Goodwill

9 Months Ended

Mar. 31, 2024

Goodwill and Intangible Assets Disclosure [Abstract]

Goodwill is not amortized but instead is tested at least annually for impairment as of June 1, or more frequently if events or circumstances indicate that the carrying amount of goodwill may be impaired. Potential impairment is identified by comparing the fair value of a reporting unit to its carrying value. If the carrying value of the reporting unit exceeds its fair value, any impairment loss is measured by the difference between the carrying value of the reporting unit and its fair value, not to exceed the carrying amount of goodwill. The discounted cash flow analysis for each reporting unit tested requires significant estimates and assumptions related to cash flow forecasts, discount rates, terminal values and income tax rates. The cash flow forecasts include significant judgments and assumptions related to revenue growth rates, which include perpetual growth rates, gross margin and weighted average cost of capital. The cash flow forecasts are developed based on assumptions about each reporting unit's markets, product offerings, pricing, capital expenditure and working capital requirements as well as cost performance.

As of June 30, 2023, the Company had three reporting units with goodwill recorded. Goodwill associated with the SAO reporting was $195.5 million and represented approximately 81 percent of total goodwill. The remaining goodwill was associated with the PEP segment, which included two reporting units, Dynamet and Latrobe Distribution, with goodwill recorded of $31.8 million and $14.1 million, respectively.

As of June 1, 2023, the fair value of the SAO reporting unit exceeded the carrying value by approximately 60 percent. The discounted cash flows analysis for the SAO reporting unit includes assumptions related to our ability to increase volume, improve mix, expand product offerings and continue to implement opportunities to reduce costs over the next several years. For purposes of the discounted cash flow analysis for SAO's fair value, a weighted average cost capital of 11.0 percent and a terminal growth rate assumption of 2.5 percent were used. If the long-term growth rate for this reporting unit had been hypothetically reduced by 0.5 percent at June 1, 2023, the SAO reporting unit would have a fair value that exceeded the carrying value by approximately 57 percent.

As of June 1, 2023, the fair value of the Dynamet reporting unit exceeded the carrying value by approximately 106 percent. For purposes of the discounted cash flow analysis for Dynamet's fair value, a weighted average cost capital of 14.0 percent and a terminal growth rate assumption of 2.5 percent were used. If the long-term growth rate for this reporting unit had been hypothetically reduced by 0.5 percent at June 1, 2023, the Dynamet reporting unit would have a fair value that exceeded the carrying value by approximately 104 percent.

During the quarter ended March 31, 2024, the Company identified an impairment triggering event in the Latrobe Distribution reporting unit within the PEP segment related to a decline in customer ordering patterns. This combined with market headwinds due to general industrial macroeconomic conditions including rising interest rates has contributed to lower sales and profit margins compared to the established annual operation plan for fiscal year 2024. Despite efforts of the Company to mitigate the market challenges, results have not improved for the Latrobe Distribution reporting unit during the quarter ended March 31, 2024. In light of these market conditions at the time, the pace of growth in the future projections for the Latrobe Distribution reporting unit were lowered.

The Company determined the goodwill associated with the Latrobe Distribution reporting unit was impaired and recorded an impairment charge of $14.1 million during the quarter ended March 31, 2024, which represented the entire balance of goodwill for this reporting unit. The fair value was estimated using a weighting of discounted cash flows and the use of market multiples valuation techniques. After the impairment loss recognized during the quarter ended March 31, 2024, the Company has two reporting units with goodwill recorded. As of March 31, 2024, goodwill associated with the SAO reporting unit is $195.5 million and represents approximately 86 percent of total goodwill. The remaining goodwill of $31.8 million as of March 31, 2024 is associated with the Dynamet reporting unit in the PEP segment. The fair value is estimated using a weighting of discounted cash flows and the use of market multiples valuation techniques for the SAO reporting unit and the Dynamet reporting unit. The Company continuously monitors for events and circumstances that could negatively impact the key assumptions in determining the fair value of the reporting units.

Accumulated goodwill impairment losses of $148.7 million are related solely to the PEP segment. The changes in the carrying amount of goodwill by reportable segment for the nine months ended March 31, 2024 were as follows:


($ in millions)	June 30, 2023		Impairment		March 31, 2024
Goodwill	$	376.0	$	—	$	376.0
Accumulated impairment losses	(134.6)		(14.1)		(148.7)
Total goodwill	$	241.4	$	(14.1)	$	227.3

Specialty Alloys Operations	$	195.5	$	—	$	195.5
Performance Engineered Products	45.9		(14.1)		31.8
Total goodwill	$	241.4	$	(14.1)	$	227.3