Government	$	2,369	$	(678	)	$	1,691	30
Customer relationships other	6,160		(4,077		)	2,083		20
License agreements	5,240		(805		)	4,435		6
Backlog	1,722		(604		)	1,118		3
Technology-based intangibles	6,580		(2,492		)	4,088		15 - 20
	$	22,071	$	(8,656	)	$	13,415

The Company expects to record annual amortization expense of $3,270, $2,783, $1,926, $1,186, and $871 for 2014, 2015, 2016, 2017 and 2018, respectively.

- Definition

The entire disclosure for the aggregate amount of goodwill and a description of intangible assets, which may include (a) for amortizable intangible assets (also referred to as finite-lived intangible assets), the carrying amount, the amount of any significant residual value, and the weighted-average amortization period, (b) for intangible assets not subject to amortization (also referred to as indefinite-lived intangible assets), the carrying amount, and (c) the amount of research and development assets acquired and written off in the period, including the line item in the income statement in which the amounts written off are aggregated, if not readily apparent from the income statement. Also discloses (a) for amortizable intangibles assets in total and by major class, the gross carrying amount and accumulated amortization, the total amortization expense for the period, and the estimated aggregate amortization expense for each of the five succeeding fiscal years, (b) for intangible assets not subject to amortization the carrying amount in total and by major class, and (c) for goodwill, in total and for each reportable segment, the changes in the carrying amount of goodwill during the period (including the aggregate amount of goodwill acquired, the aggregate amount of impairment losses recognized, and the amount of goodwill included in the gain (loss) on disposal of a reporting unit). If any part of goodwill has not been allocated to a reportable segment, discloses the unallocated amount and the reasons for not allocating. For each impairment loss recognized related to an intangible asset (excluding goodwill), discloses: (a) a description of the impaired intangible asset and the facts and circumstances leading to the impairment, (b) the amount of the impairment loss and the method for determining fair value, (c) the caption in the income statement or the statement of activities in which the impairment loss is aggregated, and (d) the segment in which the impaired intangible asset is reported. For each goodwill impairment loss recognized, discloses: (a) a description of the facts and circumstances leading to the impairment, (b) the amount of the impairment loss and the method of determining the fair value of the associated reporting unit, and (c) if a recognized impairment loss is an estimate not finalized and the reasons why the estimate is not final. May also disclose the nature and amount of any significant adjustments made to a previous estimate of an impairment loss.

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