KPMG Study Reveals Dramatic Decrease in Goodwill Impairment for U.S.-Based Companies

NEW YORK, June 2 /PRNewswire/ -- A new study from KPMG LLP, the U.S. audit, tax and advisory firm, reveals that goodwill impairment began to decline dramatically across a number of industries throughout 2009 and the number of companies recording goodwill impairment charges dropped by nearly 20 percent. This represents a change from the prior year when more companies took greater goodwill impairment charges.

Based on financial information from more than 1,700 U.S.-based public companies, goodwill impairment charges declined to $92 billion in 2009 from $340 billion in 2008, a 73 percent drop. In addition, the number of companies recording goodwill impairment fell from 268 to 217. The KPMG study analyzed goodwill impairment for public companies from January 2005 through December 2009 and identifies those industries that were most heavily affected in 2009.

Only 12 percent of companies in the study recorded a goodwill impairment charge in 2009 compared to 17 percent that recorded a goodwill charge in 2008.  

"With signs of improvement in the U.S. economy and stock market in 2009, and the large goodwill write-downs in prior years, it is not surprising that goodwill impairment charges have retreated in our most recent study," said Seth Palatnik, a partner in KPMG's Economic and Valuation Services practice.

Goodwill is an intangible asset that arises from acquisitions where the amount paid for the assets of a company exceed the fair value of the identifiable net assets of that company. According to Financial Accounting Standards Board ACS Topic 350, Intangibles – Goodwill and Other (originally issued as FASB Statement No. 142), goodwill is not amortized but is instead tested for impairment at the reporting unit level at least annually.

The Industry Line-up

"When KPMG began looking at goodwill impairment trends in 2008, it appeared that certain industries were plagued by both a large number of write-downs per industry segment and by higher impairment charges overall," said Palatnik. "Our latest data set shows that companies in almost every segment of the economy took goodwill write-downs in 2009, although generally lower charges were taken."

The study found that in 2009 the hardest-hit industries in terms of actual dollar impairment charges taken were technology hardware and equipment companies, which accounted for almost 23 percent of the total goodwill impairment charges, followed by telecommunication services, and software and services. Banks, which had the highest level of goodwill impairment charges of the companies surveyed in 2008, represented only 4 percent of the total charges of the companies assessed in KPMG's current study.

Overall, goodwill charges for the banking industry decreased by over 90 percent in 2009. Likewise, goodwill charges for the materials, capital goods, and energy industries also decreased significantly from 2008 to 2009. Due to the generally lower charges taken across all industries, the median goodwill impairment charge decreased from $258 million in 2008 to $97 million in 2009, a drop of approximately 60 percent.

Looking forward, Steve Sherman, KPMG partner and chair of KPMG's Global Valuations Committee, said: "The number of triggering events for impairment testing this year should decrease due to higher market valuations, lower goodwill on balance sheets resulting from impairments last year, and better performance in an improving economy."

The study, which can be accessed via KPMG's Global Valuation Institute at  www.kpmg.com/gvi, was based on financial information of more than 1,700 U.S.-based public companies across 24 industries, with minimum market capitalization of $500 million, revenues of $500 million, and assets of $300 million. The size of each industry segment ranged from 16 to 174 companies. The study evaluated goodwill impairment over a five-year period, on an annual basis, and quarterly for 2008 and 2009.

KPMG LLP, the audit, tax and advisory firm (www.us.kpmg.com), is the U.S. member firm of KPMG International. KPMG International's member firms have 140,000 professionals, including more than 7,900 partners, in 146 countries.

SOURCE KPMG LLP