Northrop Grumman will record a fourth quarter non-cash, after-tax charge of $3.0 to $3.4 billion for impairment of goodwill in accordance with Statement of Financial Accounting Standards (SFAS) 142 "Goodwill and Other Intangible Assets."
As a result of this charge, the company will report a net loss for the fourth quarter and 2008. The company performed its required annual testing of goodwill as of Nov. 30, 2008 using a discounted cash flow analysis supported by comparative market multiples to determine the fair values of its businesses versus their book values.
Testing as of Nov. 30, 2008 indicated that book values for Shipbuilding and Space Technology exceeded the fair values of these businesses.
The estimated impairment charge is primarily driven by adverse equity market conditions that caused a decrease in current market multiples and the company's stock price as of Nov. 30, 2008, compared with testing performed as of Nov. 30, 2007.
The charge is attributable to goodwill recorded in connection with acquisitions made in 2001 and 2002. The estimated charge is subject to finalization, which the company will complete prior to reporting its 2008 financial results. This non-cash charge does not impact the company's normal business operations.
The company expects 2008 earnings per share from continuing operations before the charge to meet the upper end ($5.20 per share) of its prior guidance range. In addition, the company expects 2008 cash from operations and free cash flow to exceed the upper end ($2.9 billion and $2.1 billion, respectively) of prior guidance ranges. Free cash flow is a non-GAAP measure defined as cash from operations less capital expenditures and outsourcing contract and related software costs.
Northrop Grumman will report fourth quarter and full year 2008 financial results on Feb. 3, 2009 and will webcast its earnings conference call at 10:00 a.m. EST.
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