Goodwill and Other Intangible Assets

9 Months Ended

Apr. 30, 2017

Goodwill and Intangible Assets Disclosure [Abstract]

Goodwill is assessed for impairment annually, or more frequently if events or changes in circumstances indicate that the asset may be impaired. The Company performed its annual impairment assessment during the third quarter of fiscal 2017. The results of this assessment showed that the estimated fair values of the reporting units to which goodwill is assigned continued to exceed the corresponding carrying values of the respective reporting units resulting in no goodwill impairment. Of the Company's five reporting units that contain goodwill, the estimated fair values during its annual third quarter fiscal 2017 impairment tests exceeded the respective carrying values by at least 60% for all but one reporting unit. The Company's Gas Turbine Systems (GTS) reporting unit has the lowest amount of excess fair value over the carrying value at 15%.

Goodwill associated with the GTS reporting unit was $60.4 million as of the annual assessment and is included in the Industrial Products segment. The Company completed its GTS goodwill impairment assessment via a methodology whereby the Company uses a weighting of each of the fair values as determined under the market approach model and a discounted cash flow model based on management's judgments and assumptions to determine the estimated fair value of the reporting unit. Based on the results of this assessment, the Company concluded the estimated fair value of the GTS reporting unit exceeded the respective carrying amount of the reporting unit by approximately 15%.

In determining the estimated fair value of the GTS reporting unit, the Company used the public company method, a market approach using an estimate based on prices investors are paying for the stocks of similar, publically traded comparable companies. The Company also used the income approach, a valuation technique using an estimate of future cash flows from the reporting unit's financial forecast. The Company is using a combination of the income and market approach. A terminal growth rate of 3.0% and a discount rate of 11.5% were used reflecting the relative risk of achieving cash flows as well as any other specific risks or factors related to the GTS reporting unit. The Company believes the assumptions used in its discounted cash flow analysis are appropriate and result in reasonable estimate of the reporting unit's fair value. The Company performed a sensitivity analysis to determine how the assumptions made impact the results of the impairment test under this valuation approach. Holding all other assumptions constant, zero revenue growth for fiscal years 2019-2026 would result in an indication of impairment. Additionally, a decrease in the residual growth rate of 3.0% to zero or an increase in the discount rate by 1.5% or more would result in an indication of impairment. While these projections supported no impairment of goodwill of this reporting unit as of March 31, 2017, given the sensitivities to the assumptions used in the calculations of the estimated cash flows, it is possible that impairment could be incurred in the future. The Company will continue to monitor results and expected cash flows in the future to assess whether goodwill impairment in the GTS reporting unit may be necessary.

The following is a reconciliation of goodwill for the nine months ended April 30, 2017 (in millions):



	Engine Products			Industrial Products			Total Goodwill
Balance as of July 31, 2016	$	77.3		$	152.0		$	229.3
Goodwill acquired	1.1			—			1.1
Foreign exchange translation	(0.1		)	(0.7		)	(0.8		)
Balance as of April 30, 2017	$	78.3		$	151.3		$	229.6

As of April 30, 2017 and July 31, 2016, intangible assets, net were $38.5 million and $38.5 million, respectively. Intangible assets increased during the year due to the acquisition of Partmo, which generated intangibles of $4.7 million, which was offset by amortization of $4.3 million and a $0.4 million foreign exchange translation decrease. The Partmo intangibles consist of customer relationships with a 20 year useful life and trademarks and tradenames with a 10 year useful life. Refer to Note 2 for further discussion of the Partmo acquisition.

- 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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