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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Accounting Standards—In February 2006, the Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards No. 155, Accounting for Certain Hybrid Financial Instruments—an amendment of
FASB Statements No. 133 and 140 (SFAS No. 155). SFAS No. 155 permits a fair value remeasurement for any hybrid
financial instrument that contains an embedded derivative that would otherwise require bifurcation. This accounting
standard is effective as of the beginning of fiscal years beginning after September 15, 2006. The effect, if any, of adopting
SFAS No. 155 on our financial position and results of operations is not expected to be material.
In March 2006, the FASB issued Statement of Financial Accounting Standards No. 156, Accounting for Servicing of
Financial Assets, an amendment of FASB Statement No. 140 (SFAS No. 156). SFAS No. 156 requires that servicing assets
and servicing liabilities be recognized at fair value, if practicable, when we enter into a servicing agreement and allows two
alternatives, the amortization and fair value measurement methods, as subsequent measurement methods. This
accounting standard is effective for all new transactions occurring as of the beginning of fiscal years beginning after
September 15, 2006. The effect, if any, of adopting SFAS No. 156 on our financial position and results of operations is not
expected to be material.
In June 2006, the FASB issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an
interpretation of FASB Statement No. 109 (FIN 48). FIN 48 clarifies the accounting for uncertainties in income taxes
recognized in an enterprise’s financial statements. FIN 48 requires that we determine whether it is more likely than not
that a tax position will be sustained upon examination by the appropriate taxing authority. If a tax position meets the
more likely than not recognition criteria, FIN 48 requires the tax position be measured at the largest amount of benefit
greater than 50% likely of being realized upon ultimate settlement. This accounting standard is effective for fiscal years
beginning after December 15, 2006. The cumulative effect of applying the provisions of this interpretation is required to
be reported separately as an adjustment to the opening balance of retained earnings in the year of adoption. We expect
the impact of its adoption to be a charge of approximately $13 million in 2007.
In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements
(SFAS No. 157). SFAS No. 157 establishes a framework for measuring fair value and requires expanded disclosures
regarding fair value measurements. This accounting standard is effective for financial statements issued for fiscal years
beginning after November 15, 2007. The effect, if any, of adopting SFAS No. 157 on our financial position and results of
operations has not been finalized.
In February 2007, the FASB issued Statement of Financial Accounting Standards No. 159, The Fair Value Option for
Financial Assets and Financial Liabilities, including an amendment of FASB Statements No. 115 (SFAS No. 159). SFAS
No. 159 permits entities to choose, at specified election dates, to measure eligible items at fair value (the “fair value
option”). A business entity shall report unrealized gains and losses on items for which the fair value option has been
elected in earnings at each subsequent reporting period. This accounting standard is effective as of the beginning of an
entity’s first fiscal year that begins after November 15, 2007. The effect, if any, of adopting SFAS No. 159 on our financial
position and results of operations has not been finalized.
Risks and Uncertainties—We are engaged in supplying defense-related equipment to the U.S. and foreign
governments, and are subject to certain business risks specific to that industry. Sales to the government may be affected
by changes in procurement policies, budget considerations, changing concepts of national defense, political developments
abroad and other factors.
Our consolidated financial statements are based on the application of generally accepted accounting principles which
require us to make estimates and assumptions about future events that affect the amounts reported in our financial
statements and accompanying notes. Future events and their effects can not be determined with certainty. Therefore, the
determination of estimates requires the exercise of judgment. Actual results could differ from those estimates and any
such differences may be material to our financial statements.
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