Goodwill and Other Intangible Assets

12 Months Ended

Jun. 30, 2015

Goodwill And Intangible Assets Disclosure [Abstract]

Note 5.

Goodwill and Other Intangible Assets

Goodwill represents the excess of the cost over the net tangible and identifiable intangible assets of acquired businesses. Identifiable intangible assets acquired in business combinations are recorded based upon fair market value at the date of acquisition.

Changes in the carrying amount of goodwill were as follows ($000):

	Year Ended June 30, 2015
	II-VI Laser			II-VI		II- VI Performance
	Solutions			Photonics		Products		Total
Balance-beginning of period	$	44,041		$	99,214	$	52,890	$	196,145
Foreign currency translation		(463	)		212		-		(251	)
Balance-end of period	$	43,578		$	99,426	$	52,890	$	195,894

	Year Ended June 30, 2014
	II-VI Laser		II-VI		II- VI Performance
	Solutions		Photonics		Products			Total
Balance-beginning of period	$	13,233	$	56,713	$	53,406		$	123,352
Goodwill acquired		30,718		42,375		-			73,093
Goodwill adjustment		-		-		(516	)		(516	)
Foreign currency translation		90		126		-			216
Balance-end of period	$	44,041	$	99,214	$	52,890		$	196,145

The Company reviews the recoverability of goodwill at least annually and any time business conditions indicate a potential change in recoverability. The measurement of a potential impairment begins with comparing the current fair value of the Company’s reporting units to the recorded value (including goodwill). The Company used a discounted cash flow (DCF) model and a market analysis to determine the current fair value of all its reporting units. A number of significant assumptions and estimates are involved in estimating the forecasted cash flows used in the DCF model, including markets and market shares, sales volume and pricing, costs to produce, working capital changes and income tax rates. Management considers historical experience and all available information at the time the fair values of the reporting units are estimated. The Company has the option to perform a qualitative assessment of goodwill to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount, including goodwill and other intangible assets. As of April 1 of fiscal years 2015 and 2014, the Company completed its annual impairment tests of its reporting units. Based on the results of these analyses, the Company’s goodwill of $195.9 million as of June 30, 2015 and $196.1 million as of June 30, 2014 was not impaired.

As the estimated fair value of the II-VI Photonics reporting unit was approximately 5% greater than its carrying value, the Company has concluded that this reporting unit is at risk of not passing step one of future goodwill impairment tests. In the event of unfavorable changes to the existing assumptions used in the impairment test such as the weighted average cost of capital (discount rate), growth rates and market multiples as well as changes in our internal structure, the carrying value of the Company’s goodwill could be impaired. Although the Company believes that the current assumptions and estimates are reasonable, supportable and appropriate, the II-VI Photonics reporting unit competes in a challenging environment with significant pricing pressure and rapidly changing technology and there can be no assurance that the estimates and assumptions made for purposes of the goodwill impairment test will prove to be accurate predictions of future performance.

As a result of the July 1, 2014 segment realignment, the Company reassigned the existing goodwill balances at July 1, 2014 to the new reporting units utilizing a relative fair value allocation approach in accordance with authoritative accounting guidance. The Company also reviewed the recoverability of the carrying value of goodwill at its reporting units. The Company performed a qualitative assessment of goodwill prior to completing the quantitative test to determine whether it is more likely than not that the fair value of a reporting unit was less than its carrying amount, including goodwill and other intangible assets due to the short duration of time since the Company’s annual quantitative goodwill impairment test for fiscal year 2014, which was completed on April 1, 2014. The Company did not record any impairment of goodwill or long-lived assets as the qualitative assessment did not indicate deterioration in the fair value of its reporting units since the most recent annual impairment test.

During the year ended June 30, 2014, the Company recorded an adjustment to goodwill of $0.5 million associated with the November 2012 acquisition of M Cubed Technologies, Inc. (“M Cubed”). This adjustment related to a change in deferred income tax assets and was recorded in conjunction with the finalization and filing of the M Cubed final income tax return.

The gross carrying amount and accumulated amortization of the Company’s intangible assets other than goodwill as of June 30, 2015 and 2014 were as follows ($000):

	June 30, 2015							June 30, 2014
	Gross					Net		Gross					Net
	Carrying		Accumulated			Book		Carrying		Accumulated			Book
	Amount		Amortization			Value		Amount		Amortization			Value
Technology and Patents	$	50,520	$	(18,838	)	$	31,682	$	50,505	$	(14,474	)	$	36,031
Trade names		15,869		(1,111	)		14,758		17,870		(1,037	)		16,833
Customer Lists		102,489		(26,583	)		75,906		102,839		(19,448	)		83,391
Other		1,572		(1,456	)		116		1,586		(1,437	)		149
Total	$	170,450	$	(47,988	)	$	122,462	$	172,800	$	(36,396	)	$	136,404

Amortization expense recorded on the intangible assets for the fiscal years ended June 30, 2015, 2014 and 2013 was $12.0 million, $11.3 million, and $6.7 million, respectively. The technology and patents are being amortized over a range of 60 to 240 months with a weighted-average remaining life of approximately 114 months. The customer lists are being amortized over 60 to 192 months with a weighted-average remaining life of approximately 146 months.

During the year ended June 30, 2015, the Company recognized an impairment charge on two of its indefinite lived trade names in the II-VI Photonics reporting unit as these trademarks were abandoned as a result of the Company’s rebranding efforts. Total impairment recorded during the year ended June 30, 2015 was $2.0 million, which represented the entire carrying value of these two trademarks and was recorded in other expense (income), net in the Consolidated Statements of Earnings.

In connection with past acquisitions, the Company acquired trade names with indefinite lives. The carrying amount of these trade names of $14.4 million as of June 30, 2015 is not amortized but tested annually for impairment. The Company completed its impairment test of these trade names with indefinite lives in the fourth quarter of fiscal years 2015 and 2014. Based on the results of these tests, the trade names were not impaired at June 30, 2015 or 2014.

Included in the gross carrying amount and accumulated amortization of the Company’s patents, customer list and other component of intangible assets and goodwill is the effect of the foreign currency translation on the portion relating to the Company’s German and China subsidiaries. The estimated amortization expense for existing intangible assets for each of the five succeeding years is as follows ($000):

- 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

Year Ending June 30,