LoJack is a leading global provider of technology products and services for the tracking and recovery of valuable mobile assets and people at risk of wandering. According to a recent Federal Bureau of Investigation Uniform Crime Report for 2009, a motor vehicle is stolen in the United States every 40 seconds. LoJack’s business is sensitive to changing economic conditions and is substantially dependent on new vehicle sales levels in the United States.
LoJack acquired Boomerang, SCI, and Locator Systems (now known as LoJack SafetyNet) and recorded goodwill. LoJack adopted an annual measurement date of November 30 for SCI and LoJack SafetyNet for goodwill impairment testing. The tests for impairment are performed on an interim basis if there are triggering events identified. Triggering events are events or changes in circumstance that would more likely than not reduce the fair value of a reporting unit below its carrying amount. Examples of such events or circumstances include:
(a) A significant adverse change in legal factors or in the business climate;
(b) An adverse action or assessment by a regulator;
(c) Unanticipated competition;
(d) A loss of key personnel;
(e) A more-likely-than-not expectation that a reporting unit or a significant portion of a re-porting unit will be sold or otherwise disposed of; (f) the testing for recoverability of a significant asset group within a reporting unit; or (g) recognition of a goodwill impairment loss in the financial statements of a subsidiary that is a component of a reporting unit. In 2009, based upon a review of external economic factors and internal business performance, a triggering event in the Boomerang reporting unit was identified. As such, Boomerang’s goodwill was tested for impairment utilizing a discounted cash flow (DCF) model. As a result of the impairment analysis, a goodwill impairment charge of $13,627 was recognized at June 30, 2009, thus eliminating the goodwill balance attributable to the Boomerang reporting unit. The impairment is included in Impairment of goodwill and intangible assets on the consolidated statement of operations for the year ended December 31, 2009. In 2008, goodwill impairment of $36,830 related to Boomerang was recorded.

A. Discuss the current FASB position on goodwill impairment. Do you think this is a better or poorer way of addressing changes in goodwill valuation over time than amortization?
Why? Include in your answer a discussion of how the two alternatives (impairment and amortization) affect current and future earnings of the consolidated entity.
B. In the case of LoJack, discuss possible reasons why the company might have used its discretion either to delay or to expedite the recording of the impairment of goodwill for the Boomerang reporting unit. What effect did the impairment have on earnings for the years 2008 and 2009? What effect will it have on ROA for future years?
C. How would you expect the stock market to respond to the news of the goodwill impairment?Why?

  • CreatedMarch 13, 2015
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