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Goodwill and Other Intangibles | 12 Months Ended
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Dec. 31, 2016
Goodwill and Intangible Assets Disclosure [Abstract] |
Goodwill and other intangibles | GOODWILL AND OTHER INTANGIBLES During the fourth quarter of each year, the Company qualitatively assesses its goodwill and indefinite-lived intangible assets assigned to each of its reporting units. This qualitative assessment evaluates various events and circumstances, such as macro economic conditions, industry and market conditions, cost factors, relevant events and financial trends, that may impact a reporting unit's fair value. Using this qualitative assessment, the Company determines whether it is more-likely-than-not the reporting unit's fair value exceeds its carrying value. If it is determined that it is not more-likely-than-not the reporting unit's fair value exceeds the carrying value, or upon consideration of other factors, including recent acquisition or divestiture activity, the Company performs a quantitative, "step one," goodwill impairment analysis. In addition, the Company may test goodwill in between annual test dates if an event occurs or circumstances change that could more-likely-than-not reduce the fair value of a reporting unit below its carrying value. During the fourth quarter of 2016, the Company performed a qualitative analysis on each reporting unit, except for the reporting unit with recent acquisition and divestiture activities, and determined it was more-likely-than-not the fair value exceeded the carrying value of these reporting units. For the reporting unit with acquisition and divestiture activities, the Company performed a quantitative, "step one," goodwill impairment analysis, which requires the Company to make significant assumptions and estimates about the extent and timing of future cash flows, discount rates and growth rates. The basis of this goodwill impairment analysis is the Company's annual budget and long-range plan (“LRP”). The annual budget and LRP includes a five year projection of future cash flows based on actual new products and customer commitments and assumes the last year of the LRP data is a fair indication of the future performance. Because the LRP is estimated over a significant future period of time, those estimates and assumptions are subject to a high degree of uncertainty. Further, the market valuation models and other financial ratios used by the Company require certain assumptions and estimates regarding the applicability of those models to the Company's facts and circumstances. The Company believes the assumptions and estimates used to determine the estimated fair value are reasonable. Different assumptions could materially affect the estimated fair value. The primary assumptions affecting the Company's December 31, 2016 goodwill quantitative, "step one," impairment review are as follows:
• | Discount rate: The Company used a 10% weighted average cost of capital (“WACC”) as the discount rate for future cash flows. The WACC is intended to represent a rate of return that would be expected by a market participant.
• | Operating income margin: The Company used historical and expected operating income margins, which may vary based on the projections of the reporting unit being evaluated.
I n addition to the above primary assumptions, the Company notes the following risks to volume and operating income assumptions that could have an impact on the discounted cash flow models:
• | The automotive industry is cyclical and the Company's results of operations would be adversely affected by industry downturns.
• | The Company is dependent on market segments that use our key products and would be affected by decreasing demand in those segments.
• | The Company is subject to risks related to international operations.
Based on the assumptions outlined above, the impairment testing conducted in the fourth quarter of 2016 indicated the Company's goodwill assigned to the reporting unit that was quantitatively assessed was not impaired and contained a fair value substantially higher than the reporting unit's carrying value. Additionally, sensitivity analyses were completed indicating a one percent increase in the discount rate or a one percent decrease in the operating margin assumptions would not result in the carrying value exceeding the fair value of the reporting unit quantitatively assessed. The changes in the carrying amount of goodwill for the years ended December 31, 2016 and 2015 are as follows:
| 2016 |  | 2015
(millions of dollars) | Engine |  | Drivetrain |  | Engine |  | Drivetrain
Gross goodwill balance, January 1 | $ | 1,338.2 |  |  | $ | 921.5 |  |  | $ | 1,362.0 |  |  | $ | 345.7 |
Accumulated impairment losses, January 1 | (501.8 | ) |  | (0.2 | ) |  | (501.8 | ) |  | (0.2 | )
Net goodwill balance, January 1 | $ | 836.4 |  |  | $ | 921.3 |  |  | $ | 860.2 |  |  | $ | 345.5 |
Goodwill during the year: |  |  |  |  |  |  |  |  |  |  |
Acquisitions* | — |  |  | (12.1 | ) |  | 11.6 |  |  | 584.7 |
Divestitures** | — |  |  | (24.2 | ) |  | — |  |  | — |
Translation adjustment and other | (14.2 | ) |  | (5.0 | ) |  | (35.4 | ) |  | (8.9 | )
Ending balance, December 31 | $ | 822.2 |  |  | $ | 880.0 |  |  | $ | 836.4 |  |  | $ | 921.3 |
________________
* | Acquisitions relate to the Company's 2015 purchases of Remy and BERU Diesel and fair value adjustments in 2016 based on new information obtained during the measurement period for Remy acquisition.
