Note 4 - Goodwill and Other Intangible Assets

The Company performs its annual assessment for impairment of goodwill at November 30 for all reporting units and tests these balances more frequently if indicators are present or changes in circumstances suggest that impairment may exist. The estimates and assumptions underlying the fair value calculations used in the Company's annual impairment tests are uncertain by their nature and can vary significantly from actual results. Factors that management must estimate include, but are not limited to, industry and market conditions, sales volume and pricing, raw material costs, capital expenditures, working capital changes, cost of capital, and tax rates. These factors are especially difficult to predict when U.S. and global financial markets are volatile. The estimates and assumptions used in its impairment tests are consistent with those the Company uses in its internal planning. These estimates and assumptions may change from period to period. If the Company uses different estimates and assumptions in the future, impairment charges may occur and could be material.

In performing the test on goodwill, the Company utilizes the two-step approach. The first step under this guidance requires a comparison of the carrying value of the reporting units, of which the Company has identified four in total, to the fair value of these reporting units. The Company uses the income approach to determine the fair value of each reporting unit. The approach calculates fair value by estimating the after-tax cash flows attributable to a reporting unit and then discounting these after-tax cash flows to a present value using a risk-adjusted discount rate. If the carrying value of a reporting unit exceeds its fair value, the Company performs the second step of the goodwill impairment test to measure the amount of impairment loss, if any. The second step of the goodwill impairment test compares the implied fair value of a reporting unit's goodwill to its carrying value.

When we evaluate goodwill for impairment using a quantitative assessment, we compare the fair value of each reporting segment to its carrying value. We determine the fair value using an income approach. Under the income approach, we calculate the fair value of a reporting unit based on the present value of estimated future cash flows using growth rates and discount rates that are consistent with current market conditions in our industry. If the fair value of the reporting unit exceeds the carrying value of the net assets including goodwill assigned to that unit, goodwill is not impaired. If the carrying value of the reporting unit's net assets including goodwill exceeds the fair value of the reporting unit, then we determine the implied fair value of the reporting unit's goodwill. If the carrying value of the reporting unit's goodwill exceeds its implied fair value, then an impairment of goodwill has occurred and we recognize an impairment loss for the difference between the carrying amount and the implied fair value of goodwill as a component of operating income.

As a result of recent business developments in the Gunite reporting unit including a loss of customer market share, evidence of declining aftermarket sales, overall reduced production levels of the commercial vehicle market, operating losses for the past several years, and recent declines in the Company's stock price to an amount below book value, the Gunite reporting unit failed the step one goodwill impairment test. The Company estimated the fair value of the Gunite reporting unit utilizing a discounted cash flow model, as the Company believes it is the most reliable indicator of fair value. Therefore, the second step of the analysis was performed resulting in the Company recognizing goodwill impairment charges of $62.8 million. The Wheels and Brillion reporting units both passed the Step One test. However, the valuation for the Wheels reporting unit is highly dependent upon projected builds for Class 5-8, heavy duty trucks. A permanent, long-term decline in projected builds for these trucks could have a significant impact on the Wheels reporting unit's ability to pass the Step 1 test in future periods.

The Company determines the fair value of other indefinite lived intangible assets, primarily trade names, using the relief-from-royalty method, an income based approach. The approach calculates fair value by applying royalty rates to the after tax cash flows attributable to the asset, and then discounting these after tax cash flows to a present value using a risk-adjusted discount rate. The calculated fair value is compared to the carrying value to determine if any impairment exists. Significant Level 3 inputs included in the valuation of trade names include the selected royalty rate and discount rate.

If events or circumstances change, a determination is made by management to ascertain whether certain finite-lived intangibles such as customer relationships and technology have been impaired based on the sum of expected future undiscounted cash flows from operating activities. If the estimated net cash flows are less than the carrying amount of such assets, an impairment loss is recognized in an amount necessary to write down the assets to fair value as determined from expected future discounted cash flows.

We performed a recoverability test of the Gunite's finite-lived intangible assets by using an undiscounted cash flow method. We first determined the asset group to be the Gunite reporting unit, which represents the lowest level of identifiable cash flows. Our test concluded that the Gunite asset group was not recoverable as the resulting undiscounted cash flows were less than the carrying amount of the asset group. Accordingly, we estimated the fair value of the finite-lived intangible assets to determine the impairment amount. Determining fair value is judgmental in nature and requires the use of significant estimates and assumptions, considered to be Level 3 inputs.

To determine the estimated fair value of customer relationships, the multi-period excess earnings method was used. This method is based on the concept that cash flows attributable to the assets analyzed are available after deducting costs associated with the business as well as a return on the assets employed in the generation of the cash flows. Significant Level 3 inputs for this valuation model include determining the attrition rate associated with customer revenues, contributory asset charges and required rates of return on tangible and intangible assets, as well as a discount rate for the cash flows. To determine the fair value of technology, the relief-from-royalty method described above was used. In applying this method to technology, significant Level 3 inputs include determining the technology obsolescence rate, a royalty rate, and an appropriate discount rate.

As a result of the fair value measurements for Gunite's trade names, customer relationships and technology, the Company recorded additional impairment charges of these intangible assets totaling $36.8 million for the year ended December 31, 2012.

