Thursday, February 26, 2009

Bernanke: Keep, Improve Mark-to-Market Accounting Rules

U.S. Federal Reserve Chairman Ben Bernanke has supported accounting rule makers in their efforts to determine how to apply mark-to-market rules in illiquid markets such as the recent financial crisis. The banking and investment community has blamed accounting rules that they feel are too strict for worsening the global financial crisis. At issue are valuations for assets previously traded as liquid assets that suddenly become illiquid when markets freeze up.

The mark to market rules (“MTM”) require companies to write down assets every quarter to reflect market value. Bernanke doesn’t fully agree completely with the banks, who have always rejected fair value.

In testifying before a U.S. Congressionsl Committee this week, Bernanke said:

MTM is “a good principle in general” and shouldn’t be suspended completely.
Accounting authorities have a great deal of work to do to try to figure out how to deal with some of these assets, which are not traded in liquid markets,”
“I don’t see a suspension of the whole system as being constructive, because there is a great deal of information in valuing many of these assets.”

Bankers
hold strong and long-standing views that mark-to-market accounting has harmed banks and the economy. They say that harm comes from rules that require banks to state investments at fair-value, and that that accounting doesn’t work in illiquid markets because there isn’t enough market data to determine the real value of assets. Treasury Secretary Geithner, the SEC, the FASB and the international Accounting Standards board (IASB) all have stated that the rules should stay because they enhance transparency of corporate reporting.

The SEC wants to keep fair-value accounting, despite calls from the banks to suspend the fair value rules until the financial crisis is over or until the rules can be sorted out. An
SEC report released in December advocated that the fair value rules should be improved. They also countered bank claims, saying that “[fair value] did not appear to play a meaningful role” in bank failures last year. The FASB is currently engaged in a study to clarify how the mark to market rules apply when markets are inactive.

Wednesday, February 25, 2009

Got Goodwill? Part 19: The Horror

Impairments are continuing to carve up balance sheets as 2008 earnings are reported.

It’s always interesting (at least to us financial reporting geeks?) how companies talk about huge impairment charges. Usually the talk is around “non-cash charges”, implying that an impairment charge is meaningless, so let’s drive on.

However the CFO of Energy Future Holdings recently was a bit more talkative oon the subject , saying he was “horrified" to make a large impairment charge.

Paul Keglevic, EFH's new chief financial officer said the above about writing off $9-billion in goodwill. Other charges include $500 million related to the company's trade name.

Keglevic also said:

  • The number $9 billion "doesn't roll off my lips."
  • When private equity investors bought the company, they calculated it was worth $48 billion, including $23 billion for goodwill and intangibles.
  • The goodwill value has declined because the value of other electricity companies has dropped as the stock markets fell and because the value of EFH debt is down.
  • The decline is on paper; EFH isn't in financial trouble
  • The value of the company is only interesting if EFH owners want to sell, sort of like the value of a home.
  • The good news is we aren't trying to sell the company today.
  • He is not worried about EFH's cash flow. They will have enough cash flow to pay off the $40 billion in debt taken on to buy the company.
  • They expect the recession and decline in the stock market to prompt other companies to take similar goodwill charges
  • "This will be the biggest year of goodwill impairment this country has ever seen,"

Other recent big impairment charges:

Novelis $1.5 billion
Gerdau Ameristeel $1.2 billion
Sprint Nextel $1 billion
Kinross Gold $994 million
Barrick Gold $773 million
Chemtura $665 million
Ingram Micro $659 million
Nalco $544 million
Chiquita Brands $374 million

Reasons for impairment cited include:

  • Increased market cost of capital, due primarily to the significant deterioration in the capital markets during the third fiscal quarter, when market cost of debt required in impairment calculations is significantly higher than the interest rates on existing debt
  • Decline in market capitalization for the issuer and other industry participants
  • Impact of the global recession on near-term operating forecasts.
  • Closure of underperforming units

KPMG IFRS Survey: High Support, Low Understanding by Execs

KPMG has published a survey showing widespread support for IFRS. The survey shows that investors, analysts and corporate executives involved in preparation of financial statements are positive about the ultimate impact of the IFRS Roadmap.

Under the SEC’s IFRS Roadmap, certain companies could begin using IFRS this year, and large accelerated filers could be required to use IFRS for financial reporting periods ending on or after Dec. 15, 2014.

