Goodwill and Other Intangible Assets

12 Months Ended

Dec. 31, 2022

Goodwill and Intangible Assets Disclosure [Abstract]

Goodwill

The carrying amounts of goodwill, by operating segment, for the years ended December 31, 2022 and 2021 were as follows:


	(In thousands)
	Electronic Systems		Structural Systems		Consolidated Ducommun
Gross goodwill	$	199,157	$	86,259	$	285,416
Accumulated goodwill impairment	(81,722)		—		(81,722)

Balance at December 31, 2021	117,435		86,259		203,694
Purchase price allocation refinements	—		(287)		(287)


Balance at December 31, 2022	$	117,435	$	85,972	$	203,407

We perform our annual goodwill impairment test as of the first day of the fourth quarter. If certain factors occur, including significant under performance of our business relative to expected operating results, significant adverse economic and industry trends, significant decline in our market capitalization for an extended period of time relative to net book value, a decision to divest individual businesses within a reporting unit, or a decision to group individual businesses differently, we may be required to perform an interim impairment test prior to the fourth quarter.

We may use either a qualitative or quantitative approach when testing a reporting unit’s goodwill for impairment. The qualitative approach for potential impairment analysis to determine whether it is more likely than not that the fair value of a reporting unit was less than its carrying amount.

The quantitative approach for potential impairment analysis is performed by comparing the fair value of a reporting unit to its carrying value, including goodwill. Fair value is estimated by management using a combination of the income approach (which is based on a discounted cash flow model) and market approach. Management’s cash flow projections include significant judgments and assumptions, including the amount and timing of expected cash flows, long-term growth rates, and discount rates. The cash flows used in the discounted cash flow model are based on our best estimate of future revenues, gross margins, and adjusted after-tax earnings. If any of these assumptions are incorrect, it will impact the estimated fair value of a reporting unit. The market approach also requires management judgment in selecting comparable business acquisitions and the transaction values observed and its related control premiums.

Our most recent step one goodwill impairment test for our Electronic Systems reporting unit was as of the first day of the fourth quarter of 2019 where the fair value of our Electronic Systems reporting unit exceeded its carrying value. No material adverse factors/changes have occurred since the fourth quarter of 2019 and thus, for our annual goodwill impairment test of our

Electronic Systems reporting unit as of the first day of the fourth quarter of 2022, we used a qualitative assessment and determined it was not more likely than not that the fair value of a reporting unit was less than its carrying amount. As our commercial aerospace end-use market business continues to be negatively impacted by the COVID-19 pandemic, we performed a step one goodwill impairment test for our Structural Systems reporting unit as of the first day of the fourth quarter of 2022, where the fair value of our Structural Systems reporting unit exceeded its carrying value. Thus, the respective goodwill amounts were not deemed impaired.

In December 2021, we acquired 100% of the outstanding equity of Magnetic Seal LLC (f/k/a Magnetic Seal Corporation, “MagSeal”) for an original purchase price of $69.5 million, net of cash acquired. We allocated the final gross purchase price of $70.9 million to the assets acquired and the liabilities assumed at their estimated fair values. The excess of the purchase price over the aggregate fair values was recorded as goodwill within the Structural Systems reporting unit. See Note 2.

Other Intangible Assets

Other intangible assets are related to acquisitions, including MagSeal, and recorded at fair value at the time of the acquisition. Other intangible assets with finite lives are generally amortized on the straight-line method over periods ranging from 2 to 19 years. Intangible assets are as follows:


		(In thousands)
		December 31, 2022						December 31, 2021
	Wtd. Avg Life (Yrs)	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Finite-lived assets
Customer relationships	17	$	246,300	$	127,999	$	118,301	$	246,300	$	114,169	$	132,131
Trade names and trademarks	14	5,500		1,670		3,830		5,500		1,263		4,237
Contract renewal	14	1,845		1,845		—		1,845		1,845		—
Technology	15	400		318		82		400		291		109
Backlog	2	600		312		288		600		13		587
Total finite-lived assets		254,645		132,144		122,501		254,645		117,581		137,064

Indefinite-lived assets
Trade names and trademarks		4,700		—		4,700		4,700		—		4,700
Total		$	259,345	$	132,144	$	127,201	$	259,345	$	117,581	$	141,764

The carrying amount of other intangible assets by operating segment as of December 31, 2022 and 2021 was as follows:


	(In thousands)
	December 31, 2022						December 31, 2021
	Gross		Accumulated Amortization		Net Carrying Value		Gross		Accumulated Amortization		Net Carrying Value
Other intangible assets
Electronic Systems	$	164,545	$	99,479	$	65,066	$	164,545	$	90,191	$	74,354
Structural Systems	94,800		32,665		62,135		94,800		27,390		67,410
Total	$	259,345	$	132,144	$	127,201	$	259,345	$	117,581	$	141,764

Amortization expense of other intangible assets was $14.6 million, $13.1 million and $13.2 million for the years ended December 31, 2022, 2021 and 2020, respectively. Future amortization expense by operating segment is expected to be as follows:


	(In thousands)
	Electronic Systems		Structural Systems		Consolidated Ducommun
2023	$	9,288	$	5,196	$	14,484
2024	9,288		4,673		13,961
2025	9,288		4,673		13,961
2026	9,288		4,649		13,937
2027	9,288		4,647		13,935
Thereafter	18,626		33,597		52,223
	$	65,066	$	57,435	$	122,501