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Note 4 - Goodwill and Other Intangible Assets | 12 Months Ended
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Dec. 31, 2019
Notes to Financial Statements |
Goodwill Disclosure [Text Block] |
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. Throughout 2018 and until September 30, 2019, the Company operated under three reportable operating segments which were geographic in nature: North America, Asia and Europe. In connection with the transition in ERP systems, and resulting discussions around how management would like to view the results of the Company on a go-forward basis, management determined that viewing the Company by product group for purposes of managing the business and asset allocation decisions was most appropriate. This change in management's view resulted in a reorganization of the Company's reportable operating segments effective October 1, 2019. The new reportable operating segments are:
| • | Cinch Connectivity Solutions : includes the 2010 acquisition of Cinch Connectors, the 2012 acquisitions of Fibreco Limited and GigaCom Interconnect, the 2013 acquisition of Array Connector, the 2014 acquisition of Emerson Network Power Connectivity Solutions, in addition to sales and an estimated allocation of expenses related to connectivity products manufactured at Bel sites that are not product group specific.
| • | Power Solutions and Protection : includes the 2012 acquisition of Powerbox Italia, the 2014 acquisition of Power-One's Power Solutions business, the 2019 acquisition of the majority of CUI Inc.'s power products business, in addition to sales and an estimated allocation of expenses related to power products manufactured at Bel sites that are not product group specific.
| • | Magnetic Solutions: includes the 2013 acquisition of TE Connectivity's Coil Wound Magnetics business, our Signal Transformer business, in addition to sales and an estimated allocation of expenses related to Bel's ICM and discrete magnetic products that are manufactured at Bel sites that are not product group specific.
As of the October 1, 2019 segment reorganization date, the remaining goodwill under the former segment structure was reassigned to the new reporting units identified within the three product group reportable operating segments using a relative fair value allocation approach. The changes in the carrying value of goodwill classified by our segment reporting structure for the years ended December 31, 2019 and 2018 are as noted in the table below.
|  | Segment Structure Prior to October 1, 2019 |
|  | Total |  |  | North America |  |  | Asia |  |  | Europe |
Balance at January 1, 2018: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
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 |
Goodwill allocation related to acquisition |  |  | 1,290 |  |  |  | - |  |  |  | - |  |  |  | 1,290 |
Foreign currency translation |  |  | (1,650 | ) |  |  | - |  |  |  | - |  |  |  | (1,650 | )
Balance at December 31, 2018: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Goodwill, gross |  |  | 148,408 |  |  |  | 63,364 |  |  |  | 54,508 |  |  |  | 30,536 |
Accumulated impairment charges |  |  | (128,591 | ) |  |  | (54,473 | ) |  |  | (54,508 | ) |  |  | (19,610 | )
Goodwill, net |  |  | 19,817 |  |  |  | 8,891 |  |  |  | - |  |  |  | 10,926 |
Impairment charge |  |  | (8,891 | ) |  |  | (8,891 | ) |  |  | - |  |  |  | - |
Foreign currency translation |  |  | (122 | ) |  |  | - |  |  |  | - |  |  |  | (122 | )
Measurement period adjustment |  |  | (26 | ) |  |  | - |  |  |  | - |  |  |  | (26 | )
Balance at September 30, 2019: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Goodwill, gross |  |  | 148,260 |  |  |  | 63,364 |  |  |  | 54,508 |  |  |  | 30,388 |
Accumulated impairment charges |  |  | (137,482 | ) |  |  | (63,364 | ) |  |  | (54,508 | ) |  |  | (19,610 | )
Goodwill, net |  | $ | 10,778 |  |  | $ | - |  |  | $ | - |  |  | $ | 10,778 |
|  | Segment Structure Effective October 1, 2019 |
|  | Total |  |  | Cinch Connectivity Solutions |  |  | Power Solutions & Protection |  |  | Magnetic Solutions |
Balance at October 1, 2019: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Goodwill, gross (reallocation) |  | $ | 10,778 |  |  | $ | 6,467 |  |  | $ | 4,311 |  |  | $ | - |
Goodwill, net |  |  | 10,778 |  |  |  | 6,467 |  |  |  | 4,311 |  |  |  | - |
Goodwill allocation related to acquisition |  |  | 10,287 |  |  |  | - |  |  |  | 10,287 |  |  |  | - |
Foreign currency translation |  |  | 928 |  |  |  | 712 |  |  |  | 216 |  |  |  | - |
Balance at December 31, 2019: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Goodwill, gross |  |  | 21,993 |  |  |  | 7,179 |  |  |  | 14,814 |  |  |  | - |
Goodwill, net |  | $ | 21,993 |  |  | $ | 7,179 |  |  | $ | 14,814 |  |  | $ | - |
