Enerpac Tool Group Corp. Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

Goodwill and Other Intangible Assets

Goodwill and Other Intangible Assets

12 Months Ended

Aug. 31, 2016

Goodwill and Intangible Assets Disclosure [Abstract]

Goodwill and Other Intangible Assets

Note 4. Goodwill, Intangible Assets and Long-Lived Assets

Fiscal 2016 Interim Impairment Charge

The prolonged unfavorable conditions in the global oil & gas markets, including additional cuts in projected capital spending by energy customers, reduced exploration, drilling and commissioning activities and excess capacity in the industry (given continued low oil & gas prices) were expected to have an adverse impact on the future financial results of the Cortland and Viking businesses. Accordingly, during the second quarter of fiscal 2016, the Company recognized a $140.9 million impairment charge (as a result of lower projected future sales and profits) related to the Cortland and Viking businesses.

The maximatecc business (Engineered Solutions segment), manufactures severe-duty electronic instrumentation including displays and clusters, machine controls and sensors. Weakness in off-highway vehicle and agricultural markets, coupled with challenging overall industrial fundamentals, recent reductions in OEM customer build rates and production schedules (in order to reduce inventory levels) and delays in the start of production by certain European OEMs for new or updated design models resulted in reduced sales and profitability of the maximatecc business. As a result of lower projected sales and profits, during the second quarter of fiscal 2016, the Company recognized a $45.7 million impairment charge related to the goodwill and intangible assets of the maximatecc business.

A summary of the second quarter fiscal 2016 impairment charge by reporting unit is as follows (in thousands):



	Cortland		Viking		maximatecc		Total
Goodwill	$	34,502	$	39,099	$	44,521	$	118,122
Indefinite lived intangible assets	2,211		13,289		1,153		16,653
Amortizable intangible assets	—		27,952		—		27,952
Fixed assets	—		23,784		—		23,784
	$	36,713	$	104,124	$	45,674	$	186,511

Fiscal 2015 Impairment Charge

The dramatic decline in oil prices in 2015 caused a slowdown in upstream oil & gas activity as asset owners hesitated on starting new oil & gas exploration drilling and development projects, while certain existing projects were deferred or canceled and capital spending was reduced. As a result of these unfavorable market conditions, in fiscal 2015 the Company recognized an $84.4 million impairment charge related to the write-down of goodwill and indefinite lived intangible assets of the Cortland and Viking businesses. The impairment charge consisted of a $78.5 million impairment of goodwill and a $6.4 million impairment of indefinite lived intangible assets (tradenames).

Changes in the gross carrying value of intangible assets and goodwill result from changes in foreign currency exchange rates, business acquisitions, divestitures and impairment charges. The changes in the carrying amount of goodwill for the years ended August 31, 2016 and 2015 are as follows (in thousands):



	Industrial			Energy			Engineered Solutions			Total
Balance as of August 31, 2014	$	100,266		$	350,627		$	291,877		$	742,770
Purchase accounting adjustments (Hayes)	(3,244		)	—			—			(3,244		)
Impairment charge	—			(78,530		)	—			(78,530		)
Impact of changes in foreign currency rates	(4,915		)	(35,647		)	(12,178		)	(52,740		)
Balance as of August 31, 2015	92,107			236,450			279,699			608,256
Business acquisitions	9,726			36,241			—			45,967
Impairment charge	—			(73,919		)	(44,543		)	(118,462		)
Business divestiture (Sanlo)	—			—			(3,778		)	(3,778		)
Impact of changes in foreign currency rates	(94		)	(11,451		)	(1,162		)	(12,707		)
Balance as of August 31, 2016	$	101,739		$	187,321		$	230,216		$	519,276

The gross carrying amount and accumulated amortization of the Company’s intangible assets are as follows (in thousands):



	Weighted Average Amortization Period (Year)	August 31, 2016						August 31, 2015
	Weighted Average Amortization Period (Year)	Gross		Accumulated Amortization		Net Book Value		Gross		Accumulated Amortization		Net Book Value
Amortizable intangible assets:
Customer relationships	14	$	292,671	$	166,252	$	126,419	$	302,518	$	132,007	$	170,511
Patents	10	30,296		22,233		8,063		30,899		19,928		10,971
Trademarks and tradenames	18	21,283		7,936		13,347		21,604		7,055		14,549
Non-compete agreements & other	3	6,627		5,890		737		6,790		6,496		294
Indefinite lived intangible assets:
Tradenames		90,909		—		90,909		112,437		—		112,437
		$	441,786	$	202,311	$	239,475	$	474,248	$	165,486	$	308,762

Amortization expense for future years is estimated to be: $20.2 million in fiscal year 2017, $19.9 million in fiscal 2018, $19.7 million in fiscal 2019, $19.0 million in fiscal 2020, $17.9 million in fiscal 2021 and $51.9 million in aggregate thereafter. The future amortization expense amounts represent estimates and may be impacted by future acquisitions, divestitures or changes in foreign currency exchange rates.

- 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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