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Goodwill and Other Intangible Assets | 9 Months Ended
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Feb. 28, 2017
Goodwill And Intangible Assets Disclosure [Abstract] |
Goodwill and Other Intangible Assets | NOTE 3 – GOODWILL AND OTHER INTANGIBLE ASSETS The changes in the carrying amount of goodwill, by reportable segment, for the nine months ended February 28, 2017 follows:
|  | Industrial |  |  | Specialty |  |  | Consumer |  |  |  |  |
(In thousands) |  | Segment |  |  | Segment |  |  | Segment |  |  | Total |
Balance as of June 1, 2016 |  | $ | 475,355 |  |  | $ | 171,768 |  |  | $ | 572,507 |  |  | $ | 1,219,630 |
Acquisitions |  |  | 39,366 |  |  |  | 3,376 |  |  |  | 30,080 |  |  |  | 72,822 |
Impairment |  |  |  |  |  |  |  |  |  |  | (140,456 | ) |  |  | (140,456 | )
Translation adjustments |  |  | (4,700 | ) |  |  | (1,663 | ) |  |  | (12,620 | ) |  |  | (18,983 | )
Balance as of February 28, 2017 |  | $ | 510,021 |  |  | $ | 173,481 |  |  | $ | 449,511 |  |  | $ | 1,133,013 |
The gross amount of accumulated impairment losses at June 1, 2016 totaled $14.9 million, all of which was recorded during the fiscal year ended May 31, 2009 by our industrial reportable segment. For the nine months ended February 28, 2017, we recognized $140.5 million of preliminary goodwill impairment losses, which was recorded by our consumer reportable segment. At February 28, 2017, accumulated impairment losses totaled $155.4 million. Other intangible assets as of February 28, 2017 consist of the following major classes:
|  | February 28, 2017 |
|  | Gross Carrying |  |  | Accumulated |  |  | Impairment |  |  | Net Carrying |
(In thousands) |  | Amount |  |  | Amortization |  |  | Charge |  |  | Amount |
Amortized intangible assets |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Formulae |  | $ | 230,184 |  |  | $ | (126,707 | ) |  | $ | (15,332 | ) |  | $ | 88,145 |
Customer-related intangibles |  |  | 367,024 |  |  |  | (115,255 | ) |  |  | (30,115 | ) |  |  | 221,654 |
Trademarks/names |  |  | 41,948 |  |  |  | (14,567 | ) |  |  |  |  |  |  | 27,381 |
Other |  |  | 37,269 |  |  |  | (20,424 | ) |  |  | (198 | ) |  |  | 16,647 |
Total Amortized Intangibles |  |  | 676,425 |  |  |  | (276,953 | ) |  |  | (45,645 | ) |  |  | 353,827 |
Indefinite-lived intangible assets |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Trademarks/names |  |  | 232,945 |  |  |  |  |  |  |  | (7,535 | ) |  |  | 225,410 |
Total Other Intangible Assets |  | $ | 909,370 |  |  | $ | (276,953 | ) |  | $ | (53,180 | ) |  | $ | 579,237 |
The gross amount of other intangible asset accumulated impairment losses at June 1, 2016 totaled $0.6 million, all of which was recorded during the fiscal year ended May 31, 2009 by our industrial reportable segment. For the three and nine months ended February 28, 2017, we recorded preliminary other intangible asset impairment losses of approximately $4.9 million and $52.6 million, respectively, all of which was recorded by our consumer reportable segment. As previously reported, we had monitored the performance of our Kirker nail enamel business throughout fiscal 2016. During the third quarter ended February 29, 2016, we reported that performance shortfalls for Kirker were attributable to a delay in new business. We performed our annual goodwill impairment analysis during the fourth quarter of fiscal 2016, which resulted in an excess of fair value over carrying value of 8% for our Kirker reporting unit. During our first quarter ended August 31, 2016, we reported that while Kirker’s first quarter results were below the comparable prior year period, their performance was in line with expectations, and our assessment of the Kirker business did not indicate the presence of any goodwill impairment triggering events. For the quarter ended November 30, 2016, we identified certain factors that we considered important in assessing the requirement to perform an interim impairment evaluation for our Kirker reporting unit. First, Kirker’s three month operating results for the period ended November 30, 2016 were significantly below historical and expected operating results and downward adjustments were recently made regarding our expectations for Kirker’s performance. In the quarter ended November 30, 2016, Kirker experienced market share losses at several key customers, including the loss of its largest customer, which accounted for over 15% of Kirker’s fiscal 2016 sales. In addition, some problematic customer relationship issues surfaced during the quarter ended November 30, 2016, which resulted in a personnel change in a key leadership position at Kirker. After considering the totality of these recent events, we determined that an interim step one goodwill impairment assessment was required, as well as an impairment assessment for our intangible and other long-lived assets. Our testing resulted in the preliminary impairment charges reflected above for goodwill and other intangible assets. Our goodwill impairment assessment included estimating the fair value of our Kirker reporting unit and comparing it with its carrying amount at November 30, 2016. Since the carrying amount of Kirker exceeded its fair value, additional steps were required to determine and recognize a preliminary impairment loss. Calculating the fair value of a reporting unit requires our significant use of estimates and assumptions, which are generally considered Level 3 inputs based on our review of the fair value hierarchy. We estimated the fair value of our Kirker reporting unit by applying a discounted future cash flow calculation to Kirker’s projected earnings before interest, taxes, depreciation and amortization (“EBITDA”). In applying this methodology, we relied on a number of factors, including actual and forecasted operating results and market data for the nail enamel industry. Discounted cash flow calculations represent a common measure used to value and buy or sell businesses in our industry. The discounted cash flow used in the goodwill impairment test for Kirker assumed discrete period revenue growth through fiscal 2021 that was reflective of recent downward revisions to previous expectations for future growth from market opportunities related to contracting with certain retailers to fill nail