Intangible Assets, Goodwill and Other

9 Months Ended

Mar. 29, 2020

Goodwill and Intangible Assets Disclosure [Abstract]

17. Goodwill Impairment

Goodwill represents the excess of purchase price over tangible and intangible assets acquired less liabilities assumed arising from business combinations. Goodwill is assigned to reporting units. The Engines reporting segment is a reporting unit. The Products reporting segment has three reporting units, which are Turf & Consumer, Standby, and Job Site.

The changes in the carrying amount of goodwill by reporting segment for the period ended March 29, 2020 are as follows (in thousands):


	Engines	Products	Total
Goodwill Balance June 30, 2019	137,095	32,587	169,682
Impairment Loss	(55,463)	(12,017)	(67,480)
Effect of Translation	(950)	(892)	(1,842)
Goodwill Balance at March 29, 2020	80,682	19,678	100,360

At March 29, 2020 and June 30, 2019, accumulated goodwill impairment losses, as recorded in the Products segment, were $143.4 million and $131.4 million, respectively, and in the Engines Segment were $55.5 million and $0.0 million, respectively.

Goodwill and other indefinite-lived intangibles assets are not amortized. The Company evaluates goodwill and other indefinite-lived intangible assets for impairment annually as of the end of the fourth fiscal quarter, or more frequently if events or circumstances indicate that the assets may be impaired.

The Company will test goodwill using the simplified one-step process. The Company identifies a potential impairment by comparing the carrying values of each of the Company’s reporting units to their estimated fair values as of the test dates. The estimates of fair value of the reporting units are computed using a combination of an income approach and a market approach. The income approach utilizes a multi-year forecast of estimated cash flows and a terminal value at the end of the cash flow period. The forecast period assumptions consist of internal projections that are based on the Company's budget and long-range strategic plan. The discount rate used at the test date is the weighted-average cost of capital which reflects the overall level of inherent risk of the reporting unit and the rate of return an outside investor would expect to earn. Valuations using the market approach are derived from metrics of publicly traded companies or historically completed transactions of comparable businesses. The selection of comparable businesses is based on the markets in which the reporting units operate giving consideration to risk profiles, size, geography, and diversity of products and services.

Some of the significant assumptions inherent in estimating the fair values include the estimated future annual net cash flows for each reporting unit (including net sales, operating income margin, and working capital) and a discount rate that appropriately reflects the risks inherent in each future cash flow stream. The Company selected assumptions used in the financial forecasts using historical data, supplemented by current and anticipated market conditions, estimated growth rates, management’s plans, and guideline companies. The assumptions included in the impairment test require judgment, and changes to these inputs could impact the results of the calculation.

If the fair value of a reporting unit exceeds its book value, goodwill of the reporting unit is not deemed impaired. If the book value of a reporting unit exceeds its fair value, an impairment is recorded.

The Company determined that a triggering event existed during the third quarter of fiscal year 2020 due to the continued downward trend of the stock price during the third quarter and additionally due to the impact COVID-19 may have on forecasted cash flow estimates used in the goodwill assessment and other intangible asset assessment. The Company performed an interim goodwill impairment test on its Engines, Turf & Consumer, and Job Site reporting units as of March 29, 2020.

The Job Site reporting unit fair value did not exceed the carrying value and a $12.0 million impairment was recorded. The discount rate the Company used to determine the fair value was 15%. The Turf & Consumer reporting unit fair value exceeded the carrying value by more than 10% but less than 20%. The discount rate the Company used to determine the fair value was 16%. The Engines reporting unit fair value did not exceed the carrying value and a $55.5 million impairment was recorded. The discount rate the Company used to determine the

fair value was 18%. The Company recorded the non-cash goodwill impairment charge in the third quarter of fiscal year 2020 for Engines and Job Site, as determined by comparing the carrying value of the reporting unit’s goodwill with the implied fair value of goodwill for the reporting unit. The impairment charge is a non-cash expense that was recorded as a separate component of operating expenses. The goodwill impairment was not deductible for income tax purposes. The impairment charge did not adversely affect the Company’s debt position, cash flow, liquidity or compliance with financial covenants under its revolving credit facility. The Company will continue to perform triggering event assessments throughout the year and perform the annual goodwill impairment test in the fourth quarter of fiscal 2020. Assumptions used in future impairment test models for each reporting unit could change based on factors such as market conditions and reporting unit performance.

The Company also performs an impairment test of its indefinite-lived intangible assets as of the fiscal year-end and more frequently if events or circumstances indicate that the assets may be impaired. For purposes of the indefinite-lived intangible asset impairment analysis, the Company performs its assessment of fair value based on an income approach using the relief-from-royalty method. The Company determines the fair value of each tradename by applying a royalty rate to a projection of net sales discounted using a risk adjusted cost of capital. Sales growth rates are determined after considering current and future economic conditions, recent sales trends, discussions with customers, planned timing of new product launches and many other variables. Each royalty rate is based on profitability of the business to which it relates and observed market royalty rates.

The Company also performed the impairment test on its indefinite-lived intangible assets. Based on the results of the impairment test, no indefinite-lived intangible asset impairment charges were recorded