Under the market approach, fair value is derived from metrics of publicly traded companies or historically completed transactions of comparable businesses. The selection of comparable businesses is based on the markets in which the reporting units operate giving consideration to risk profiles, size, geography, and diversity of products and services. 

The goodwill balance was $169.7 million as of June 30, 2019, of which $137.1 million is allocated to the Engines reporting unit, $20.6 million to the Turf and Consumer reporting unit and $12 million to the Jobsite reporting unit. The fair values of the reporting units exceeded their carrying values as of the measurement date and, therefore, no impairment was recognized. 

We identified goodwill impairment as a critical audit matter because of the significant estimates and assumptions made by management to estimate fair value given the sensitivity of operations to changes in demand for all reporting units and historical results and long-range strategic plan of the Jobsite reporting unit. This required a high degree of auditor judgment and an increased extent of effort, including the need to involve our fair value specialists, when performing audit procedures to evaluate the reasonableness of management’s estimates and assumptions related to the selection of the discount rates and forecasts of future net sales for all reporting units, and the future operating income margins for the Jobsite reporting unit. 

## How the Critical Audit Matter Was Addressed in the Audit 

Our audit procedures related to the selection of the discount rates and forecasts of future net sales for all reporting units and the future operating margins for the Jobsite reporting unit included the following, among others: 

• We tested the effectiveness of controls over management’s goodwill impairment evaluation, including those over management’s forecasts of future net sales and operating income margins and the selection of the discount rates. 

• We evaluated management’s ability to accurately forecast future net sales and operating income margins by comparing actual results to management’s historical forecasts. 

• We evaluated the reasonableness of management’s forecasts of future net sales and operating income margins by comparing the forecasts to (1) historical growth of net sales and historical operating income margins, (2) management’s long-range strategic plan which was communicated to the Board of Directors, and (3) forecasted information included in Company press releases, as well as, in analyst and industry reports for the Company and companies in its peer group. 

• With the assistance of our fair value specialists, we evaluated the reasonableness of the (1) valuation methodology and (2) discount rates by: 

◦ Testing the source information underlying the determination of the discount rates and the mathematical accuracy of the calculation. 

◦ Developing a range of independent estimates and comparing those to the discount rates selected by management. 

## Commitments and Contingencies - Refer to Note 13 to the financial statements 

## Critical Audit Matter Description 

The Company has contingent liabilities related to litigation and claims that arise in the normal course of business. The Company accrues for contingent liabilities when management determines it is probable that a liability has been incurred and the amount can be reasonably estimated. This determination requires significant judgment by management. 

In 2010, Exmark Manufacturing Company Inc. (“Exmark”) filed suit against the Company alleging that the Company infringed an Exmark patent. On December 20, 2018, the district court entered judgment against the Company in favor of Exmark in the amount of $14.4 million in compensatory damages, an additional $14.4 million in enhanced damages, as well as pre-judgment interest, post-judgment interest and costs to be determined. On April 15, 2019, the district court entered an order denying the Company’s post-trial motions related to modification of the jury’s damages award, as well as seeking a new trial in light of certain evidentiary rulings. The district court awarded 