Notes from the survey:
  • 65% of analysts and investment executives expect IFRS to make the U.S. capital markets more attractive to foreign investors
  • 68 % of investors and analysts expect more transparency
  • Only 25% of executives believe foreign investors will find the U.S. markets more attractive.
  • 57% of investors and analysts surveyed believe the timeline proposal announced by the SEC in November to be “about right,”
  • 18% said that the SEC timeline proposal wasn’t aggressive enough
  • 55% of corporate executives agree with the timeline
  • 8% of corporate executives feel that the timeline is “too long.”

As far as understanding IFRS:
  • 16% of investors and analysts feel that currently have a solid understanding of IFRS
  • 20% of financial executives said they have a solid understanding of IFRS
  • 77% of analysts and investors said they want companies to begin explaining their IFRS conversion plans at least one-to-three years prior to the change

Wednesday, February 18, 2009

Got Goodwill? Part 20: Impairment and Share Price

Royal Bank of Scotland just announced around 20 billion pounds in goodwill writedowns. Interesting to watch their share price--when they made the final announcement their share price actually rose about 30%. That's not the whole story though. They first warned the markets about large impending losses a few weeks ago and their share price dropped about 90%. When companies announce impairments, sometimes the impairment is already priced into their share price, other times it is is not.

Fifth Third Bancorp shares dropped 29% after announcing close to a billion in impairment. However the shares were partially pushed lower by their CEO's comments about the rest of the year.

Regions Financial shares fell 24% after a $6 billion in goodwill writedowns. Hartford Financial shares were down 16% after a $2 billion goodwill hit. Companies usually argue that goodwill impairment has no impact and it is almost always described as a non-cash charge. Stock markets usually anticipate the write-down. However companies need to watch their lending covenants. Some companies may be downgraded after announcing impairments since impairments reduce assets, potentially causing problems with lenders and rating agencies. Moody's put Weyerhaueser under review after a goodwill impairment charge of close to $1 billion, stating that goodwill impairment charges "may reduce covenant headroom" under their credit facilities. This means that Moodys thinks that Weyerhauser is less credit-worthy because it has fewer assets on its balance sheet to make it worthy of receiving more lending.

Sunday, February 15, 2009

Got Goodwill? Part 18 Shaving Down Goodwill?

Some accounting sport has been had in forecasting which companies might announce goodwill impairment. Ccompanies where goodwill is 15% or greater proportion of total assets and where that ratio is greater than their industry median are likely candidates.

Also consider rising ratios of:

  • accounts receivable to sales
  • accumulated depreciation to plant, property and equipment
  • underfunded pension benefits to liabilities

Multiple amended securities filings also seem to be a predictor.

The above ratios shouldn't vary much in companies in control of their financial position. For example the ratio of receivables to sales, for example, ought to be pretty consistent quarter over quarter. When ratios start changing for the worse, say a worsening over 2-3 years it may be an indicator of near-term problems.

Procter & Gamble has $60-billion of goodwill and a total of $90-billion of goodwill and intangibles. Some have identified their goodwill as ripe for a write-down. P&G bought Gillette for $57 billion in 2005 and put goodwill of $37-billion created from the merger on its balance sheet. Warren Buffett called it a "dream deal." Gillete had the world's largest share of shaving products prior to being bought by P&G.

P&G's goodwill is spread across the following businesses:

Beauty: $17 billion
Grooming: $25 billion
Health Care: $9 billion
Snacks, Coffee and Pet Care: $2 billion
Fabric Care and Home Care: $ billion
Baby Care and Family Care: $2 billion

It will be interesting to watch P&G for goodwill impairment--interesting because their products are generally not considered luxury products and may not be affected by current economic malaise. Their shares were at a 52 week high of $73 before last fall and are sitting at about $50 now. Their market cap is about $150 billion, more than twice their book equity.

People who watch the ratios noted above are saying that other companies to watch may be biotech Amgen which has been on a buying spree. Monsanto, Kraft, and CVS Caremark, all of which have done big mergers and acquisitions over the past few years. Also eBay and Transocean.

With information from Barron's


Malcolm McKay


Friday, February 13, 2009

Got Goodwill? Part 17: SEC Views on Impairment

SEC Speech Shares Views on Impairment

At the December AICPA/SEC/PCAOB Conference, SEC staff talked a lot about goodwill in a number of speeches.

