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They can also go to https://s24.q4cdn.com/489945429/files/doc_financials/2022/04/4Q-%2721-All-Companies.pdf https://s24.q4cdn.com/489945429/files/doc_financials

They can also go to https://s24.q4cdn.com/489945429/files/doc_financials/2022/04/4Q-%2721-All-Companies.pdf https://s24.q4cdn.com/489945429/files/doc_financials/2022/04... and look at the hundreds of millions in dividends being paid to shareholders out of their utility bills. I find it humorous that under their estimated $3.8B in utility plant assets they also list $324M "goodwill" assets. GAAP says that goodwill is an intangible asset, but it seems they're spending it rather aggressively...

opportune 3y ago
That’s not what goodwill is. It’s the premium paid over NAV for acquired companies
HWR_14 3y ago
Goodwill isn't consumer goodwill. It's acquisition goodwill. So if Google buys a company for $1 billion, that might be a great business decision. But the cashflow and projections may only justify an accounting value of 500MM. That doesn't mean it's not a great decision because of a lot of valid reasons. That extra 500MM has to be added to Google's books somehow (they spent $1 billion, and books have to balance), so they have an asset of 500MM of "goodwill" and a corporate asset of 500MM.
- dylan604 3y ago
  They should just call it a tip, since that's the world we live in now.
  - HWR_14 3y ago
    Tips are expenses. Goodwill is an asset.
    - dylan604 3y ago
      This is why I'd never be a good accountant. The price paid was $1m, the thing was valued at $500k, leaving $500k in goodwill? How is spending more money on something than it is worth an asset?
      - icjznhfxvjh 3y ago
        No, 500 more than the book value. The issue you are taking about is that book value doesn’t equal asset value perfectly for a variety of reasons. Goodwill is basically a carrying error.
        dylan604 3y ago
        You can say things like this all day long, but to people that think logically and not in the "make-up-numbers" accounting world, this is how things like Enron can happen. In supply-demand situations like houses, the seller can list a price they are okay with receiving. If it has more interested parties, they can make an offer higher than the asking price. When selling a company, there's similar practices of looking at the current annual income, project growth over a few years, and offer a price based on that. Explaining in terms that are logical, non-accountants can keep up. Making comments of "we value at $500, but paid 2x that for goodwill" just makes no sense
        sjy 3y ago
        Goodwill refers to the part of the price that is based on "looking at the current annual income and projecting growth over a few years." It's the value over and above what you would get if you emptied the company bank accounts and sold all its other property in a fire sale. It's a perfectly sensible concept, even if the process of quantifying it by coming up with a price "based on" current income and anticipated growth (or other advantages like eliminating competition) is contestable.
        ffgjgf1 3y ago
        > people that think logically and not in the "make-up-numbers" I would disagree. It’s not very logical to value software companies (for instance) at their book because a lot of their worth is in know-how, workforce and the products themselves. Unless you believe that’s worthless “goodwill” makes perfect sense. The issue is that these intangible assets are notoriously hard to value. Of course if we’re talking about utility companies for instance it’s quite different. > current annual income, project growth over a few years, and offer a price based on that These are not a tangible assets. Future growth expectations are included in “goodwill”. > Making comments of "we value at $500, but paid 2x that for goodwill" Nobody does that, or should do it anyway. There is a lot of inefficiency in acquisitions that’s true but no company is going to just say “well we value it X but going to pay 2X”. In most cases there is no real way to calculate future growth without a very wide margins of error anyway.. Anyway there is no point in getting too worked up about this. The main purpose of goodwill is to prevent a massive decrease in company’s assets after they acquire another company. You can deduct depreciation in goodwill from your tax bill anyway. One of the few issues I can think of is this distorts GAAP earnings data for public companies. e.g. look at AMD it looks as if they have not been making any money for the past year or so, which is far from the truth. They just get to depreciate ~$2 billion in goodwill from the Xilinx acquisition depressing their reported net income.
- TechBro8615 3y ago
  Goodwill has always struck me as a very suspect accounting practice. I'm honestly surprised it's legal.
  - CamelCaseName 3y ago
