Goodwill and Intangibles

6 Months Ended

Dec. 31, 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 six month period ended December 31, 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		)	13,819		10,426
Other, primarily currency translation	758			—		758
Balance at December 31, 2019	$	210,999		$	462,176	$	673,175

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 six months ended December 31, 2019, which is recorded in selling, distribution, and administrative expense on the condensed statements of consolidated income.

During the second quarter of fiscal 2020, the Company recorded an adjustment to the preliminary estimated fair value of intangible assets related to the Olympus Controls acquisition. The trade name and other intangible assets were

increased by $4,260 and $980, respectively, with a corresponding decrease to the customer relationship intangible asset of $5,504 and an increase to goodwill of $264. The changes to the preliminary estimated fair values resulted in a decrease to amortization expense of $24 during the six months ended December 31, 2019, 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. (FCX) operations' fair value exceeded its carrying value by 20%. The Canada and FCX reporting units have goodwill balances of $28,438 and $440,012, respectively, as of December 31, 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 December 31, 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:



December 31, 2019	Amount		Accumulated Amortization		Net Book Value
Finite-Lived Identifiable Intangibles:
Customer relationships	$	430,253	$	150,649	$	279,604
Trade names	111,911		31,113		80,798
Vendor relationships	11,368		8,561		2,807
Other	2,035		725		1,310
Total Identifiable Intangibles	$	555,567	$	191,048	$	364,519



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
Other	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 six month period ended December 31, 2019, the Company acquired identifiable intangible assets with a preliminary acquisition cost allocation and weighted-average life as follows:



	Acquisition Cost Allocation		Weighted-Average Life
Customer relationships	$	7,160	20.0
Trade names	4,260		15.0
Other	980		6.8
Total Intangibles Acquired	$	12,400	17.2

Estimated future amortization expense by fiscal year (based on the Company’s identifiable intangible assets as of December 31, 2019) for the next five years is as follows: $20,100 for the remainder of 2020, $38,500 for 2021, $36,400 for 2022, $34,200 for 2023, $29,900 for 2024 and $26,400 for 2025.