They have to check that goodwill number every quarter now and write down anything that they think they can't get back through cashflows.
Check here: bobermarkey.com
FASB 142 requires businesses to perform the Goodwill Impairment Test on an annual basis, unless circumstances indicate otherwise
I think maybe BWAC made the same point, but in the end, if one looks at the balance sheet, nothing really changes with a goodwill writedown. Both the incremental and alley-oops methods have the same affect on assets, shareholder equity and retained earnings.
The difference to retail investors is on the income statement. Just writing off Goodwill lands that charge in the "oh, yah... nothing to worry about, ignore, one-time" column, while a continuous string of hard-to-call-one-time-event depreciation has a nasty effect on EPS.
Variable depreciation of goodwill is just another tool in the financial engineer's toolkit. What EPS would you like? Coming in too high? Well, let's shave off some of that Goodwill charge. Too low? Let's adopt a more optimistic view of the future.
For Cisco, with 3.3 Billion wiggle room available, that's like $0.50 per share.
Which is one good reason (IMHO) why companies shouldn't be allowed to test quarterly. Of course, the annual test means we need to anticipate a charge to earnings at least once per year, I think we had this discussion before ;)
John |
