M&A

What’s So Good about Goodwill?

Three companies take hefty charges on past acquisitions.
Stephen TaubFebruary 3, 2009

The deteriorating stock market has forced another three companies to take big impairment charges for goodwill stemming from earlier acquisitions.

As is always the case, the impairment charges will not result in any current or future cash expenditures. Underlying the announcements are implicit admissions that the companies overpaid for their earlier acquisitions, however.

Northrop Grumman Corp, for example, reported that in the fourth quarter, it took a non-cash, after-tax charge of $3.1 billion for impairment of goodwill, noting that the book values of shipbuilding and space technology businesses were impaired.

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To reflect the goodwill impairment, operating income for shipbuilding was cut by $2.5 billion and operating income for space Technology was reduced by $570 million.

“The goodwill impairment charges for these businesses are 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,” the defense contractor said in a press release.

Northrup Grumman also added that the charge reduces goodwill recorded in connection with acquisitions made in 2001 and 2002 and does not affect the company’s normal business operations.

Similarly, Marathon Oil said fourth quarter results included a non-cash $1.44 billion charge for the impairment of goodwill related to its Oil Sands Mining segment and the partial impairment of investments in two ethanol production facilities. The Oil Sands Mining segment was acquired from Western Oil Sands Inc. in October 2007.

Meanwhile, Seagate Technology said in a regulatory filing that it would take a $2.3 billion goodwill impairment charge, virtually all of it related to the goodwill the company recorded in connection with its May 2006 acquisition of Maxtor Corp.

The company has also found that the carrying values of certain acquired intangible assets and property, plant, and equipment assets have been impaired. Seagate will record a $3 million impairment charge for those long-lived assets. The impairment charges will be reflected in the company’s financial statements for the fiscal quarter ending January 2.

 

 

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