Market Capitalization and Goodwill Impairment Test
Case 11-9
Goodwill Impairment Testing
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Galaxy Sports Inc. (Galaxy), a U.S.-based manufacturer of sports equipment, is a calendar year-end SEC registrant with one operating segment and the following three reporting units: o Fitness Equipment. o Golf Equipment. o Hockey Equipment.
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Galaxy is in a competitive industry with several publicly traded companies in which growth and profitability are tied to the market and consumer demand.
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Three reporting units are appropriate because discrete financial information is available for each component, each component is a business, and each component is managed separately.
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The Fitness Equipment component is Galaxy’s largest reporting unit. Over the years, various acquisitions have resulted in recorded goodwill of $200 million assigned entirely to this reporting unit.
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The Golf Equipment component is a large golf equipment manufacturer that was acquired in 2004. Upon acquisition of the business, Galaxy recorded $130 million of goodwill that was assigned entirely to this reporting unit.
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The Hockey Equipment component is a small hockey equipment manufacturer acquired in 2003 to gain entry into the very profitable hockey equipment market.
Galaxy recorded $30 million of goodwill related to this acquisition, which was assigned entirely to this reporting unit.
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Galaxy has elected an annual goodwill impairment testing date of December 31 for all three reporting units.
In December 2010, Galaxy management engaged Big Time LLC (Big Time), a reputable external valuation firm, to perform three annual ASC 350, Intangibles — Goodwill and
Other, impairment analyses (one for each reporting unit) on the $360 million of goodwill recorded by Galaxy as of December 31, 2010. Previously, management had performed the annual goodwill impairment analysis internally. However, given the increasing complexities involved in the calculation and resource constraints at Galaxy, the
Goodwill Impairment Testing
•
Galaxy Sports Inc. (Galaxy), a U.S.-based manufacturer of sports equipment, is a calendar year-end SEC registrant with one operating segment and the following three reporting units: o Fitness Equipment. o Golf Equipment. o Hockey Equipment.
•
Galaxy is in a competitive industry with several publicly traded companies in which growth and profitability are tied to the market and consumer demand.
•
Three reporting units are appropriate because discrete financial information is available for each component, each component is a business, and each component is managed separately.
•
The Fitness Equipment component is Galaxy’s largest reporting unit. Over the years, various acquisitions have resulted in recorded goodwill of $200 million assigned entirely to this reporting unit.
•
The Golf Equipment component is a large golf equipment manufacturer that was acquired in 2004. Upon acquisition of the business, Galaxy recorded $130 million of goodwill that was assigned entirely to this reporting unit.
•
The Hockey Equipment component is a small hockey equipment manufacturer acquired in 2003 to gain entry into the very profitable hockey equipment market.
Galaxy recorded $30 million of goodwill related to this acquisition, which was assigned entirely to this reporting unit.
•
Galaxy has elected an annual goodwill impairment testing date of December 31 for all three reporting units.
In December 2010, Galaxy management engaged Big Time LLC (Big Time), a reputable external valuation firm, to perform three annual ASC 350, Intangibles — Goodwill and
Other, impairment analyses (one for each reporting unit) on the $360 million of goodwill recorded by Galaxy as of December 31, 2010. Previously, management had performed the annual goodwill impairment analysis internally. However, given the increasing complexities involved in the calculation and resource constraints at Galaxy, the