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GOODWILL AND OTHER INTANGIBLE ASSETS | 12 Months Ended
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Dec. 31, 2017
GOODWILL AND OTHER INTANGIBLE ASSETS [Abstract] |
GOODWILL AND OTHER INTANGIBLE ASSETS |
4. | GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill Goodwill represents the excess of the purchase price and related acquisition costs over the fair value assigned to the net tangible and other intangible assets acquired in a business acquisition. The changes in the carrying value of goodwill classified by our segment reporting structure for the years ended December 31, 2017 and 2016 are as follows:
|  | Total |  |  | North America |  |  | Asia |  |  | Europe |
Balance at January 1, 2016: |  |  |  |  |  |  |  |  |  |  |  |
Goodwill, gross |  |  | 148,575 |  |  |  | 63,364 |  |  |  | 54,532 |  |  |  | 30,679 |
Accumulated impairment charges |  |  | (26,941 | ) |  |  | (14,066 | ) |  |  | (12,875 | ) |  |  | - |
Goodwill, net |  | $ | 121,634 |  |  | $ | 49,298 |  |  | $ | 41,657 |  |  | $ | 30,679 |
Impairment charge |  |  | (101,650 | ) |  |  | (40,408 | ) |  |  | (41,633 | ) |  |  | (19,609 | )
Foreign currency translation |  |  | (2,033 | ) |  |  | - |  |  |  | (24 | ) |  |  | (2,009 | )
Balance at December 31, 2016: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Goodwill, gross |  |  | 146,542 |  |  |  | 63,364 |  |  |  | 54,508 |  |  |  | 28,670 |
Accumulated impairment charges |  |  | (128,591 | ) |  |  | (54,474 | ) |  |  | (54,508 | ) |  |  | (19,609 | )
Goodwill, net |  | $ | 17,951 |  |  | $ | 8,890 |  |  | $ | - |  |  | $ | 9,061 |
Foreign currency translation |  |  | 2,226 |  |  |  | - |  |  |  | - |  |  |  | 2,226 |
Balance at December 31, 2017: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Goodwill, gross |  |  | 148,768 |  |  |  | 63,364 |  |  |  | 54,508 |  |  |  | 30,896 |
Accumulated impairment charges |  |  | (128,591 | ) |  |  | (54,474 | ) |  |  | (54,508 | ) |  |  | (19,609 | )
Goodwill, net |  | $ | 20,177 |  |  | $ | 8,890 |  |  | $ | - |  |  | $ | 11,287 |
As discussed in Note 5, Fair Value Measurements, goodwill is reviewed for impairment on a reporting unit basis annually during the fourth quarter of each year and whenever events or changes in circumstances indicate the carrying value of goodwill may not be recoverable. The goodwill impairment test involves a two-step process. In the first step, the fair value of each reporting unit is compared to its carrying value. If the fair value of the reporting unit exceeds its carrying value, goodwill is not impaired and no further testing is required. If the fair value of the reporting unit is less than the carrying value, the second step of the impairment test must be performed to measure the amount of impairment loss. In the second step, the reporting unit's fair value is allocated to all of the assets and liabilities of the reporting unit, including any unrecognized intangible assets, in a hypothetical analysis that calculates the implied fair value of goodwill in the same manner as if the reporting unit was being acquired in a business combination. If the implied fair value of the reporting unit's goodwill is less than the carrying value, the difference is recorded as an impairment loss and a reduction to goodwill. We estimated the fair value of these reporting units using a weighting of fair values derived from income and market approaches. Under the income approach, we determine the fair value of a reporting unit based on the present value of estimated future cash flows. Cash flow projections are based on management's estimates of revenue growth rates and operating margins, taking into consideration industry and market conditions. The discount rate used is based on a weighted average cost of capital adjusted for the relevant risk associated with the characteristics of the business and the projected cash flows. The market approach estimates fair value based on market multiples of revenue and earnings derived from comparable publicly traded companies with similar operating and investment characteristics as the reporting unit. 2017 Annual Impairment Test During the fourth quarter of 2017, the Company completed step one of our annual goodwill impairment test for our reporting units. We concluded that the fair value of each of the Company's reporting units exceeded the respective carrying values and that there was no indication of impairment. The excess of estimated fair values over carrying value, including goodwill for each of our reporting units that had goodwill as of the 2017 annual impairment test were as follows:
Reporting Unit |  | % by Which Estimated Fair Value Exceeds Carrying Value
North America |  | 10.2%
Europe |  | 8.9%
2016 Interim Impairment Test During the first quarter of 2016, management determined that sufficient indicators of potential impairment existed to require an interim goodwill impairment analysis for all of the Company's reporting units. These indicators included the recent business performance of those reporting units, combined with the long-term market conditions and business trends within the reporting units. Detailed below is a table of key underlying assumptions utilized in the Level 3 fair value estimate calculation for the interim test performed as of March 31, 2016 as compared to those assumptions utilized during the annual valuation performed as of October 1, 2015. Assumptions may vary by reporting unit. The table below shows the range of assumptions utilized across the various reporting units.
