Goodwill and Intangible Assets, Net

3 Months Ended

Sep. 30, 2016

Goodwill And Intangible Assets Disclosure [Abstract]

Note 8 – Goodwill and Intangible Assets, Net

Goodwill

Goodwill was $1.511 billion at September 30, 2016 compared with $1.510 billion at June 30, 2016. The increase in goodwill in the three months ended September 30, 2016 versus June 30, 2016 was primarily associated with favorable foreign currency translation of $1.2 million partially offset by a decrease of $0.1 million in connection with the acquisition of TowerSec Ltd. (“TowerSec”).

As discussed in Note 18 – Business Segment Data, we revised our segment and reporting unit structure effective July 1, 2016. Under this new structure, our Lifestyle Audio segment will now contain our car audio aftermarket services business which was previously included in our Connected Services segment. Our reporting units are the same as our reportable segments with the exception of Lifestyle Audio, which consists of two reporting units, car audio and consumer audio. In connection with this realignment, we reallocated our goodwill to our new reporting unit based on each reporting unit’s relative fair value. We also performed a goodwill impairment test as of July 1, 2016 using our new reporting units. We determined that the fair value of each of our reporting units exceeded its carrying value and, as such, no impairments were deemed to exist as of this date.

The changes in the carrying amount of goodwill by business segment for the three months ended September 30, 2016 were as follows:

	Connected Car			Lifestyle Audio		Professional Solutions		Connected Services			Total
Balance, June 30, 2016	$	164,771		$	147,977	$	385,609	$	811,922		$	1,510,279
Realignment adjustments⁽¹⁾		-			9,623		-		(9,623	)		-
Balance, June 30, 2016 – adjusted		164,771			157,600		385,609		802,299			1,510,279
Acquisitions and adjustments⁽²⁾		(100	)		-		1		-			(99	)
Other adjustments⁽³⁾		1,081			108		184		(173	)		1,200
Balance, September 30, 2016	$	165,752		$	157,708	$	385,794	$	802,126		$	1,511,380

⁽¹⁾	The realignment adjustments reallocate our goodwill based on our new reporting structure based on the relative fair value of each reporting unit.

⁽²⁾	Refer to Note 22—Acquisitions for more information.

⁽³⁾	The other adjustments to goodwill primarily consist of foreign currency translation adjustments.

We did not recognize any goodwill impairment charges in our Condensed Consolidated Statements of Income in the three months ended September 30, 2016 and 2015.

The contingent purchase price associated with the acquisition of innovative Systems GmbH (“IS”) is calculated pursuant to the terms of an agreement between the parties. Certain terms of the agreement are currently subject to a dispute between the parties and the matter has been submitted to arbitration. On November 5, 2013, the arbitration panel issued a partial award on some of the disputed matters covering the period from February 2009 through January 2012 awarding €16.3 million to the IS sellers. We contested the enforcement of the partial award. In July 2014, the partial award was upheld. During the fiscal year ended June 30, 2015, we paid the €16.3 million partial award.

On June 22, 2016, we executed an agreement with certain parties that previously owned 80.05% of IS (the “80.05% Shareholders”) to settle the remaining disputed matters with the 80.05% Shareholders that had been submitted to arbitration related to the contingent purchase price associated with our acquisition of IS. Under the terms of the agreement, we will pay the 80.05% Shareholders €76.8 million (the “IS Obligation”), with an initial payment of €24.8 million which was paid in July 2016 and four installment payments of €13 million due every July 1^st from 2017 through 2020. In fiscal year 2016, we recorded approximately $74.5 million of additional contingent purchase price for this IS Obligation as an increase to goodwill. The agreement includes an option that, if exercised by the 80.05% Shareholders, would require us to make selected installment payments early, subject to an eight percent discount rate. The existence of this option effectively makes this obligation due on demand and it has therefore been included in our Condensed Consolidated Balance Sheets in Current portion of long-term debt. Until such time as the disputed matters with the remaining shareholders that previously owned 19.95% of IS are resolved, we cannot calculate the contingent purchase price related to the acquisition of IS. Refer to Note 9—Debt for more information.

Intangible Assets, Net

Net intangible assets were $461.8 million and $476.3 million at September 30, 2016 and June 30, 2016, respectively, and were comprised of the following:

		September 30, 2016							June 30, 2016
	Weighted Average Amortization	Gross Carrying Amount		Accumulated Amortization			Net Amount		Gross Carrying Amount		Accumulated Amortization			Net Amount
Customer relationships	12 Years	$	386,686	$	(85,328	)	$	301,358	$	386,787	$	(75,957	)	$	310,830
Technology	6 Years		75,543		(30,361	)		45,182		75,431		(27,645	)		47,786
Patents	15 Years		7,205		(1,584	)		5,621		7,256		(1,584	)		5,672
Trade names⁽¹⁾	-		100,618		(26,339	)		74,279		100,617		(26,231	)		74,386
Non-compete agreement	4 Years		3,146		(2,186	)		960		3,146		(2,060	)		1,086
Software	5 Years		44,950		(13,023	)		31,927		45,682		(11,945	)		33,737
Other	4 Years		10,490		(7,974	)		2,516		10,490		(7,703	)		2,787
Total		$	628,638	$	(166,795	)	$	461,843	$	629,409	$	(153,125	)	$	476,284

⁽¹⁾	Includes $55.7 million and $18.5 million of indefinite-lived intangible assets related to the acquisition of AMX LLC and AMX Holding Corporation (collectively “AMX”) and Martin Professional A/S, respectively.

Amortization expense related to intangible assets was $15.5 million and $21.1 million for the three months ended September 30, 2016 and 2015, respectively.

Amortization expense in each of the next five fiscal years and thereafter is expected to approximate the following:

2017	$	48,690
2018		62,120
2019		56,964
2020		52,320
2021		48,576
Thereafter		118,894
Total	$	387,564

- 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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