Note H — Goodwill and Other Intangible Assets

Goodwill

Under the provisions of ASC 350-10, Intangibles-Goodwill and Other, goodwill is not amortized. Rather, an entity’s goodwill is subject to periodic impairment testing. ASC 350 requires that an entity assign its goodwill to reporting units and test each reporting unit’s goodwill for impairment at least on an annual basis and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. Accordingly, we perform our goodwill test annually as of October 1 and between annual tests whenever we identify certain triggering events or circumstances that would more likely than not reduce the fair value of any of our reporting units below its respective carrying value. Additionally, we consider income tax effects from any tax deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss, if applicable.

The goodwill impairment test compares a reporting unit’s fair value to its carrying amount to identify any potential impairment. We apply judgment in determining the fair value of our reporting units for purposes of performing the goodwill impairment test. We rely on widely accepted valuation techniques, including discounted cash flow and market multiple analysis approaches, which capture both the future income potential of the reporting unit and the market behaviors and actions of market participants in the industry that includes the reporting unit. These types of analyses require us to make assumptions and estimates regarding future cash flows, industry-specific economic factors, and the profitability of future business strategies. The discounted cash flow approach uses a projection of estimated operating results and cash flows that are discounted using a weighted average cost of capital. Under the discounted cash flow approach, the projection uses management’s best estimates of the amount and timing of expected future cash flows impacted by economic and market conditions over the projected period for each reporting unit. Significant estimates and assumptions include terminal value growth rates, changes in working capital requirements, and weighted average cost of capital. The market multiple analysis estimates fair value by applying revenue and earnings multiples to the reporting unit’s operating results. The multiples are derived from comparable publicly traded companies with similar operating and investment characteristics to the reporting units.

We evaluate the reasonableness of the estimated fair value of our reporting units by reconciling the aggregate fair value of all three of our reporting units to our total market capitalization as of our impairment testing date, taking into account an appropriate control premium. The determination of a control premium requires the use of judgment and is based upon control premiums observed in comparable market transactions.

The changes in the carrying value of goodwill for the years ended December 31, 2019 and 2018 are as follows:


	Patient Care						Products & Services						Consolidated
	Goodwill,		Accum.		Goodwill,		Goodwill,		Accum.		Goodwill,		Goodwill,		Accum.		Goodwill,
(in thousands)	Gross		Impairment		Net		Gross		Impairment		Net		Gross		Impairment		Net
Balance at December 31, 2017	$	625,011	$	(428,668)	$	196,343	$	139,299	$	(139,299)	$	—	$	764,310	$	(567,967)	$	196,343
Additions from acquisitions		2,399		—		2,399		—		—		—		2,399		—		2,399
Balance at December 31, 2018		627,410		(428,668)		198,742		139,299		(139,299)		—		766,709		(567,967)		198,742
Additions from acquisitions		35,926		—		35,926		—		—		—		35,926		—		35,926
Measurement period adjustments (1)		(2,424)		—		(2,424)		—		—		—		(2,424)		—		(2,424)
Balance at December 31, 2019	$	660,912	$	(428,668)	$	232,244	$	139,299	$	(139,299)	$	—	$	800,211	$	(567,967)	$	232,244

(1) Measurement period adjustments relate to 2019 and 2018 acquisitions of approximately $2.1 million and $0.3 million, respectively, and are primarily attributable to adjustments to the preliminary allocations of customer relationship intangibles.

See Note G - “Acquisitions” within these consolidated financial statements for details surrounding goodwill acquired during the years ended December 31, 2019 and 2018.

As of October 1, 2019 and 2018, we performed a qualitative assessment of goodwill impairment for the Patient Care reporting unit, which resulted in our determination that it was more likely than not that the carrying value of the reporting unit was less than its fair value.

As of October 1, 2017, we tested each of our three reporting units as part of our annual goodwill impairment test. Due to the nature and magnitude of events adversely impacting the reimbursement environment within the skilled nursing facility industry (our primary customer source for our Therapeutic solutions business) and the O&P industry (our primary source for our Distribution services business), combined with customer losses and related margin pressures, which increased in the fourth quarter of 2017, our evaluation of our Therapeutic and Distribution reporting units' long-term outlook resulted in our conclusion that the carrying amounts of these two reporting units exceeded their respective estimated fair values. We recorded non-cash goodwill impairment charges of $32.8 million for our Therapeutic reporting unit and $20.5 million for our Distribution reporting unit which is included in “Impairment of intangible assets” in the consolidated statements of operations. The fair value of our Patient Care reporting unit exceeded its carrying amount. These goodwill impairment charges had no impact on our cash flow or compliance with debt covenants for 2017.