Key points:

Thorough disclosures about critical accounting estimates related to goodwill impairment testing are required.

Disclose:


  • How goodwill reporting units are determined, including any aggregation of reporting units,
  • Methodology used to determine the fair value of reporting units (including the weighting of each approach in cases in which multiple approaches are used)
  • Date or range of dates used to determine market capitalization
  • Evidence used to assess the reasonableness of an implied control premium (difference between the fair value of the reporting units and the enterprise’s market capitalization)
  • Key assumptions and sensitivity analysis related to those key assumptions.
  • Early warning disclosures in MD&A if it is reasonable to expect a material impairment in a future period.

Beware

SEC speakers said staff will ask questions about the adequacy of disclosures if there are indicators of impairment but no impairment charge.

SEC staff warned that assumptions underlying impairment analyses should be consistent with other accounting measurements and non financial disclosures in their SEC filings.

Goodwill Impairment Calculations

Reconciliation to market capitalization—a key element of the analysis is to reconcile the aggregate fair values of goodwill reporting units to market capitalization.

SEC staff does not expect a registrant to determine its market capitalization using a point in time market price as of the date of its goodwill impairment assessment.

Instead, consider recent trends in its stock price over a reasonable period.

Given recent stock price volatility, SEC staff would likely not expect enterprise market capitalization to be calculated solely based on stock price fluctuations on or around the goodwill impairment assessment date.

They warned not to ignore a recent drop in market capitalization.

The SEC does not apply a bright-line test to analyzing control premiums. They say that application of judgment can result in a range of reasonably possible control premiums.

Evidence should support the judgments that the implied control premium is reasonable, and support should be in the form of contemporaneous documentation, including any identified transactions.

It is not acceptable to use a “rule of thumb” to support the implied control premium.

The amount of documentation supporting the implied control premium to increase as the control premium increases.

A different speech revealed:

Indicators of Impairment According to the SEC

  • Recent operating losses at the reporting unit level
  • Downward revisions to forecasts
  • Decline in enterprise market capitalization below book value
  • Restructuring actions or plans
  • Industry trends.

Malcolm McKay

Got Goodwill? Part 16: Billions Gone from Vacation, Car Rental, Communication, Insurance Balance Sheets

Wyndham Worldwide one of the world's largest hospitality companies recorded non-cash goodwill impairment charge of $1.3 billion vacation time share business related to adverse financial markets.

Lloyds Banking Group announced £7bn for 2008 impairments in the HBOS corporate banking business. They said it was only £1.6bn higher than it had expected when it issued its shareholder circular on the takeover at the HBOS business last year. It said that the "acceleration in the deterioration in the economy" and a "more conservative provisioning methodology consistent with that used by Lloyds" caused the higher impairment.

Avis Budget announced an impairment charge of $1.3 billion given “the significant decline in the company’s equity market value over the last several months, as well as soft economic conditions and financial market disruptions that have increased the cost of capital for many corporations.”

Charter Communications announced that it expects to record an impairment charge of $1.5 billion. Unlike other “good news” announcements emphasizing investor value, they said that they will restructure debt under bankruptcy protection, completely wiping out shareholders.
Malcolm McKay

Got Goodwill? Part 15: It’s All in the Timing

CBS announced a goodwill impairment, then got sued.

CBS issued a press release on October 10, 2008 announcing that it would to incur an impairment charge of approximately $14 Billion in the third quarter of 2008.

After the announcement, CBS common shares declined from $10.14 to $8.10. CBS closed this week at $5.81.

A more recent press release talks about an investigation of the timing of the CBS announcement and how alleged damages might have resulted to shareholders of various CBS plans.

The complaint alleges that CBS violated securities regulations by making materially false and misleading statements about its financial condition and operating results.

The complaint is a class action on behalf of former or current employee or members of CBS investment plans or profit sharing retirement plans or individuals who purchased CBS stock in one of those plans during the periods February 26, 2008 to October 10, 2008.

The complaint alleges that:
  • CBS failed to disclose that ‘adverse market conditions had materially impaired CBS's operations, expected cash flows and the value of its intangible assets, including goodwill'
  • CBS's goodwill and intangible assets were materially overstated'
  • CBS' positive statements that it 'clearly has the right broad range of assets to produce outstanding free cash flow quarter after quarter, year after year,' were materially false and misleading and without reasonable basis.
You can have a look at a graph of CBS share price in 2008 here.

