Goodwill and Intangibles

3 Months Ended

Sep. 30, 2020

Goodwill and Intangible Assets Disclosure [Abstract]

The changes in the carrying amount of goodwill for both the Service Center Based Distribution segment and the Fluid Power & Flow Control segment for the fiscal year ended June 30, 2020 and the three month period ended September 30, 2020 are as follows:


	Service Center Based Distribution		Fluid Power & Flow Control		Total
Balance at June 30, 2019	$	213,634	$	448,357	$	661,991
Goodwill acquired during the period	(3,393)		14,667		11,274
Impairment	—		(131,000)		(131,000)
Other, primarily currency translation	(1,671)		—		(1,671)
Balance at June 30, 2020	$	208,570	$	332,024	$	540,594


Other, primarily currency translation	763		—		763
Balance at September 30, 2020	$	209,333	$	332,024	$	541,357

The Company has eight (8) reporting units for which an annual goodwill impairment assessment was performed as of January 1, 2020. The Company concluded that seven (7) of the reporting units’ fair value exceeded their carrying amounts by at least 10% as of January 1, 2020. Among these, the Canada reporting unit's fair value exceeded its carrying value by 12%, and the Mexico reporting unit's fair value exceeded its carrying value by 14%. The Canada and Mexico reporting units have goodwill balances of $27,770 and $5,365, respectively, as of September 30, 2020. As of January 1, 2020, the carrying value of the final reporting unit, which is comprised of the FCX Performance Inc. (FCX) operations, exceeded the fair value, resulting in goodwill impairment of $131,000. The non-cash impairment charge is the result of the overall decline in the industrial economy, specifically slower demand in FCX's end markets. This has led to reduced spending by customers and reduced revenue expectations. The remaining goodwill for the FCX reporting unit as of September 30, 2020 is $309,012. Because the carrying value of the FCX reporting unit approximated fair value of the reporting unit after the impairment was recorded, a future decline in the estimated cash flows could result in an additional impairment loss. A future decline in the estimated cash flows could result from a significant or extended decline in various end markets.

The fair values of the reporting units in accordance with the goodwill impairment test were determined using the income and market approaches. The income approach employs the discounted cash flow method reflecting projected cash flows expected to be generated by market participants and then adjusted for time value of money factors, and requires management to make significant estimates and assumptions related to forecasts of future revenues, earnings before interest, taxes, depreciation, and amortization (EBITDA), and discount rates. The market approach utilizes an analysis of comparable publicly traded companies and requires management to make significant estimates and assumptions related to the forecasts of future revenues, EBITDA, and multiples that are applied to management’s forecasted revenues and EBITDA estimates.

The techniques used in the Company's impairment test have incorporated a number of assumptions that the Company believes to be reasonable and to reflect known market conditions at the measurement date. Assumptions in estimating future cash flows are subject to a degree of judgment. The Company makes all efforts to forecast future cash flows as accurately as possible with the information available at the measurement date. The Company evaluates the appropriateness of its assumptions and overall forecasts by comparing projected results of upcoming years with actual results of preceding years. Key assumptions (Level 3 in the fair value hierarchy) relate to pricing trends, inventory costs, customer demand, and revenue growth. A number of benchmarks from independent industry and other economic publications were also used.

Changes in future results, assumptions, and estimates after the measurement date may lead to an outcome where additional impairment charges would be required in future periods. Specifically, actual results may vary from the Company’s forecasts and such variations may be material and unfavorable, thereby triggering the need for future impairment tests where the conclusions may differ in reflection of prevailing market conditions. Further, continued adverse market conditions could result in the recognition of additional impairment if the Company determines that the fair values of its reporting units have fallen below their carrying values. Certain events or circumstances that could reasonably be expected to negatively affect the underlying key assumptions and ultimately impact the estimated fair

value of the Company’s reporting units may include such items as: (i) a decrease in expected future cash flows, specifically, a decrease in sales volume driven by a prolonged weakness in customer demand or other pressures adversely affecting our long-term sales trends; (ii) inability to achieve the sales from our strategic growth initiatives.

At September 30, 2020 and June 30, 2020, accumulated goodwill impairment losses subsequent to fiscal year 2002 totaled $64,794 related to the Service Center Based Distribution segment. At September 30, 2020 and June 30, 2020, accumulated goodwill impairment losses subsequent to fiscal year 2002 totaled $167,605 related to the Fluid Power & Flow Control segment.

The Company’s identifiable intangible assets resulting from business combinations are amortized over their estimated period of benefit and consist of the following:


September 30, 2020	Amount		Accumulated Amortization		Net Book Value
Finite-Lived Identifiable Intangibles:
Customer relationships	$	426,471	$	170,805	$	255,666
Trade names	111,488		36,794		74,694
Vendor relationships	11,376		9,170		2,206
Other	2,078		1,031		1,047
Total Identifiable Intangibles	$	551,413	$	217,800	$	333,613


June 30, 2020	Amount		Accumulated Amortization		Net Book Value
Finite-Lived Identifiable Intangibles:
Customer relationships	$	426,017	$	162,965	$	263,052
Trade names	111,453		34,815		76,638
Vendor relationships	11,329		8,934		2,395
Other	2,078		948		1,130
Total Identifiable Intangibles	$	550,877	$	207,662	$	343,215

Amounts include the impact of foreign currency translation. Fully amortized amounts are written off.

Identifiable intangible assets with finite lives are reviewed for impairment when changes in conditions indicate carrying value may not be recoverable. Sustained significant softness in certain end market concentrations could result in impairment of certain intangible assets in future periods.

Estimated future amortization expense by fiscal year (based on the Company’s identifiable intangible assets as of September 30, 2020) for the next five years is as follows: $28,600 for the remainder of 2021, $36,200 for 2022, $34,000 for 2023, $29,800 for 2024, $26,800 for 2025 and $24,800 for 2026.