Actually, I do know what I'm talking about. While goodwill
can represent cash that was wasted on purchases in which the amount paid was too great in relationship to the tangible asset, that's not necessarily what it represents, and it's not what it represents in this financial report of Panther.
Goodwill is seen as an intangible asset on the balance sheet because it is not a physical asset such as buildings and equipment. Goodwill typically reflects the value of intangible assets such as a strong brand name, good customer relations, good employee relations and any patents or proprietary technology. It can also represent the power of market share. It can represent a lot of things, cash being over-paid is merely one of them. In this case, a lot of the Goodwill on the books was Goodwill from Fenway, and for Fenway's benefit. With Fenway out of the picture, that Goodwill is no longer a part of the balance sheet, so it needs to be written off in an impairment charge, in order to be able to accurately price the stock when going public. If they didn't go public, those Goodwill charges could be left alone.
Under the new accounting rules, all goodwill is to be assigned to the company's reporting units that are expected to benefit from that goodwill (Panther benefiting from Fenway's Goodwill, due to the various Fenway holdings, and in turn Fenway benefiting from having that Goodwill on Panther's balance sheet). Then the goodwill must be tested (at least annually for publicly traded companies) to determine if the recorded value of the goodwill is greater than the fair value. If the fair value is less than the carrying value, as would be the case with Fenway no longer being in the picture, the goodwill is deemed "impaired" and must be charged off. This charge reduces the value of goodwill to the fair market value and represents a "mark-to-market" charge. If Panther wasn't preparing to go public, then none of these charges would be written off. There would be no reason to.
It's really pretty simple and straightforward, when you get right down to it. And it's got nothing to do with, nor is an indicator of, Panther over-spending for stuff or them bleeding cash.
While it's true this doesn't represent cash generated in the business today, it does represent cash someone spent.
No, not necessarily. It
can represent that, but in the case of Panther, it does not. For example, Fenway buys Panther for x-dollars. In the succeeding months or years Panther expands its business and its market share with new customers, thereby making the Panther brand name itself more valuable. The Goodwill of Panther's name gets increased, thus increasing the overall value of the company, with no cash having been spent to do it.
Another example is the FedEx brand name, which represents just a snotload of balance sheet goodwill, and the more successful FedEx becomes, the higher the value of that goodwill, and no wasted cash will be spent to increase it. If FedEx loses a couple of key court cases or federal government rulings, then the value of FedEx, and it's brand name goodwill will decrease, and you'll see a goodwill impairment charge being written off so as to more accurately represent the value of the company.
That's pretty much what's happening here. With Fenway no longer Panther's partner and backer, the goodwill that Fenway provided needs to be removed from the intangible value of the company. But the company's revenues, operating expenses and gross profit margins remain essentially unchanged. The only difference is that the company's net profit margin will likely go up as a result of not having to pay Fenway it's share.
So investors lost money, they just weren't people we know. They are Fenway's investors - including some of the managers at Fenway and probably Panther.
That might be true if the goodwill impairment charge represented actual money that Panther spent for over-valued stuff, but it doesn't. The mere fact that an impairment charge gets written off is hardly an indicator that investors lost money. In many cases it's just the opposite, since the ROI was realized long before the impairment charges were taken. With Fenway out of the picture, the company must be accurately valued in relation to the market (mark-to-market), rather than in relation to how valuable Fenway thinks it is, or of in how valuable the company actually is without the benefit of having Fenway and all of its holdings as a partner. And with Fenway out of the picture, it's Goodwill has to go with it. But again, look at the gross profit margins as a key indicator as to the health of Panther with and without Fenway, and you'll see that it's pretty healthy either way.
This report is about Panther and does not explicitly state Fenway's ROI in the venture, but there are several clues that Fenway did very well for itself, since Fenway's basic compensation plus a percentage is spelled out. Remove that expenditure from Panther's obligations, and you'll see that not only did the investors likely not lose money ("likely", because we don't know for sure what Fenway paid for Panther), but that the company is likely to make more money for stock investors when it goes public. Because, not only did Fenway do OK for itself, but Panther an an entity did well year over year in spite of a downturn in the economy.