The current economic conditions affect businesses of all industries. With equity values tumbling, another round of impairment charges takes its toll – not only at Coca Cola, as previously reported on this blog.Goodwill write-downs usually have no effect on a company's cash holdings, however can indicate that the company has overpaid for a previous acquisition so that its balance sheet needs adjusting. This raises – again – the question of how much discretion companies should have in allocating goodwill and determining its value.
The economic downturn has forced many companies to take non-cash charges for impairment of goodwill on deals made during the M&A heyday.
Novelis, the Canadian subsidiary of Indian aluminium major Hindalco, reported an impairment charge of $1.5 billion, consisting of a $1.3 billion reduction in the value of goodwill and a $160 million write-down of Novelis' investment in Aluminium Norf GmbH. Expedia reported a fourth-quarter loss of $2.76 billion last week, mostly due to a $3 billion write-down in the value of goodwill and other intangible assets, following a sharp drop in the company's stock price and market capitalization.
Other recent earnings announcements with goodwill impairment charges include wireless provider Sprint Nextel (who just wrote down the last $1 billion of its goodwill impairment for its 2005 Nextel purchase), leading gold producer Barrick Gold ($773 million), steel producer Gerdau ($1.2 billion), and direct mail giant Valassis ($245.7 million).
More recent announcements can be found here. Our report on the recently published FRC Review of Goodwill Impairment Disclosures looking into accounting rules can be found here.