    Why? What about it is suspect?
  - jerf 3y ago
    It's a perfectly sensible practice. It is, perhaps, an unfortunate name, since as a term of art it makes sense but the plain English implies an awful lot of value judgments for what is really just a "a recognized and intentional mismatch resulting in a fudge factor".
  - civilitty 3y ago
    "Goodwill" is just the premium the acquirer had to pay for the company above the net fair market value of its tangible assets. It starts out as essentially the amount spent to "buy the goodwill" of the owners and convince them to sell, not an estimate of how much the intangible assets are actually worth. That's the first concrete number usable for GAAP. Afterwards, companies have to annually test goodwill for "impairment" and write down the value of its goodwill if it's impaired.
    - djoldman 3y ago
      Wow, just read up on goodwill impairment testing... seems sketchy AF.
      - civilitty 3y ago
        What part seems sketchy? Like HWR_ said, it's mainly used to balance the books. The tax basis of goodwill is zero and an impairment generally isn't tax deductible. Its main purpose is to track the health of the company. For example, if you acquire a restaurant chain with a bunch of retail locations but then announce that you're a racist, losing all the customers, you still own the retail locations but the premium that you paid for the constant restaurant revenue is now worthless. Assuming that restaurant revenue was more than you could make from leasing the retail space to someone else, there needs to be a way to represent that loss of book value.
- 0xbadcafebee 3y ago
  So it's waste. Like if you want to sell sandwiches and you find out later you have to cut the crusts off for them to sell better. The crusts are now "goodwill".
  - JohnFen 3y ago
    That's what it sounds like to me as well. Either that or it sounds like really shady accounting. My assumption is that I'm not understanding something important about it, but I can't figure out what that is from the explanations in these comments.
    - rodgerd 3y ago
      Let's say you own a car yard. You have a chunk of land, a building, and some stock. Those might go on the books as simple assets of ten million bucks. You decide to sell the business. You want to retire, you entertain offers. The winning offer is fifteen million dollars. The purchaser now has something they paid $15m for. The actual assets are only $10m. How you you account for that in double-ledger accounting? You put $5m down to goodwill. That's the grossly simplified version. It's the difference between tangible, obvious assets (cash, property, stock, etc), and the intangibles that a buyer might pay a premium for. At heart it's a reasonable enough convention. You can do all sorts of too-clever-for-our-own-good stuff with it but you know what, that's true of basically every accounting construct.
      - JohnFen 3y ago
        That's similar to the other explanations. > The purchaser now has something they paid $15m for. The actual assets are only $10m. How you you account for that in double-ledger accounting? You put $5m down to goodwill. This is the part I don't understand that makes it all seem shady. Surely, that $5M is a loss for the purchaser, and profit for the seller, no? Why the weird "goodwill" accounting?
        beckingz 3y ago
        It doesn't count as a loss until you official say "this is actually a loss (impairment/write down)". Because why would you buy a business for more than it is worth?
- rahimnathwani 3y ago
  Half of this is correct: goodwill is a balancing item to account for the difference between accounting value and acquisition price. The other half is incorrect, though: accounting value isn't based on 'projections'. Projections might affect the fair market value of the target (without accounting for post-acquisition synergies). But the accounting value is based solely on historical financial results.
metaphor 3y ago
CMP's latest FY22 annual[1; starting p. 130] and 23Q1 quarterly[2] financial statements for the habitual numbers sleuthers. In case anyone else was wondering what the provenance of this $325MM goodwill line item on CMP's balance sheet is, defer to the parent's (Avangrid) latest 10-K filing[3], buried under footnote 7 on p. 123: > Goodwill for the Maine reporting unit is $325 million from the purchase of CMP by Energy East Corporation in 2000. [1] https://s24.q4cdn.com/489945429/files/doc_downloads/2023/04/4q-22-combined-subsidiary-financials.pdf https://s24.q4cdn.com/489945429/files/doc_downloads/2023/04/... [2] https://s24.q4cdn.com/489945429/files/doc_financial/Supplemental_Report/2023/05/cmp-fs-q1-2023-final-5-12-23.pdf https://s24.q4cdn.com/489945429/files/doc_financial/Suppleme... [3] https://www.sec.gov/Archives/edgar/data/1634997/000163499723000023/agr-20221231.htm https://www.sec.gov/Archives/edgar/data/1634997/000163499723...

