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An allowance for anticipated uncollectible trade receivable
amounts is established using a combination of specifically
identified accounts to be reserved, and a reserve covering
trends in collectibility. These estimates are based on an analysis
of trends in collectibility, past experience, and individual
account balances identified as doubtful based on specific facts
and conditions. Receivable losses are charged against the
allowance when management confirms uncollectibility.
All derivative instruments are recognized on the balance sheet
and measured at fair value. Changes in the fair values of
derivative instruments that do not qualify as hedges and/or
any ineffective portion of hedges are recognized as a gain or
(loss) in our Consolidated Statement of Income in the current
period. Changes in the fair value of derivative instruments
used effectively as fair value hedges are recognized in earnings
(losses), along with the change in the value of the hedged
item. Such derivative transactions are accounted for under
SFAS No. 133 “Accounting for Derivative Instruments and
Hedging Activities,” as amended and interpreted. We do not
hold or issue derivative instruments for speculative purposes.
The carrying amount of our debt instruments approximates
fair value based on quoted market prices, variable interest
rates or borrowing rates for similar types of debt
arrangements, with the exception of our contingentlyconvertible
notes due 2033. At May 31, 2007, these notes
ad a carrying value of $150.0 million and an approximate
fair value of $187.6 million.
Inventories are stated at the lower of cost or market, cost
being determined on a first-in, first-out (FIFO) basis and
market being determined on the basis of replacement cost
or net realizable value. Inventory costs include raw materials,
labor and manufacturing overhead. Inventories were
composed of the following major classes:
We adopted the provisions of Statement of Financial
Accounting Standards (“SFAS”) No. 142, “Goodwill and Other
Intangible Assets,” as of June 1, 2001, at which time we ceased
the amortization of goodwill. We perform the required annual
impairment assessments as of the first day of our fourth fiscal
quarter (last day of our first fiscal quarter for years prior to
2006). If a loss were to result from the performance of the
annual test, it would be reflected in operating
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income. The annual goodwill impairment assessment involves estimating
the fair value of each reporting unit and comparing it with its
carrying amount. If the carrying amount of the reporting unit
exceeds its fair value, additional steps are followed to
recognize a potential impairment loss. Calculating the fair
value of the reporting units requires significant estimates and
assumptions by management. We estimate the fair value of
our reporting units by applying third-party market value
indicators to each of our reporting unit’s projected earnings
before interest, taxes, depreciation and amortization. In
applying this methodology, we rely on a number of factors,
including actual and forecasted operating results and market
data. In the event that our calculations indicate that goodwill
is impaired, a fair value estimate of each tangible and
intangible asset would be established. This process would
require the application of discounted cash flows expected to
be generated by each asset in addition to independent asset
appraisals, as appropriate, and if impaired, these balances
would be written down to fair value. Cash flow estimates are
based on our historical experience and our internal business
plans, and appropriate discount rates are applied. Additionally,
we test all indefinitely-lived intangible assets for impairment
annually. The results of our annual impairment tests for the
fiscal years ended May 31, 2007, 2006 and 2005 did not require
any adjustment to the carrying value of goodwill or other
indefinite-lived intangible assets.
The changes in the carrying amount of goodwill, by reportable
operating segment, for the year ended May 31, 2007 and 2006,
are as follows:
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