Goodwill and Definite-Lived Intangible Assets

6 Months Ended

Jun. 30, 2016

Goodwill and Definite-Lived Intangible Assets [Abstract]

GOODWILL AND DEFINITE-LIVED INTANGIBLE ASSETS

5. GOODWILL AND DEFINITE-LIVED INTANGIBLE ASSETS

The following table represents the goodwill balance by reportable segment:



		Rail Products and Services		Construction Products		Tubular and Energy Services		Total
Balance at December 31, 2015	$	48,188	$	5,147	$	28,417	$	81,752
Foreign currency translation impact		(867)		-		-		(867)
Disposition		(154)		-		-		(154)
Impairment charges		(28,342)		-		(28,417)		(56,759)
Balance at June 30, 2016	$	18,825	$	5,147	$	-	$	23,972

The Company performs goodwill impairment tests annually during the fourth quarter, and also performs interim goodwill impairment tests if it is determined that it is more likely than not that the fair value of a reporting unit is less than the carrying amount. Qualitative factors are assessed to determine whether it is more likely than not that the fair value of a reporting unit is less than the carrying amount. During the current quarter, various reporting units underperformed against their projections and revised their forecasts downward. The revised forecasts, which were primarily attributable to weakness in the rail and energy markets, indicated longer recovery horizons than we previously projected. In connection with the revisions to the longer term projections and a substantial decline in market capitalization, the Company concluded that these qualitative factors indicated that there was a more likely than not risk that the carrying value of goodwill exceeded its fair value.

As a result of the Company’s qualitative review, with the assistance of an independent valuation firm, the Company performed a quantitative interim test for impairment of goodwill as of June 1, 2016. The valuation included the use of both the income and market approaches. Greater weighting was applied to the income approach as the Company believes it is the most reliable indication of value as it captures forecasted revenues and earnings for the reporting units in the projection period that the market approach may not directly incorporate. In addition, a lack of comparable market transactions in recent months has limited the availability of information necessary for the market approach.

The results of the test indicated that the Rail Technologies (within the Rail Products and Services segment), Chemtec (or “precision measurement systems”), and coated services (Chemtec and coated services are within the Tubular and Energy Services segment) reporting units’ respective fair values were less than their carrying value. All other reporting units that maintain goodwill substantially exceeded their carrying value and were not at risk of impairment. As a result of the continued weakness in the commodity cycles impacting the energy and rail markets, the near term projections of these reporting units have deteriorated and the expected future growth of the Rail Technologies, Chemtec, and coated services reporting units was determined to be insufficient to support the carrying values.

The Company determined the implied fair values of the Rail Technologies, Chemtec, and coated services reporting units by using level 3 unobservable inputs, which incorporated assumptions that we believe would be a reasonable market participant’s view in a hypothetical purchase, to develop the discounted cash flows of the respective reporting units. Significant level 3 inputs included the projected revenue and cost growth rates, capital expenditures, and weighted average costs of capital assumptions. The resulting fair values of each reporting unit were allocated to the assets and liabilities of the respective reporting unit as if each reporting unit had been acquired in business combinations as of the test date and the fair value was the purchase price paid to acquire each reporting unit. The results of the step 2 analysis indicated that the carrying amounts of the goodwill of Rail Technologies, Chemtec, and coated services exceeded the implied fair values of that goodwill. Accordingly, the Company recognized a non-cash goodwill impairment of $56,759, which represented the full impairment of goodwill within the Chemtec and coated services reporting units and approximately 60% of the Rail Technologies goodwill value. The results of the step 2 analysis are substantially complete and will be finalized during the third quarter 2016.

The following table represents the gross definite-lived intangible assets balance by reportable segment:



		June 30,		December 31,
		2016		2015
Rail Products and Services	$	57,470	$	59,226
Construction Products		1,348		1,348
Tubular and Energy Services		31,742		98,166
	$	90,560	$	158,740

Due to the indicators previously noted, the Company performed recoverability tests on reporting units when it was more likely than not that the carrying value of the long-lived asset group would not be recoverable. The results of our testing indicated that the long-lived assets related to the IOS and Chemtec divisions, within the Tubular and Energy Services segment, had carrying values in excess of the asset groups’ fair value. Based upon level 3 unobservable inputs, the Company incorporated assumptions that we believe would be a reasonable market participant’s view in a hypothetical purchase, to develop the discounted cash flows. Significant level 3 inputs included the projected revenue and cost growth rates, capital expenditures, and weighted average costs of capital assumptions. As a result of the analysis, the Company recorded a $42,982 non-cash impairment of definite-lived intangible assets related to the IOS division and a $14,241 non-cash impairment of definite-lived intangible assets related to the Chemtec division. The results of the impairment analysis are substantially complete and will be finalized during the third quarter 2016.

The components of the Company’s definite-lived intangible assets are as follows:



	June 30, 2016
	Weighted Average		Gross				Net
	Amortization Period		Carrying		Accumulated		Carrying
	In Years		Value		Amortization		Amount

Non-compete agreements	5	$	4,319	$	(1,782)	$	2,537
Patents	10		387		(142)		245
Customer relationships	17		39,707		(5,518)		34,189
Trademarks and trade names	14		10,199		(2,831)		7,368
Technology	14		35,948		(9,867)		26,081
		$	90,560	$	(20,140)	$	70,420



	December 31, 2015
	Weighted Average		Gross				Net
	Amortization Period		Carrying		Accumulated		Carrying
	In Years		Value		Amortization		Amount

Non-compete agreements	4	$	6,984	$	(2,495)	$	4,489
Patents	10		378		(124)		254
Customer relationships	16		94,338		(8,441)		85,897
Supplier relationships	5		350		(335)		15
Trademarks and trade names	13		14,252		(3,025)		11,227
Technology	13		42,438		(9,393)		33,045
		$	158,740	$	(23,813)	$	134,927

Definite-lived intangible assets are amortized over their useful lives ranging from 2 to 25 years, with a total weighted average amortization period of approximately 15 years at June 30, 2016. Amortization expense for the three-month periods ended June 30, 2016 and 2015 was $2,789 and $3,456, respectively. Amortization expense for the six-month periods ended June 30, 2016 and 2015 was $6,055 and $5,613, respectively.

Estimated amortization expense for the remainder of 2016 and thereafter is as follows:



		Amortization Expense
2016	$	3,687
2017		7,361
2018		7,256
2019		6,525
2020		6,142
2021 and thereafter		39,449
	$	70,420

- 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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