Other Intangible Assets

Under the provisions of ASC 360-10, Property, plant, and equipment, an intangible asset that has a finite life should be amortized over its estimated useful life and should be tested for recoverability by comparing the net carrying value of the asset or asset group to the undiscounted net cash flows to be generated from the use and eventual disposition of that asset or asset group when events or changes in circumstances indicate that its carrying amount may not be recoverable. If the carrying amount of a definite-lived asset or asset group is not recoverable, the fair value of the asset or asset group is measured and if the carrying amount exceeds the fair value, an impairment loss is recognized.

Under the provisions of ASC 350, Intangibles-goodwill and other, an indefinite-lived intangible asset is not amortized but should be tested for impairment annually and between annual tests if events or changes in circumstances indicate that it is more likely than not that the asset is impaired. The indefinite-lived intangible asset impairment standard allows an entity first to assess qualitative factors to determine if a quantitative impairment test is necessary. Further testing is only required if the entity determines, based on the qualitative assessment, that it is more likely than not that an indefinite-lived intangible asset’s fair value is less than its carrying amount. We perform our annual test for recoverability as of October 1.

The balances related to other intangible assets as of December 31, 2019 and 2018 are as follows:


	As of December 31, 2019
	Gross Carrying		Accumulated		Accumulated		Net Carrying
(in thousands)	Amount		Amortization		Impairment		Amount
Customer lists	$	32,772	$	(22,726)	$	—	$	10,046
Trade name		255		(151)		—		104
Patents and other intangibles		9,188		(5,503)		—		3,685
Definite-lived intangible assets		42,215		(28,380)		—		13,835
Indefinite-lived trade name		9,070		—		(4,953)		4,117
Total other intangible assets	$	51,285	$	(28,380)	$	(4,953)	$	17,952


	As of December 31, 2018
	Gross Carrying		Accumulated		Accumulated		Net Carrying
(in thousands)	Amount		Amortization		Impairment		Amount
Customer lists	$	26,036	$	(19,051)	$	—	$	6,985
Trade name		255		(125)		—		130
Patents and other intangibles		9,391		(5,145)		—		4,246
Definite-lived intangible assets		35,682		(24,321)		—		11,361
Indefinite-lived trade name		9,070		—		(4,953)		4,117
Total other intangible assets	$	44,752	$	(24,321)	$	(4,953)	$	15,478

The fair value of acquired customer list intangibles is estimated using an excess earnings model. Key assumptions utilized in the valuation model include pro-forma projected cash flows adjusted for market-participant assumptions, forecasted customer retention rates, and discount rates. Existing customer intangibles are amortized using the straight-line method over an estimated useful life of four to ten years. The fair value of non-compete agreements are estimated using a discounted cash flow model. The related intangible assets are amortized, using the straight-line method, over their contractual term which ranges from two to five years. Other definite-lived intangible assets are recorded at cost and are amortized, using the straight-line method, over their estimated useful lives of up to seventeen years. The fair value associated with trade names is estimated using the relief-from-royalty method with the primary assumptions being the royalty rate and expected revenues associated with the trade names. These assets, some of which have indefinite lives, are primarily included in the Products & Services segment. Indefinite-lived trade name intangible assets are assessed for impairment in the fourth quarter of each year, or more frequently if events or changes in circumstances indicate that the asset might be impaired. There was no impairment on our indefinite-lived trade name for the year ended December 31, 2019. The impairment on our indefinite-lived trade name was $0.2 million and $1.4 million for the years ended December 31, 2018 and 2017, respectively. Trade name intangible assets with definite lives are amortized over their estimated useful lives of one to ten years.

Amortization expense related to other intangible assets was approximately $5.0 million, $6.7 million, and $9.5 million for the years ended December 31, 2019, 2018, and 2017, respectively.

Estimated aggregate amortization expense for definite-lived intangible assets for each of the next five years ended December 31, and thereafter is as follows:


(in thousands)
2020	$	5,160
2021		2,576
2022		2,509
2023		2,284
2024		781
Thereafter		525
Total	$	13,835