Read the complaint here.
Malcolm McKay

Thursday, February 12, 2009

Got Goodwill? Part 14: Rio Tinto Impairs $8 Billion

Rio Tinto has reported an asset impairment charge of $8.4 billion, mostly attributed to a write-down of its aluminum business, which recorded a $7.9 billion write down.

The aluminum division reported earnings of $1.18 billion, reduced from $2.8 billion as a result of higher costs and adverse exchange rate movements.

Corporate earnings were a record of $10.3 billion, up 38 per cent from the 2007 at $7.4 billion.

The company is now focusing on paying down its $40 billion debt from its $42.5 billion takeover of Alcan in 2007. The company previously stated that the debt dragging on the company. "We are comfortable ... with our financial position, we are confident that our debt position is manageable," they previously stated. "We have $9 billion of debt which is due for repayment in October 2009, we don't see any need to issue equity to meet that. In fact, we currently have available unused credit facilities of almost $7 billion."

Today Rio announced that Chinalco will inject equity totaling $US19.5 billion.

Malcolm McKay



Wednesday, February 11, 2009

Got Goodwill? Part 13: The Sour Taste of Impairment




Coca-Cola Enterprises reported an impairment charge of $2.3 billion.

The impairment charge is the result of their impairment analysis in accordance with SFAS No. 142, "Goodwill and Other Intangible Assets" and is necessary to reduce the book value of the company's North American franchise license intangible assets to their estimated fair value in light of financial market conditions and their stock price.

Tuesday, February 10, 2009

Goodwill Impairment Hall of Fame -- the List

Following is the list of impairments $100 million or greater noted to date. They are generally all before-tax numbers and all occurred in 2008 unless indicated otherwise. Some impairment amounts for non-goodwill assets may be included.

Sprint Nextel $29 billion (in 2007)
Time Warner $25 billion

CBS $14 Billion
Regions Financial $6 billion
Alcatel $5 billion
Motorola $3.5 billion
BHP $3.36 billion
Supervalu $3.3 billion
Bank of America $2.3 billion
Sovereign Bancorp $1.6 billion
Marathon Oil $1.4 billion
United Rentals $1.1 billion
OfficeMax $1 billion
Sandisk $1 billion
Freeport-McMoRan $13.1-billion
Royal Philips Electronics $1.7 billion
Marathon Oil $1.4 billion.
eBay $1.39 billion (2007)
Cadence Design Systems Inc $1.36 billion
Avnet $1.317 billion
Hercules Offshore $1.2 billion
XL Capital $990 million
Tellabs $988 million
Dow $978 million
Fifth Third Bancorp $965 million
Fifth Third Bancorp $965 million
Weyerhaeuser $827 million
Capital One $811 million
ProLogis $811 million
Charles River $700 Million
JDS Uniphase Corp $692 million
RF Micro Devices $673.0 million to
Morgan Stanley $673 million
RF Micro Devices $673 million
Freeport-McMoRan $6.0 billion
Domtar $591 million
Colonial Bancorp $575 million
Vishay Intertechnology $565 million
Citigroup $563 million
ON Semiconductor $557 million
UPS $548 million
Nalco $544 million
Lear $530 million
Yahoo! $488 million
Loews $482 million
KeyCorp $465 million
KeyCorp $465 million
Synovus $463 million
Micron $463 million
Belden $461 million
GMAC $455 million
Cablevision $450 million
Ciba $448 million
International Paper $438 million
Mueller Water Products, Inc. $400 million
E.ON AG $4.29 billion
Mylan $385 million
Tailwind Financial Inc. $380 million
Electronic Arts $368 million
Cytec Industries $358 million
Cytec Industries $358 million
Lubrizol $356 million
Zions Bancorp $350 million
Quantum $350 million
Pepsi Bottling Group $336 million
Brightpoint $325.9 million
Brightpoint $325.9 million
Harman International $325 million
Chemtura $320 million
Jabil Circuit $317 million
Powerwave Technologies, $315 million
MPS Group $303 million
Royal Philips Electronics $300 million
B/E Aerospace $300 million
Citizens Republic Bancorp $288 million
KLA-Tencor $272 million
Applied Micro Circuits $264.1 million
Applied Micro Circuits $264 million
Guaranty Bancorp $250 million
iBasis $249 million
iBasis $249 million
Benchmark Electronics $247 million
Affymetrix $239 million
South Financial $237.6 million
The South Financial $237 million
Lattice Semiconductor $223 million
Macrovision Solutions $208.3 million
Headwaters $205 million
Fairchild $203 million
Fairchild Semiconductor $203 million
Western Digital $200 million
Ford $2.7 billion
Kinder Morgan $2.3 billion
Webster Financial $189 million
Complete Production Services $178 million
Comsys (up to) $175 million
Comsys IT Partners up to $175 million
Polyone $170 million
Dick's Sporting Goods about $165-$180 million
Jazz Air Income Fund $153 million
Piper Jaffray $140 million
Kforce $129.4 million
First State Bancorporation $127 million
THQ $118.1 million
Colonial Properties $116 million
Hanmi Financial $107 million
LeCroy $105 million
Web.com $103 million
Sara Lee $100 million
Ameristar Casinos $100 million
Canfor (TSX: CFP) $100 million

