Last week, the Securities and Exchange Commission (SEC) released a comment letter to Carlisle Companies Incorporated [CSL] – a global diversified manufacturing company – asking the Company to expand on its disclosure regarding impairment testing in Q1 2020. Carlisle’s annual impairment test is performed on October 1, but “changes in facts and circumstances and general market declines from the coronavirus global pandemic (“COVID-19”)” prompted the Company to conduct an interim impairment test.
In the comment letter, the SEC requested Carlisle Companies provide additional details regarding how much the fair value of the assessed assets exceeded their carrying value.
In the Company’s response, Carlisle indicated that the fair value of goodwill exceeded its carrying value by 10%, while the fair value of trade names substantially exceeded their carrying value. This distinction is important, as small changes in the underlying fair value estimate could result in the impairment of goodwill in Carlisle’s reporting units.
The economic impacts of COVID-19 have caused many companies to perform non-routine impairment tests. Last week, BP plc announced one of the largest impairments to date, as the oil giant disclosed it would be writing off between $13 billion and $17.5 billion of property, plant & equipment and exploration intangibles in its second quarter due to “the prospect of the pandemic having an enduring impact on the global economy.”
As companies continue to grapple with the impacts of the pandemic, it is likely the SEC will continue to concentrate on impairment testing disclosures as part of their review process. Comments like the one Carlisle received will give investors additional insight into management’s expectations.
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