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Goodwill and Intangible Assets
 6 Months Ended
Jun. 29, 2019
Goodwill and Intangible Assets Disclosure [Abstract]  
Goodwill Goodwill and Intangible Assets

Goodwill represents the excess of the cost of an acquisition over the fair value of the net assets acquired. The company tests goodwill and other indefinite-lived intangible assets for impairment annually as of the first day of the fourth quarter, or more frequently if indicators of potential impairment exist.

During the second quarter of 2019, as a result of the company’s downward revision of forecasted future earnings previously disclosed in Item 2.02 Form 8-K filed on July 15, 2019 and the decision to wind down the company’s personal computer and mobility asset disposition business, the company determined that it was more likely than not that an impairment may exist within the Americas components and Asia-Pacific components reporting units. The company evaluated its other four reporting units and concluded an interim impairment analysis was not required based on the results of those reporting units and historical levels of headroom in each of those reporting units. The interim goodwill impairment analysis related to the Americas components reporting
unit resulted in partial goodwill impairment charge of $509,000 ($457,806 net of tax) with $601,336 of goodwill remaining in the reporting unit and full impairment of $61,175 ($61,175 net of tax) within the Asia-Pacific reporting unit.
The company estimated the fair value of these reporting units using the income approach. For the purposes of the income approach, fair value was determined based on the present value of estimated future cash flows, discounted at an appropriate risk adjusted rate. The fair value conclusion as of June 29, 2019 for the Americas components reporting unit is highly sensitive to changes in the assumptions used in the income approach which include forecasted revenues, gross profit margins, operating income margins, working capital cash flow, forecasted capital expenditures, perpetual growth rates, and long-term discount rates, among others, all of which require significant judgments by management. As the Americas components reporting unit has 0% excess fair value over the carrying value of the reporting unit, the remaining $601,336 of goodwill is susceptible to future period impairments. For example, a 100 basis point decrease in forecasted gross profit margin could result in a full impairment of the remaining $601,336 of goodwill, absent other inputs improving. The company has used recent historical performance, current forecasted financial information, and broad-based industry and economic statistics as a basis to estimate the key assumptions utilized in the discounted cash flow model. These key assumptions are inherently uncertain and require a high degree of estimation and judgment based on an evaluation of historical performance, current industry and global economic and geo-political conditions, and the timing and success of the implementation of current strategic initiatives.

Goodwill of companies acquired, allocated to the company’s business segments, is as follows:
 
 
Global
Components
 
Global ECS
 
Total
Balance as of December 31, 2018 (a)
 
$
1,437,501

 
$
1,187,189

 
$
2,624,690

Impairments and dispositions
 
(570,175
)
 
(1,386
)
 
(571,561
)
Foreign currency translation adjustment
 
16,823

 
(2,453
)
 
14,370

Balance as of June 29, 2019 (b)
 
$
884,149

 
$
1,183,350

 
$
2,067,499



(a)
The total carrying value of goodwill as of December 31, 2018 in the table above is reflected net of $1,018,780 of accumulated impairment charges, of which $716,925 was recorded in the global components business segment and $301,855 was recorded in the global enterprise computing solutions (“ECS”) business segment.

(b)
The total carrying value of goodwill as of June 29, 2019 in the table above is reflected net of $1,588,955 of accumulated impairment charges, of which $1,287,100 was recorded in the global components business segment and $301,855 was recorded in the global enterprise computing solutions (“ECS”) business segment.


Intangible assets, net, are comprised of the following as of June 29, 2019:
 
 
Weighted-Average Life
 
Gross Carrying Amount
 
Accumulated Amortization
 
Net
Customer relationships
 
10 years
 
$
443,223

 
$
(225,446
)
 
$
217,777

Developed technology
 
5 years
 
1,940

 
(1,035
)
 
905

Amortizable trade name
 
8 years
 
76,407

 
(4,853
)
 
71,554

 
 
 
 
$
521,570

 
$
(231,334
)
 
$
290,236



Intangible assets, net, are comprised of the following as of December 31, 2018:
 
 
Weighted-Average Life
 
Gross Carrying Amount
 
Accumulated Amortization
 
Net
Non-amortizable trade names
 
indefinite
 
$
101,000

 
$
—

 
$
101,000

Customer relationships
 
11 years
 
475,050

 
(221,822
)
 
253,228

Developed technology
 
5 years
 
6,340

 
(4,311
)
 
2,029

Amortizable trade name
 
9 years
 
19,940

 
(3,553
)
 
16,387

 
 
 
 
$
602,330

 
$
(229,686
)
 
$
372,644



During the second quarter of 2019, the company initiated actions to further integrate two global components businesses. These businesses held indefinite-lived trade names with a carrying value of $101,000. As a result of the company’s decision to integrate these brands, we determined the useful lives of the trade names were no longer indefinite. The company will begin amortizing these trade names over their estimated remaining useful lives. The trade names were tested for impairment during the second quarter as a result of the change in estimated useful lives. The company estimated the fair value of the trade names to be $55,000 using the relief from royalty method and recorded a non-cash impairment charge of $46,000 ($34,653 net of tax). The drivers of the impairment were primarily due to the shortened useful lives of the asset and a decline of the forecasted revenues attributable to the trade names as integration to the Arrow brand occurs over the estimated remaining useful lives.

During the second quarter of 2019 and 2018, the company recorded amortization expense related to identifiable intangible assets of $11,413 and $11,955, respectively. During the first six months of 2019 and 2018, amortization expense related to identifiable intangible assets was $23,343 and $25,475, respectively.