Goodwill and Other Intangible Assets

6 Months Ended

Jun. 30, 2011

Goodwill and Other Intangible Assets [Abstract]

(2) GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill is assigned to our reporting units, which are defined as the domestic and international operating segments. We evaluate goodwill for impairment annually, as of December 31, or more frequently if events or changes in circumstances indicate that the asset might be impaired. During the second quarter of 2011, a decrease in the NASDAQ market price of the Company’s Common Stock indicated an impairment of goodwill may exist. As a result, we evaluated goodwill for impairment as of June 30, 2011. We estimated fair value for each reporting unit utilizing two valuation approaches: (1) the income approach and (2) the market approach. The income approach measures the present worth of anticipated future net cash flows generated by the reporting unit. Net cash flows are forecast for an appropriate period and then discounted to present value using an appropriate discount rate. Net cash flow forecasts require analysis of the significant variables influencing revenues, expenses, working capital and capital investment and involve a number of significant assumptions and estimates. The market approach is performed by observing the price at which companies comparable to the reporting unit, or shares of those guideline companies, are bought and sold. Adjustments are made to the data to account for operational and other relevant differences between the reporting unit and the guideline companies. To arrive at estimated fair value of each reporting unit, we assigned an appropriate weighting to the value of the reporting unit calculated under each of the two valuation approaches. The aggregate weighted fair value under the two valuation approaches is the estimated fair value of the reporting unit.

The impairment evaluation includes a comparison of the carrying value of the reporting unit (including goodwill) to that reporting unit’s fair value. If the reporting unit’s estimated fair value exceeds the reporting unit’s carrying value, no impairment of goodwill exists. If the fair value of the reporting unit does not exceed the unit’s carrying value, then an additional analysis is performed to allocate the fair value of the reporting unit to all of the assets and liabilities of that unit as if that unit had been acquired in a business combination. If the implied fair value of the reporting unit goodwill is less than the carrying value of the unit’s goodwill, an impairment charge is recorded for the difference.

Primarily as a result of a $7.4 million decline in trailing-twelve-month revenue in the international reporting unit, for the twelve months ended June 30, 2011 compared to fiscal 2010, which occurred within its 51%-owned joint venture, Castmaster Mobitec, partially offset by increases in sales in the remaining international markets, we determined it was more likely than not that the international reporting unit’s fair value had declined below its carrying value during the second quarter of fiscal 2011. An analysis was prepared to compute the fair value of the international reporting unit, which confirmed it had declined below its carrying value. An additional analysis was performed to allocate the fair value of the international reporting unit to all of the assets and liabilities of that unit as if the unit had been acquired in a business combination. Based on the preliminary results of this analysis, the Company believes it is more likely than not that the fair value of the international reporting unit’s goodwill is below its carrying amount which indicates full impairment of the carrying value of the international reporting unit’s goodwill as of June 30, 2011 of approximately $9.9 million. The estimated impairment charge is therefore included in operating expenses in the accompanying consolidated statements of operations for the three and six months ended June 30, 2011.

Estimating the fair value of a reporting unit involves the use of estimates and significant judgments that are based on a number of factors including actual operating results, future business plans, economic projections and market data. Actual results may differ from forecasted results. The goodwill impairment charge related to the Company’s international reporting unit reflects the preliminary indication from the impairment analysis performed to date and is subject to finalization of certain fair value estimates being performed with the assistance of an outside independent valuation specialist, and may be adjusted when all aspects of the analysis are completed. The Company currently expects to finalize its goodwill impairment analysis during the third quarter of fiscal 2011. Any adjustments to the Company’s preliminary estimate of impairment as a result of completion of this evaluation are currently expected to be recorded in the Company’s consolidated financial statements for the third quarter of fiscal 2011.

The change in the carrying amount of goodwill for the six months ended June 30, 2011, is as follows:


	(In thousands)
Balance as of December 31, 2010	$	10,398
Goodwill impairment		(9,911	)
Effect of exchange rates		690


Balance as of June 30, 2011	$	1,177

The composition of the Company’s intangible assets and the associated accumulated amortization as of June 30, 2011, and December 31, 2010 is as composition follows.


			June 30, 2011						December 31, 2010
	Weighted Average
	Remaining Life		Gross Carrying		Accumulated				Gross Carrying		Accumulated
	(Years)		Amount		Amortization		Net Carrying Amount		Amount		Amortization		Net Carrying Amount
							(In thousands)
Intangible assets subject to amortization:

Customer lists		5.05	$	1,875	$	1,244	$	631	$	1,759	$	1,108	$	651

Amortization expense is estimated to be approximately $125,000 for each of the years ending December 31, 2011 through December 31, 2015.

The difference in the gross carrying amount from December 31, 2010 to June 30, 2011 is due to fluctuations in foreign currency exchange rates.

- 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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