Northrop Grumman 2009 Annual Report Download - page 89

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10. GOODWILL AND OTHER PURCHASED INTANGIBLE ASSETS
Goodwill
Goodwill and other purchased intangible assets are included in the identifiable assets of the segment to which
they have been assigned. Impairment tests are performed at least annually and more often as circumstances
require. Any goodwill impairment, as well as the amortization of other purchased intangible assets, is charged
against the respective segment’s operating income. The annual impairment test for all segments was performed as
of November 30, 2009, with no indication of impairment. In performing the goodwill impairment tests, the
company uses a discounted cash flow approach corroborated by comparative market multiples, where appropriate,
to determine the fair value of its businesses.
The company recorded a non-cash charge totaling $3.1 billion at Shipbuilding and Aerospace Systems in the
fourth quarter of 2008 for the impairment of goodwill. The impairment charge was primarily driven by adverse
equity market conditions that caused a decrease in current market multiples and the company’s stock price as of
November 30, 2008. The charge reduced goodwill recorded in connection with acquisitions made in 2001 and
2002 and also represents the company’s accumulated goodwill impairment losses at December 31, 2009, and
2008.
The changes in the carrying amounts of goodwill during 2008 and 2009, are as follows:
$ in millions
Aerospace
Systems
Electronic
Systems
Information
Systems Shipbuilding
Technical
Services Total
Balance as of January 1, 2008 $3,873 $2,514 $5,852 $ 3,614 $810 $ 16,663
Goodwill transferred due to
segment realignment 505 (47) (458)
Goodwill related to business sold (47) (47)
Goodwill acquired 78 78
Fair value adjustments to net assets
acquired (60) 8 (82) 17 (8) (125)
Goodwill Impairment (570) (2,490) (3,060)
Balance as of December 31, 2008 $3,748 $2,428 $5,390 $ 1,141 $802 $ 13,509
Goodwill transferred due to
segment realignment 41 (26) (138) 123
Goodwill acquired 5 5
Other 7 (4) 3
Balance as of
December 31, 2009 $3,801 $2,402 $5,248 $ 1,141 $925 $13,517
Segment Realignments – As discussed in Note 1, in January 2009 the company streamlined its organizational
structure by reducing the number of operating segments from seven to five and the carrying value of the
goodwill balances from the prior segment alignments were transferred into the goodwill amounts shown for the
new segment alignment.
During the first quarter of 2009, the company realigned certain logistics, services, and technical support programs
and transferred assets from the Information Systems and Electronic Systems segments to the Technical Services
segment. As a result of this realignment, goodwill of approximately $123 million was reallocated among these
segments. Additionally during the first quarter of 2009, the company transferred certain optics and laser programs
from the Information Systems segment to the Aerospace Systems segment, resulting in the reallocation of
goodwill of approximately $41 million.
In January 2008, the former Newport News and Ship Systems businesses were combined into a single operating
segment called Northrop Grumman Shipbuilding and their goodwill balances were combined. In addition,
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NORTHROP GRUMMAN CORPORATION
eBP - v54508-i003_a.pdf - Page 83 of 124 - March 11, 2010 - 20:02:40