$150-Million Charge by Northrop Produces a Fourth-Quarter Loss
Northrop reported Wednesday that it took a $150-million charge against earnings on secret defense contracts, leaving the firm with a loss of $86.1 million on sales of $1.73 billion in the fourth quarter.
The company declined to answer questions about the writeoff except to say that it did not occur on the B-2 stealth bomber but on fixed-price research and development contracts.
Northrop is currently working on a highly secret program to develop a new cruise missile, a program known as the Joint Tactical Missile System (JTACMS), it was learned.
Northrop won the program in a competition against Lockheed several years ago. Defense industry sources knowledgeable about the program said in interviews last year that it has a current value of several billion dollars.
In addition, reports of cost overruns and delays on the program surfaced last year. JTACMS was originally part of another program, known as the Army Tactical Missile System, but it was separated several years ago. The Army missile system is under development by LTV.
An industry source familiar with both programs decribed the Northrop missile as a conventional standoff weapon, meaning that it is a long-range, non-nuclear missile. It is not known how it would differ from other cruise missiles.
Northrop said it seeking “an equitable settlement” on money-losing contracts and that its $150-million charge could be either reduced or increased. It said it has not booked any profit on the contracts.
The $150-million charge took aerospace analysts by surprise. In the fourth quarter, the company lost money in every business segment.
Northrop took an an undisclosed loss provision in its electronics segment for several fixed-price development contracts on electronic countermeasures products in the fourth quarter, it said. Earlier in the year, it had taken $12 million in cumulative provisions in that area. In one bright note, the company reported that its long-troubled MX missile guidance program is now profitable and deliveries are running ahead of schedule.
For the full year, Northrop earned $104.2 million on sales of $5.8 billion, compared to a profit of $94.2 million on sales of $6.05 billion the year earlier. But both years were affected by significant non-operating gains and losses.
For 1988, Northrop had an operating loss of about $30.9 million, before a $135.1-million positive tax adjustment taken in the second quarter.
Securities analysts had been expecting the company to earn nearly $200 million before extraordinary gains in 1988, so the year has been a significant disappointment.
Nonetheless, Paul Nisbet of Prudential-Bache Securities saw a silver lining in the disclosure of the $150-million writeoff.
“They are $150 million poorer than we thought they would be, but they have the potential for billions in additional business that we didn’t know about before,” he said, not referring specifically to JTACMS.
