Quarterly report pursuant to Section 13 or 15(d)

Goodwill and Other Intangible Assets

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Goodwill and Other Intangible Assets
9 Months Ended
Jun. 30, 2014
Goodwill and Other Intangible Assets [Abstract]  
Goodwill and Other Intangible Assets
Note 13.   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 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 at March 31, 2014.  As discussed in the Company’s Annual Report on Form 10-K for the year ended September 30, 2013, 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.

Trade names with indefinite lives are tested for impairment annually in the second quarter. Matthews performed a quantitative impairment evaluation of its trade names for 2014, and the test indicated the trade names were not impaired.

A summary of the carrying amount of goodwill attributable to each segment as well as the changes in such amounts are as follows:

   
Cemetery
   
Funeral Home
         
Graphics
   
Marking and Fulfillment
   
Merchandising
       
   
Products
   
Products
   
Cremation
   
Imaging
   
Products
   
Solutions
   
Consolidated
 
                                           
Goodwill
  $ 99,707     $ 163,208     $ 17,823     $ 193,281     $ 50,646     $ 9,138     $ 533,803  
Accumulated impairment losses
    (412 )     -       (5,000 )     (3,840 )     -       -       (9,252 )
Balance at September 30, 2013
    99,295       163,208       12,823       189,441       50,646       9,138       524,551  
                                                         
Additions during period
    -       -       -       -       -       -       -  
Translation and other  adjustments
    334       -       269       2,056       (60 )     -       2,599  
Goodwill
    100,041       163,208       18,092       195,337       50,586       9,138       536,402  
Accumulated impairment losses
    (412 )     -       (5,000 )     (3,840 )     -       -       (9,252 )
Balance at June  30, 2014
  $ 99,629     $ 163,208     $ 13,092     $ 191,497     $ 50,586     $ 9,138     $ 527,150  


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

   
Carrying
   
Accumulated
       
   
Amount
   
Amortization
   
Net
 
June 30, 2014:
                 
Trade names
  $ 23,140     $ - *   $ 23,140  
Trade names
    3,042       (2,202 )     840  
Customer relationships
    59,184       (21,763 )     37,421  
Copyrights/patents/other
    10,257       (9,443 )     814  
    $ 95,623     $ (33,408 )   $ 62,215  
                         
September 30, 2013:
                       
Trade names
  $ 22,878     $ - *   $ 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  
    $ 95,089     $ (29,987 )   $ 65,102  
* Not subject to amortization
                 

The carrying amount of indefinite-lived trade names as of September 30, 2013 included an impairment loss of approximately $1.6 million in the Graphics Imaging segment that was recorded in the second quarter of fiscal 2013.  The net change in intangible assets during the nine months ended June 30, 2014 included foreign currency fluctuations during the period and additional amortization.

Amortization expense on intangible assets was $830 and $1,169 for the three-month periods ended June 30, 2014 and 2013, respectively.  For the nine-month periods ended June 30, 2014 and 2013, amortization expense was $3,170 and $3,048, respectively. Amortization expense is estimated to be $963 for the remainder of 2014, $3,664 in 2015, $3,374 in 2016, $3,181 in 2017 and $3,163 in 2018.