The following represents the carrying amount of goodwill, on a reportable segment basis:

(In thousands)	Wheels			Gunite			Brillion Iron Works		Fabco Automotive			Total
Balance as of December 31, 2010	$	97,127		$	62,839		$	4,414	$	13,192		$	177,572
Additions		1,061			—			—		—			1,061
Matters related to fresh-start accounting		(1,905	)		—			—		—			(1,905	)
Sale of assets		—			—			—		(13,192	)		(13,192	)
Balance as of December 31, 2011	$	96,283		$	62,839		$	4,414	$	—		$	163,536
Impairment loss		—			(62,839	)		—		—			(62,839	)
Balance as of December 31, 2012	$	96,283		$	—		$	4,414	$	—		$	100,697

The addition in Wheels segment goodwill in 2011 was related to the Camden acquisition. During 2011, we decreased goodwill by $1.9 million, reduced property, plant & equipment by $1.8 million and deferred tax liabilities by $3.7 million for the correction of an immaterial error related to fresh-start accounting. We considered both the qualitative and quantitative effects of this error on the financial statements for the period ending December 31, 2011, as well as the qualitative and quantitative effects of including the error correction in previous periods and concluded that the effects on the financial statements are not material.

The changes in the carrying amount of other intangible assets for the period January 1, 2010 to February 26, 2010 by reportable segment for the Predecessor Company, are as follows:

(In thousands)	Gunite			Brillion Farm			Brillion Iron Works			Imperial Group			Bostrom Seating			Fabco Automotive			Corporate			Total
Balance as of January 1 2010	$	29,392		$	3,661		$	15,528		$	23,976		$	14,149		$	2,151		$	373		$	89,230
Amortization		(266	)		(48	)		(156	)		(192	)		(112	)		(16	)		(31	)		(821	)
Balance as of February 26, 2010	$	29,126		$	3,613		$	15,372		$	23,784		$	14,037		$	2,135		$	342		$	88,409

At February 26, 2010, the fair values for intangible assets for the Successor Company included $40,400 of technology which will be amortized over 10 years, $149,900 of customer relationships which will be amortized over 20 years and $34,100 of trade names that are not subject to amortization. None of these items are deductible for income tax purposes.

The changes in the carrying amount of other intangible assets for the period February 26, 2010 to December 31, 2010 by reportable segment for the Successor Company, are as follows:

	Wheels			Gunite			Brillion Farm			Brillion Iron Works			Bostrom Seating			Fabco Automotive			Corporate		Total
Balance as of February 26, 2010	$	149,300		$	43,000		$	3,400		$	3,300		$	1,100		$	24,300		$	—	$	224,400
Sale of assets		—			—			(3,288	)		—			—			—			—		(3,288	)
Amortization		(5,572	)		(1,583	)		(112	)		(138	)		(61	)		(990	)		—		(8,456	)
Balance as of December 31, 2010	$	143,728		$	41,417		$	—		$	3,162		$	1,039		$	23,310		$	—	$	212,656

The changes in the carrying amount of other intangible assets for the period December 31, 2010 to December 31, 2012 by reportable segment for the Successor Company, are as follows:

(In thousands)	Wheels			Gunite			Brillion Iron Works			Bostrom Seating			Fabco Automotive			Corporate			Total
Balance as of December 31, 2010	$	143,728		$	41,417		$	3,162		$	1,039		$	23,310		$	—		$	212,656
Additions		3,400			—			—			—			—			1,023			4,423
Sale of assets		—			—			—			(1,032	)		(22,338	)		—			(23,370	)
Amortization		(8,553	)		(2,449	)		(165	)		(7	)		(972	)		(214	)		(12,360	)
Balance as of December 31, 2011	$	138,575		$	38,968		$	2,997		$	—		$	—		$	809		$	181,349
Additions		—			—			—			—			—			580			580
Amortization		(7,907	)		(2,200	)		(164	)		—			—			(710	)		(10,981	)
Impairment loss		—			(36,768	)		—			—			—			—			(36,768	)
Balance as of December 31, 2012	$	130,668		$	—		$	2,833		$	—		$	—		$	679		$	134,180

The summary of goodwill and other intangible assets is as follows:

			As of December 31, 2012						As of December 31, 2011
(In thousands)	Weighted Average Useful Lives		Gross Amount		Accumulated Amortization & Impairment		Carrying Amount		Gross Amount		Accumulated Amortization		Carrying Amount
Goodwill		—	$	163,536	$	62,839	$	100,697	$	163,536	$	—	$	163,536
Other intangible assets:
Non-compete agreements		1.7	$	1,552	$	873	$	679	$	1,023	$	214	$	809
Trade names		—		33,200		8,000		25,200		33,200		—		33,200
Technology		10.0		38,849		17,547		21,302		38,849		7,248		31,601
Customer relationships		19.9		129,093		42,094		86,999		129,093		13,354		115,739
			$	202,694	$	68,514	$	134,180	$	202,165	$	20,816	$	181,349

We estimate that aggregate intangible asset amortization expense for the Company will be approximately $10.9 million in 2013 and approximately $10.3 million in 2014 through 2017.