GOODWILL IMPAIRMENT ANALYSIS
MARSHALL S TEVENS
FASB ASC 350-30-25 (FORMERLY SFAS 142)
COULD GOODWILL IMPAIRMENT COMPROMISE YOUR OPERATIONS? Major impairments could render a company vulnerable to an unsolicited takeover, particularly if its share price is negatively impacted as a result. In addition, boards of directors are forced to take drastic steps to mitigate public perceptions. As an experienced valuation specialist, Marshall & Stevens can help companies with advance planning to see if an impairment charge might be likely in the future. Marshall & Stevens excels at the recognition and valuation of goodwill and intangible assets. Our professionals are here to ensure that your company receives its maximum value while complying with SEC, FASB, and other regulations. Most importantly, we provide peace-of-mind to your auditors and shareholders that the analyses are thorough and correct.
WHAT IS GOODWILL IMPAIRMENT? When the FASB adopted SFAS 142 in 2001, pooling-of-interests accounting was eliminated. Now, the FASB does not require that goodwill is amortized; thus, there is no direct adverse impact on (1) reported earnings and (2) EPS for changes to purchase accounting. Goodwill impairment is defined as the point at which goodwill drops below book value. For purposes of testing goodwill for possible impairment, the FASB asks companies to determine the Fair Value (FV) of the business unit as though it were to be sold. The annual examination of goodwill impairment is mandatory and the assignment of accounting for unidentified intangible assets varies in each situation.
TYPES OF IMPAIRMENT CALCULATIONS: 1. When the FV of an intangible asset with an indefinite life is less than book value. 2. When the FV of an intangible asset that is being amortized is less than book value. 3. When the FV of goodwill is less than book value.
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OUR EXPERIENCE In the past year, Marshall & Stevens has performed goodwill impairment tests for many clients in a variety of industries, many of whom are experiencing their first impairment. These impairments have ranged from the millions to over one billion dollars. Working with a Marshall & Stevens’ financial advisor, experienced in FAS compliance, will help your company predict the impairment, reduce its impact on market perceptions of the company, and alert management, directors and shareholders that an impairment was imminent due to market forces rather than poor planning, acquisition due diligence or purchase price allocation. A number of factors beyond poor operating performance that may require a company to write-down asset value(s) are: 1. The company did not complete a purchase price allocation as prescribed by FASB ASC 805. In such cases, we often observe that the book value of the target's tangible assets was carried over without a proper physical due diligence and valuation of the acquired assets. 2. The target was acquired and maintained in a single-member reporting unit. Acquiring a target and segregating it into its own reporting unit leaves it more vulnerable to impairment if initial projections are not achieved later. 3. A "synergistic acquisition" was envisioned, a higher than market value was paid, and therefore goodwill was acquired. Impairment of goodwill is imminent if aggressive projected returns for the acquired unit/assets are not achieved in year 1. 4. The company's market value as a whole was severely affected by the current market value declines of its broader industry (i.e. lending institution, construction, etc.) at the time of the impairment test, which is often conducted at year-end.
COMPANY OVERVIEW Established in 1932, Marshall & Stevens is a recognized leader in valuation, serving business owners, managers, boards and trusted advisors throughout the world. We assist our clients with planning, due diligence, negotiation and reporting issues related to their mergers, acquisitions, divestitures, financings, insurance placement and tax related transactions. Our in-house specialists provide a full complement of valuation-related services, from transaction advisory and opinion letters to the valuation of businesses and business assets, both tangible and intangible.
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