Note 5 – Goodwill

Changes in the carrying value of goodwill are as follows:


(In thousands)	Manufacturing		Wheels, Repair & Parts			Leasing & Services		Total
Balance August 31, 2012	$	—	$	137,066		$	—	$	137,066
Reductions ⁽¹⁾		—		(2,750	)		—		(2,750	)
Goodwill impairment ⁽²⁾		—		(76,900	)		—		(76,900	)

Balance May 31, 2013	$	—	$	57,416		$	—	$	57,416

⁽¹⁾	Reduction in goodwill relates to the sale of the Company’s roller bearing operations in Elizabethtown, Kentucky.

⁽²⁾	Goodwill impairment relates to the non-cash goodwill impairment charge recognized as part of the Company’s annual goodwill impairment analysis as further discussed below.

The Company performs a goodwill impairment test annually during the third quarter. Goodwill is also tested more frequently if changes in circumstances or the occurrence of events indicates that a potential impairment exists. The provisions of ASC 350, Intangibles – Goodwill and Other, require the Company to perform a two-step impairment test on goodwill. The Company performed step one of the goodwill impairment test during the third quarter of 2013. In the first step, the Company compared the fair value of each reporting unit with its carrying value. The Company determined the fair value of the reporting unit based on a weighting of income and market approaches. Under the income approach, the Company calculated the fair value of a reporting unit based on the present value of estimated future cash flows. Under the market approach, the Company estimated the fair value based on observed market multiples for comparable businesses. Results of the step one analysis indicated that the carrying amounts related to Wheels, Repair & Parts were in excess of its fair value. Accordingly, the Company performed step two of the impairment analysis to determine the amount, if any, of goodwill impairment to be recorded.

In the second step, the Company compared the implied fair value of goodwill to its carrying value. The implied fair value of goodwill was determined by allocating the fair value of the reporting unit to all of the assets and liabilities of that unit as if the reporting unit had been acquired in a business combination and the fair value of the reporting unit was the price paid to acquire the reporting unit. The excess of the fair value of a reporting unit over the amounts assigned to its assets and liabilities was considered the implied fair value of goodwill. A non-cash impairment loss was recorded to the extent that the carrying amount of the reporting unit goodwill exceeded the implied fair value of that goodwill. The impairment loss was primarily due to a reduction in market multiples for comparable businesses and updated estimated future cash flows. A pre-tax non-cash impairment charge of $76.9 million was recorded which relates to the Wheels, Repair & Parts segment.