FY2021 10-K Document - FINAL 11 15 21 - Flipbook - Page 24
Table of Contents
Reviews for Impairment of Goodwill
At October 2, 2021, we had $852 million of goodwill, or 25% of total assets. We test goodwill for impairment for each
of our reporting units at least annually, during our fourth quarter, and whenever events occur or circumstances
change, such as changes in the business climate, poor indicators of operating performance or the sale or disposition
of a significant portion of a reporting unit. We also test goodwill for impairment when there is a change in reporting
units.
We identify our reporting units by assessing whether the components of our operating segments constitute
businesses for which discrete financial information is available and segment management regularly reviews the
operating results of those components. We aggregate certain components based upon an evaluation of the facts and
circumstances, including the nature of products and services and the extent of shared assets and resources. As a
result, we have four reporting units.
Companies may perform a qualitative assessment as the initial step in the annual goodwill impairment testing process
for all or selected reporting units. Companies are also allowed to bypass the qualitative analysis and perform a
quantitative analysis if desired. Economic uncertainties and the length of time from the calculation of a baseline fair
value are factors that we consider in determining whether to perform a quantitative test.
When we evaluate the potential for goodwill impairment using a qualitative assessment, we consider factors including,
but not limited to, macroeconomic conditions, industry conditions, the competitive environment, changes in the market
for our products and services, regulatory and political developments, entity specific factors such as strategy and
changes in key personnel and overall financial performance. If, after completing this assessment, it is determined that
it is more likely than not that the fair value of a reporting unit is less than its carrying value, we proceed to a
quantitative two-step impairment test.
Quantitative testing first requires a comparison of the fair value of each reporting unit to its carrying value. We
principally use the discounted cash flow method to estimate the fair value of our reporting units. The discounted cash
flow method incorporates various assumptions, the most significant being projected revenue growth rates, operating
margins and cash flows, the terminal growth rate and the discount rate. Management projects revenue growth rates,
operating margins and cash flows based on each reporting unit's current business, expected developments and
operational strategies typically over a five-year period. If the carrying value of the reporting unit exceeds its fair value,
goodwill is considered impaired and any loss must be measured.
In measuring the impairment loss, the implied fair value of goodwill is determined by assigning a fair value to all of the
reporting unit's assets and liabilities, including any unrecognized intangible assets, as if the reporting unit had been
acquired in a business combination at fair value. If the carrying amount of the reporting unit's goodwill exceeds the
implied fair value of that goodwill, an impairment loss would be recognized in an amount equal to that excess.
The determination of our assumptions is subjective and requires significant estimates. Changes in these estimates
and assumptions could materially affect the results of our reviews for impairment of goodwill.
For our annual test of goodwill for impairment in 2021, we performed a qualitative assessment for each of our four
reporting units.
We evaluated the potential for goodwill impairment by considering macroeconomic conditions, industry and market
conditions, cost factors, both current and future expected financial performance, and relevant entity-specific events for
each of the reporting units. We also considered our overall market performance discretely as well as in relation to our
peers. The results of our qualitative assessment indicated that is more likely than not that the fair value of each of the
reporting units exceed its carrying value; and therefore, a quantitative two-step impairment test was not necessary.
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