Goodwill and Identifiable Intangible Assets, Net

9 Months Ended

Sep. 30, 2017

Goodwill And Identifiable Intangible Assets, Net

Goodwill and Identifiable Intangible Assets, Net

NOTE 5—GOODWILL AND IDENTIFIABLE INTANGIBLE ASSETS, NET

Annual goodwill impairment testing

We initiated a goodwill impairment test as of September 30, 2017, as we determined that a triggering event existed within the Real Alloy North America (“RANA”) operating segment. In conducting our goodwill impairment test, we utilized a combination of discounted cash flow (“DCF”) and guideline public company (“GPC”) approaches to estimate the fair value of our reporting units required to be tested for impairment. Each of the DCF and GPC approaches were weighted 50%. These nonrecurring fair value measurements are primarily determined using unobservable inputs and, accordingly, are categorized within Level 3 of the fair value hierarchy. The DCF and GPC analyses are based on our projected financial information, which includes a variety of estimates and assumptions. While we consider such estimates and assumptions reasonable, they are inherently subject to uncertainties and a wide variety of significant business, economic and competitive risks, many of which are beyond our control and may not materialize. Changes in these estimates and assumptions may have a significant effect on the estimation of the fair value of our reporting units.

Under the DCF approach, we estimate the fair value of a reporting unit based on the present value of future cash flows. Cash flow projections are based on management’s estimate of revenue growth rates and operating margins and take into consideration industry and market conditions, as well as company specific economic factors. The DCF calculations also include a terminal value calculation that is based on an expected long-term growth rate for the applicable reporting unit. The discount rate is based on the weighted average cost of capital adjusted for the relevant risk associated with the business specific characteristics and the uncertainty associated with the reporting unit's ability to execute on the projected cash flows. The weighted average cost of capital used in the income approach ranged from 11.0% to 11.5%, as compared to 10.0% to 10.5% as of October 1, 2016, the date of our last annual goodwill impairment test, and a long-term growth rate of 3% was determined and used based on estimated future gross domestic product, which is consistent with the rate used in the prior impairment test. Other significant assumptions include future capital expenditures and changes in working capital requirements.

Under the GPC approach, we identify a group of comparable companies giving consideration to, among other relevant characteristics, similar lines of business, business risks, growth prospects, business maturity, market presence, leverage, and size and scale of operations. The analysis compares the public market implied fair value for each comparable public company to its historical and projected revenues and earnings before interest, taxes, depreciation and amortization (“EBITDA”). The calculated range of multiples for the comparable companies used was generally consistent with the purchase multiples in the Real Alloy Acquisition, which was applied to projected EBITDA and revenues to determine a range of fair values as of September 30, 2017.

As of the date of filing this Form 10‑Q for the quarterly period ended September 30, 2017, our impairment test is incomplete. Based on the preliminary results of the goodwill impairment test, margin performance and the year-over-year reduction in volume, we determined that a goodwill impairment is probable and estimable. In accordance with Accounting Standards Codification (“ASC”) 350, Intangibles—Goodwill and Other, as the impairment was probable and estimable, we recorded a goodwill impairment charge of $33.6 million within the RANA operating segment in the three months ended September 30, 2017. Based on our analysis, no triggering event for impairment was identified within the Real Alloy Europe (“RAEU”) operating segment.

The following table reflects activity associated with goodwill during the nine months ended September 30, 2017:


(In millions)	RANA		RAEU		Total
Balance, December 31, 2016	$	33.6	$	8.6	$	42.2
Impairment		(33.6)		—		(33.6)
Currency translation adjustments		—		1.1		1.1
Balance, September 30, 2017	$	—	$	9.7	$	9.7

- 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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