NOTE 7: - GOODWILL AND OTHER INTANGIBLE ASSETS, NET
|12 Months Ended|
Dec. 31, 2016
|Goodwill and Intangible Assets Disclosure [Abstract]|
|Goodwill and Intangible Assets Disclosure [Text Block]||
NOTE 7:– GOODWILL AND OTHER INTANGIBLE ASSETS, NET
The Company allocates goodwill acquired in a business combination to the appropriate reporting unit as of the acquisition date. Currently, the Company’s reporting units are also its reportable segments and the associated goodwill was determined when the specific businesses in the reportable segments were purchased.
A summary of the goodwill by business segment is as follows:
The Company completed its annual goodwill impairment review using the financial results as of the quarter ended December 31, 2016, using its forecasted plan developed in the fourth quarter.
With respect to its Training and Simulation Division, the Company determined, using qualitative factors, that goodwill was not impaired.
For its Power Systems Division, the Company determined that it was necessary to perform a quantitative assessment of goodwill for the purpose of determining whether an impairment existed at December 31, 2016. When conducting this analysis, the Company engaged third party valuation experts with a detailed understanding of its Power Systems Division to perform a valuation of the Power Systems Division on a going concern basis. The Company also evaluated its historic financial performance in light of its planned financial performance over the period evaluated by its third party experts. Finally, the Company prepared a discounted cash flow analysis over a five year period so as to derive a reasonable view of the cash flows that the Power Systems Division are projected to generate from 2017-2021.
Key valuation assumptions – Power Systems Division
Inherent in a valuation of a firm is the reliance on key assumptions, including, but not limited to, the cash flows of the reporting unit, weighted average cost of capital (“WACC”), and terminal growth rates of the Company. In evaluating its key variables, the Company concluded that the WACC and terminal growth rates of the Power Systems Division were approximately 13% and 3%, respectively.
As part of its annual budget process and in light of the operating losses of the reporting unit in 2016, the Power Systems Division prepared its 2017 budget and provided a prospective view of their various businesses, including key products, new and existing markets and customers, production processes, and insight into the future growth of the business. To the extent that there is a significant economic downturn, a freeze in military spending, a loss of a major contract or customer, or a significant shift of pre-existing customer arrangements to future years, the Company may need to evaluate goodwill for impairment in between the annual measurement period if events and circumstances indicate that it is more likely than not the asset is impaired.
As a result of its quantitative analysis, in which the Company computed the fair value of the Power Systems Division, the Company concluded that the fair value of the reporting unit exceeded the reporting unit’s carrying value by approximately 37%. The Company will continue to monitor the actual results of the reporting unit against its plan and re-evaluate goodwill as required in between the annual measurement period if events and circumstances indicate that it is more likely than not the asset is impaired.
The Company also considered its current market capitalization compared to the sum of the estimated fair values of its reporting units in conjunction with each impairment assessment. As of the December 31, 2016 valuation date, its market capitalization was approximately $92.5 million, which did not, in management’s view, suggest that the fair value estimates used in its impairment assessment required any adjustment.
As a result of these analyses, the Company concluded that the goodwill recorded in relation to the Power Systems Division was not impaired at December 31, 2016.
b. Other intangible assets:
Amortization expense amounted to $2,875,543, $3,043,536, and $2,696,740 for the years ended December 31, 2016, 2015 and 2014, respectively, including amortization of capitalized software costs of $88,010, $255,000, and $378,000, respectively.
c. Estimated amortization expenses, using both straight line and accelerated amortization methods, for the years shown is as follows:
Goodwill and other intangible assets are adjusted on a quarterly basis for any change due to currency fluctuations and any variation is included in the accumulated other comprehensive income on the consolidated balance sheets.
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.
Reference 1: http://www.xbrl.org/2003/role/presentationRef