GOODWILL AND INTANGIBLE ASSETS |
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Goodwill and Intangible Assets Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
GOODWILL AND INTANGIBLE ASSETS |
Changes in the carrying amount of goodwill for the six months ended June 28, 2020 by segment are as follows:
Intangible assets, net consist of the following as of June 28, 2020 and December 31, 2019:
Changes in the carrying value of intangible assets for the six months ended June 28, 2020 by segment are as follows:
(1) Certain immaterial operations permanently ceased activities during the second quarter of 2020. As a result, we recorded a $2.0 million pre-tax impairment of customer relationships and trademarks of these operations after determining the net carrying value of the assets was no longer recoverable. The impairment was calculated using our internal projections of discounted cash flows, which rely on Level 3 inputs in the fair value hierarchy based on the unobservable nature of the underlying data. The impairment was recorded in selling, general and administrative in our condensed consolidated statements of income for the second quarter and six months ended June 28, 2020.
Valuation of Goodwill and Indefinite-Lived Intangibles
We test goodwill and indefinite-lived intangible assets (trademarks) for impairment on an annual basis (as of September 30, 2019 for our most recent annual tests) and, if certain events or circumstances indicate that an impairment loss may have been incurred, on an interim basis. Our 2019 tests indicated that there was no impairment, as fair value exceeded carrying values, and we concluded that none of our reporting units or trademarks were at risk of failing the impairment test.
Despite the excess fair value identified in our 2019 impairment tests, we assessed during the quarter and six months ended June 28, 2020 whether the impact of the COVID-19 pandemic on overall macroeconomic conditions and our operating income for the second quarter and six months ended June 28, 2020 indicated that at June 28, 2020 it was more likely than not that our goodwill and trademarks were impaired. We evaluated among other factors (i) the results of our 2019 impairment tests; (ii) our market capitalization at June 28, 2020 in relation to the carrying amount of shareholders’ equity at June 28, 2020 and to fair values determined during our 2019 impairment tests; (iii) the results of our operations during the second quarter and six months ended June 28, 2020 in relation to our projections; and (iv) our analysis of the impact on the fair values determined during our 2019 impairment tests using more recent projections and discount rates that account for various risks and uncertainties, including the duration and extent of impact to our business, related to the COVID-19 pandemic.
Based on the results of our assessment, and other than immaterial impairments discussed above, we determined it was more likely than not that our goodwill and trademarks were not impaired as of June 28, 2020. However, we are unable to predict how long the COVID-19-related conditions will persist, what additional measures may be introduced by governments or private parties, or what effect any such additional measures may have on demand for our products or those of our customers in each of our end markets. As such, we may be required to perform quantitative impairment tests in future periods preceding our annual impairment test date, and the outcome of such tests could result in an impairment of our goodwill or our trademarks.
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