Goodwill and Other Intangible Assets

6 Months Ended

Dec. 31, 2015

Goodwill and Intangible Assets Disclosure [Abstract]

Goodwill represents the excess of cost over the fair value of the net assets of acquired companies. Goodwill and other intangible assets with indefinite lives are tested at least annually for impairment. We perform our annual impairment tests during the June quarter in connection with our annual planning process, unless there are impairment indicators based on the results of an ongoing cumulative qualitative assessment that warrant a test prior to that. We evaluate the recoverability of goodwill for each of our reporting units by comparing the fair value of each reporting unit with its carrying value. The fair values of our reporting units are determined using a combination of a discounted cash flow analysis and market multiples based upon historical and projected financial information. We apply our best judgment when assessing the reasonableness of the financial projections used to determine the fair value of each reporting unit. We evaluate the recoverability of indefinite-lived intangible assets using a discounted cash flow analysis based on projected financial information. This evaluation is sensitive to changes in market interest rates and other external factors.

Identifiable assets with finite lives are reviewed for impairment when events or circumstances indicate that the carrying value may not be recoverable.

2016 December Quarter Impairment Charge

Late in the December quarter of fiscal 2016, the Company experienced a further unexpected deterioration in customer demand in many of its end markets and certain geographies. Industrial production indices in the US and China have declined, as well as further reductions in mining and oil and gas activity. In view of these declines and the significant impact on our near term financial forecasts as well as a significant and sustained decline in the Company’s stock price, we determined an interim impairment test of our goodwill and other long-lived assets of our Industrial and Infrastructure reporting units was required. As a result of this interim test, we recorded a preliminary non-cash pre-tax impairment charge during the three months ended December 31, 2015 of $106.1 million in the Infrastructure segment, of which $105.7 million was for goodwill and $0.4 million was for an indefinite-lived trademark intangible asset. We also recorded a preliminary non-cash pre-tax impairment charge during the three months ended December 31, 2015 of $2.3 million in the Industrial segment for an indefinite-lived trademark intangible asset. These impairment charges are recorded in restructuring and asset impairment charges in our condensed consolidated statements of income. There is $298.0 million of goodwill at the Industrial reporting unit. The fair value exceeds the carrying value by approximately 70 percent, a decrease of approximately 20 percentage points from the fiscal 2015 annual impairment valuation. The Infrastructure reporting unit goodwill impairment charge is preliminary and subject to finalization of fair values related to intangibles and property, plant and equipment, which we expect to complete in the third quarter of fiscal 2016. The Infrastructure segment has no remaining goodwill recorded.

During the December quarter, we also performed a preliminary review of our identifiable assets with finite lives and preliminarily determined that the assets were not impaired. This review is subject to finalization using consistent assumptions as used in our aforementioned 2016 December quarter goodwill impairment valuation, which we expect to complete in the third quarter of fiscal 2016.

Divestiture Impact on Goodwill and Other Intangible Assets

During the three months ended December 31, 2015, we completed the sale of non-core businesses, see Note 5. As a result of this transaction, goodwill decreased by $1.1 million and $6.5 million in our Industrial and Infrastructure segments, respectively. These decreases are recorded in the loss on divestiture account in our condensed consolidated statements of income.

2015 December Quarter Impairment Charge

As previously disclosed, we recorded a non-cash pre-tax impairment charge during the three months ended December 31, 2014 of $376.5 million in the Infrastructure segment, of which $375.0 million was for goodwill and $1.5 million was for an indefinite-lived trademark intangible asset.

The further acceleration or extended persistence of the current downturn in the global end markets could have a further negative impact on our business and financial performance. We cannot provide assurance that we will achieve all of the anticipated benefits from restructuring actions we have taken and will continue to take. If we are unable to effectively restructure our operations in the light of evolving market conditions, it could have a material adverse effect on our business, financial condition, results of operations and cash flows. We are currently exploring strategic alternatives for one of our non-core Infrastructure businesses. The estimated net book value of the business is approximately $40 million as of December 31, 2015. As the strategic direction has not yet been determined for this business, the business is classified as held and used, and the Company cannot determine if additional impairment charges will be incurred.

A summary of the carrying amount of goodwill attributable to each segment, as well as the changes in such, is as follows:



(in thousands)	Industrial			Infrastructure			Total
Gross goodwill	$	455,371		$	640,360		$	1,095,731
Accumulated impairment losses	(150,842		)	(527,500		)	(678,342		)
Balance as of June 30, 2015	$	304,529		$	112,860		$	417,389

Activity for the six months ended December 31, 2015:
Divestiture	(1,075		)	(6,461		)	(7,536		)
Translation	(5,479		)	(688		)	(6,167		)
Change in gross goodwill	(6,554		)	(7,149		)	(13,703		)
Impairment charges	—			(105,711		)	(105,711		)

Gross goodwill	448,817			633,211			1,082,028
Accumulated impairment losses	(150,842		)	(633,211		)	(784,053		)
Balance as of December 31, 2015	$	297,975		$	—		$	297,975

The components of our other intangible assets were as follows:



	Estimated Useful Life (in years)	December 31, 2015					June 30, 2015
(in thousands)	Estimated Useful Life (in years)	Gross Carrying Amount		Accumulated Amortization				Gross Carrying Amount		Accumulated Amortization
Contract-based	3 to 15	$	7,164	$	(6,538	)		$	8,523	$	(6,990	)
Technology-based and other	4 to 20	47,116		(25,945		)		52,820		(29,723		)
Customer-related	10 to 21	205,566		(60,263		)		275,796		(90,141		)
Unpatented technology	10 to 30	31,934		(4,128		)		59,449		(14,426		)
Trademarks	5 to 20	12,644		(8,090		)		18,575		(12,090		)
Trademarks	Indefinite	16,567		—				24,876		—
Total		$	320,991	$	(104,964	)		$	440,039	$	(153,370	)

As previously mentioned, during the three months ended December 31, 2015, we recorded $2.3 million and $0.4 million of impairment charges in the Industrial and Infrastructure segments, respectively, for indefinite-lived trademark intangible assets as a result of our interim impairment analysis.

The divestiture of non-core businesses completed during the six months ended December 31, 2015 resulted in a reduction of $30.0 million in Customer-related, $15.4 million in Unpatented technology, $5.0 million in Indefinite-lived Trademarks, $1.1 million in Definite-lived Trademarks, $0.8 million in Technology-based and other and $0.5 million in Contract-based.

During the three months ended December 31, 2014, an impairment of $10.5 million was recorded for a contract-based technology intangible asset that was part of the Infrastructure segment, resulting in a non-cash impairment charge of $5.5 million and a reduction in a liability of $5.0 million. As previously mentioned, we recorded a $1.5 million impairment for an indefinite-lived trademark intangible asset as a result of our impairment test of our Infrastructure segment.

During the six months ended December 31, 2015 and 2014, we recorded amortization expense of $11.9 million and $14.0 million, respectively, related to our other intangible assets.

- Definition

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.

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