Intangibles and Goodwill

9 Months Ended

Apr. 30, 2020

Goodwill and Intangible Assets Disclosure [Abstract]

Our intangible assets consist of the following:


	April 30, 2020										July 31, 2019
	Gross		Accumulated Amortization		Net		Gross		Accumulated Amortization		Net
Intangible assets with finite lives:
Customer relationships	$	370,370	$	(71,389)	$	298,981	$	146,204	$	(54,866)	$	91,338
Technology	90,296		(28,408)		61,888		60,032		(24,081)		35,951
Brand names	8,364		(3,800)		4,564		8,361		(3,256)		5,105
Non-compete agreements	2,850		(1,769)		1,081		2,880		(1,653)		1,227
Patents and other registrations	2,560		(1,027)		1,533		2,866		(1,252)		1,614
	474,440		(106,393)		368,047		220,343		(85,108)		135,235
Trademarks and tradenames	118,278		—		118,278		6,278		—		6,278
Total intangible assets	$	592,718	$	(106,393)	$	486,325	$	226,621	$	(85,108)	$	141,513

Amortization expense related to intangible assets was $23,952 and $15,508 for the nine months ended April 30, 2020 and 2019, respectively. We expect to recognize an additional $8,844 of amortization expense related to intangible assets for the remainder of fiscal 2020, and thereafter $34,965, $34,593, $33,560, $32,701 and $29,886 of amortization expense for fiscal years 2021, 2022, 2023, 2024 and 2025, respectively.

Goodwill changed during the nine months ended April 30, 2020 as follows:


	Medical		Life Sciences		Dental		Dialysis		Total
Balance, July 31, 2019	$	180,197	$	64,481	$	125,298	$	8,133	$	378,109
Acquisitions	—		—		277,126		—		277,126

Foreign currency translation	(1,061)		(283)		(265)		—		(1,609)
Balance, April 30, 2020	$	179,136	$	64,198	$	402,159	$	8,133	$	653,626

Interim Goodwill and Indefinite-lived Intangible Assets Impairment Assessment

As discussed in Note 1, “Basis of Presentation,” the unprecedented nature of the COVID-19 pandemic has adversely impacted the global economy. As the global economic landscape changes, there is a wide range of possible outcomes regarding the nature and timing of events and reactions to the COVID-19 pandemic, each of which are highly dependent on variables that are currently difficult to predict. In response to the COVID-19 pandemic, we have taken actions to protect our employees, customers and other stakeholders and mitigate the negative impact of the COVID-19 pandemic on our operations and operating results. These and additional actions can increase the costs of doing business during the pandemic and in the periods that follow, including the costs of idling and reopening certain facilities in affected areas. Further, precautionary measures taken by customers, health care patients and consumers in response to the pandemic are expected to impact the timing and amount of sales during the COVID-19 pandemic.

During the pandemic, the public has been advised to: (i) remain at home, (ii) limit social interaction, (iii) close non-essential businesses and (iv) postpone certain surgical and elective medical procedures in order to prioritize/conserve available health care resources. During the three months ended April 30, 2020, this has negatively impacted, most notably, the net sales and operating results of our Dental reporting unit as the offices of many dentists are closed and certain routine dental procedures are being deferred. Based on our assessment, we believe our sales and income from operations in this reporting unit were impacted by the pandemic during the third quarter.

We historically perform our annual impairment review for goodwill and indefinite-lived intangible assets during the beginning of our fourth fiscal quarter (May 1st) of each fiscal year. We assess qualitative factors, such as each of our reporting unit’s financial performance, industry and market conditions, macroeconomic conditions and specific issues that can directly affect any of our respective reporting units to determine whether it is more likely than not that the fair value of such goodwill and indefinite-lived intangible assets is less than their respective carrying value. If warranted, we would perform a quantitative analysis comparing the current fair value of our goodwill and indefinite-lived intangible assets to their respective carrying value. Because of the COVID-19 pandemic, we determined that it is more likely than not that the carrying value of our Dental reporting unit goodwill and indefinite-lived intangible assets may be greater than their respective fair value, and therefore completed a quantitative analysis in the quarter ended April 30, 2020.

To determine the fair value of the Dental reporting unit, we used a discounted cash flow model with market-based support as its valuation technique. The discounted cash flow model used a ten-year forecasted cash flow plus a terminal value by capitalizing the last period’s cash flows using a perpetual growth rate. Our significant assumptions in the discounted cash flow model included, but were not limited to, the discount rate, revenue growth rates, gross margin percentages, terminal growth rate, operating income before depreciation and amortization, and capital expenditures forecasts. We considered the current market conditions when determining these assumptions. The cash flow and sales forecasts considered the nature and timing of the expected sales declines, operating cost savings, as well as any incremental costs that we expect to incur due to the COVID-19 pandemic.

In conjunction with testing goodwill for impairment, we tested the indefinite-lived intangible assets related to the Hu-Friedy trade name within our Dental reporting unit for impairment. We performed this test using an income approach, more specifically the relief-from-royalty method. In the development of the forecasted cash flows, we applied significant judgment to determine key assumptions, including royalty rates and discount rates. Royalty rates used are consistent with those assumed for the original purchase accounting valuation.

Our analysis concluded that the fair value of goodwill and indefinite-lived intangible assets of our Dental reporting unit was not more likely than not to be less than their respective carrying value. The use of estimates and the development of assumptions result in uncertainties around forecasted revenues and cash flows. A change in any of these estimates and assumptions, as well as unfavorable changes in the ongoing COVID-19 pandemic, could produce a different fair value, which could have a negative impact and result in a future impairment charge that could materially impact our results of operations. Although we did not record an impairment charge during the three months ended April 30, 2020, we will monitor and assess the impact that the COVID-19 pandemic continues to have on our business and related operations during the remainder of fiscal 2020 for each of our reporting units.