Goodwill and Other Intangible Assets

12 Months Ended

Dec. 31, 2012

Note 8: Goodwill and Other Intangible Assets

Intangible assets, including goodwill, are assigned to the Company’s reporting units based upon their fair value at the time of acquisition. Intangible assets with finite useful lives are amortized on a straight-line basis over their estimated useful lives, which range from 5 to 25 years. Intangible assets deemed to have indefinite lives and goodwill are not subject to amortization, but are tested for impairment annually or more frequently if events or changes in circumstances indicate that the asset might be impaired or that there is a probable reduction in the fair value of a reporting unit below its aggregate carrying value. The Company performed annual tests for impairment of the carrying values of its goodwill and indefinite-lived intangible assets as of June 30, 2012. During the fourth quarter ended December 31, 2012, the Company elected to change its annual testing date for the impairment of goodwill and indefinite-lived intangible assets from June 30 to October 1. As a result of this change, the Company first performed tests as of June 30, 2012 and then performed additional annual impairment tests as of October 1, 2012.

The Company performs quantitative impairment tests for the impairment of the carrying value of goodwill for each of its reporting units as necessary. The first step in the quantitative impairment test involves comparing the estimated fair value of each reporting unit with its aggregate carrying value, including goodwill. If a reporting unit’s aggregate carrying value exceeds its estimated fair value, the Company performs the second step of the goodwill impairment test. The second step involves comparing the implied fair value of the affected reporting unit’s goodwill with the carrying value of that goodwill to measure the amount of impairment loss, if any.

The Company performed quantitative impairment tests of the carrying value of goodwill as of June 30, 2012 by determining the estimated fair value of each reporting unit utilizing the income approach model. The Company did not perform qualitative assessments in connection with the annual impairment tests conducted as of June 30, 2012. The quantitative approach makes use of unobservable factors, and the key assumptions that impact the calculation of fair value include the Company’s estimates of the projected revenues, cash flows and a discount rate applied to such cash flows. In developing projected revenues and cash flows, the Company considered available information including, but not limited to, its short-term internal forecasts, historical results, anticipated impact of implemented restructuring initiatives, and its expectations about the strength and duration of the current economic recovery. In addition, the Company forecasted sales growth to trend down to an inflationary growth rate of 3% per annum. The determination of the discount rate was based on the weighted-average cost of capital with the cost of equity determined using the capital asset pricing model (“CAPM”). The CAPM uses assumptions such as a risk-free rate, a stock-beta adjusted risk premium and a size premium. These assumptions were derived from publicly available information and, therefore, the Company believes its assumptions are reflective of the assumptions made by market participants. Additionally, the market approach was used to provide market evidence supporting the Company’s overall enterprise value and corroborate the reasonableness of the consolidated fair value of equity derived under the income approach as compared to the Company’s market capitalization, inclusive of an estimated overall control premium.

The Company performed qualitative assessments for all of its reporting units and indefinite-lived intangible assets in connection with the annual impairment tests conducted as of October 1, 2012. A qualitative assessments includes evaluating all identified events and circumstances that could affect the significant inputs used to determine the fair value of a reporting unit or indefinite-lived intangible asset for the purpose of determining whether it is more likely than not that these assets are impaired. The Company considered various factors while performing qualitative assessments, including macroeconomic conditions, industry and market conditions, financial performance, cost factors, changes in market capitalization, and any other reporting unit or asset specific items.

The quantitative impairment test for indefinite-lived intangible assets involves a comparison of the estimated fair value of the intangible asset with its carrying value. If the carrying value of the intangible asset exceeds its fair value, an impairment loss is recognized in an amount equal to that excess.

The Company concluded that no impairments of goodwill or indefinite-lived intangible assets existed as a result of tests performed in 2012 and 2011. The Company performs sensitivity analyses in connection with both its qualitative and quantitative impairment testing procedures to ensure that a confluence of identified and potential events and circumstances that could affect the significant inputs used to determine the fair value of a reporting unit or indefinite-lived intangible asset would not change the results of the procedures. The sensitivity analyses performed in connection with the impairment testing procedures as of June 30, 2012 and October 1, 2012 did not change the results of these tests.

The Company reviews long-lived assets, including its intangible assets subject to amortization, which consist primarily of customer relationships and intellectual property for the Company, for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Such events and circumstances include the occurrence of an adverse change in the market involving the business employing the related long-lived assets or a situation in which it is more likely than not that the Company will dispose of such assets. Recoverability of long-lived assets is measured by a comparison of the carrying amount of the asset group to the future undiscounted net cash flows expected to be generated by those assets. If such assets are considered to be impaired, the impairment charge recognized is the amount by which the carrying amounts of the assets exceeds the fair value of the assets.

The changes in the carrying amount of goodwill attributable to each business segment for the years ended December 31, 2012 and 2011 are presented in the table below. The $112.2 million increase in goodwill related to acquisitions in 2011 is associated with the valuation of Robuschi.


	Industrial Products Group			Engineered Products Group			Total
Balance as of December 31, 2010	$	250,084			321,712			571,796
Acquisitions		112,221			—			112,221
Foreign currency translation		(4,070	)		(3,365	)		(7,435	)
Balance as of December 31, 2011	$	358,235			318,347			676,582
Adjustments		(634	)		—			(634	)
Divestitures		(195	)		—			(195	)
Foreign currency translation		1,670			3,477			5,147
Balance as of December 31, 2012	$	359,076			321,824			680,900
Cumulative goodwill impairment charges ⁽¹⁾	$	252,533			—			252,533

(1)	Based on exchange rates at the date of the charge.

Other intangible assets at December 31, 2012 and 2011 consist of the following:


	2012					2011
	Gross Carrying Amount		Accumulated Amortization			Gross Carrying Amount		Accumulated Amortization
Amortized intangible assets:
Customer lists and relationships	$	174,660		(46,764	)		172,724		(36,028	)
Acquired technology		101,178		(60,233	)		99,383		(56,879	)
Trademarks		57,609		(13,004	)		53,510		(10,591	)
Other		11,917		(10,862	)		9,171		(6,141	)
Unamortized intangible assets:
Trademarks		125,223		—			123,735		—
Total other intangible assets	$	470,587		(130,863	)		458,523		(109,639	)

Amortization of intangible assets was $20.1 million and $17.1 million in 2012 and 2011, respectively. The increase in amortization expense in 2012 is primarily due to the amortization of intangible assets related to the Robuschi acquisition, including $3.4 million of amortization expense associated with customer backlog in the first quarter of 2012. Amortization of intangible assets is anticipated to be approximately $17.0 million per year for 2013 through 2017 based upon exchange rates as of December 31, 2012.

- 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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