Case 1 Goodwill Impairment Testing
Should management have performed an interim goodwill impairment test as of September 30, 2010?
Galaxy Sports Inc. (Galaxy) is a U.S. based manufacturer of sports equipment. It is an SEC registrant with one operating segment with three separate reporting units: fitness, golf and hockey. The fitness is the largest division of Galaxy with allocated goodwill of $200 million. The golf division reports $130 million of goodwill and the hockey has $30 million of goodwill. Each division has been a reporting unit for a number of years. Due to the complexities involved with the calculation of goodwill and resource restraints in 2009, Galaxy decided to hire Big Time LLC (Big Time) to perform three annual ASC
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An example is a recent significant acquisition or a reorganization of an entity’s segment reporting structure that might significantly change the composition of a reporting unit, b) the most recent fair value determination resulted in an amount that exceeded the carrying amount of the reporting unit by a substantial margin, and c) based on an analysis of events that have occurred and circumstances that have changed since the most recent fair value determination, the likelihood that a current fair value determination would be less than the current carrying amount of the reporting unit is remote.
In 2008, Harris Interactive performed an interim test based on the following reasoning: * operating losses in its reporting unit for the fiscal quarters ended September 30, 2008 and December 31, 2008 * potential declines in market research spending for calendar year 2009 based on industry analyst forecasts * headcount reductions and related charges as announced in October and December 2008, the details of which are described in Note 4, “Restructuring and Other Charges” to these unaudited consolidated financial statements, and a 62% decline in the Company’s per share stock
Research and development – totaled $98,280.00 in year 7, and in years 7 to 8 decreased -16.3% or $15,996.00. This is weakness in sales and performance, but a smart decision because of the cut in R&D saved -16.3% or $15,996.00 that would have been looked at as profit. They were able to use the previous year’s investment on R&D.
Each organization has its own structure, and breaks down the different sections of the organization based on that structure to best help the clients. Goodwill is no different. Goodwill’s organizational structure allows them to communicate from people at the top of the organization down to each store level. In any organization it is important for the organization to have some sort of structure to operate daily.
The net income was negative from 1989 to 1991. The net income is negative due to the depreciation costs. Operating
auditors concluded that $200,000 of the goodwill had been impaired, and they required RC to write down the
When the CEO looked at the financial statement for the previous year he found that they had a loss of $256,000 (Rakish et
a. An accrual is not made for a loss contingency because any of the conditions in paragraph 450-20-25-2 are not met.
Item 7.| |MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS| | |25| |
While it was foreseen that the company would initially take financial setbacks because of the reorganization, it was not believed that the financial risks would be drastic. However, the impending report that Mr. Elesser has to present to the board will detail a net income that will be nearly 26 million dollars in the red for 2004 (see exhibit 2)3. The blunt force restructuring met resistance on numerous fronts. First of all, the various components of the company did not operate under the same uniformed leadership objectives. Each division was set up to look out for their own interests and markets. When the restructuring plan that focused on a more centralized management process, many of the things that worked for one division did not necessarily work for other divisions of the company. This left some divisions at a severe disadvantage. Another obstacle that worked against the restructuring was the employee unions in which the company had to deal. The unions were not on board with the various downsizing and restructuring methods. In addition, the company had to deal with a couple of different unions which posed a problem with negotiating tactics. Benefit costs were also a significant investment that did not hold up well under the auspice of restructuring.
The company currently faces serious financial challenges. It was struggling with declining sales and increasing costs. Since 2004, revenues had fallen by more than 40% while costs especially for employees health insurance, maintenance, and utilities climbed. Credits and loans had been borrowed to
The company entered into dubious transactions, especially with Doug Mather. This helped contribute to the cash flow problems. The company needs to avoid these transactions in the future.
In the year 2007, there is a drop in financial performance within the company. Earnings have dropped
There are two possible sources of discrepancies we would like to disclose in this introduction: financial histories and restructuring charges. The first source of some discrepancies throughout the paper is a lack of some financial history. In the 1998 Darden Restaurants Annual Report, there was some inconsistency in whether history from FY 1996 was used or not. For this reason, we have been forced to omit FY 1996 in some
January 2000, a major shortfall in profits relative to previous expectations. In June, the quarterly
significant drop in the revenues for third quarter of 1999. Annual revenues for 1999 were US$ 150