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, 2018

Goodwill and Intangible Assets Disclosure [Abstract]

Note 6. Goodwill, Intangible Assets and Long-Lived Assets

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, 2018 and 2017 are as follows (in thousands):



	Industrial Tools & Services			Engineered Components & Systems			Total
Balance as of August 31, 2016	$	235,457		$	283,819		$	519,276
Purchase accounting adjustments	1,085			—			1,085
Impact of changes in foreign currency rates	2,165			7,555			9,720
Balance as of August 31, 2017	238,707			291,374			530,081
Business acquisitions	12,441			—			12,441
Impairment charge	—			(21,227		)	(21,227		)
Impact of changes in foreign currency rates	(2,443		)	(4,940		)	(7,383		)
Reclassification of assets held for sale	—			(1,500		)	(1,500		)
Balance as of August 31, 2018	$	248,705		$	263,707		$	512,412

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, 2018						August 31, 2017
	Weighted Average Amortization Period (Year)	Gross		Accumulated Amortization		Net Book Value		Gross		Accumulated Amortization		Net Book Value
Amortizable intangible assets:
Customer relationships	15	$	230,601	$	147,451	$	83,150	$	263,498	$	153,003	$	110,495
Patents	11	30,355		25,327		5,028		30,401		24,027		6,374
Trademarks and tradenames	18	20,823		15,347		5,476		21,498		9,396		12,102
Non-compete agreements & other	3	5,946		5,816		130		6,672		6,234		438
Indefinite lived intangible assets:
Tradenames	N/A	87,253		—		87,253		91,080		—		91,080
		$	374,978	$	193,941	$	181,037	$	413,149	$	192,660	$	220,489

Amortization expense for future years is estimated to be: $17.2 million in fiscal year 2019, $16.6 million in fiscal 2020, $15.7 million in fiscal 2021, $13.7 million in fiscal 2022, $10.6 million in fiscal 2023 and $20.0 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.

Fiscal 2018 Impairment Charge

During the fourth quarter of fiscal 2018, the Company recognized impairment charges related to the Cortland Fibron business (Engineered Components & Systems segment and a component of the Cortland reporting unit) in conjunction with meeting the classification assets of held for sale criteria. Accordingly, the Company recognized a $10.5 million impairment charge, representing the excess of the net book value of assets held for sale over the anticipated proceeds. See Note 5, “Divestiture Activates” for further discussion of impairment and divestiture charges not related to long-lived assets for the Cortland Fibron business.

The Precision-Hayes International business (Engineered Components & Systems segment) primarily designs, manufactures, and distributes concrete tensioning products. Changes in certain assumptions used in our annual goodwill impairment analysis, which are linked, in part, to recent market share losses, resulted in a fair value estimate of the reporting unit lower than its carrying value. As a result, during the fourth quarter of fiscal 2018, the Company recognized a $23.7 million impairment charge.

A summary of the fiscal 2018 impairment charge by reporting unit is as follows (in thousands):



	Cortland		Precision-Hayes International		Total
Goodwill	$	3,770	$	17,457	$	21,227
Indefinite lived intangible assets	6,710		—		6,710
Amortizable intangible assets	—		5,076		5,076
Fixed assets	—		1,207		1,207
	$	10,480	$	23,740	$	34,220

Fiscal 2017 Impairment Charge:

In the fourth quarter of fiscal 2017, related to the then-pending sale of the Viking business, we recognized a $16.1 million long-lived asset impairment, representing the excess of the net book value of assets held for sale over the anticipated proceeds. See Note 5. “Divestiture Activates” for further discussion of impairment and divestiture charges not related to long-lived assets for the Viking business.

Fiscal 2016 Impairment Charge

The prolonged unfavorable conditions in the global oil & gas markets, including additional cuts in projected capital spending by 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 fiscal 2016, the Company recognized a $140.8 million impairment charge (as a result of lower projected future sales and profits) related to the Cortland and Viking businesses.

In addition, the maximatecc business manufactures severe-duty electronic instrumentation including displays and clusters, machine controls and sensors. During fiscal 2016, weakness in off-highway vehicle and agricultural markets, coupled with challenging overall industrial fundamentals, 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, the Company recognized a $45.7 million impairment charge related to the goodwill and intangible assets of the maximatecc business in fiscal 2016.

A summary of the 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

- 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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