Goodwill and Intangible Assets

9 Months Ended

Sep. 30, 2013

Goodwill And Intangible Assets Disclosure [Abstract]

8. Goodwill And Intangible Assets

Acquisition in Fiscal 2012

On February 27, 2012, the Company purchased certain assets of Pro-Dex Astromec, Inc. (“Astromec”), a subsidiary of Pro-Dex Inc. (“Pro-Dex”), for approximately $1,050,000, which includes the assumption of liabilities for an estimated earn-out of $294,000. The acquisition was paid for in cash. SL Montevideo Technology, Inc. (“SL-MTI”) recorded direct acquisition costs of approximately $10,000 and $432,000 during the three and nine months ended September 30, 2012, respectively. Direct acquisition costs were recorded within selling, general and administrative expenses in the Consolidated Statements of Income.

At December 31, 2012, the financial statements reflected the final purchase price based on estimated fair values at the date of acquisition, including $670,000 in inventories, $202,000 in equipment, and $10,000 in other current assets. The acquisition resulted in intangible assets of $168,000 while no goodwill was recognized. Intangible assets were composed of a customer list with a useful life of 5 years. The purchase price also included $294,000 in liabilities related to an estimated earn-out, which is comprised of quarterly payments based on the performance of the acquired business over the three year period immediately following the date of acquisition. The total liability for the earn-out as of September 30, 2013 and December 31, 2012 was $130,000 and $221,000, respectively. During 2013, $119,000 was paid related to the earn-out. The results from the acquisition date through September 30, 2013 are included in the SL-MTI segment.

Goodwill And Intangible Assets

Intangible assets consist of the following:


		September 30, 2013						December 31, 2012
	Amortizable Life (years)	Gross Value		Accumulated Amortization		Net Value		Gross Value		Accumulated Amortization		Net Value
		(in thousands)
Finite-lived intangible assets:
Customer relationships ⁽¹⁾	5 to 8	$	3,868	$	3,347	$	521	$	3,868	$	3,078	$	790
Patents ⁽²⁾	5 to 20		1,291		1,211		80		1,285		1,187		98
Developed technology	5 to 6		1,700		1,700		—		1,700		1,700		—
Licensing fees	5 to 10		450		381		69		450		340		110

Total amortized finite-lived intangible assets			7,309		6,639		670		7,303		6,305		998

Indefinite-lived intangible assets:
Trademarks			1,672		—		1,672		1,672		—		1,672

Other intangible assets, net		$	8,981	$	6,639	$	2,342	$	8,975	$	6,305	$	2,670

(1)	On February 27, 2012, the Company purchased certain assets of Astromec, a subsidiary of Pro-Dex. Included in the purchase price is a customer list valued at $168,000. The estimated useful life of the asset is 5 years.

(2)	During 2013 and 2012, the Company’s MTE division capitalized legal fees related to a new patent application. The estimated useful life of the asset is 20 years.

In accordance with ASC 350 “Intangibles – Goodwill and Other,” goodwill and other indefinite-lived intangible assets are not amortized, but are tested for impairment. Such impairment testing is undertaken annually, or more frequently upon the occurrence of some indication that an impairment has taken place. The Company conducted an annual impairment test as of December 31, 2012.

A two-step process is utilized to determine if goodwill has been impaired. In the first step, the fair value of each reporting unit is compared to the net asset value recorded for such unit. If the fair value exceeds the net asset value, the goodwill of the reporting unit is not adjusted. However, if the recorded net asset value exceeds the fair value, the Company performs a second step to measure the amount of impairment loss, if any. In the second step, the implied fair value of the reporting unit’s goodwill is compared with the goodwill recorded for such unit. If the recorded amount of goodwill exceeds the implied fair value, an impairment loss is recognized in the amount of the excess.

For the testing conducted as of December 31, 2012, the Company concluded that no impairment charge was warranted. Going forward there can be no assurance that economic conditions or other events may not have a negative material impact on the long-term business prospects of any of the Company’s reporting units. In such case, the Company may need to record an impairment loss, as stated above. The next annual impairment test will be conducted as of December 31, 2013, unless management identifies a triggering event in the interim.

Management has not identified any triggering events, as defined by ASC 350, during 2013. Accordingly, no interim impairment test has been performed.

Estimated future amortization expense for intangible assets subject to amortization in each of the next five fiscal years is as follows:


	Amortization Expense (in thousands)
2013	$	440
2014	$	401
2015	$	59
2016	$	40
2017	$	11

Total amortization expense, excluding the amortization of deferred financing costs, consists of amortization expense related to intangible assets and software. Amortization expense related to intangible assets for the three months ended September 30, 2013 and September 30, 2012 was $110,000 and $202,000 respectively. Amortization expense related to intangible assets for the nine months ended September 30, 2013 and September 30, 2012 was $334,000 and $603,000, respectively. Amortization expense related to software for the three months ended September 30, 2013 and September 30, 2012 was $41,000 and $40,000, respectively. Amortization expense related to software for the nine months ended September 30, 2013 and September 30, 2012 was $114,000 and $119,000, respectively.

Changes in goodwill balances by segment (defined below) are as follows:


	Balance December 31, 2012		Translation Adjustment			Balance September 30, 2013
	(in thousands)
SL Power Electronics Corp.	$	4,242	$	(12	)	$	4,230
High Power Group:
MTE Corporation		8,189		—			8,189
Teal Electronics Corp.		5,055		—			5,055
RFL Electronics Inc.		5,249		—			5,249

Goodwill	$	22,735	$	(12	)	$	22,723

- 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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