Some of the conversions to $US may be off somewhat.

Monday, February 9, 2009

Obama Package to Change Mark to Market Rules?

Several news sources have stated that mark-to-market accounting rules for U.S. banks may be changing after this week's release of the Obama administration's plan to dole out the second $350 billion of the $700 billion financial rescue fund.

Banks have been facing steep write downs of troubled assets as a result of the accounting standard. Speculation exists that the charges will preserve the existing standard but allow banks to preserve capital.

Chairman of the Senate Banking Committee Sen. Christopher Dodd spoke to reporters last week that they are considering an approach that modifies but does not abandon the mark-to-market standards.

The SEC has already relaxed standards by allowing banks to reclassify assets that are difficult to value because of lack of market comparable information. The changes preserved value in what otherwise might have been fire-sale values applied to bank assets.

The SEC and the Financial Accounting Standards Board are working on more guidance to help banks determine the value of an asset when there is little or no market trading.

The SEC has not posted any response to the statements.

Friday, February 6, 2009

Got Goodwill? Part 12: A Few More Billion

The latest announced goodwill impairments (limited to those over $100 million):

Marathon Oil $1.4 billion impairment of goodwill related to the oil sands mining segment.

Cadence Design Systems Inc (
CDNS.O) impairment charge of $1.36 billion, impairment charge, related to its goodwill, intangible and fixed assets, was driven by weak economic conditions and a fall in its market capitalization

JDS Uniphase $692 million

Canfor Corporation (TSX: CFP) $100 million impairment charge. Majority of the charge relates to the Company's non-core panels business, specifically the PolarBoard and Tackama operations which were indefinitely idled during 2008. The impairment charge also includes a further $10 million write-down in the fair value of its investments in asset-backed commercial paper

RF Micro Devices$673 million
Dick's Sporting Goods about $165-$180 million
Weyerhaeuser $827 million
Powerwave Technologies, Inc. (Nasdaq:PWAV), $315 million
Domtar $591 million
ON Semiconductor $557 million
MPS $303 million
Belden $461 million
Benchmark Electronics $247 million

Thursday, February 5, 2009

Got Goodwill? Part 11: Bad News

News Corp reported writedown of $8.4 billion on Dow Jones and other assets. The impairment charge mainly consisted of a $4.6 billion writedown of the value of its broadcast licenses and a $3.6 billion writedown of goodwill in its newspaper and information services group.

News Corp purchased Dow Jones, the publisher of the Wall Street Journal, in 2007 for an estimated $5.6 billion. It did not say how much of the writedown related to that acquisition.


News Corp's market cap is about $18 billion.

Chairman Rupert Murdoch: "While we anticipated a weakening, the downturn is more severe and likely longer lasting than previously thought."

The Brakes on IFRS

SEC Chairman Mary Schapiro Not following Cox on IFRS

Incoming chair Mary Schapiro, approved by the Senate as SEC Chairman in January, will not follow Christopher Cox on IFRS. She wants a slower approach to U.S. adoption of international accounting rules.

During Schapiro’s confirmation hearings she was asked several questions, including questions about IFRS, Sarbanes Oxley and other topics. She made oral responses, and releases a letter in January providing her written responses. In her she said that she won’t let the International Accounting Standards Board make accounting rules for U.S. companies—yet.

