Sonova’s $200 million “goodwill impairment charge”

“In a trading statement, Sonova, the world’s largest hearing aid maker by sales, said the implant recall at its U.S. unit Advanced Bionics will also lead to a goodwill impairment charge of up to 200 million Swiss francs ($217.8 million), which will be booked in fiscal 2009/2010 when Sonova bought the U.S. firm for about $489 million”

and

Sonova had “acquired to get a foothold in the technically demanding but also error-prone cochlear implant market”

Read more: http://www.foxbusiness.com/industries/2011/03/16/sonova-curbs-outlook-implant-recall-strong-franc/#ixzz1GtfG5YnX

Sonova Holding AG (SOON) slumped 23 percent, the largest retreat in eight years, after the hearing aid maker lowered its sales and profit forecasts. Syngenta AG (SYNN), the world’s biggest maker of chemicals for agriculture, gained 2.2 percent.

http://www.bloomberg.com/news/2011-03-16/swiss-stocks-drop-sonova-plunges-after-cutting-forecast-syngenta-gains.html

Another source:

http://hearingmojo.com/sonova-to-write-off-losse?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+HearingMojo+%28Hearing+Mojo%29

And my question is what, pray tell, is “the goodwill impairment charge”

goodwill?

Just asking folks!

Oh and if u want – u can google for the Sonova press release that went out a few weeks ago projecting that they would be back in the CI production business by April – just waiting approval by various regulatory groups across the globe.  It’s March 17 (St. Paddy’s day) today and i dont think the factory in Ca. is going chalink – chalunk yet.

Ahhh to keep trying to come up smelling like roses – and a goodwill of a time was had by all (well not by the folks who had to have their CIs explanted and new ones implanted, and not by the folks with other complications that needed other solutions, and not by the folks who were raised oral-aural-ONLY to go along with their Advanced Bionics CI / AVT package deal only to be left with a severe language delay and not by the folks who got infections from the other Advanced Bionic CIs that had positioners cuz some of those folks got seriously ill and some of them even got killed).

The Dow Jones Newswire article concludes with:

“Sonova expects the growth drivers in the hearing systems market to remain unchanged,” it said, adding that the company ” is continuing to aim to achieve long-term growth…by expanding its sales channels and new business areas.”

Read more: http://www.foxbusiness.com/industries/2011/03/16/sonova-curbs-outlook-implant-recall-strong-franc/#ixzz1GtfG5YnX

hmmmmm?  coming to a developing country near you soon?

just asking what it all means, folks.

There is money in them thar ears or they would have packed up shop by now – they did down size due to the recall and halt on all productions but…. they seem mighty hopeful to be back to business as usually real soon cuz the ticket counter is a crashing in the mean time.

Previous entry about Sonova Advanced Bionic’s latest recall

https://handeyes.wordpress.com/2010/11/24/sonovas-shares-shake-and-ag-bell-quakes-or-rattles-and-rolls/

Links to several Cochlear Implant companies who have been in legal trouble

https://handeyes.wordpress.com/2011/03/03/another-ci-co-in-trouble-5-9-million/

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6 Comments (+add yours?)

  1. deafa
    Mar 17, 2011 @ 23:46:05

    Speaking of developing countries, I feel bad for the deaf who gone through natural disasters where their electricity cut off of them and resource is limited. They will have no choice but live without hearing and who knows how long , especially during the time where everyone getting frustrated and out of control, if they can not get batteries or electricity to recharge. Unless they develop a solar recharging station. It does suck to depend on technology with no other method to back up with.

    UNAID is looking into helping deaf and health services develop a better signing skills in developing countries because there are way too many deaf with no signing skills except home signs and those who do, health services don’t have any skills either. BEecause of that, there are too many unplanned births (they could had access to birth control) and HIV. I think about majority of deaf need this as they are in a high risks of being neglected as far as healthcare.

  2. Tim V
    Mar 18, 2011 @ 02:16:21

    Patti,

    I guess you don’t invest in stocks, so you don’t know what goodwill means. What happened here is that I guess Sonova is a company that has few different business units. They bought Advanced Bionics at some point in the past — either by buying the company whole or buying the unit from another company.

    What tends to happen when a company buys another company is that the company being bought would have so much amount of cash, investment, property (building, etc) and so forth on its books. As well as some debt as well (accounts receivable, line of credit, etc). However, the net of the asset minus the liability is NOT equal to the purchase price of the entire business. It really should not be anyways. The value of a business should be a function of how much profit they can make over time as opposed to the value of all the assets minus liability that they have in their books.

    But anyways, when a company acquires another company or another business unit, if they were to record the assets and liability of that prior company in its accounting books — then it would look like the buyer wasted a *LOT* of money since the buyer will get a huge hit to their balance sheet — in which the book value will go down with each acquisition. To avoid this hit, and to sort of ‘smooth’ it over, GAAP (Generally Accepted Accounting Practices) allows for recording the value of the purchase price in excess of the net assets (that is asset minus liability) as goodwill. That goodwill represents the intangible value of that underlying acquisition. Oh, I think some situations, it could be illegal to NOT record it as goodwill. You will see why later.

    Goodwill is also used to track the value of innovations that result in patents, trade secrets (like the precise Coca Cola formula that nobody but very few select employees have access to), or brand (like if you have a widely regarded brand name that people have became attached to).

