Goodwill and Other Intangible Assets

12 Months Ended

Dec. 31, 2015

Goodwill and Other Intangible Assets [Abstract]

8. GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill is tested at the reporting unit level annually and if necessary, whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. In 2015, the Company changed its annual testing date from December 31 to October 1. The Company believes this change in the method of applying an accounting principle is preferable, as it will alleviate the resource constraints that historically existed during the fourth quarter. This change in annual testing date does not delay, accelerate, or avoid an impairment charge.

We tested goodwill for impairment using a quantitative analysis consisting of a two-step approach. The first step of our quantitative analysis consists of a comparison of the carrying value of our reporting units, including goodwill, to the estimated fair value of our reporting units using a discounted cash flow methodology. If step one results in the carrying value of the reporting unit exceeding the fair value of such reporting unit, we would then proceed to step two which would require us to calculate the amount of impairment loss, if any, that we would record for such reporting unit. The calculation of the impairment loss in step two would be equivalent to the reporting unit's carrying value of goodwill less the implied fair value of such goodwill.

In 2014, the Company’s annual impairment test resulted in an assessment that the carrying value of its Bemag reporting unit exceeded its fair value. As a result, the Company recorded a non-cash impairment charge of $1.4 million, of which $1.2 million related to goodwill and $0.2 million related to certain finite-lived intangible assets. These charges were assessed and recorded in goodwill impairment expense and intangible asset impairment expense on the consolidated statements of operations on December 31, 2014 in the Company’s T&D Solutions segment. As of December 31, 2014, the remaining carrying value of intangible assets in the Bemag reporting unit was $0.8 million, consisting of intangible assets including customer relationships, trademarks, certain industry accreditations and a non-compete agreement. As a result of the Company’s decision to gradually discontinue using the reporting unit’s trademarks in favor of “Pioneer Transformers,” the Company will begin amortizing the trademark asset, valued at approximately $0.2 million, on a straight-line basis over a period of two years.

The Bemag reporting unit had lower sales and cash flows in the fourth quarter and for the year than previously projected. The goodwill and intangibles impairments were driven primarily by a downturn in Canada’s natural resource sector and expected capital spending on products manufactured by the reporting unit. This downturn accelerated dramatically during the fourth quarter of 2014 as measured by the price of oil, and a devaluation of the Canadian dollar, the latter of which directly resulted in higher costs for the reporting unit’s key raw material inputs. These developments in the fourth quarter, coupled with increased competition and higher bad debt expense related to customer insolvencies, also followed a $3.0 million investment by the Company to expand the reporting unit’s facilities and production capacity that was completed in 2013. Accordingly, the Company’s revised its outlook and valuation of the reporting unit, and the consequential impairment charges reflect an updated forecast that assumes a slower rate of revenue growth and lower near-term profit margins than anticipated at the time the reporting unit was acquired in 2011.

In 2015, due to relocation of Bemag, the company recorded an impairment charge of $404, consisting of $261 and $143 for customer relationship and technology-related industry accreditations, respectively. During the planning of the relocation of the Bemag production to Reynosa, the following was determined: 1- the product offering would be built to the specifications of the Jefferson UL/CSA files, rendering Bemag’s files impaired; and 2 – the move to Reynosa would have an adverse impact on the customers being serviced by Bemag, due to the increase in shipping time from Reynosa versus the shipping time from Farnham, QC. This increase in shipping time would cause customers to order from competitors. Thus, the customer relationships were viewed as impaired and written off.

Changes in the carrying amount of goodwill by reportable segment during the years ended December 31, 2015 and 2014 are as follows:

	T&D		Critical Power		Total
	Segment		Segment		Goodwill
Balance as of January 1, 2014	$	7,300	$	698	$	7,998
Additions due to acquisition		-		2,879		2,879
Impairment charges		(1,171)		-		(1,171)
Foreign currency translation		(100)		-		(100)
Balance as of December 31, 2014	$	6,029	$	3,577	$	9,606
Additions due to acquisition		371		-		371
Adjustments		-		91		91
Foreign currency translation		-		-		-
Balance as of December 31, 2015	$	6,400	$	3,668	$	10,068

Changes in intangible asset balances for the years ended December 31, 2015 and 2014 consisted of the following (in thousands):

	T&D		Critical Power		Total
	Solutions		Solutions		Intangible
	Segment		Segment		Assets
Balance as of January 1, 2014	$	4,966	$	319	$	5,285
Additions due to acquisition		-		5,147		5,147
Amortization		(256)		(62)		(318)
Impairment charges		(231)		-		(231)
Foreign currency translation		(92)		-		(92)
Balance as of December 31, 2014	$	4,386	$	5,405	$	9,791
Additions due to acquisition		2,386		-		2,386
Amortization		(454)		(1,365)		(1,819)
Impairment charges		(404)		-		(404)
Foreign currency translation		2		-		2
Balance as of December 31, 2015	$	5,916	$	4,040	$	9,956

The components of intangible assets at December 31, 2015 are summarized below (in thousands):

	Weighted
	Average	Gross						Foreign
	Amortization	Carrying		Accumulated		Impairment		Currency		Net Book
	Years	Amount		Amortization		Charges		Translation		Value
Customer relationships	7	$	7,472	$	(2,350)	$	(261)	$	-	$	4,861
Non-compete agreements	5		635		(286)		-		3		352
Trademarks	(a)		2,060		(161)		-		7		1,906
Distributor territory license	4		474		(41)		-		-		355
Internally developed software	7		289		(53)		-		-		248
Developed technology	10		492		(53)		-		-		439
Technology-related industry accreditations	Indefinite		1,937		-		(143)		1		1,795
Total intangible assets		$	13,359	$	(3,010)	$	(404)	$	11	$	9,956

(a)

Includes $1.8 million of trademarks with an indefinite useful life, and $0.3 million of trademarks that will be fully amortized by December 31, 2016 as a result of the Company’s decision to gradually cease using them.

Future scheduled annual straight-line amortization expense over the useful lives of finite life intangible assets is as follows (in thousands):

Years Ending December 31,	Total
2016	$	1,753
2017		1,661
2018		1,585
2019		297
2020		272
Thereafter		778
	$	6,346

- 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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