More Earnings Overwhelmed by Impairments

USAirways takes $622m writedown reflecting America West valuation, while ConocoPhillips, Flextronics, and Boston Scientific take charges in the bil...
Roy Harris and Stephen TaubJanuary 29, 2009

Damage from goodwill impairment continues to hit the books, with USAirways taking a $622-million noncash charge in 2008 to write off impaired goodwill relating to its September 2005 merger with America West Holdings Corp.

The USAirways writedown came as the airline reported a $220-million fourth-quarter net loss, excluding special charges that totaled $321 million. Those charges included $234 million of unrealized losses resulting from mark-to-market adjustments on fuel hedging instruments. On a GAAP basis, the net quarterly loss at USAirways was $541 million, compared to a $79-million loss in the prior year. For the full year on a GAAP basis, the net loss was $2.2 billion – including special charges of $1.4 billion – compared to a net profit of $427 million.

Toronto-based Celestica Inc.  reported an $822.2-million fourth-quarter net loss, on a GAAP basis, resulting mostly from its writing off of the company’s remaining goodwill. The contract electronics maker said it wrote off $850.5 million of goodwill established primarily as a result of an acquisition in 2001. It said the goodwill writeoff does not affect liquidity, cash flows from operating activities, or compliance with debt covenants.

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A Singapore-based electronics manufacturer, Flextronics, recorded a non-cash charge of $5.9 billion in its December third quarter to write off the entire carrying value of its goodwill. “The impairment charge was driven by a significant decrease in the company’s valuation” compared to the quarter ended September 2008, it said, “primarily due to declines in the stock market and adverse macroeconomic conditions.” Those conditions contributed to an overall reduction in demand for the company products. Flextronics said it had made the determination during an “interim goodwill impairment test during the December quarter.” Additionally, it took a $145-million writedown in connection with the bankruptcy filing of Nortel, one of its customers.

Also this week, ConocoPhillips reported in its fourth-quarter earnings that it recorded a $25.4-billion impairment of all Exploration & Production segment goodwill; a $7.4- billion impairment of the book value of the company’s investment in OAO Lukoil, reducing the book value to market value; and other asset impairments totaling $1.25 billion. Its net loss for the fourth quarter totaled $31.8 billion.

Boston Scientific Corp. recorded a $2.7 billion goodwill impairment charge associated with its earlier acquisition of Guidant.

Valero Energy Corp. recorded a noncash loss from the impairment of goodwill of $4.1 billion. The goodwill impairment loss represents a writeoff of the entire balance of the company’s goodwill from the application of impairment testing criteria under existing accounting rules, the company explained. “Investors should understand that this noncash charge does not affect the cash flow generation from our assets or Valero’s competitive position within the refining industry,” chairman and CEO Bill Klesse said.

And in the banking community, Colonial BancGroup took a goodwill impairment charge of $575 million in the fourth quarter, while Banner Corp., the parent company of Banner Bank and Islanders Bank, reported a $71.1 million noncash impairment charge in writing off the remaining balance of goodwill. Banner reported a December-quarter net loss of $78.5 million.