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Goodwill and Other Intangibles | 12 Months Ended
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Dec. 31, 2018
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 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, restructuring 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 2018, the Company performed an analysis on each reporting unit. For the reporting unit with restructuring 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, 2018 goodwill quantitative, "step one," impairment review are as follows:
• | Discount rate: the Company used a 10.9% 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.
• | Revenue growth rate: the Company used a global automotive market industry growth rate forecast adjusted to estimate its own market participation for product lines.
In 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 2018 indicated the Company's goodwill assigned to the reporting unit with restructuring activity that was quantitatively assessed was not impaired and contained a fair value substantially higher than the reporting unit's carrying value. Additionally, for the reporting unit quantitatively assessed, sensitivity analyses were completed indicating that a one percent increase in the discount rate, a one percent decrease in the operating margin, or a one percent decrease in the revenue growth rate assumptions would not result in the carrying value exceeding the fair value. The changes in the carrying amount of goodwill for the years ended December 31, 2018 and 2017 are as follows:
| 2018 |  | 2017
(millions of dollars) | Engine |  | Drivetrain |  | Engine |  | Drivetrain
Gross goodwill balance, January 1 | $ | 1,359.6 |  |  | $ | 1,024.2 |  |  | $ | 1,324.0 |  |  | $ | 880.2 |
Accumulated impairment losses, January 1 | (501.8 | ) |  | (0.2 | ) |  | (501.8 | ) |  | (0.2 | )
Net goodwill balance, January 1 | $ | 857.8 |  |  | $ | 1,024.0 |  |  | $ | 822.2 |  |  | $ | 880.0 |
Goodwill during the year: |  |  |  |  |  |  |  |  |  |  |
Acquisitions* | — |  |  | 1.7 |  |  | — |  |  | 125.8 |
Held for sale | — |  |  | — |  |  | (7.3 | ) |  | — |
Translation adjustment and other | (16.5 | ) |  | (13.6 | ) |  | 42.9 |  |  | 18.2 |
Ending balance, December 31 | $ | 841.3 |  |  | $ | 1,012.1 |  |  | $ | 857.8 |  |  | $ | 1,024.0 |
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* | Acquisitions relate to the Company's 2017 purchase of Sevcon.
The Company’s other intangible assets, primarily from acquisitions, consist of the following:
| December 31, 2018 |  | December 31, 2017
(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 | $ | 151.9 |  |  | $ | 60.7 |  |  | $ | 91.2 |  |  | $ | 157.7 |  |  | $ | 52.9 |  |  | $ | 104.8 |
Customer relationships | 489.7 |  |  | 201.2 |  |  | 288.5 |  |  | 507.6 |  |  | 181.0 |  |  | 326.6 |
Miscellaneous | 8.3 |  |  | 3.9 |  |  | 4.4 |  |  | 8.7 |  |  | 3.2 |  |  | 5.5 |
Total amortized intangible assets | 649.9 |  |  | 265.8 |  |  | 384.1 |  |  | 674.0 |  |  | 237.1 |  |  | 436.9 |
Unamortized trade names | 55.4 |  |  | — |  |  | 55.4 |  |  | 55.8 |  |  | — |  |  | 55.8 |
Total other intangible assets | $ | 705.3 |  |  | $ | 265.8 |  |  | $ | 439.5 |  |  | $ | 729.8 |  |  | $ | 237.1 |  |  | $ | 492.7 |
Amortization of other intangible assets was $40.1 million, $40.0 million and $40.4 million for the years ended December 31, 2018, 2017 and 2016, respectively. The estimated useful lives of the Company's amortized intangible assets range from three to 20 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: $38.8 million in 2019, $38.5 million in 2020, $38.0 million in 2021, $36.8 million in 2022 and $31.0 million in 2023. A roll forward of the gross carrying amounts of the Company's other intangible assets is presented below:
(millions of dollars) | 2018 |  | 2017
Beginning balance, January 1 | $ | 729.8 |  |  | $ | 649.6 |
Acquisitions* | — |  |  | 72.6 |
Held for sale | — |  |  | (32.7 | )
Translation adjustment | (24.5 | ) |  | 40.3 |
Ending balance, December 31 | $ | 705.3 |  |  | $ | 729.8 |
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* | Acquisitions primarily relate to the Company's 2017 purchase of Sevcon.
A roll forward of the accumulated amortization associated with the Company's other intangible assets is presented below:
(millions of dollars) | 2018 |  | 2017
Beginning balance, January 1 | $ | 237.1 |  |  | $ | 186.1 |
Amortization | 40.1 |  |  | 40.0 |
Held for sale | — |  |  | (11.6 | )
Translation adjustment | (11.4 | ) |  | 22.6 |
Ending balance, December 31 | $ | 265.8 |  |  | $ | 237.1 |

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