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This excerpt taken from the COBZ 10-K filed Mar 15, 2006. Goodwill and Other Intangible Assets,”
requires that we evaluate on an annual basis (or whenever events occur which
may indicate possible impairment) whether any portion of our recorded goodwill
is impaired. The recoverability of goodwill is a critical accounting policy
that requires subjective estimates in the preparation of the consolidated
financial statements. Goodwill impairment is determined by comparing the fair
value of a reporting unit to its carrying amount, including goodwill. If the
fair value of the reporting unit exceeds its carrying amount, goodwill of the
reporting unit is not considered impaired. If the fair value of the reporting
unit is less than the carrying amount, goodwill is considered impaired. We
estimate the fair value of our reporting units using market multiples of
comparable entities, including recent transactions, or a combination of market
multiples and a discounted cash flow methodology.
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Determining the fair value of a reporting unit requires a high degree of subjective management assumption. Discounted cash flow valuation models are utilized that incorporate such variables as revenue growth rates, expense trends, discount rates and terminal values. Based upon an evaluation of key data and market factors, management selects from a range the specific variables to be incorporated into the valuation model.
We conducted our annual evaluation of our reporting units as of December 31, 2005. As discussed in Note 6 to our Consolidated Financial Statements, for the period ending December 31, 2005 the estimated fair value of all reporting units exceeded their carrying values and goodwill impairment was not deemed to exist. The fair value calculations were also tested for sensitivity to reflect reasonable variations, including keeping all other variables constant and reducing projected revenue growth and projected cost savings. Using this sensitivity approach, there was no impairment identified in any reporting unit.
We also have other policies that we consider to be key accounting policies; however, these policies, which are disclosed in Note 1 of Notes to Consolidated Financial Statements, do not meet the definition of critical accounting policies because they do not generally require us to make estimates or judgments that are difficult or subjective.
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