Goodwill and Intangible Assets

9 Months Ended

May 31, 2020

Goodwill and Intangible Assets Disclosure [Abstract]

Through multiple acquisitions, we acquired definite-lived intangible assets consisting primarily of trademarks and trade names associated with specific products, distribution networks, patented technology, non-compete agreements, and customer relationships, which are amortized over their estimated useful lives. Indefinite-lived intangible assets consist of trade names that are expected to generate cash flows indefinitely.

We recorded amortization expense of $10.8 million and $7.7 million during the three months ended May 31, 2020 and 2019, respectively, and $30.8 million and $23.1 million during the nine months ended May 31, 2020 and 2019, respectively. Amortization expense is generally recorded on a straight-line basis and is expected to be approximately $41.5 million in fiscal 2020, $40.1 million in fiscal 2021, $40.0 million in fiscal 2022, $38.9 million in fiscal 2023, and $38.0 million in fiscal 2024.

The following table summarizes the changes in the carrying amount of goodwill during the periods presented (in millions):



	Nine Months Ended
	May 31, 2020			May 31, 2019
Beginning balance	$	967.3		$	970.6
Provisional additions from acquired businesses	147.8			—
Adjustments to provisional amounts from acquired businesses	(21.6		)	(0.2		)
Foreign currency translation adjustments	(7.1		)	(6.3		)
Ending balance	$	1,086.4		$	964.1

Further discussion of goodwill and other intangible assets is included within the Significant Accounting Policies footnote of the Notes to Consolidated Financial Statements within our Form 10-K.

Impairment Analysis

We performed our annual impairment review for indefinite-lived intangible assets as of June 1, 2020, consisting of 13 trade names with a total carrying value of approximately $174.7 million immediately prior to the annual review. We utilized significant assumptions to estimate the fair value of these intangible assets using a fair value model based on discounted future cash flows (“fair value model”) in accordance with ASC 820. Future cash flows associated with each of our indefinite-lived trade names are calculated by multiplying a theoretical royalty rate a willing third party would pay for use of the particular trade name by estimated future net sales attributable to the relevant trade name. Based on the results of the indefinite-lived intangible asset analyses, we calculated an impairment charge of $1.4 million related to one trade name. We determined the facts and circumstances that gave rise to this impairment existed as of May 31, 2020 and recorded this charge within Selling, distribution, and administrative expenses during the third fiscal quarter. The impairment analyses of the other 12 indefinite-lived intangible assets indicated that their fair values exceeded their carrying values.

Our revenue assumptions were based on our fiscal 2021 projections and recent third-party lighting, controls, and building management solutions market growth estimates for fiscal 2022 through 2030. The long-term growth rate used in determining terminal value was estimated at 3% and was based primarily on our understanding of projections for expected long-term growth within our addressable market and historical long-term performance. Estimated theoretical royalty rates ranged between 1% and 4%. We utilized a range of estimated discount rates for the trade names between 10% and 13%, based on the Capital Asset Pricing Model, which considers the current risk-free interest rate, beta, market risk premium, and entity specific size premium. No reasonably likely change in the assumptions used in the analyses for our trade names, including revenue growth rates, royalty rates, and discount rates, would result in an impairment that is material to our financial condition or results of operations.

We also performed our annual impairment test for goodwill as of June 1, 2020 and concluded the fair value of our one reporting unit exceeds its carrying value by a substantial margin. For more details on our testing procedures and significant assumptions related to our annual impairment tests, refer to the Critical Accounting Estimates section of our Form 10-K.