Matthews International Corporation Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

GOODWILL AND OTHER INTANGIBLE ASSETS

GOODWILL AND OTHER INTANGIBLE ASSETS

12 Months Ended

Sep. 30, 2014

GOODWILL AND OTHER INTANGIBLE ASSETS [Abstract]

19.	GOODWILL AND OTHER INTANGIBLE ASSETS:

Goodwill related to business combinations is not amortized, but is subject to annual review for impairment. In general, when the carrying value of a reporting unit exceeds its implied fair value, an impairment loss may need to be recognized. For purposes of testing for impairment, the Company uses a discounted cash flow technique. A number of assumptions and estimates are involved in the application of the discounted cash flow model to forecast operating cash flows, including sales volumes and pricing, costs to produce, tax rates, capital spending, working capital changes, and discount rate. The Company estimates future cash flows using volume and pricing assumptions based largely on existing customer relationships and contracts, and operating cost assumptions management believes are reasonable based on historical performance and projected future performance as reflected in its most recent operating plans and projections. The discount rate used in the discounted cash flow analysis was developed with the assistance of valuation experts and management believes it appropriately reflects the risks associated with the Company's operating cash flows. In order to further validate the reasonableness of the estimated fair values of the reporting units as of the valuation date, a reconciliation of the aggregate fair values of all reporting units to market capitalization was performed using a reasonable control premium.

The Company performed its annual impairment review in the second quarter of fiscal 2014 and fiscal 2013 and determined that for all reporting units, except Graphics Imaging, the estimated fair value significantly exceeded carrying value so no adjustments to the carrying value of goodwill were necessary. Recent economic conditions in Europe have unfavorably impacted the operating results of the Graphics Imaging business. For the Graphics Imaging reporting unit, the estimated fair value exceeded its carrying value by less than 10%, resulting in no goodwill impairment for the unit. While the Graphics Imaging reporting unit passed the first step of the impairment test, if its operating profits or another significant assumption were to deteriorate in the future, it could adversely affect the estimated fair value of the reporting unit. Factors that could have a negative impact on the estimated fair value of the Graphics Imaging reporting unit include a further delay in the recovery of the European market, continued pricing pressure, declines in expected volumes, and an increase in discount rates. If the Company is unsuccessful in its plans to recover the profitability of this business, the estimated fair value could decline and lead to a potential goodwill impairment in the future. Changes to goodwill during the years ended September 30, 2014 and 2013, follow.

														Marking and
	Cemetery			Funeral Home					Graphics			Merchandising		Fulfillment
	Products			Products		Cremation			Imaging			Solutions		Systems			Consolidated

Goodwill	$	102,371		$	162,876	$	12,558		$	169,174		$	9,138	$	30,816		$	486,933
Accumulated impairment losses		(5,000	)		-		-			(5,752	)		-		-			(10,752	)
Balance at September 30, 2012		97,371			162,876		12,558			163,422			9,138		30,816			476,181

Additions during period		914			199		269			21,361			-		19,677			42,420
Translation and other adjustments		1,010			133		(4	)		4,658			-		153			5,950
Goodwill		104,295			163,208		12,823			195,193			9,138		50,646			535,303
Accumulated impairment losses		(5,000	)		-		-			(5,752	)		-		-			(10,752	)
Balance at September 30, 2013		99,295			163,208		12,823			189,441			9,138		50,646			524,551

Additions during period		-			-		-			312,403			-		288			312,691
Translation and other adjustments		(1,908	)		-		(136	)		(15,684	)		-		(47	)		(17,775	)
Goodwill		102,387			163,208		12,687			491,912			9,138		50,887			830,219
Accumulated impairment losses		(5,000	)		-		-			(5,752	)		-		-			(10,752	)
Balance at September 30, 2014	$	97,387		$	163,208	$	12,687		$	486,160		$	9,138	$	50,887		$	819,467

In fiscal 2014, the addition to goodwill primarily reflects the acquisition of Schawk.

In fiscal 2013, the addition to Graphics Imaging goodwill primarily reflects the acquisition of Wetzel; the addition to Marking and Fulfillment Systems goodwill reflects the acquisition of Pyramid; the addition to Cemetery Products goodwill reflects the acquisition of a small bronze manufacturer in Europe; the addition to Cremation goodwill reflects a small acquisition; and the addition to Funeral Home Products primarily represents the effect of an adjustment to the purchase price for a small casket distributor.

The following tables summarize the carrying amounts and related accumulated amortization for intangible assets as of September 30, 2014 and 2013, respectively.

	Carrying		Accumulated			Impairment
	Amount		Amortization			Loss			Net
September 30, 2014:
Trade names	$	144,150	$	-	*	$	(1,621	)	$	142,529
Trade names		2,854		(2,121	)		-			733
Customer relationships		258,441		(24,785	)		-			233,656
Copyrights/patents/other		14,528		(9,584	)		-			4,944
	$	419,973	$	(36,490	)	$	(1,621	)	$	381,862

September 30, 2013:
Trade names	$	24,496	$	-	*	$	(1,618	)	$	22,878
Trade names		3,034		(2,142	)		-			892
Customer relationships		59,061		(19,099	)		-			39,962
Copyrights/patents/other		10,116		(8,746	)		-			1,370
	$	96,707	$	(29,987	)	$	(1,618	)	$	65,102
*Not subject to amortization

The net change in intangible assets during fiscal 2014 included an increase for the acquisition of Schawk, foreign currency fluctuations during the period and additional amortization. The net change in intangible assets during fiscal 2013 included an increase for the acquisitions of Wetzel and Pyramid of $12,027, offset by an impairment loss in the Graphics Imaging segment, the impact of changes in foreign currency exchange rates and additional amortization.

Amortization expense on intangible assets was $7,318, $4,156, and $3,886 in fiscal 2014, 2013 and 2012, respectively. Fiscal year amortization expense is estimated to be $20,517 in 2015, $19,654 in 2016, $18,671 in 2017, $17,513 in 2018 and $16,513 in 2019.

- 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.

+ References + Details