    Over time, the goodwill is often depreciated so that in theory, some 20 or so years later, it goes to 0. It sounds like what is happening here is because of the recall, Sonova decided to accelerate that depreciation process since Advanced Bionics now has fallen from grace, so the intangible value of the patents or brand has fallen. Sonova has decided to ‘impair’ that Goodwill, which means they are deducting its value from the balance sheet at quicker rate than normal depreciation.

    Why do companies do that? By ‘impairing’ the goodwill, the company is able to deduct the value of the impairment from their income statement, and yes, that includes the taxable income. Yes, that means that Sonova is getting a tax break from Uncle Sam because of the fact that their ‘name’ has fallen out of favor. If their expenses are high enough, they can actually get a check from the government because of this impairment. Just keep in mind that impairments like this can only be taken if there is provable situation that warrants it being taken, and I don’t see any reason why the IRS would disagree with their assessment here.

    Now, I think you can see why it is illegal to NOT record goodwill when acquisition happens. If you didn’t, then you could avoid paying taxes for quite a long time by acquiring companies after companies, and deducting the amount that would have been ‘goodwill’ from the balance sheet — giving you negative income when you did not really ‘lose’ anything.

    Does this explain the situation to you better, Patti? It has hardly anything to do with them doing something ‘good’, it is simply how accountant tracks intangible values of intellectual property, brand, or underlying business unit that they acquired.

    -Tim

  3. patti
    Mar 18, 2011 @ 11:35:32

    deafa

    big thanks for ur comments

    not sure if u have seen the film el-sayed about a bedoine community in Israel with a high rate of Deaf births. there is a really sad scene in it where the family learns that the CI requires electricity for charging everything – not something the knew or understood in advance. The audiologist just assumed they had electricity 24/7.

    RE: UNAID – that is good. HIV/AIDS info really should be given in natural sign languages as well as the other means. not something to play around with or leave up to misunderstandings or lack of info.

    peace

    Patti

  4. patti
    Mar 18, 2011 @ 11:42:16

    Tim to the rescue!

    thank u

    i was teasing about my emphasis on the “goodwill” terminology. while i certainly did not have as indepth of an understanding of what it means in terms of business and accounting practices i knew enuf to know that it was NOT meaning what goodwill typically means so i played off that irony

    i hope u will take the time to read the full article as it provides some of the details of Sonvona acquiring Advanced Bionics and also the issue with Zurich stockexchange and not the US uncle sam. (or will it apply to both?)

    http://www.foxbusiness.com/industries/2011/03/16/sonova-curbs-outlook-implant-recall-strong-franc/#ixzz1GtfG5YnX

    (the other links in the site also might be informative)

    im not implying anything in my post that they have done something illegal – i am indicating some irony though

    can the folks with defective or no longer working CIs get a tax write off for “goodwill impairment”?

    i totally thank u for all the info and details u have provided. i got me a real nice education this morning. i mean this sincerely. i love sharp minds and good hearts so i thank ya.

    peace

    patti

  5. Tim V
    Mar 18, 2011 @ 14:36:50

    I think any place where they file taxes, the same set of concepts tends to apply. Yes, precise accounting laws vary from country to country, but for most part, I don’t think Europe is that different from US. Asian and some South America countries are more different, though.

    The sad thing here is Sonova is nowhere close to going out of business because of this. It is just another expenses line, and 6% knocked out of their profit margin. They already had a high profit margin — 26% — this seems to be a very profitable business. Any investor with a long-term view would probably just see this as a bump in the road, and they should recover fully if their projections are correct. If their brand reputation is damaged so that nobody wants to buy their product anymore, then that is another story, but we’ll have to see about that.

    Profit margin doesn’t say everything about how good a business is, though — nobody denies how solid Walmart’s business is, but their profit margin is only 3.89%, which is very low. But Walmart does very well because they have such a high turnover rate (products are sold soon after stocked). What happens with Walmart is a product stays on the shelf an average of something like a month, so they get to earn that profit margin multiple times in a year. Because of this high turnover rate, Walmart has an return on assets of 9.09%, and return on equity of 22.03%. It is the return on equity that is very good — Greenblatt made his millions of dollars entirely by investing based on ROIC (return on invested capital), which is a very similar measure to return on equity.

    I don’t know Sonova’s ROE since I’ll have to look at the foreign financial statements to find it, but often when you have high profit margin, it is usually a pretty good sign in that department.

    -Tim
    No, I don’t own stocks in any of the companies mentioned.

  6. handeyes
    Mar 19, 2011 @ 01:36:06

    Tim –

    smile re: ur last line

    thanks again for all the info. yes i doubt the Advanced Bionic situation is gonna cripple Sovona but i do wonder if the regulations to get the AB ci approved again for market is delayed or complicated (especially in the US) if sovona will toss AB or just keep it on at a very small scale to hand existing implants and repairs / issues etc and then pursue a new CI co.

    i do recall seeing that Cochlear Americas was seeing some gain in the absence of Advanced Bionics being on the market so none of this is gonna SHUT DOWN all CIs

    it is just illuminating re: how much $$$ and profit is in this whole thing and how much deceit accompanies it at times (thinking of the Dept of Justice fining Cochlear Americas for kickbacks and insurance fraud) and Otologics being fined $5.9 million for stealing trade secrets from a French co. that is in the process of making a fully implantable CI.

    and more

    also from the dow jones article in this blog entry – this line is kinda telling:

    “acquired to get a foothold in the technically demanding but also error-prone cochlear implant market”

    ERROR-PRONE

    u dont see that often admitted but there it is

    thank you again

    peace

    patti

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