opportune 3y ago

That’s not what goodwill is. It’s the premium paid over NAV for acquired companies

HWR_14 3y ago

Goodwill isn't consumer goodwill. It's acquisition goodwill. So if Google buys a company for $1 billion, that might be a great business decision. But the cashflow and projections may only justify an accounting value of 500MM. That doesn't mean it's not a great decision because of a lot of valid reasons. That extra 500MM has to be added to Google's books somehow (they spent $1 billion, and books have to balance), so they have an asset of 500MM of "goodwill" and a corporate asset of 500MM.

dylan604 3y ago
They should just call it a tip, since that's the world we live in now.
- HWR_14 3y ago
  Tips are expenses. Goodwill is an asset.
  - dylan604 3y ago
    This is why I'd never be a good accountant. The price paid was $1m, the thing was valued at $500k, leaving $500k in goodwill? How is spending more money on something than it is worth an asset?
    - icjznhfxvjh 3y ago
      No, 500 more than the book value. The issue you are taking about is that book value doesn’t equal asset value perfectly for a variety of reasons. Goodwill is basically a carrying error.
      - dylan604 3y ago
        You can say things like this all day long, but to people that think logically and not in the "make-up-numbers" accounting world, this is how things like Enron can happen. In supply-demand situations like houses, the seller can list a price they are okay with receiving. If it has more interested parties, they can make an offer higher than the asking price. When selling a company, there's similar practices of looking at the current annual income, project growth over a few years, and offer a price based on that. Explaining in terms that are logical, non-accountants can keep up. Making comments of "we value at $500, but paid 2x that for goodwill" just makes no sense
        sjy 3y ago
        Goodwill refers to the part of the price that is based on "looking at the current annual income and projecting growth over a few years." It's the value over and above what you would get if you emptied the company bank accounts and sold all its other property in a fire sale. It's a perfectly sensible concept, even if the process of quantifying it by coming up with a price "based on" current income and anticipated growth (or other advantages like eliminating competition) is contestable.
        ffgjgf1 3y ago
        > people that think logically and not in the "make-up-numbers" I would disagree. It’s not very logical to value software companies (for instance) at their book because a lot of their worth is in know-how, workforce and the products themselves. Unless you believe that’s worthless “goodwill” makes perfect sense. The issue is that these intangible assets are notoriously hard to value. Of course if we’re talking about utility companies for instance it’s quite different. > current annual income, project growth over a few years, and offer a price based on that These are not a tangible assets. Future growth expectations are included in “goodwill”. > Making comments of "we value at $500, but paid 2x that for goodwill" Nobody does that, or should do it anyway. There is a lot of inefficiency in acquisitions that’s true but no company is going to just say “well we value it X but going to pay 2X”. In most cases there is no real way to calculate future growth without a very wide margins of error anyway.. Anyway there is no point in getting too worked up about this. The main purpose of goodwill is to prevent a massive decrease in company’s assets after they acquire another company. You can deduct depreciation in goodwill from your tax bill anyway. One of the few issues I can think of is this distorts GAAP earnings data for public companies. e.g. look at AMD it looks as if they have not been making any money for the past year or so, which is far from the truth. They just get to depreciate ~$2 billion in goodwill from the Xilinx acquisition depressing their reported net income.
TechBro8615 3y ago
Goodwill has always struck me as a very suspect accounting practice. I'm honestly surprised it's legal.
- CamelCaseName 3y ago
  Why? What about it is suspect?
- jerf 3y ago
  It's a perfectly sensible practice. It is, perhaps, an unfortunate name, since as a term of art it makes sense but the plain English implies an awful lot of value judgments for what is really just a "a recognized and intentional mismatch resulting in a fudge factor".
- civilitty 3y ago
