is a financial concept covered in this article. Non-Recurring Items Adjusted to Exclude Goodwill Impairments
No asset is so good that it can't become a bad investment if bought at too high a price. And there are few assets so bad that they can't be a good investment when bought cheap enough.
Total Unusual Items Excluding Goodwill is a refined non-GAAP metric that aggregates all pre-tax non-recurring gains and losses in a company’s income statement, but deliberately excludes any impairment charges related to goodwill. This adjustment is made because goodwill impairments are often viewed as distinct from other unusual items—they are non-cash, arise from acquisition accounting, and can be very large and volatile. By removing them, analysts and companies aim to present a clearer picture of recurring operational performance and other one-time items that may be more controllable or indicative of ongoing issues.
What is Total Unusual Items Excluding Goodwill?
Total Unusual Items Excluding Goodwill represents the net pre-tax amount of all infrequent or non-recurring transactions except for any goodwill impairment charges. It includes items like restructuring costs, asset write-downs (excluding goodwill), gains/losses on sales of businesses or assets, litigation settlements, and other special charges.
Goodwill impairments are excluded because they are non-cash charges triggered by accounting rules when the fair value of an acquired business unit falls below its carrying value. These charges can be massive (billions in some cases) and are often seen as a legacy of past acquisitions rather than current operational performance.
This metric is frequently reported in financial data platforms and company-adjusted earnings reconciliations to provide a ‘core’ view of unusual items.
Why Exclude Goodwill Impairments?
Goodwill impairments differ from other unusual items in several key ways:
Key Distinctions
- Non-cash nature: No actual cash outflow occurs.
- Acquisition-driven: Stem from past M&A decisions, not current operations.
- High volatility: Can be extremely large and unpredictable.
- Limited managerial control: Often influenced by market conditions rather than day-to-day decisions.
- Permanent impact: Once impaired, goodwill cannot be written back up under US GAAP.
By excluding them, management and analysts argue that the remaining unusual items better reflect adjustable or recurring non-core costs.
Tip: Some critics argue that frequent goodwill impairments signal overpayment in acquisitions and should not be routinely excluded from core analysis.
“No asset is so good that it can’t become a bad investment if bought at too high a price. And there are few assets so bad that they can’t be a good investment when bought cheap enough.”
— Howard Marks, Co-Chairman, Oaktree Capital Management Oaktree Memo: ‘The Most Important Thing’ (2003)
Calculation and Relationship to Total Unusual Items
The relationship is straightforward:
Formula: Total Unusual Items Excluding Goodwill = Total Unusual Items − Goodwill Impairment Charge
(Note: Goodwill impairment is always a positive expense amount; subtracting it makes the excluding-goodwill total less negative or more positive.)
In normalization processes, companies may choose to add back this adjusted unusual items amount (net of tax) rather than the full total, especially if goodwill charges dominate.
Examples
Example 1: Significant Goodwill Impairment
Company reports:
- $2,000M goodwill impairment
- $300M restructuring charge
- $100M gain on asset sale
Total Unusual Items = −300M + 2,200M Total Unusual Items Excluding Goodwill = −100M = −$200M The excluding-goodwill figure shows a much smaller non-recurring drag.
Example 2: No Goodwill Impairment
If no goodwill charge exists:
- $150M litigation settlement
- $50M severance costs
Both totals would be identical: −$200M.
These examples highlight how excluding goodwill can dramatically alter the perceived impact of unusual items.
Importance in Financial Analysis
This metric is used when calculating certain normalized earnings figures, particularly in industries with heavy acquisition histories (e.g., technology, pharmaceuticals, telecom). It helps present a less volatile view of core unusual costs.
Investors should compare both versions (including and excluding goodwill) to understand the full picture. Persistent goodwill impairments may indicate systematic overpayment in M&A, while other unusual items might point to operational restructuring needs.
Warning: Over-reliance on excluding-goodwill adjustments can understate the economic impact of poor acquisition decisions.