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Big-ticket goodwill impairments have been thin on the ground this year, as the major stock indexes have repeatedly clambered to new highs—and helped companies avoid hefty write-downs.
In the largest write-down this year, Intel booked a $3.9 billion pretax charge tied to an impairment at its Mobileye auto chip subsidiary, according to data through May 26 from financial risk and advisory firm Kroll. No other charge has exceeded $1 billion, with the second-largest totaling $274 million at KinderCare Learning.
Write-downs this year through May 26 collectively totaled $5.4 billion, Kroll data showed. By comparison, by March of last year impairments had already surpassed $20 billion.
Total goodwill impairments are likely to come in well below the $97 billion seen last year and $96 billion in 2024 if current trends continue, said Greg Franceschi, global leader of Kroll’s financial reporting practice.
"If we continue the way we are with the market values sort of hovering where they are, I don't think you're going to see a dramatic increase in impairments,” Franceschi said. The S&P 500, for example, last week hit its longest winning streak in more than a year.
But if inflation continues to rise and the Federal Reserve lifts interest rates to cool the economy, "that could obviously lead to compression in equity values and then potentially to an increase in impairments,” Franceschi said.
Companies book goodwill on their balance sheets when they acquire a business for more than the value of its net assets. Under U.S. accounting rules, an acquiring business must measure the fair value of its reporting units at least annually and, if that figure is less than the amount recorded on the books, reduce the value of the goodwill.
But Franceschi noted that the impairment levels of recent decades are no longer a good baseline for what might happen next, as valuations on acquisitions have been skewed higher by the current bull market run and hubris over AI.
“When companies do have impairments, they may be on a magnitude much larger than they were historically because the values are generally higher now,” he said.
What’s next? The Financial Accounting Standards Board and its international counterpart, the International Accounting Standards Board, continue to weigh whether to revise and simplify the rules for how businesses evaluate these intangible assets.
—Mark Maurer
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