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These excerpts taken from the TEX 10-K filed Feb 27, 2009. Goodwill -
Goodwill, representing the difference between the total purchase price and the
fair value of assets (tangible and intangible) and liabilities at the date of
acquisition, is reviewed for impairment annually, and more frequently as
circumstances warrant, and written down only in the period in which the recorded
value of such assets exceed their fair value. We do not amortize
goodwill, in accordance with FASB Statement of Financial Accounting Standards
(“SFAS”) No. 142 “Goodwill and Other Intangible Assets.” We selected
October 1 as the date for our required annual impairment test.
Goodwill
is tested for impairment at the reporting unit level, which is defined as an
operating segment or a component of an operating segment that constitutes a
business for which discrete financial information with similar economic
characteristics is available and the operating results are regularly reviewed by
our management. Our seven reporting units are contained within the five
operating segments. Our MPM and RBUO segments each include two reporting units
for goodwill impairment testing purposes.
The
goodwill impairment analysis is a two-step process. The first step used to
identify potential impairment involves comparing each reporting unit’s estimated
fair value to its carrying value, including goodwill. We use an income approach
derived from the discounted cash flow model to estimate the fair value of our
reporting units. The aggregate fair value of our reporting units is
compared to our market capitalization on the valuation date to assess its
reasonableness. The initial recognition of goodwill, as well as the annual
review of the carrying value of goodwill, requires that we develop estimates of
future business performance. These estimates are used to derive expected cash
flow and include assumptions regarding future sales levels, the impact of cost
reduction programs, and the level of working capital needed to support a given
business. We rely on data developed by business segment management as well as
macroeconomic data in making these calculations. The discounted cash flow model
also includes a determination of our weighted average cost of capital. The cost
of capital is based on assumptions about interest rates as well as a
risk-adjusted rate of return required by our equity investors. Changes in these
estimates can impact the present value of the expected cash flow that is used in
determining the fair value of acquired intangible assets as well as the overall
expected value of a given business.
The
second step of the process involves the calculation of an implied fair value of
goodwill for each reporting unit for which step one indicated impairment. The
implied fair value of goodwill is determined by measuring the excess of the
estimated fair value of the reporting unit over the estimated fair values of the
individual assets, liabilities and identifiable intangibles as if the reporting
unit was being acquired in a business combination. If the implied fair value of
goodwill exceeds the carrying value of goodwill assigned to the reporting unit,
there is no impairment. If the carrying value of goodwill assigned to a
reporting unit exceeds the implied fair value of the goodwill, an impairment
charge is recorded for the excess. An impairment loss cannot exceed the carrying
value of goodwill assigned to a reporting unit and subsequent reversal of
goodwill impairment losses is not permitted.
There
were no indicators of goodwill impairment in the tests performed as of October
1, 2007 and 2006. As a result of our annual impairment test in the
fourth quarter of 2008, our Construction and RBUO segments recorded non-cash
charges of $459.9 million to reflect impairment of goodwill in these reporting
units, which represented all of the goodwill recorded in the Construction and
RBUO segments. See Note L – “Goodwill” in the Notes to the
Consolidated Financial Statements. In order to evaluate the
sensitivity of the fair value calculations on the goodwill impairment
test, the Company applied a hypothetical 10% decrease to the fair values of each
reporting unit. This hypothetical 10% decrease would result in excess fair value
over carrying value for the remaining reporting units not impaired as of
December 31, 2008.
Goodwill.
Goodwill, representing the difference
between the total purchase price and the fair value of assets (tangible and
intangible) and liabilities at the date of acquisition, is reviewed for
impairment annually, and more frequently as circumstances warrant, and written
down only in the period in which the recorded value of such assets exceed their
fair value. The Company does not amortize goodwill, in accordance
with Financial Accounting Standards Board (the “FASB”) Statement of Financial
Accounting Standards (“SFAS”) No. 142 “Goodwill and Other Intangible Assets”
(“SFAS No. 142”). The Company selected October 1 as the date for the
required annual impairment test.
F-7
Goodwill
is tested for impairment at the reporting unit level, which is defined as an
operating segment or a component of an operating segment that constitutes a
business for which discrete financial information with similar economic
characteristics is available and the operating results are regularly reviewed by
the Company’s management. The Company’s seven reporting units are contained
within its five operating segments. The Company’s Materials
Processing & Mining and its Roadbuilding, Utility Products and Other
segments each include two reporting units for goodwill impairment testing
purposes.
The
goodwill impairment analysis is a two-step process. The first step used to
identify potential impairment involves comparing each reporting unit’s estimated
fair value to its carrying value, including goodwill. The Company uses an income
approach derived from a discounted cash flow model to estimate the fair value of
its reporting units. The aggregate fair value of the Company’s
reporting units is compared to the Company’s market capitalization on the
valuation date to assess its reasonableness. The initial recognition of
goodwill, as well as the annual review of the carrying value of goodwill,
requires that the Company develop estimates of future business performance.
These estimates are used to derive expected cash flow and include assumptions
regarding future sales levels, the impact of cost reduction programs, and the
level of working capital needed to support a given business. The Company relies
on data developed by business segment management as well as macroeconomic data
in making these calculations. The discounted cash flow model also includes a
determination of the Company’s weighted average cost of capital. The cost of
capital is based on assumptions about interest rates as well as a risk-adjusted
rate of return required by the Company’s equity investors. Changes in these
estimates can impact the present value of the expected cash flow that is used in
determining the fair value of acquired intangible assets as well as the overall
expected value of a given business.
The
second step of the process involves the calculation of an implied fair value of
goodwill for each reporting unit for which step one indicated impairment. The
implied fair value of goodwill is determined by measuring the excess of the
estimated fair value of the reporting unit over the estimated fair values of the
individual assets, liabilities and identifiable intangibles as if the reporting
unit was being acquired in a business combination. If the implied fair value of
goodwill exceeds the carrying value of goodwill assigned to the reporting unit,
there is no impairment. If the carrying value of goodwill assigned to a
reporting unit exceeds the implied fair value of the goodwill, an impairment
charge is recorded for the excess. An impairment loss cannot exceed the carrying
value of goodwill assigned to a reporting unit and subsequent reversal of
goodwill impairment losses is not permitted.
There
were no indicators of goodwill impairment in the tests performed as of October
1, 2007 and 2006. As a result of the Company’s annual impairment test
performed as of October 1, 2008, the Company’s Construction and Roadbuilding,
Utility Products and Other segments recorded non-cash charges of $459.9 to
reflect impairment of all of the goodwill in these reporting
units. See Note L – “Goodwill.”
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