Company: LGN
Filing Date: 2025-02-14
Form Type: DRS
Source: 0000950123-25-002471
Chunk: 133

Company: Legence Corp.
Filing Date: 2025-02-14
Form: DRS
Chunk 133
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 which represents the operating
segment level or one level below the operating segment level for which discrete information is available. Goodwill is evaluated for impairment on an annual basis in the fourth quarter of the fiscal year and on an interim basis if events or
circumstances arise which indicate that the carrying value of goodwill may not be recoverable from future cash flows.

Fair values of
reporting units are estimated based on a market approach and an income approach. The income approach utilizes discounted future cash flows and assumptions critical to the fair value estimate of the discounted cash flow model include the revenue
growth rate, forecasted margins and discount rate. The market approach utilizes market multiples of invested capital from comparable publicly traded companies. The market multiples from invested capital include revenue; book equity plus debt; and
earnings before interest, provision for income taxes, depreciation and amortization. As of December 31, 2023, except for the reporting unit discussed below, all other reporting units had estimated fair values that exceeded their carrying values
by at least 14%.

During the year ended December 31, 2023, it was determined the carrying amount of goodwill for one reporting unit
in the Engineering & Consulting segment exceeded fair value, resulting in goodwill impairment charges of $5.1 million. During the year ended December 31, 2022, it was determined the carrying amount of goodwill for one reporting
unit in the Installation & Maintenance segment exceeded fair value, resulting in goodwill impairment charges of $23.4 million. In both years, the impairment was primarily driven by a decline in projected cash flows due to lower revenue
projections, investments in support functions and increased cost of capital due to rising interest rates.

There are inherent
uncertainties related to these factors and management’s judgment in applying them to the analysis of goodwill impairment. It is possible that changes in facts, judgments and assumptions made in estimating the fair value of reporting units could
occur, resulting in possible impairment in the future.

Income Taxes

We utilize the asset and liability approach in reporting for income taxes. Deferred income tax assets and liabilities are computed for
differences between the financial statement and tax basis of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the periods in which the differences are expected
to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount that is more likely than not to be realized.

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Confidential Treatment Requested by Legence Corp.

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