There is another thread in here called "performance rights lapse" - I just commented on it. There, another poster has put an amazingly simple explanation of how these write-downs work mathematically.
But in short - the company bought these other companies for a lot of cash and shares - more than the tangible book value of the companies they bought. The difference is recorded as "goodwill", and as long as the companies they took over produce cash in excess of the assumptions, the goodwill stays on the books. When the businesses that the company bought don't generated the projected returns, the company has to admit it overpaid, and it writes down the Goodwill in a "non-cash impairment charge" - it's considered "non-cash" because the money was spent during acquisition.
So yeah, in short this write down is the company admitting that it paid way too much for it's acquisitions - and thanks the accounting standards, we know they think that because the returns are no where near their earlier projections. It is possible to have their "original business" going gangbusters, and this write down only be on account of the businesses they acquired - but that's rare.
Now is a great time to do it for the future manager, as well, because their long-term incentive is based on the value when they join the company - so a write-off like this can make the company more attractive to a potential manager.
However, it's my view that this is a garden variety write-down because the company overpaid for it's buying spree.
I'm changing my sentiment to hold - until after results.
PPG Price at posting:
15.0¢ Sentiment: Hold Disclosure: Held
