Goodwill and Other Intangible Assets

12 Months Ended

Jul. 31, 2016

Goodwill and Intangible Assets Disclosure [Abstract]

The Company has allocated goodwill to reporting units within its Engine Products and Industrial Products segments. The Company acquired EPC on August 31, 2015, Northern Technical on September 30, 2014 and IFIL.USA on June 30, 2015. See Note 2 for additional discussion of acquisitions completed during the years ended July 31, 2016 and 2015. There was no disposition activity during the years ended July 31, 2016 and 2015.

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 an impairment assessment during the third quarter of fiscal 2016. 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 2016 impairment tests exceeded the respective carrying values by at least 34%.

During the second quarter of fiscal 2016, the Company revised its forecast associated with its GTS reporting unit. While the previous forecast for this reporting unit called for a year-over-year decline in sales, the Company continued to face deferrals and softening demand for large-turbine projects. Given the short-term challenges facing this business, the Company revisited its strategic focus and priorities. The Company will continue to focus on innovative products while growing the aftermarket business but will be more selective in taking on large-turbine projects, which resulted in the revised forecast associated with its GTS reporting unit.

As a result of the strategic shift and actions taken in the second quarter of fiscal 2016, the Company concluded that an interim goodwill triggering event had occurred for the GTS reporting unit. Goodwill associated with the GTS reporting unit was $60.2 million as of January 31, 2016 and is included in the Industrial Products segment. The Company completed its goodwill impairment assessment using 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 38%. Therefore, the second step of the impairment test was not necessary for this reporting unit.

In determining the estimated fair value of the reporting unit, the Company used the income approach, a valuation technique using an estimate of future cash flows from the reporting unit's financial forecast. A terminal growth rate of 3.0% and a discount rate of 12.0% 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. Holding all other assumptions constant, an unfavorable change in projected cash flows of 25.0% or more would potentially result in an indication of impairment. Additionally, a decrease in the residual growth rate of 4.5% or more or an increase in the discount rate of 1.2% or more would potentially result in an indication of impairment. While these projections supported no impairment of this reporting unit as of January 31, 2016, given that the Company's second quarter 2016 results fell below expectations and the sensitivities to the assumptions used in the calculations of the estimated cash flows, it is possible that an 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 years ended July 31, 2016 and 2015 (in millions):



	Engine Products			Industrial Products			Total Goodwill
Balance as of July 31, 2014	$	72.4		$	94.0		$	166.4
Goodwill acquired	—			66.8			66.8
Foreign exchange translation	(1.4		)	(8.1		)	(9.5		)
Balance as of July 31, 2015	71.0			152.7			223.7
Goodwill acquired	6.3			—			6.3
Foreign exchange translation	—			(0.7		)	(0.7		)
Balance as of July 31, 2016	$	77.3		$	152.0		$	229.3

Intangible assets are comprised of patents, trademarks and customer relationships and lists. The following is a reconciliation of intangible assets for the years ended July 31, 2016 and 2015 (in millions):



	Gross Carrying Amount			Accumulated Amortization			Net Intangible Assets
Balance as of July 31, 2014	$	81.3		$	(45.3	)	$	36.0
Intangibles acquired	10.0			—			10.0
Amortization expense	—			(6.8		)	(6.8		)
Foreign exchange translation	(4.2		)	2.9			(1.3		)
Balance as of July 31, 2015	87.1			(49.2		)	37.9
Intangibles acquired	6.6			—			6.6
Amortization expense	—			(6.1		)	(6.1		)
Foreign exchange translation	3.1			(3.0		)	0.1
Balance as of July 31, 2016	$	96.8		$	(58.3	)	$	38.5

Net intangible assets consist of patents, trademarks and trade names of $7.8 million and $8.8 million and customer related intangibles of $30.7 million and $29.1 million as of July 31, 2016 and 2015, respectively. As of July 31, 2016, patents, trademarks, and trade names had a weighted average remaining life of 7.4 years and customer related intangibles had a weighted average remaining life of 12.4 years. Expected amortization expense relating to existing intangible assets is as follows (in millions):



Year Ending July 31,	Amount
2017	$	6.0
2018	4.8
2019	4.5
2020	4.2
2021	4.0
Thereafter	15.0
Total expected amortization expense	$	38.5

- 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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