From Fortune:
Pearson, the global education company battling a collapse in its biggest market, said it would take further costs out of the business and look to sell some assets after posting a $3.3 billion pretax loss and a sharp rise in debt.
Pearson, which has issued five profit warnings in four years after students in the United States started renting text books rather than buying them, said its loss included an impairment of goodwill of 2.5 billion pounds, reflecting the challenges facing the business.
Link to the rest at Fortune and thanks to MKS for the tip.
>a £2.55bn non-cash charge for “impairment of goodwill reflecting trading pressures
Weird. I wonder what that means? They finally balanced the books and found a giant hole?
Goodwill in accounting terms is the value of the company’s intangibles; their brand, customer base, reputation, future prospects. Things that are part of the company’s value but aren’t infrastructure or inventory.
In this case they are saying their future revenue is expected to be so much lower that the value of the company needs to be adjusted downwards because their captive customers aren’t quite as captive as they used to be.
You see a lot of goodwill writedowns when mergers and acquisitions go sour: say company A pays $2B for company B and two years later they discover it is only worth a billion. They take a goodwill charge to account for the decline.
Priced themselves out of the market, it was only a matter of time before they fell.
Next will be the universities that have been living off student debt.
From the Guardian:
Despite the poor performance of the company, senior executives will still enjoy splitting £55m in bonus and incentive payments as Pearson reached some goals including profit targets.
https://www.theguardian.com/business/2017/feb/24/education-publisher-pearson-loss-us-penguin-random-house
Also, they plan to sell their 47% stake in RandyPenguin.
Shareholders should question how they hit profit targets but achieved “poor performance”?
I wonder if they killed the goose that laid the golden eggs. Some university textbooks are over $200.