By Calvin Biesecker
Northrop Grumman [NOC] yesterday warned investors that it will take a non-cash, after-tax charge of between $3 billion and $3.4 billion in the recent fourth quarter for impairment of goodwill due to the collapse of the stock market in the last few months of the year, resulting in losses for both the quarter and all of 2008.
However, the company was quick to point out that its earnings from continuing operations before the impact of the charge will be at the upper end of its guidance, which is $5.20 per share.
Northrop Grumman’s news had little influence on its stock price yesterday. The company’s shares ended trading yesterday at $48.08, up a dime.
“Though the details that accompany the earnings release are essential for evaluating [the fourth quarter], we view the insight into Northrop Grumman’s operational performance contained in this morning’s announcement as positive and consistent with the solid quarter we had expected,” JP Morgan aerospace and defense analyst Joseph Nadol said in a note to clients yesterday.
Northrop Grumman will release its fourth quarter and 2008 results on Feb. 3.
The hefty charge for impairment to goodwill is due to conditions in the stock market, which plummeted beginning last September following the initial waves of the collapse of many of the nation’s leading investment banks. In its annual test of goodwill based on comparative market multiples to determine the fair values of its businesses versus their book values, Northrop Grumman was forced to write down the book values for its Shipbuilding and Space Technology businesses. Most of those businesses were purchased through the acquisitions of Litton and TRW.