|  |  | Goodwill Impairment Analysis
|  |  | Key Assumptions
|  | 2016 - Interim |  | 2015 - Annual
Income Approach - Discounted Cash Flows (a): |  |  |  |
| Revenue 5-year compound annual growth rate (CAGR) |  | (9.0%) - (0.6%) |  | 2.6% - 2.7%
| 2016 EBITDA margins (b) |  | 5.1% - 6.6% |  | 7.2% - 8.4%
| Cost of equity capital |  | 11.6% - 14.7% |  | 12.3% - 16.5%
| Cost of debt capital |  | 3.6% - 8.5% |  | 2.4% - 5.9%
| Weighted average cost of capital |  | 10.0% - 14.0% |  | 11.0% - 15.0%
Market Approach - Multiples of Guideline Companies (a): |  |  |  |
| Net operating revenue multiples used |  | 0.4 - 0.6 |  | 0.4 - 0.5
| Operating EBITDA multiples used (b) |  | 5.9 - 6.3 |  | 5.0 - 5.3
| Invested capital control premium |  | 25% |  | 25%
Weighting of Valuation Methods: |  |  |  |
| Income Approach - Discounted Cash Flows |  | 75% |  | 75%
| Market Approach - Multiples of Guideline Companies |  | 25% |  | 25%
| (a) Ranges noted reflect assumptions and multiples used throughout the North America, Asia and Europe reporting units
| (b) EBITDA represents earnings before interest, taxes, depreciation and amortization. EBITDA margin is calculated by
| dividing EBITDA by net sales. |  |  |  |
The March 31, 2016 interim impairment test related to the Company's goodwill was performed by reporting unit (North America, Asia and Europe). The valuation test, which heavily weights future discounted cash flow projections, indicated impairment of the goodwill associated with all three of the Company's reporting units. As a result, the Company recorded a provisional non-cash goodwill impairment charges totaling $104.3 million during the first quarter of 2016. During the second quarter of 2016, the Company finalized its interim impairment test, which resulted in a $2.6 million reduction to the provisional impairment charge recorded during the first quarter of 2016. The Company's goodwill associated with its reporting units originated from several of Bel's prior acquisitions, primarily Power Solutions acquired in 2014 and Connectivity Solutions acquired in 2014 (which represented $55.5 million and $55.0 million, respectively, of the carrying value of goodwill at the testing date). The carrying value of the Company's goodwill was $121.6 million at December 31, 2015. As noted above, the fair value determined under step one of the goodwill impairment test completed in the fourth quarter of 2017 exceeded the carrying value for each reporting unit. Therefore, there was no impairment of goodwill. However, if the fair value decreases in future periods, the Company may fail step one of the goodwill impairment test and be required to perform step two. In performing step two, the fair value would have to be allocated to all of the assets and liabilities of the reporting unit. Therefore, any potential goodwill impairment charge would be dependent upon the estimated fair value of the reporting unit at that time and the outcome of step two of the impairment test. The fair values of the assets and liabilities of the reporting unit, including the intangible assets, could vary depending on various factors. The future occurrence of a potential indicator of impairment, such as a decrease in expected net earnings, adverse equity market conditions, a decline in current market multiples, a decline in our common stock price, a significant adverse change in legal factors or business climates, an adverse action or assessment by a regulator, unanticipated competition, strategic decisions made in response to economic or competitive conditions, or a more-likely-than-not expectation that a reporting unit or a significant portion of a reporting unit will be sold or disposed of, could require an interim assessment for some or all of the reporting units before the next required annual assessment. In the event of significant adverse changes of the nature described above, it may be necessary for us to recognize an additional non-cash impairment of goodwill, which could have a material adverse effect on our consolidated financial condition and results of operations. Based on annual impairment tests performed in prior years, there was no indication of goodwill impairment at the October 1, 2015 or the October 1, 2016 testing dates. Other Intangible Assets Other identifiable intangible assets include patents, technology, license agreements, non-compete agreements and trademarks. Amounts assigned to these