Notes to Consolidated Financial Statements
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The SFAS No. 142 goodwill impairment model is a two-step process.
First, it requires a comparison of the book value of net assets
to the fair value of the related operations that have goodwill
assigned to them. The Company estimates the fair values of
the related operations using discounted cash flows. The cash
flow forecasts are adjusted by an appropriate discount rate
derived
from the Company’s market capitalization plus a suitable control premium at the
date of evaluation. If the fair value is determined to be less than book value,
a second step is performed to compute the amount of the impairment. In this process,
a fair value for goodwill is estimated, based in part on the fair value of the
operations used in the first step, and is compared to its carrying value. The
shortfall of the fair value below carrying value represents the amount of goodwill
impairment. SFAS No. 142 requires goodwill to be tested for impairment annually
at the same time every year, and when an event occurs or circumstances change
such that it is reasonably possible that an impairment may exist. The Company
selected April 1 as its
annual testing date.
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As a result of the Company’s assessment as of April 1, 2002, no impairment was
indicated and no impairment triggers have been identified as of December 31,
2002. Effective January 1, 2003, the Company has reorganized its Military Aircraft
and Missile Systems and Space and Communications segments into Integrated Defense
Systems. This reorganization as well as the impact of several other variables,
such as the decline in the Company’s stock price, has triggered a goodwill
impairment analysis as of January 1, 2003. The Company is currently completing
step one
of this analysis and as of the filing date does not know the impact, if any,
to its financial position and results of operations.
The following tables reconcile
net earnings, basic earnings per share and diluted earnings per share adjusted
for SFAS No. 142
for the year ended December 31: |
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| As a result of the adoption of SFAS No.
142 and the transition provisions of SFAS No. 141, Business
Combinations,
the Company reclassified assembled workforce with goodwill, ceased
amortization of goodwill and recorded an impairment loss. The balance
of goodwill subsequent to the recognition of the first quarter 2002
transitional impairment charge discussed above was $2,751. During the
fourth quarter of 2002, goodwill increased by $9 as a result of an
acquisition. The changes in the carrying
amount of goodwill by reportable segment for the year ended December
31, 2002, were as follows: |
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| (1) The goodwill adjustments primarily represent post-acquisition
adjustments of deferred tax assets established in purchase accounting
relating
to the Hughes acquisition and goodwill related to an acquisition. |
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