  "Goodwill" is just the premium the acquirer had to pay for the company above the net fair market value of its tangible assets. It starts out as essentially the amount spent to "buy the goodwill" of the owners and convince them to sell, not an estimate of how much the intangible assets are actually worth. That's the first concrete number usable for GAAP. Afterwards, companies have to annually test goodwill for "impairment" and write down the value of its goodwill if it's impaired.
  - djoldman 3y ago
    Wow, just read up on goodwill impairment testing... seems sketchy AF.
    - civilitty 3y ago
      What part seems sketchy? Like HWR_ said, it's mainly used to balance the books. The tax basis of goodwill is zero and an impairment generally isn't tax deductible. Its main purpose is to track the health of the company. For example, if you acquire a restaurant chain with a bunch of retail locations but then announce that you're a racist, losing all the customers, you still own the retail locations but the premium that you paid for the constant restaurant revenue is now worthless. Assuming that restaurant revenue was more than you could make from leasing the retail space to someone else, there needs to be a way to represent that loss of book value.
0xbadcafebee 3y ago
So it's waste. Like if you want to sell sandwiches and you find out later you have to cut the crusts off for them to sell better. The crusts are now "goodwill".
- JohnFen 3y ago
  That's what it sounds like to me as well. Either that or it sounds like really shady accounting. My assumption is that I'm not understanding something important about it, but I can't figure out what that is from the explanations in these comments.
  - rodgerd 3y ago
    Let's say you own a car yard. You have a chunk of land, a building, and some stock. Those might go on the books as simple assets of ten million bucks. You decide to sell the business. You want to retire, you entertain offers. The winning offer is fifteen million dollars. The purchaser now has something they paid $15m for. The actual assets are only $10m. How you you account for that in double-ledger accounting? You put $5m down to goodwill. That's the grossly simplified version. It's the difference between tangible, obvious assets (cash, property, stock, etc), and the intangibles that a buyer might pay a premium for. At heart it's a reasonable enough convention. You can do all sorts of too-clever-for-our-own-good stuff with it but you know what, that's true of basically every accounting construct.
    - JohnFen 3y ago
      That's similar to the other explanations. > The purchaser now has something they paid $15m for. The actual assets are only $10m. How you you account for that in double-ledger accounting? You put $5m down to goodwill. This is the part I don't understand that makes it all seem shady. Surely, that $5M is a loss for the purchaser, and profit for the seller, no? Why the weird "goodwill" accounting?
      - beckingz 3y ago
        It doesn't count as a loss until you official say "this is actually a loss (impairment/write down)". Because why would you buy a business for more than it is worth?
rahimnathwani 3y ago
Half of this is correct: goodwill is a balancing item to account for the difference between accounting value and acquisition price. The other half is incorrect, though: accounting value isn't based on 'projections'. Projections might affect the fair market value of the target (without accounting for post-acquisition synergies). But the accounting value is based solely on historical financial results.

metaphor 3y ago

CMP's latest FY22 annual[1; starting p. 130] and 23Q1 quarterly[2] financial statements for the habitual numbers sleuthers. In case anyone else was wondering what the provenance of this $325MM goodwill line item on CMP's balance sheet is, defer to the parent's (Avangrid) latest 10-K filing[3], buried under footnote 7 on p. 123: > Goodwill for the Maine reporting unit is $325 million from the purchase of CMP by Energy East Corporation in 2000. [1] https://s24.q4cdn.com/489945429/files/doc_downloads/2023/04/4q-22-combined-subsidiary-financials.pdf https://s24.q4cdn.com/489945429/files/doc_downloads/2023/04/... [2] https://s24.q4cdn.com/489945429/files/doc_financial/Supplemental_Report/2023/05/cmp-fs-q1-2023-final-5-12-23.pdf https://s24.q4cdn.com/489945429/files/doc_financial/Suppleme... [3] https://www.sec.gov/Archives/edgar/data/1634997/000163499723000023/agr-20221231.htm https://www.sec.gov/Archives/edgar/data/1634997/000163499723...