polish for their respective private label brands as well as downward revisions to growth expectations for the Kirker liquid nail polish business below the expected liquid nail polish growth rates for the markets in which Kirker operates. In the terminal year we assumed a long-term earnings growth rate of 3.0% that we believe is appropriate given the current industry specific expectations. As of the valuation date, we utilized a weighted-average cost of capital of 8.0%, which we believe is appropriate as it reflects the relative risk, the time value of money, and is consistent with Kirker’s peer group. After recording the goodwill impairment charge of $140.5 million, no goodwill remained on the Kirker balance sheets as of November 30, 2016 and February 28, 2017. Our other intangible asset impairment assessment involved estimating the fair value of each of Kirker’s amortizable intangibles and other long-lived assets as well as the indefinite-lived tradename asset and comparing it with its carrying amount. Measuring a potential impairment of amortizable intangibles and other long-lived assets requires the use of various estimates and assumptions, including the determination of which cash flows are directly related to the assets being evaluated, the respective useful lives over which those cash flows will occur and potential residual values, if any. As the results of our testing indicated that the carrying values of certain of these assets would not be recoverable, as outlined in further detail in the table above, we recorded other intangible asset impairments of approximately $45.7 million during the quarter ended November 30, 2016. Calculating the fair value of the Kirker indefinite-lived tradename required our significant use of estimates and assumptions. We estimated the fair value of Kirker’s indefinite-live tradename by applying a relief-from-royalty calculation, which included discounted future cash flows related to its projected revenues. In applying this methodology, we relied on a number of factors, including actual and forecasted revenues and market data for the nail enamel industry. As the carrying amount of the tradename exceeded its fair value, the impairment loss of $2.0 million was recorded during the quarter ended November 30, 2016. Certain assets and liabilities are subject to nonrecurring fair value measurements, which typically are remeasured at fair value as a result of impairment charges. As a result of the impairment testing described above, the fair value of Kirker’s identifiable intangible assets and indefinite-lived tradename were recalculated, and the resulting fair value approximated $5.8 million. Based upon our review of the fair value hierarchy, the inputs used in these fair value measurements were considered Level 3 inputs. For the quarter ended February 28, 2017, we identified certain factors that we considered important in assessing the requirement to perform an interim impairment evaluation for our Restore indefinite tradename asset. First, sales of our Restore product line during the three month period ended February 28, 2017 were below historical and expected operating results and significant downward adjustments were recently made to sales projections for Restore products. In the quarter ended February 28, 2017, we became aware that it was highly likely that Restore’s largest customer would discontinue sales of the Restore product line in its retail stores, which was evidenced by this customer’s significant reduction in future orders based on its historical order pattern. We determined that this was significant to consider for the purposes of impairment testing, as sales of Restore products to this customer accounted for over 60% of total sales of Restore products for fiscal 2016. After considering the magnitude of the loss in sales volume from this key customer, we determined that it was necessary to perform an interim assessment for the other intangible assets and indefinite-lived tradename related to the Restore product line. Our impairment assessment involved estimating the fair value of the indefinite-lived tradename and comparing it with its carrying amount. Calculating the fair value of the Restore indefinite-lived tradename required our significant use of estimates and assumptions. We estimated the fair value of the Restore indefinite-lived tradename by applying a relief-from-royalty calculation, which included discounted future cash flows related to its projected revenues. In applying this methodology, we relied on a number of factors, including actual and forecasted revenues for sales of the Restore product line. As the carrying amount of the tradename exceeded its fair value, the preliminary impairment charge of $4.9 million was recorded for the three and nine months ended February 28, 2017. Additionally, a further assessment of the remaining useful life of the Restore tradename was performed, which resulted in a change in to its remaining economic useful life, from an indefinite-life to a 10-year amortizable life. We are not able to finalize our other intangible asset impairment assessments until such time as we finalize our fair value determinations, which we expect to complete during our fourth fiscal quarter ending May 31, 2017. At that time, we will record the necessary adjustments, if any, to our preliminary impairment charges recorded in the current quarter.

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- 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 Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 350 -SubTopic 30 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=66006027&loc=d3e16373-109275 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 350 -SubTopic 30 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=66006027&loc=d3e16265-109275 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 350 -SubTopic 30 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=66006027&loc=d3e16323-109275 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 350 -SubTopic 20 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=35741047&loc=d3e13816-109267 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 350 -SubTopic 20 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=35741047&loc=d3e13854-109267 + Details
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