Apogee Business Valuations, Inc.

Goodwill and Other Intangible Assets (SFAS 142)

A recognized intangible asset is amortized over its useful life to the reporting entity, unless that life is determined to be indefinite. The term indefinite does not mean infinite. An intangible asset with an indefinite life is tested for impairment in the same manner as goodwill: annually or upon triggering events.

SFAS 142 mandates that goodwill and indefinite-lived intangible assets shall not be amortized. Rather, they are to be tested for impairment at the reporting unit level, on a stand-alone basis. Synergies are considered a fundamental part of the fair value of a reporting unit.

Impairment of goodwill and indefinite-lived intangible assets is estimated through a two-step process. First, the fair value of the reporting unit, including goodwill, is determined and compared to the carrying value of the reporting unit recorded on the financial statements. Goodwill impairment exists if the carrying value of the reporting unit, including goodwill, exceeds the fair value of the reporting unit.

The second step of the impairment test is to allocate the assets and liabilities of the reporting unit as if the reporting unit had been acquired in a business combination as of the date of the impairment test, and the fair value was the purchase price. At the test date, the fair values of the assets are deducted from the fair value of the reporting unit to determine the implied fair value of goodwill. If the implied fair value of goodwill at the test date is lower than its carrying amount, goodwill impairment is indicated
and goodwill is written down to its implied
fair value.

If the impairment test finds that the fair value of the reporting unit has not declined materially, no further analysis is needed. Increases in goodwill are never recognized.

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