Goodwill and Other Intangible Assets

9 Months Ended

Sep. 30, 2016

Goodwill and Intangible Assets Disclosure [Abstract]

Goodwill and Other Intangible Assets

13. Goodwill and Other Intangible Assets

Goodwill and intangible assets with indefinite useful lives are not amortized, but are tested for impairment at least annually. Goodwill represents the excess of the purchase price over the fair value of the net tangible and identifiable intangible assets acquired in each business combination. Our reporting units are consistent with our operating segments.

Determining the fair value of a reporting unit requires the use of significant estimates and assumptions, including revenue growth rates, operating margins, discount rates, and future market conditions, among others. Goodwill and other long-lived assets are reviewed for impairment whenever events, such as significant changes in the business climate, plant closures, changes in product offerings, or other circumstances indicate that the carrying amount may not be recoverable.

To determine fair value, we utilize two market-based approaches and an income approach. Under the market-based approaches, we utilize information regarding the Company as well as publicly available industry information to determine earnings multiples and sales multiples. Under the income approach, we determine fair value based on estimated future cash flows of each reporting unit, discounted by an estimated weighted-average cost of capital, which reflects the overall level of inherent risk of a reporting unit and the rate of return an outside investor would expect to earn.

On April 8, 2016, the Company acquired the outstanding shares of Harris Corporation’s composite aerostructures business. Management is in the process of determining the fair value of assets and liabilities acquired. Based on procedures performed through September 30, 2016, we acquired amortizable intangible assets of $59.4 million and goodwill of $67.0 million. The amounts are subject to change as management completes its review of assets and liabilities acquired.

Prior to the acquisition, the entire balance of goodwill on our books was attributable to the Machine Clothing business. In the second quarter of 2016, the Company applied the qualitative assessment approach in performing its annual evaluation of Machine Clothing goodwill and concluded that no impairment provision was required. There were no amounts at risk due to the large spread between the fair and carrying values.

We are continuing to amortize certain patents, trade names and technology assets that have finite lives. The changes in intangible assets and goodwill from December 31, 2015 to September 30, 2016, were as follows:

(in thousands)	December 31, 2015	Assets acquired April 8, 2016	Amortization		Currency Translation	September 30, 2016
Amortized intangible assets:
AEC trade names	$25	$-	$(4	)	$-	$21
AEC technology	129	-	(19	)	-	110
Customer relationships	-	40,740	(1,354	)	-	39,386
Customer contracts	-	16,900	(62	)	-	16,838
Other intangibles	-	1,720	(1,031	)	-	689
Total amortized intangible assets	$154	$59,360	($2,470	)	$-	$57,044
Unamortized intangible assets:
MC Goodwill	$66,373	$-	$-		$1,317	$67,690
AEC Goodwill	-	67,034	-		-	67,034
Total unamortized intangible assets:	$66,373	$67,034	$-		$1,317	$134,724

The estimated useful lives for intangibles acquired during the second quarter of 2016 are 19 years for customer relationships, 6 years for customer contracts, and 7 to 22 years for other intangibles. The estimate of intangible amortization expense for 2016 and beyond is significantly influenced by the preliminary valuation of intangibles acquired in the second quarter of 2016 and is subject to adjustment when the valuation work is completed. Based on the preliminary valuation, estimated amortization expense of intangibles for the years ending December 31, 2016 through 2020, is as follows:

	Annual amortization
Year	(in thousands)
2016	$3,749
2017	5,119
2018	5,119
2019	5,119
2020	5,119