6. Goodwill and Other Intangible Assets
The Company performs a goodwill impairment analysis using the two-step method on an annual basis and whenever events or changes in circumstances indicate that the carrying value may not be recoverable. The recoverability of goodwill is measured at the reporting unit level by comparing the reporting unit’s carrying amount, including goodwill, to the fair value of the reporting unit. If the carrying amount of the reporting unit exceeds its fair value, goodwill is considered impaired and a second step is performed to measure the amount of loss, if any.
The Company completed its annual impairment test for goodwill during the fourth quarter of fiscal year 2013 and determined the fair values of the reporting units were substantially in excess of the carrying values and that no impairment existed as of the date of the impairment test. For each annual impairment test the Company consistently determines the fair value of its reporting units based on an average weighting of both projected discounted future results and the use of comparative market multiples.
The following tables present the changes in goodwill allocated to the Company’s reportable segments, Diversified Manufacturing Services (“DMS”), Enterprise & Infrastructure (“E&I”) and High Velocity Systems (“HVS”), during the fiscal years ended August 31, 2013 and 2012 (in thousands):
| August 31, 2012 | August 31, 2013 | |||||||||||||||||||||||||||
|
Reportable Segment |
Gross Balance |
Accumulated Impairment Balance |
Acquisitions | Foreign Currency Impact |
Gross Balance |
Accumulated Impairment Balance |
Net Balance | |||||||||||||||||||||
|
DMS |
$ | 643,748 | $ | (558,768 | ) | $ | 341,593 | $ | (715 | ) | $ | 984,626 | $ | (558,768 | ) | $ | 425,858 | |||||||||||
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E&I |
341,822 | (331,784 | ) | — | 309 | 342,131 | (331,784 | ) | 10,347 | |||||||||||||||||||
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HVS |
132,269 | (132,269 | ) | — | — | 132,269 | (132,269 | ) | — | |||||||||||||||||||
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Total |
$ | 1,117,839 | $ | (1,022,821 | ) | $ | 341,593 | $ | (406 | ) | $ | 1,459,026 | $ | (1,022,821 | ) | $ | 436,205 | |||||||||||
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| August 31, 2011 | August 31, 2012 | |||||||||||||||||||||||||||
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Reportable Segment |
Gross Balance |
Accumulated Impairment Balance |
Acquisitions | Foreign Currency Impact |
Gross Balance |
Accumulated Impairment Balance |
Net Balance | |||||||||||||||||||||
|
DMS |
$ | 584,018 | $ | (558,768 | ) | $ | 60,942 | $ | (1,212 | ) | $ | 643,748 | $ | (558,768 | ) | $ | 84,980 | |||||||||||
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E&I |
342,733 | (331,784 | ) | — | (911 | ) | 341,822 | (331,784 | ) | 10,038 | ||||||||||||||||||
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HVS |
132,269 | (132,269 | ) | — | — | 132,269 | (132,269 | ) | — | |||||||||||||||||||
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Total |
$ | 1,059,020 | $ | (1,022,821 | ) | $ | 60,942 | $ | (2,123 | ) | $ | 1,117,839 | $ | (1,022,821 | ) | $ | 95,018 | |||||||||||
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Finite-lived intangible assets are amortized on a straight-line basis and consist primarily of contractual agreements and customer relationships, which are being amortized over periods of up to 15 years, intellectual property which is being amortized over periods of up to nine years and trade names which are being amortized over two years. Indefinite-lived intangible assets consist of trade names. The Company completed its annual impairment test for its indefinite-lived intangible assets during the fourth quarter of fiscal year 2013 and determined that no impairment existed as of the date of the impairment test. Significant judgments inherent in this analysis included assumptions regarding appropriate revenue growth rates, discount rates and royalty rates. No significant residual values are estimated for the amortizable intangible assets. The value of the Company’s intangible assets purchased through business acquisitions is principally determined based on valuations of the net assets acquired. The following tables present the Company’s total purchased intangible assets at August 31, 2013 and August 31, 2012 (in thousands):
|
August 31, 2013 |
Gross Carrying Amount |
Accumulated Amortization |
Net Carrying Amount |
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|
Contractual agreements and customer relationships |
$ | 199,665 | $ | (76,341 | ) | $ | 123,324 | |||||
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Intellectual property |
137,388 | (78,997 | ) | 58,391 | ||||||||
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Finite-lived trade name |
2,647 | (2,322 | ) | 325 | ||||||||
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Indefinite-lived trade name |
122,190 | — | 122,190 | |||||||||
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Total |
$ | 461,890 | $ | (157,660 | ) | $ | 304,230 | |||||
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August 31, 2012 |
Gross Carrying Amount |
Accumulated Amortization |
Net Carrying Amount |
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Contractual agreements and customer relationships |
$ | 122,679 | $ | (63,772 | ) | $ | 58,907 | |||||
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Intellectual property |
84,688 | (76,799 | ) | 7,889 | ||||||||
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Finite-lived trade name |
2,668 | (1,001 | ) | 1,667 | ||||||||
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Indefinite-lived trade name |
50,590 | — | 50,590 | |||||||||
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Total |
$ | 260,625 | $ | (141,572 | ) | $ | 119,053 | |||||
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The weighted-average amortization period for aggregate net intangible assets at August 31, 2013 is 10.9 years, which includes a weighted-average amortization period of 12.1 years for net contractual agreements and customer relationships, a weighted-average amortization period of 7.3 years for net intellectual property and a weighted-average amortization period of 2.0 years for a net finite-lived trade name.
In connection with the acquisition Nypro in the fourth quarter of fiscal year 2013, the Company acquired $335.9 million of goodwill and $196.8 million of intangible assets, including $72.5 million assigned to customer relationships with an assigned useful life of up to 14 years, $52.7 million assigned to intellectual property with an assigned useful life of up to 8 years and $71.6 million assigned to an indefinite-lived trade name. See Note 16 – “Business Acquisitions” for further details.
Intangible asset amortization for fiscal years 2013, 2012 and 2011 was approximately $16.2 million, $16.8 million, and $22.1 million, respectively. The estimated future amortization expense is as follows (in thousands):
|
Fiscal Year Ending August 31, |
Amount | |||
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2014 |
$ | 24,883 | ||
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2015 |
21,740 | |||
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2016 |
18,491 | |||
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2017 |
16,986 | |||
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2018 |
16,986 | |||
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Thereafter |
82,954 | |||
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Total |
$ | 182,040 | ||
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