GOODWILL AND OTHER INTANGIBLE ASSETS

12 Months Ended

Dec. 31, 2014

GOODWILL AND OTHER INTANGIBLE ASSETS [Abstract]

NOTE 8 - GOODWILL AND OTHER INTANGIBLE ASSETS

In connection with the acquisitions of B27 on January 2, 2014 and NatPro on April 16, 2013, DXP allocated $259.4 million and $37.6 million, respectively, to goodwill and other intangibles. The goodwill and other intangibles were allocated into four separate reporting units, B27 Service Centers, B27 IPS, NatPro Service Centers and NatPro IPS. B27 Service Centers, B27 IPS and NatPro IPS recorded impairment losses during the fourth quarter of 2014.

During the fourth quarter of 2014, DXP performed its annual goodwill impairment test at its B27 IPS reporting unit and recognized impairment expense of $95.1 million. This impairment loss is included in the “Impairment expense” line item on the income statement. In performing the goodwill impairment test, Step 1 of the test failed as the fair value of the reporting unit no longer exceeded its carrying amount primarily due to actual revenues being lower than revenues forecasted as of the date of acquisition and the decline in oil prices during the third quarter of 2014. Fair value was based on expected future cash flow using Level 3 inputs under ASC 820. The cash flows are those expected to be generated by market participants, discounted at a rate of return market participants would expect. In Step 2, goodwill with a carrying amount of $148.0 million was determined to have an implied fair value of $52.9 million after the hypothetical purchase price allocation under US GAAP guidance for business combinations. Approximately 60% of the goodwill associated with the B27 acquisition is not deductible for tax purposes. Accordingly, the financial statement tax benefit is calculated for only 40% of the goodwill impairment. The pretax impairment impacted DXP’s effective tax rate for 2014. B27 IPS is reported in the IPS reportable segment.

During the fourth quarter of 2014, DXP performed its annual goodwill impairment test at its NatPro IPS reporting unit and recognized impairment expense of $12.3 million consisting of goodwill. Fair value was based on expected future cash flows using Level 3 inputs under ASC 820. The cash flows are those expected to be generated by the market participants, discounted at a rate of return market participants would expect. Goodwill was determined to have an implied fair value of zero after the hypothetical purchase price allocation under US GAAP guidance for business combinations. This impairment loss is included in the "Impairment expense" line item on the income statement. None of the goodwill associated with the NatPro acquisition is deductible for tax purposes. The pretax goodwill impairment impacted DXP's effective tax rate for 2014. NatPro IPS is reported in the IPS reportable segment.

During the fourth quarter of 2014, DXP performed its annual goodwill impairment test at its B27 Service Centers reporting unit and recognized a goodwill impairment expense of $10.2 million. This impairment loss is included in the “Impairment expense” line item on the income statement. In performing the goodwill impairment test, Step 1 of the test failed as the fair value of the reporting unit no longer exceeded its carrying amount primarily due to actual revenues being lower than revenues forecasted as of the date of acquisition and the decline in oil prices during the third quarter of 2014. Fair value was based on expected future cash flow using Level 3 inputs under ASC 820. The cash flows are those expected to be generated by market participants, discounted at a rate of return market participants would expect. In Step 2, goodwill was determined to have an implied fair value of $20.1 million after the hypothetical purchase price allocation under USGAAP guidance for business combinations. Approximately 60% of the goodwill associated with the B27 acquisition is not deductible for tax purposes. Accordingly, the financial statement tax benefit is calculated for only 40% of the impairment. The pretax impairment impacted DXP’s effective tax rate for 2014. B27 Service Centers is reported in the Service Centers reportable segment.

The following table presents the changes in the carrying amount of goodwill and other intangible assets during the year ended December 31, 2014 (in thousands):

	Goodwill	Other Intangible Assets	Total

Balance as of December 31, 2013	$ 188,110	$ 69,722	$ 257,832
Acquired during the period	182,771	85,264	268,035
Impairment	(117,569)	-	(117,569)
Translation adjustment	-	(2,173)	(2,173)
Amortization	-	(22,480)	(22,480)
Balance as of December 31, 2014	$ 253,312	$ 130,333	$ 383,645

The following table presents the changes in the carrying amount of goodwill and other intangible assets during the year ended December 31, 2013 (in thousands):

	Goodwill	Other Intangible Assets	Total

Balance as of December 31, 2012	$ 145,788	$ 63,189	$ 208,977
Acquired during the period	39,898	22,033	61,931
Adjustments to prior period estimates	2,424	(2,424)	-
Translation adjustment	-	(1,246)	(1,246)
Amortization	-	(11,830)	(11,830)
Balance as of December 31, 2013	$ 188,110	$ 69,722	$ 257,832

The following table presents goodwill balance by reportable segment as of December 31, 2014 and 2013 (in thousands):

	As of December 31,
	2014	2013
Service Centers	$ 167,302	$ 142,714
Innovative Pumping Solutions	68,872	28,258
Supply Chain Services	17,138	17,138
Total	$ 253,312	$ 188,110

The following table presents a summary of amortizable other intangible assets (in thousands):

	As of December 31, 2014			As of December 31, 2013
	Gross Carrying Amount	Accumulated Amortization	Carrying Amount, net	Gross Carrying Amount	Accumulated Amortization	Carrying Amount, net
Vendor agreements	$ 2,496	$ (1,330)	$ 1,166	$ 2,496	$ (1,205)	$ 1,291
Customer relationships	192,512	(63,957)	128,555	109,897	(42,468)	67,429
Non-compete agreements	1,737	(1,125)	612	1,739	(737)	1,002
Total	$ 196,745	$ (66,412)	$ 130,333	$ 114,132	$ (44,410)	$ 69,722

Customer relationships are amortized over their estimated useful lives. Amortization expense is recognized according to estimated economic benefits and was $22.5 million, $11.8 million, and $10.9 million for the years ended December 31, 2014, 2013, and 2012, respectively. The estimated future annual amortization of intangible assets for each of the next five years and thereafter are as follows (in thousands):

2015	$ 20,584
2016	17,584
2017	16,737
2018	15,163
2019	13,828
Thereafter	46,437

The weighted average remaining estimated life for vendor agreements, customer relationships, and non-compete agreements are 9.3 years, 10.8 years, and 2.6 years, respectively.

- 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.

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