. Goodwill and Other Intangibles

Goodwill represents the amount of the consideration transferred in excess of the net of the acquisition-date fair values of the identifiable assets acquired and the liabilities assumed.

The Company reviews goodwill for impairment on a reporting unit basis annually as of the

first

day of the Company’s

fourth

fiscal quarter, which occurs on

March 30, 2020

this year, and whenever events or changes in circumstances (“triggering events”) indicate that the carrying value of goodwill

may

not

be recoverable.

A significant amount of judgment is involved in determining if a triggering event has occurred. Such indicators

may

include, among others: a significant decline in expected future cash flows; a sustained, significant decline in the Company’s stock price and market capitalization; a significant adverse change in legal factors or in the business climate; unanticipated competition; the testing for recoverability of a significant asset group within a reporting unit; and slower growth rates. Any adverse change in these factors could have a significant impact on the recoverability of these assets and could have a material impact on the Company’s consolidated financial statements.

The Company believes that the economic disruptions and unprecedented market volatilities and uncertainties resulting from the COVID-

outbreak is a triggering event in the current fiscal quarter. Consequently, it performed an interim goodwill impairment test as of the end of its current quarter,

March 27, 2020.

Subsequent to the adoption of ASU

2017

04,

goodwill impairment charges are recorded using a simplified

one

-step approach. The fair value of a reporting unit, as defined, is compared to the carrying value of the reporting unit, including goodwill. The fair value is primarily determined using discounted cash flow analyses which is driven by projected growth rates, and which applies an appropriate market-participant discount rate; the fair value determined is also compared to the value obtained using a market approach from guideline public company multiples. If the carrying amount exceeds the fair value, that difference is recognized as an impairment loss.

The European Propulsion reporting unit, which carried goodwill in the amount of

$22,822,

has heretofore been experiencing positive operating results. The Company continues to have a positive outlook of its operations and remains committed to supporting it. However, the onset of the COVID-

outbreak and its uncertainties, as described in Note A, Basis of Presentation, requires the Company to approach the goodwill impairment analysis differently this year; that past performance is

longer necessarily a good predictor of the future in a COVID-

environment. To incorporate uncertainties in its analysis, upon the advice of an expert

third

party valuation firm which the Company consulted with, the Company applied a scenario modeling analysis for its goodwill impairment test this year. It is deemed to be the most prudent and a more robust approach in the face of uncertainty. Each scenario is then weighted with management’s expectations of potential outcomes, to arrive at a reasonable conclusion of the fair value of the reporting unit. This is the approach deployed by the Company in this year’s goodwill and long-lived asset impairment analyses.

In assessing the current environment, management is informed that there is consensus among industry experts that the impacts from the outbreak will be severe and adverse, and that a general contraction in the macroeconomic environment is expected. The magnitude and duration is unknown. Management expects that a contraction of the global economy would reduce or shift the demand for its products in the near term. For example, the reporting unit expects that the demand for certain of its end-market products, such as passenger leisure cruise vessels, passenger ferries, and other commercial vessels that operate based on general economic activities, will likely be adversely impacted as social restrictions are put in place by governments to curb the outbreak. Based on additional market insights and expectations of industry and subject matter experts, which also includes the negative impacts of the historic and unprecedented free fall drop in the global price of oil, the Company believes that future cash flow projections of this reporting unit will fall short of its previous projections, which included synergies that are now less likely to be realized in the face of a COVID-

environment.

The European Industrial reporting unit which carried goodwill in the amount of

$2,558

is also challenged with the same macroeconomic conditions and market contraction.

The Company completed its interim assessment for goodwill impairment as of

March 27, 2020

with the assistance of the aforementioned

third

party expert, using updated inputs, including an appropriate risk-based, company specific weighted average discount rate of

13.0%.

The assessment resulted in the full impairment of the European Propulsion and European Industrial reporting units, in the amount of

$25,380.

As a result of the full impairment of goodwill, the balance of goodwill at

March 27, 2020

is zero. There will

longer be a need for future goodwill impairment tests.

As a consequence of these macroeconomic developments, market insights and expectations, and the occurrence of a triggering event in the quarter, the Company also performed an assessment of its intangibles and other long-lived assets. The Company performed an undiscounted operating cash flow analysis as of

March 27, 2020,

as well as the review of other assets in service and their remaining useful lives. It was determined that an impairment charge pertaining to certain tradenames, licenses and other assets was required, in the amount of

$2,223.

The total non-cash impairment charge of

$27,603,

as described above, is a non-cash charge and is reported on the goodwill and other impairment charge line in the condensed consolidated statement of operations within the manufacturing segment. The tax impact of this charge is to increase the income tax (benefit) by

$1,275.

As of

March 27, 2020,

changes in the carrying amount of goodwill is summarized as follows:

	Net Book Value Rollforward									By Reporting Unit
	Gross Carrying Amount			Accumulated Impairment			Net Book Value			European Propulsion			European Industrial
Balance at June 30, 2019	$	39,776		$	(13,822	)	$	25,954		$	23,371		$	2,583
Impairment		-			(25,380	)		(25,380	)		(22,822	)		(2,558	)
Translation adjustment		(574	)		-			(574	)		(549	)		(25	)
Balance at March 27, 2020	$	39,202		$	(39,202	)	$	-		$	-		$	-

As of

March 27, 2020,

the following acquired intangible assets have definite useful lives and are subject to amortization:

	Net Book Value Rollforward									Net Book Value By Asset Type
	Gross Carrying Amount			Accumulated Amortization / Impairment			Net Book Value			Customer Relationships			Technology Know-how			Trade Name			Other
Balance at June 30, 2019	$	39,587		$	(14,434	)	$	25,153		$	14,843		$	7,025		$	2,733		$	552
Additions		78			-			78			-			-			-			78
Amortization		-			(3,420	)		(3,420	)		(2,252	)		(854	)		(190	)		(124	)
Impairment		-			(1,306	)		(1,306	)		-			-			(1,080	)		(226	)
Translation adjustment		(580	)		-			(580	)		(381	)		(150	)		(44	)		(5	)
Balance at March 27, 2020	$	39,085		$	(19,160	)	$	19,925		$	12,210		$	6,021		$	1,419		$	275

Other intangibles consist mainly of computer software. Amortization is recorded on the basis of straight-line or accelerated, as appropriate, over the estimated useful lives of the assets.

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

years.

Intangible amortization expense was

$1,148

and

$746

for the quarters ended

March 27, 2020,

and

March 29, 2019,

respectively. Intangible amortization expense was

$3,420

and

$1,995

for the

three

quarters ended

March 27, 2020,

and

March 29, 2019,

respectively. Estimated intangible amortization expense for the remainder of fiscal

2020

and each of the next

five

fiscal years is as follows:

Fiscal Year
2020	$	1,112
2021		3,153
2022		2,969
2023		2,809
2024		2,641
2025		2,473

The gross carrying amount of the Company’s intangible assets that have indefinite lives and are

not

subject to amortization as of

March 27, 2020

and

June 30, 2019

was

and

$200,

respectively. These assets were comprised of acquired trade names. As discussed above, an impairment charge was recorded on these assets during the quarter ended

March 27, 2020.