Goodwill and Intangibles

3 Months Ended

Sep. 30, 2019

Goodwill and Intangible Assets Disclosure [Abstract]

The changes in the carrying amount of goodwill for both the Service Center Based Distribution segment and the Fluid Power & Flow Control segment for the fiscal year ended June 30, 2019 and the three month period ended September 30, 2019 are as follows:



	Service Center Based Distribution			Fluid Power & Flow Control		Total
Balance at July 1, 2018	$	203,084		$	443,559	$	646,643
Goodwill acquired during the period	9,943			4,798		14,741
Other, primarily currency translation	607			—		607
Balance at June 30, 2019	$	213,634		$	448,357	$	661,991
Goodwill adjusted/acquired during the period	(3,393		)	12,773		9,380
Other, primarily currency translation	105			—		105
Balance at September 30, 2019	$	210,346		$	461,130	$	671,476

During the first quarter of fiscal 2020, the Company recorded an adjustment to the preliminary estimated fair value of intangible assets related to the MilRoc/Woodward acquisition. The fair values of the customer relationships, trade name, and non-compete intangible assets were increased by $1,524, $1,809, and $60, respectively, with a corresponding total decrease to goodwill of $3,393. The changes to the preliminary estimated fair values resulted in an increase to amortization expense of $303 during the first quarter of fiscal 2020, which is recorded in selling, distribution, and administrative expense on the condensed statements of consolidated income.

The Company has seven (7) reporting units for which an annual goodwill impairment assessment was performed as of January 1, 2019. The Company concluded that all of the reporting units’ fair value exceeded their carrying amounts by at least 20% as of January 1, 2019. Specifically, the Canada reporting unit's fair value exceeded its carrying value by 25%, and the reporting unit comprised of the FCX Performance Inc. operations' fair value exceeded its carrying value by 20%. The Canada and FCX reporting units have goodwill balances of $28,067 and $440,012, respectively, as of September 30, 2019. The fair values of the reporting units in accordance with the goodwill impairment test were determined using the income and market approaches. The income approach employs the discounted cash flow method reflecting projected cash flows expected to be generated by market participants and then adjusted for time value of money factors, and requires management to make significant estimates and assumptions related to forecasts of future revenues, operating margins, and discount rates. The market approach utilizes an analysis of comparable publicly traded companies and requires management to make significant estimates and assumptions related to the forecasts of future revenues, earnings before interest, taxes, depreciation, and amortization (EBITDA) and multiples that are applied to management’s forecasted revenues and EBITDA estimates.

Changes in future results, assumptions, and estimates after the measurement date may lead to an outcome where additional impairment charges would be required in future periods. Specifically, actual results may vary from the Company’s forecasts and such variations may be material and unfavorable, thereby triggering the need for future impairment tests where the conclusions may differ in reflection of prevailing market conditions. Further, continued adverse market conditions could result in the recognition of impairment if the Company determines that the fair values of its reporting units have fallen below their carrying values. Certain events or circumstances that could reasonably be expected to negatively affect the underlying key assumptions and ultimately impact the estimated fair value of the Company’s reporting units may include such items as: (i) a decrease in expected future cash flows, specifically, a decrease in sales volume driven by a prolonged weakness in customer demand or other pressures adversely affecting our long-term sales trends; (ii) inability to achieve the sales from our strategic growth initiatives.

At September 30, 2019 and June 30, 2019, accumulated goodwill impairment losses subsequent to fiscal year 2002 totaled $64,794 related to the Service Center Based Distribution segment and $36,605 related to the Fluid Power & Flow Control segment.

The Company’s identifiable intangible assets resulting from business combinations are amortized over their estimated period of benefit and consist of the following:



September 30, 2019	Amount		Accumulated Amortization		Net Book Value
Finite-Lived Identifiable Intangibles:
Customer relationships	$	435,325	$	142,389	$	292,936
Trade names	107,695		29,189		78,506
Vendor relationships	11,306		8,315		2,991
Non-competition agreements	1,462		1,024		438
Total Identifiable Intangibles	$	555,788	$	180,917	$	374,871



June 30, 2019	Amount		Accumulated Amortization		Net Book Value
Finite-Lived Identifiable Intangibles:
Customer relationships	$	422,367	$	135,879	$	286,488
Trade names	105,946		27,232		78,714
Vendor relationships	11,367		8,156		3,211
Non-competition agreements	2,702		2,249		453
Total Identifiable Intangibles	$	542,382	$	173,516	$	368,866

Amounts include the impact of foreign currency translation. Fully amortized amounts are written off.

During the three month period ended September 30, 2019, the Company acquired identifiable intangible assets with a preliminary acquisition cost allocation and weighted-average life as follows:

Estimated future amortization expense by fiscal year (based on the Company’s identifiable intangible assets as of September 30, 2019) for the next five years is as follows: $30,200 for the remainder of 2020, $38,600 for 2021, $36,400 for 2022, $34,200 for 2023, $30,000 for 2024 and $26,000 for 2025.

Acquisition Cost Allocation

Weighted-Average Life

Customer relationships

Total Intangibles Acquired