In Schapiro's opinion, the IASB has not shown it can resist political pressure—as became obvious when Sir David Tweedie, IASB chair threatened to resign if there was a recurrence of the IASB caving in to pressure by banks and politicians to change the rules on fair value reporting standards.

Schapiro also has said that she is concerned about IFRS standards quality and the fast tracking of the adoption in 2014. The SEC extended the deadline for comments on the 2014 adoption date by 60 days to April. The previous deadline was February 19.

Schapiro wants FASB and whatever standard-setting authority that succeeds it to not be influenced by political pressure. She wants the SEC to have a high level role in oversight of The FASB to ensure that they are diligent in keeping up with needed accounting changes.

Schapiro also stated that accounting rules were not responsible for the recent market crash.

You can read the written responses here.

Wednesday, February 4, 2009

Got Goodwill? Part 10: Time Warner in the Impairment Hall of Fame

Boom times generate cash. Cash generates mergers and acquisitions. Mergers and acquisitions generate goodwill.

Recent market crashes have caused companies and their auditors to look closely at the value of goodwill and intangibles.


Recent additions to the “Impairment Hall of Fame” (see earlier posts for previous additions):


Sprint Nextel $29 billion (in 2007)
Time Warner $25 billion
Regions Financial $6 billion
Alcatel $5 billion (Euro $3.91 billion)
BHP $3.36 billion
Supervalu $3.3 billion
Motorola $3.5 billion (including tax valuation charges)
Bank of America $2.3 billion
Sovereign Bancorp $1.6 billion
Marathon Oil $1.4 billion
United Rentals $1.1 billion
OfficeMax $1 billion
Sandisk $1 billion
Dow $978 million (restructuring, goodwill impairment and other matters)
Capital One $811 million
Colonial Bancorp $575 million
Citigroup $563 million
UPS $548 million
Nalco $544 million
GMAC $455 million
International Paper $438 million (possibly an additional $1.3 Billion)
Yahoo!$488 million
Synovus $463 million
Micron $463 million
Mylan $385 million
Cytec Industries $358 million
Zions Bancorp $350 million
Quantum $350 million
Chemtura $320 million
Applied Micro Circuits $264 million
The South Financial $237 million
Fairchild $203 million
Western Digital $200 million
Webster Financial $189 million
Comsys (up to) $175 million
Piper Jaffray $140 million
First State Bancorporation $127 million
Colonial Properties $116 million
Sara Lee $100 million
Central Pacific Financial $94 million
H.B. Fuller $86 million
Convergys $61 million
Diebold $46 million

Goodwill is an intangible asset that represents value in a combined post-merger company due to factors other than customers, brands, trade marks, technology and other intangible assets that accounting rules require companies to recognize. According to the Economist, goodwill and other intangibles recoded by S&P 500 companies totals $2.6 trillion, or 10% of their total assets.

Most investors consider goodwill impairment to be old news at the time it is announced. Share values are often not impacted by announcements of goodwill impairment. This is generally thought to be because either: a) markets have already priced impairment into share prices, or b) since share prices are ultimately a factor of the discounted value of future cash flows from operations, that impairments do not affect cash flows and accordingly do not impact share prices. Analysts ignore impairments and other unusual earnings line items when normalizing historical numbers to forecast future earnings. An exception to this is when investors are surprised by the impairment news—if the markets had no reason to believe that a company was underperforming and the bad news was not anticipated.

Time Warner’s market capitalization was about 60-70% of its book value—a sure sign of goodwill impairment. Its market capitalization was less than its total goodwill of over $40 billion—the goodwill on the financials was worth more than Time Warner as a whole.

Is this an acknowledgement by Time Warner that it previously overpaid for acquisitions?. Perhaps based on today’s depressed market they overpaid, but they didn’t buy in this market and might no have paid the same if they bought today. But acquisitions are always supported by due diligence and forward-looking valuations. Goodwill impairment calculations are backward-looking and hindsight is always 20/20.

Around 200 U.S. of the largest companies have market cap less than their goodwill and intangibles according to Bloomberg., which states that combined, these companies had goodwill and intangibles of over $808 billion. And about $400 billion of this is goodwill.

Watch for more impairments.