The possible non-cash charge for impairment of goodwill means nothing to investors.
WIND accumulated hundreds of millions in goodwill from numerous acquisitions, sometimes even when the pooling of interests method was used. For example, WIND pooled interests with ISI, but ISI had itself a bucket of goodwill from its earlier mergers using the purchase method.
Current accounting standards dictate that goodwill be amortized over a period of years, quarter by quarter. Since the expense is non-cash, and not even in the same category as depreciating real assets, the Street has come around to ignoring this charge for most, if not all, companies. Amortization of goodwill probably is the most common reason why companies issue pro forma operating statements (the other common reason is a one-time write-off).
The last time I looked, the FASB is still on schedule for changing the requirement that goodwill be amortized. As far as I know, after June, a periodic, non-cash charge against goodwill need no longer occur, and many a pro forma report will elevate to regular status. However, companies will still be expected to review goodwill periodically and write off any impairment in its value.
Personally, I think it may be a little difficult to look back at ISI’s contribution to goodwill, and say, “I calculate the goodwill portion of what we acquired from ISI is less than before by X amount.” To make this a little more tenable, companies will be encouraged to itemize what underlies goodwill, so they can at least appear credible valuing it from time to time.
Most managers would just like to take goodwill off the books with a one-time charge and get on with running the business, but they can’t under current accounting standards, nor will they be able to easily in the future. Under the new standards, managers will mostly just leave it alone, and at least not have to issue pro forma statements every quarter.
The problem is they will not be able to avoid having to check it for impairment occasionally, even though the process will be mostly a joke. This is probably what WIND is facing now. They will feel the need to look at goodwill in the aftermath of the restructuring, like it or not. When they do, they will knock it down as much as possible so it can be ignored going forward.
BTW, I don't think I ever heard of any discussion about managers valuing goodwill only to discover it increased. At least in principle, there is nothing that prohibits the value of goodwill from increasing due to calculated increases in the value of acquired intangible assets, thereby causing reported earnings to increase accordingly. Assuming management could keep a straight face, that could be an interesting way in the future to "make the numbers."
If there was ever anything that has no operational significance, or even any accounting significance, it is writing off the “impairment” of goodwill.
Allen |