The Company has not reallocated the historical accumulated impairment charges to its new segment structure due to impracticability. 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. 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. 2019 Interim Impairment Test As weakened market conditions from earlier in 2019 continued into the third quarter without a visible rebound in incoming orders, the Company’s actual revenue and margin levels in 2019 were significantly lower than the financial projections utilized in the annual goodwill impairment analysis (performed as of October 1, 2018), and were not projected to rebound to those levels in 2019. The Company determined that current business conditions, and the resulting decrease in the Company’s projected undiscounted and discounted cash flows, together with the accompanying stock price decline, constituted a triggering event, which required the Company to perform interim impairment tests related to its long-lived assets and goodwill during the third quarter of 2019. This resulted in a full impairment of the Company's North America operating segment, and the Company recorded a resulting goodwill impairment charge of $8.9 million in the third quarter of 2019. No impairment existed as of the July 31, 2019 interim test date related to the Company's Europe operating segment. As of the interim test date, the estimated fair value of the Company's Europe operating segment exceeded its carrying value by 17.3%. 2019 Annual Impairment Test On October 1, 2019, the Company completed step one of our annual goodwill impairment test for our reporting units. We concluded that the fair value of the Company's Europe reporting unit (the only remaining reporting unit with goodwill) exceeded the carrying value and that there was no indication of impairment. As described above, the Company reorganized its segment structure effective October 1, 2019. In connection with the segment reorganization, the Company also completed step one of our annual goodwill impairment test for our new reporting units. We concluded that the fair value each of the Company's reporting units exceeded the respective carrying values and that there was no indication of impairment on that date. The excess of estimated fair values over carrying value, including goodwill for each of our reporting units that had goodwill as of the 2019 annual impairment test were as follows:
Reporting Unit |  | % by Which Estimated Fair Value Exceeds Carrying Value |
Connectivity Europe |  | 138.8 | %
Power Europe |  |  | 16.4 | %
As noted above, the fair value determined in connection with the goodwill impairment test completed in the fourth quarter of 2019 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 need to complete an interim goodwill impairment test and any potential goodwill impairment charge would be dependent upon the estimated fair value of the reporting unit at that time and the outcome 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 consolidated results of operations. 2018 Annual Impairment Test Based on annual impairment tests performed in the prior year, there was no indication of goodwill impairment at the October 1, 2018 testing date. 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 1 to 16 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, 2019 , the Company's indefinite-lived intangible assets related to the trademarks acquired in the CUI, Power Solutions, Connectivity Solutions, Cinch and Fibreco acquisitions. The components of definite and indefinite-lived intangible assets are as follows:
|  | December 31, 2019 |  |  | December 31, 2018 |
|  | Gross Carrying |  |  | Accumulated |  |  | Net Carrying |  |  | Gross Carrying |  |  | Accumulated |  |  | Net Carrying |
|  | Amount |  |  | Amortization |  |  | Amount |  |  | Amount |  |  | Amortization |  |  | Amount |
Patents, licenses and technology |  | $ | 38,885 |  |  | $ | 21,757 |  |  | $ | 17,128 |  |  | $ | 38,845 |  |  | $ | 18,281 |  |  | $ | 20,564 |
Customer relationships |  |  | 55,656 |  |  |  | 17,231 |  |  |  | 38,425 |  |  |  | 44,588 |  |  |  | 14,193 |  |  |  | 30,395 |
Non-compete agreements |  |  | 2,701 |  |  |  | 2,701 |  |  |  | - |  |  |  | 2,683 |  |  |  | 2,683 |  |  |  | - |
Trademarks |  |  | 16,852 |  |  |  | 40 |  |  |  | 16,812 |  |  |  | 11,770 |  |  |  | 40 |  |  |  | 11,730 |
|  | $ | 114,094 |  |  | $ | 41,729 |  |  | $ | 72,365 |  |  | $ | 97,886 |  |  | $ | 35,197 |  |  | $ | 62,689 |
Amortization expense was $6.4 million and $6.4 million in 2019 and 2018 , respectively. Estimated amortization expense for intangible assets for the next five years is as follows:
Year Ended December 31, |  | Amortization Expense |
2020 |  | $ | 7,112 |
2021 |  |  | 7,108 |
2022 |  |  | 5,735 |
2023 |  |  | 4,473 |
2024 |  |  | 4,412 |
2019 Impairment Tests Due to weakened market conditions discussed above, the Company completed an interim impairment test related to its indefinite-lived intangible assets as of July 31, 2019, noting no impairment. The Company also completed its annual indefinite-lived intangible assets impairment test during the fourth quarter of 2019 , noting no impairment. Management has concluded that the fair value of these trademarks exceeded the related carrying values at December 31, 2019 and that there was no indication of impairment.

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