** Divestitures relate to the Company's 2016 disposition of Remy light vehicle aftermarket business and Divgi-Warner Private Limited. . The Company’s other intangible assets, primarily from acquisitions, consist of the following:
| December 31, 2016 |  | December 31, 2015
(millions of dollars) | Gross carrying amount |  | Accumulated amortization |  | Net carrying amount |  | Gross carrying amount |  | Accumulated amortization |  | Net carrying amount
Amortized intangible assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Patented and unpatented technology | $ | 108.1 |  |  | $ | 41.5 |  |  | $ | 66.6 |  |  | $ | 128.7 |  |  | $ | 42.4 |  |  | $ | 86.3 |
Customer relationships | 481.4 |  |  | 141.2 |  |  | 340.2 |  |  | 490.3 |  |  | 116.1 |  |  | 374.2 |
Miscellaneous | 5.3 |  |  | 3.4 |  |  | 1.9 |  |  | 5.6 |  |  | 3.0 |  |  | 2.6 |
Total amortized intangible assets | 594.8 |  |  | 186.1 |  |  | 408.7 |  |  | 624.6 |  |  | 161.5 |  |  | 463.1 |
In-process R&D | 3.8 |  |  | — |  |  | 3.8 |  |  | 14.6 |  |  | — |  |  | 14.6 |
Unamortized trade names | 51.0 |  |  | — |  |  | 51.0 |  |  | 66.1 |  |  | — |  |  | 66.1 |
Total other intangible assets | $ | 649.6 |  |  | $ | 186.1 |  |  | $ | 463.5 |  |  | $ | 705.3 |  |  | $ | 161.5 |  |  | $ | 543.8 |
Amortization of other intangible assets was $40.4 million, $19.2 million and $27.2 million for the years ended December 31, 2016, 2015 and 2014, respectively. The estimated useful lives of the Company's amortized intangible assets range from three to 15 years. The Company utilizes the straight line method of amortization recognized over the estimated useful lives of the assets. The estimated future annual amortization expense, primarily for acquired intangible assets, is as follows: $36.9 million in 2017, $35.7 million in 2018, $35.2 million in 2019, $34.8 million in 2020 and $34.8 million in 2021. A roll forward of the gross carrying amounts of the Company's other intangible assets is presented below:
(millions of dollars) | 2016 |  | 2015
Beginning balance, January 1 | $ | 705.3 |  |  | $ | 307.8 |
Acquisitions* | — |  |  | 423.8 |
Impairment** | (23.9 | ) |  | — |
Divestitures*** | (19.9 | ) |  | — |
Translation adjustment | (11.9 | ) |  | (26.3 | )
Ending balance, December 31 | $ | 649.6 |  |  | $ | 705.3 |
________________
* | Acquisitions relate to the Company's 2015 purchases of Remy and BERU Diesel.
** Relates to the impairment of the Company's Etatech ECCOS intellectual technology in 2016. *** Divestiture relates to the Company's sale of Remy light vehicle aftermarket business in 2016. A roll forward of the accumulated amortization associated with the Company's other intangible assets is presented below:
(millions of dollars) | 2016 |  | 2015
Beginning balance, January 1 | $ | 161.5 |  |  | $ | 156.7 |
Amortization | 40.4 |  |  | 19.2 |
Impairment | (8.2 | ) |  | — |
Divestitures | (0.3 | ) |  | — |
Translation adjustment | (7.3 | ) |  | (14.4 | )
Ending balance, December 31 | $ | 186.1 |  |  | $ | 161.5 |

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- 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. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 350 -SubTopic 30 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=66006027&loc=d3e16373-109275 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 350 -SubTopic 30 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=66006027&loc=d3e16265-109275 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 350 -SubTopic 30 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=66006027&loc=d3e16323-109275 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 350 -SubTopic 20 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=35741047&loc=d3e13816-109267 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 350 -SubTopic 20 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=35741047&loc=d3e13854-109267 + Details
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