Goodwill and Other Intangible Assets

12 Months Ended

Dec. 31, 2017

Goodwill and Intangible Assets Disclosure [Abstract]

Goodwill and Other Intangible Assets

12. 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 reportable segments 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.

In the second quarter of 2017, the Company applied the qualitative assessment approach in performing its annual evaluation of 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, of each reporting unit.

In the third quarter of 2017, the Company decided to discontinue the Bear Claw® line of hydraulic fracturing components used in the oil and gas industry, which was part of the Harris aerostructures business acquired by AEC in 2016. This decision resulted in a non-cash write-off of intangibles for $4.1 million to restructuring expense, which is presented as other changes in the table below for intangible assets and goodwill in 2017. The write-off represents the full carrying value of intangible assets associated with the Bear Claw® product line as, based upon anticipated cash flows and the Company’s plan to exit the business, we determined the product line to have no fair value as of September 30, 2017. Due to the decision to exit this product line, management performed an interim assessment of goodwill and concluded that no goodwill was allocable to the Bear Claw® product line, and no impairment provision was required.

We are continuing to amortize certain patents, trade names, customer contracts and technology assets that have finite lives. The changes in intangible assets and goodwill from December 31, 2015 to December 31, 2017, were as follows:

(in thousands, except for years)	Amortization life in years	Balance at December 31, 2016	Amortization		Other Changes		Currency Translation	Balance at December 31, 2017
Amortized intangible assets:
AEC trade names	15	$20	($5	)	$-		$-	$15
AEC technology	15	104	(24	)	-		-	80
AEC customer contracts	6	17,859	(3,280	)	(961	)	-	13,618
AEC customer relationships	15	47,009	(3,280	)	(2,211	)	-	41,518
AEC other intangibles	5	1,462	(275	)	(977	)	-	210
Total amortized intangible assets		$66,454	($6,864	)	($4,149	)	$-	$55,441
Unamortized intangible assets:
MC Goodwill		$64,645	$-		$-		$6,421	$71,066
AEC Goodwill		95,730	-		-		-	95,730
Total amortized intangible assets		$160,375	$-		$-		$6,421	$166,796

(in thousands, except for years)	Amortization life in years	Balance at December 31, 2015	Acquisition	Amortization		Currency Translation		Balance at December 31, 2016
Amortized intangible assets:
AEC trade names	15	$25	$-	($5	)	$-		$20
AEC technology	15	129	-	(25	)	-		104
AEC customer contracts	6	-	20,420	(2,561	)	-		17,859
AEC customer relationships	15	-	49,490	(2,481	)	-		47,009
AEC other intangibles	5	-	1,720	(258	)	-		1,462
Total amortized intangible assets		$154	$71,630	($5,330	)	$-		$66,454
Unamortized intangible assets:
MC Goodwill		$66,373	$-	$-		($1,728	)	$64,645
AEC Goodwill		-	95,730	-		-		95,730
Total amortized intangible assets		$66,373	$95,730	$-		($1,728	)	$160,375

As of December 31, 2017, the gross carrying amount and accumulated amortization of amortized intangible assets was $66.7 million and $11.3 million, respectively. As of December 31, 2016, the gross carrying amount and accumulated amortization of amortized intangible assets was $72.1 million and $5.6 million, respectively.

On April 8, 2016, the Company acquired the outstanding shares of Harris Corporation’s composite aerostructures business. The assets acquired include amortizable intangible assets of $71.6 million and goodwill of $95.7 million.

Amortization expense related to intangible assets was reported in the Consolidated Statement of Income as follows: $3.3 million in Cost of goods sold and $3.6 million in Selling, general and administrative expenses in 2017; and $2.6 million in Cost of goods sold and $2.7 million in Selling, general and administrative expenses in 2016. In 2015, all intangible amortization expense was included in Cost of goods sold. Estimated amortization expense of intangibles for the years ending December 31, 2018 through 2022, is as follows:

	Annual amortization
Year	(in thousands)
2018	$6,232
2019	6,232
2020	6,232
2021	6,161
2022	3,955