Notes to Consolidated Financial Statements

(Thousands of dollars, except share data)

8 Goodwill and Other Intangible Assets

Effective January 2002, the company adopted SFAS No. 142, "Goodwill and Other Intangible Assets." In accordance with SFAS No. 142, goodwill and indefinite lived intangible assets are no longer amortized but are reviewed at least annually for impairment. Intangible assets that are separable and have a definite life continue to be amortized over the estimated useful lives.

As part of the adoption, the company evaluated the impairment of indefinite lived intangible assets and determined that none were impaired based on estimations in market value. The company completed the required transitional goodwill impairment analysis for SFAS No. 142 adoption purposes and recorded a $12.7 million impairment loss, net of tax benefits of $7.8 million, relating to its Specialty Steel business, which was treated as a cumulative effect of a change in accounting principle.

The company engages an independent valuation firm and performs its annual impairment test during the fourth quarter after the annual forecasting process is completed. Due to recent trends in the steel industry, the guideline company values for the Steel reporting unit have been revised downward. The valuation which uses the guideline company method results in a fair market value that is less than the carrying value for the company’s Steel reporting unit. Accordingly, the company has concluded that the entire amount of goodwill for its Steel reporting unit is impaired and has recorded a pre-tax impairment loss of $10.2 million which is reported in impairment and restructuring charges.

If SFAS No. 142 had been adopted in 2001, ceasing goodwill amortization would have reduced the net loss in 2001 by $4.8 million or $0.08 per diluted share.


Changes in the carrying value of goodwill are as follows:

Year ended December 31, 2003.

  Beginning Balance Impairment Acquisitions Other Ending
Balance
Goodwill:    
Automotive $1,633 $ - $ 39,614 $ 4,367 $ 45,614
Industrial 119,440 - 7,337 708 127,485
Steel 8,870 (10,237) - 1,367 -
Totals $ 129,943 $ (10,237) $ 46,951 $ 6,442 $173,099

Year ended December 31, 2002
  Beginning Balance Impairment Acquisitions Other Ending
Balance
Goodwill:    
Automotive $ 1,577 $ - $ - $ 56 $ 1,633
Industrial 120,426 - - (986) 119,440
Steel 28,038 (20,488) - 1,320 8,870
Totals $ 150,041 $ (20,488) $ - $ 390 $129,943

The following table displays other intangible assets as of December 31:

  2003 2004
Gross Carrying Amount Accumulated Amortization Net Carrying Amount Gross Carrying Amount Accumulated Amortization Net Carrying Amount
Intangible assets subject to amortization:            
Automotive            
   Customer relationships $ 21,960 $ 960 $ 21,000 $ - $ - $ -
   Engineering drawings 3,000 616 2,384 - - -
   Land use rights 622 24 598 - - -
   Patents 18,094 1,685 16,409 - - -
   Technology use 11,654 927 10,727 - - -
   Trademarks 2,295 507 1,788 - - -
   Unpatented technology 10,800 945 9,855 - - -
    - - -
Industrial:
   Customer relationships 14,640 641 13,999 - - -
   Engineering drawings 2,000 411 1,589 - - -
   Know-how transfer 417 360 57 417 341 76
   Land use rights 4,484 1,075 3,409 4,484 905 3,579
   Patents 646 94 552 - - -
   Trademarks 1,492 366 1,126 712 213 499
   Unpatented technology 7,200 630 6,570 - - -
Steel trademarks 450 112 338 - - -
  $ 99,754 $ 9,353 $ 90,401 $ 5,613 $ 1,459 $ 4,154
       
Intangible assets not subject to amortization:            
Goodwill $ 173,099 $ - $ 173,099 $129,943 $ - $129,943
Intangible pension asset 106,518 - 106,518 129,042 - 129,042
Automotive land use rights 115 - 115 112 - 112
Industrial license agreements 959 - 959 951 - 951
  $ 280,691 - $ 280,691 $260,048 $ - $260,048
Total intangible assets $ 380,445 $ 9,353 $ 371,092 $265,661 $ 1,459 $264,202

Amortization expense for intangible assets was approximately $7,900 and $288 for the years ended December 31, 2003 and 2002, and is estimated to be approximately $8,700 annually for the next five years. The other intangible assets that are subject to amortization acquired in the Torrington acquisition have useful lives ranging from 2 to 20 years with a weighted average useful life of 12 years.



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