Goodwill and Other Intangible Assets

12 Months Ended

Dec. 31, 2023

Goodwill and Intangible Assets Disclosure [Abstract]

Goodwill

The carrying amounts of goodwill, by operating segment, for the years ended December 31, 2023 and 2022 were as follows:


	(In thousands)
	Electronic Systems		Structural Systems		Consolidated Ducommun
Gross goodwill	$	199,157	$	85,972	$	285,129
Accumulated goodwill impairment	(81,722)		—		(81,722)

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


Goodwill from acquisition during period	—		41,193		41,193
Balance at December 31, 2023	$	117,435	$	127,165	$	244,600

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 companies, business acquisitions and the transaction values observed and its related control premiums.

As our most recent step one goodwill impairment test for our Electronic Systems reporting unit was in 2019, we elected to perform a step one goodwill impairment analysis as of the first day of the fourth quarter of 2023 where the fair value of our Electronic Systems reporting unit exceeded its carrying value. Our commercial aerospace end-use market business continues to be negatively impacted by the lingering effects of the COVID-19 pandemic and the resulting inflation, supply chain and other issues, and therefore, we performed a step one goodwill impairment test for our Structural Systems reporting unit as of the first day of the fourth quarter of 2023, where the fair value of our Structural Systems reporting unit exceeded its carrying value. Thus, the respective goodwill amounts were not deemed impaired.

On April 25, 2023, we completed the acquisition of BLR. The excess of the purchase price over the aggregate fair values of the net assets was recorded as goodwill. See Note 2 for further information.

Other Intangible Assets

Other intangible assets are related to acquisitions, including BLR, 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 23 years. Intangible assets are as follows:


		(In thousands)
		December 31, 2023						December 31, 2022
	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	$	261,300	$	142,423	$	118,877	$	246,300	$	127,999	$	118,301
Trade names and trademarks	16	10,400		2,258		8,142		5,500		1,670		3,830
Contract renewal	14	1,845		1,845		—		1,845		1,845		—
Technology	23	36,000		1,376		34,624		400		318		82
Backlog	2	600		600		—		600		312		288
Total finite-lived assets		310,145		148,502		161,643		254,645		132,144		122,501

Indefinite-lived assets
Trade names and trademarks		4,700		—		4,700		4,700		—		4,700
Total		$	314,845	$	148,502	$	166,343	$	259,345	$	132,144	$	127,201

The carrying amount of other intangible assets by operating segment as of December 31, 2023 and 2022 was as follows:


	(In thousands)
	December 31, 2023						December 31, 2022
	Gross		Accumulated Amortization		Net Carrying Value		Gross		Accumulated Amortization		Net Carrying Value
Other intangible assets
Electronic Systems	$	164,545	$	108,766	$	55,779	$	164,545	$	99,479	$	65,066
Structural Systems	150,300		39,736		110,564		94,800		32,665		62,135
Total	$	314,845	$	148,502	$	166,343	$	259,345	$	132,144	$	127,201

Amortization expense of other intangible assets was $16.4 million, $14.6 million and $13.1 million for the years ended December 31, 2023, 2022 and 2021, respectively. Future amortization expense by operating segment is expected to be as follows:


	(In thousands)
	Electronic Systems		Structural Systems		Consolidated Ducommun
2024	$	9,288	$	7,452	$	16,740
2025	9,288		7,464		16,752
2026	9,288		7,440		16,728
2027	9,288		7,437		16,725
2028	9,288		6,892		16,180
Thereafter	9,339		69,179		78,518
	$	55,779	$	105,864	$	161,643