M&A

Viacom Takes $18 Billion Goodwill Charge

If interest rates continue to rise, the number of companies taking write-downs could increase.
Stephen TaubMarch 1, 2005

Viacom is the latest media company to report a huge write-off under accounting rules requiring companies to conduct annual goodwill-impairment tests.

The company said its analysis resulted in a non-cash impairment charge of $18 billion. The charge involved a reduction of the carrying amount of goodwill for its radio and outdoor advertising business to their estimated fair value.

Viacom said it took a $10.9 billion write-down to its radio holdings. That shaves more than half of the goodwill linked to that unit, according to the Associated Press. The company took a charge of $7.1 billion against its outdoor advertising unit.

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Last Friday, Clear Channel Communications Inc., the largest U.S. radio chain, took a $5 billion charge to write down the value of its radio licenses. The write-down resulted from the company’s adoption in the fourth quarter of 2004 of the Securities and Exchange Commission’s Staff Announcement D-108. That announcement requires that all intangible assets be valued separately and doesn’t permit goodwill to be included in franchise assets. Clear Channel had been valuing goodwill together with franchise assets.

Such write-downs are nothing new for Clear Channel. It took a goodwill impairment charge of $10.8 billion in 2002 and a non-cash impairment charge on its FCC licenses of around $6 billion in the same year, according to Reuters.

In 2003, Time Warner Inc., then called AOL Time Warner, took a charge of $45.5 billion for the fourth quarter of 2002, mostly to write down the value of its America Online unit. Earlier in 2002, it took a record $54 billion charge to write off goodwill to reflect the sharp decline in the value of its $106.2 billion purchase of Time Warner in 2000.

The numbers of companies that take such charges could rise over the next few years if interest rates continue increase. If interest rates are rising, the discounted value of assets would decrease significantly, Howard Silverblatt, equity market analyst of Standard & Poor’s, told Reuters. “So all things being the same, asset values will go down and we will have more write-offs,” he added.

Silverblatt told the wire service that more than $750 billion of goodwill is currently on the balance sheets of the top 500 U.S. corporations. In fact, goodwill accounts for a large slice of total assets at a number of companies.

One company to keep an eye on: Hewlett Packard, which has more than $15 billion in goodwill, most of it stemming from its acquisition of Compaq Computer several years ago.