Note D - Goodwill and Other Intangibles

12 Months Ended

Jun. 30, 2016

Goodwill and Intangible Assets Disclosure [Text Block]

D. GOODWILL AND OTHER INTANGIBLES

Goodwill

The Company reviews goodwill for impairment on a reporting unit basis annually as of the end of the fiscal year, and whenever events or changes in circumstances (“triggering events”) indicate that the carrying value of goodwill may not be recoverable. Goodwill recorded in the following reporting units was evaluated:

US Industrial

European Propulsion

European Industrial

The goodwill impairment test involves a two-step process. In step one, the fair value of each of the reporting units is compared to its carrying value, including the goodwill allocated to the reporting unit. If the fair value of the reporting unit exceeds its carrying value, there is no indication of impairment and no further testing is required. If the fair value of the reporting unit is less than the carrying value, step two of the impairment test is performed to measure the amount of impairment loss, if any. In step two of the test, the fair value of the reporting unit’s assets and liabilities (both recognized and unrecognized intangible assets) are measured in accordance with ASC 805, “Business Combinations”, in a hypothetical purchase transaction and compared to the fair value of the reporting unit in order to calculate the implied fair value of goodwill in the same manner as if the reporting unit was being acquired in a business combination. If the implied fair value of the reporting unit’s goodwill is less than the carrying value, the difference is recorded as an impairment loss.

The fair value of reporting units is primarily driven by projected growth rates and operating results under the income approach using a discounted cash flow model, which applies an appropriate market-participant discount rate, and consideration of other market approach data from guideline public companies.

The Company experienced sustained declines in operating results across the business during fiscal 2016, which resulted from weak market trends in the Company’s

global oil and gas and commercial marine markets, an underperforming European economy, and few signs of significant near-term recovery in the markets served by these reporting units. The Company conducted its annual assessment for goodwill impairment as of June 30, 2016 using updated inputs, including appropriate risk-based, country and company specific weighted average discount rates for all of the Company’s reporting units, which had increased from the prior year to 13.1% for the U.S. Industrial business as a result of the macroeconomic trends and the Company’s forecasted cash flows. The assessment resulted in the U.S. Industrial and European Propulsion reporting units failing step one of the impairment test. The Company then performed step two testing for each of the reporting units. The conclusions were that the U.S. Industrial reporting unit required an impairment charge of $6,391, and the European Propulsion reporting unit required a full impairment charge of $1,211. The fair value of the European Industrial reporting unit exceeded its carrying value by 31% and therefore no impairment charge was required for this reporting unit.

The total non-cash impairment charge of $7,602 does not result in any future cash expenditures, impact liquidity, affect the ongoing business or financial performance of the Company, impact compliance with our lending arrangements, or reduce borrowing capacity.

As of June 30, 2016, goodwill is carried in the following reporting units:

Reporting Unit
US Industrial	$	2,550
European Industrial		2,570
Total	$	5,120

The changes in the carrying amount of goodwill, all of which is allocated to the manufacturing segment, for the years ended June 30, 2016 and 2015 were as follows:

	Gross Carrying Amount			Accumulated Impairment			Net Book Value
Balance at June 30, 2014	$	17,133		$	(3,670	)	$	13,463
Translation adjustment		(674	)		-			(674	)
Balance at June 30, 2015		16,459			(3,670	)		12,789
Sale of business		(25	)		-			(25	)
Impairment		-			(7,602	)		(7,602	)
Translation adjustment		(42	)		-			(42	)
Balance at June 30, 2016	$	16,392		$	(11,272	)	$	5,120

Other Intangibles

At June 30, the following acquired intangible assets have definite useful lives and are subject to amortization:

	June 30, 2016
	Gross Carrying Amount		Accumulated Amortization			Accumulated Impairment			Net Book Value
Licensing agreements	$	3,015	$	(2,565	)	$	-		$	450
Non-compete agreements		2,128		(2,045	)		(83	)		-
Trade name		1,668		(275	)		-			1,393
Other		6,615		(5,301	)		(1,194	)		120
	$	13,426	$	(10,186	)	$	(1,277	)	$	1,963

	June 30, 2015
	Gross Carrying Amount		Accumulated Amortization			Accumulated Impairment			Net Book Value

Licensing agreements	$	3,015	$	(2,505	)	$	-		$	510
Non-compete agreements		2,128		(2,045	)		(83	)		-
Trade name		1,653		(194	)		-			1,459
Other		6,476		(5,278	)		(1,194	)		4
	$	13,272	$	(10,022	)	$	(1,277	)	$	1,973

Other intangibles consist of certain amortizable acquisition costs, proprietary technology, computer software and certain customer relationships.

The weighted average remaining useful life of the intangible assets included in the table above is approximately 14 years.

Intangible amortization expense for the years ended June 30, 2016, 2015 and 2014 was $165, $239 and $477, respectively. Estimated intangible amortization expense for each of the next five fiscal years is as follows:

Fiscal Year
2017	$	180
2018		179
2019		167
2020		153
2021		149
Thereafter		1,135

The gross carrying amount of the Company’s intangible assets that have indefinite lives and are not subject to amortization as of June 30, 2016 and 2015 are $201 and $213, respectively. These assets are comprised of acquired tradenames.

- 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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