intangible assets have been determined by management. Management considered a number of factors in determining the allocations, including valuations and independent appraisals. Trademarks have indefinite lives and are reviewed for impairment on an annual basis. Other intangible assets, excluding trademarks, are being amortized over 2 to 19 years. The Company tests indefinite-lived intangible assets for impairment using a fair value approach, the relief-from-royalty method (a form of the income approach). At December 31, 2017, the Company's indefinite-lived intangible assets related to the trademarks acquired in the Power Solutions, Connectivity Solutions, Cinch and Fibreco acquisitions. The components of definite and indefinite-lived intangible assets are as follows:
|  | December 31, 2017 |  |  | December 31, 2016 |
|  | Gross Carrying |  |  | Accumulated |  |  | Net Carrying |  |  | Gross Carrying |  |  | Accumulated |  |  | Net Carrying |
|  | Amount |  |  | Amortization |  |  | Amount |  |  | Amount |  |  | Amortization |  |  | Amount |
Patents, licenses and technology |  | $ | 39,218 |  |  | $ | 14,926 |  |  | $ | 24,292 |  |  | $ | 38,658 |  |  | $ | 11,276 |  |  | $ | 27,382 |
Customer relationships |  |  | 44,704 |  |  |  | 11,478 |  |  |  | 33,226 |  |  |  | 43,821 |  |  |  | 8,302 |  |  |  | 35,519 |
Non-compete agreements |  |  | 2,711 |  |  |  | 2,711 |  |  |  | - |  |  |  | 2,667 |  |  |  | 2,376 |  |  |  | 291 |
Trademarks |  |  | 11,888 |  |  |  | 40 |  |  |  | 11,848 |  |  |  | 11,677 |  |  |  | 41 |  |  |  | 11,636 |
|  | $ | 98,521 |  |  | $ | 29,155 |  |  | $ | 69,366 |  |  | $ | 96,823 |  |  | $ | 21,995 |  |  | $ | 74,828 |
Amortization expense was $6.7 million, $7.0 million and $7.0 million in 2017, 2016 and 2015, respectively. Estimated amortization expense for intangible assets for the next five years is as follows:
December 31, |  | Amortization Expense |
2018 |  | $ | 6,290 |
2019 |  |  | 6,288 |
2020 |  |  | 6,251 |
2021 |  |  | 6,281 |
2022 |  |  | 4,685 |
2017 Annual Impairment Test The Company completed its annual indefinite-lived intangible assets impairment test during the fourth quarter of 2017, noting no further impairment. Management has concluded that the fair value of these trademarks exceeded the related carrying values at December 31, 2017 and that there was no indication of impairment. 2016 Interim Impairment Test During the first quarter of 2016, management determined that sufficient indicators of potential impairment existed to require an interim impairment review of our trademarks. Based on the Company's analysis, the fair values of all of the Company's trademarks were lower than the respective carrying values. As a result, in 2016, the Company recorded a non-cash impairment of $4.3 million which is included in impairment of goodwill and other intangible assets on the consolidated statements of operations. Detailed below is a table of key underlying assumptions utilized in the Level 3 fair value estimate calculation of the Company's trademarks for the interim test performed as of March 31, 2016 as compared to those assumptions utilized during the annual valuation performed as of October 1, 2015. Assumptions may vary by individual trademark. The table below shows the range of assumptions utilized across the Company's various trademarks.
|  | Trademark Impairment Analysis
|  | Key Assumptions
| 2016 - Interim |  | 2015 - Annual
Revenue 5-year compound annual growth rate (CAGR) |  | (0.4%) - 2.7% |  | 0.2% - 4.0%
Estimated fair royalty rate |  | 0.25% - 1.5% |  | 0.5% - 2.0%
Discount rate |  | 11.0% - 15.0% |  | 12.0% - 14.0%
Based on annual impairment tests performed in prior years, there was no indication of indefinite-lived intangible assets impairment at the October 1, 2015 or the October 1, 2016 testing dates. The future occurrence of a potential indicator of impairment, such as those described above, could require an interim assessment for some or all of the Company's trademarks. In such a case, it may be necessary for us to recognize an additional non-cash impairment charge related to our trademarks, which could have a material adverse effect on our consolidated financial condition and results of operations.

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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 -URI http://asc.fasb.org/topic&trid=2144416 + Details
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