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Goodwill and Intangible Assets
9 Months Ended
Sep. 25, 2011
Goodwill and Intangible Assets 
Goodwill and Intangible Assets

 

 

Note 3. Goodwill and Intangible Assets

 

(a)           Goodwill

 

The Company performs it annual impairment test for goodwill in accordance with ASC Topic 350, Intangibles—Goodwill and Other (“Topic 350”) as of the last day of each fiscal year or when evidence of potential impairment exists.  Based upon, but not limited to, the recent additions to goodwill during the reporting period, the existing short duration of the decline in market capitalization and the current operating income from continuing operations, the Company concluded that as of September 25, 2011, it was not more likely than not that events had occurred or circumstances had changed that would reduce the fair value of its goodwill in its reporting units below carrying value.  However, based on the potential adverse impact on the Company’s business as a result of the Budget Control Act of 2011 which establishes a joint committee of Congress responsible for identifying an additional $1.5 trillion in deficit reductions by November 23, 2011 and if at least $1.2 trillion in deficit reductions are not identified by the joint committee and passed by Congress by January 15, 2012, then under the Budget Act, very substantial automatic spending cuts split between defense and non-defense programs will be triggered beginning in 2013 over a nine-year period.  Management will consider the outcome of these future events and its then current market capitalization when completing its annual impairment test during the fourth quarter.

 

The Company assesses goodwill for impairment at the reporting unit level, which is defined as an operating segment or one level below an operating segment, referred to as a component. The Company determines its reporting units by first identifying its operating segments, and then assessing whether any components of these segments constitute a business for which discrete financial information is available and where segment management regularly reviews the operating results of that component. The Company aggregates components within an operating segment that have similar economic characteristics. For the annual and, if necessary, interim impairment assessment, the Company identified its reporting units to be its operating segments which are KGS and PSS.

 

The Company’s testing approach utilizes a discounted cash flow analysis corroborated by comparative market multiples to determine the fair value of its businesses for comparison to their corresponding book values because there are no observable inputs available (Level 3 hierarchy as defined by Topic 820). The Company also considers its market capitalization based upon an average of the stock price prior to and subsequent to the date the analysis is performed and reconciles the fair value of the Company’s reporting units to the Company’s market capitalization assuming a control premium. If the book value exceeds the estimated fair value for a business, a potential impairment is indicated and Topic 350 prescribes the approach for determining the impairment amount, if any.

 

The changes in the carrying amount of goodwill for the nine months ended September 25, 2011 are as follows (in millions):

 

 

 

Public
Safety &
Security

 

Government
Solutions

 

Total

 

 

 

 

 

 

 

 

 

Balance as of December 26, 2010

 

$

32.4

 

$

194.0

 

$

226.4

 

Retrospective adjustments to the Gichner acquisition

 

 

(0.2

)

(0.2

)

Balance as of December 26, 2010 after retrospective adjustments

 

32.4

 

193.8

 

226.2

 

Additions due to business combinations

 

 

321.3

 

321.3

 

Balance as of September 25, 2011

 

$

32.4

 

$

515.1

 

$

547.5

 

 

The accumulated impairment losses as of December 26, 2010 and September 25, 2011 were $147.1 million associated with the KGS segment and $18.3 million associated with the PSS segment.

 

(b)           Purchased Intangible Assets

 

The following table sets forth information for finite-life intangible assets subject to amortization (in millions):

 

 

 

As of December 26, 2010

 

As of September 25, 2011

 

 

 

Gross
Value

 

Accumulated
Amortization

 

Net
Value

 

Gross
Value

 

Accumulated
Amortization

 

Net
Value

 

Acquired finite-lived intangible assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

Customer relationships

 

$

41.5

 

$

(10.0

)

$

31.5

 

$

74.0

 

$

(16.4

)

$

57.6

 

Contracts and backlog

 

24.5

 

(13.9

)

10.6

 

59.5

 

(30.1

)

29.4

 

Developed technology and technical know-how

 

22.1

 

(1.9

)

20.2

 

22.1

 

(3.6

)

18.5

 

Trade names

 

1.2

 

(0.6

)

0.6

 

2.6

 

(0.8

)

1.8

 

Favorable operating lease

 

1.8

 

(0.1

)

1.7

 

1.8

 

(0.2

)

1.6

 

Total

 

$

91.1

 

$

(26.5

)

$

64.6

 

$

160.0

 

$

(51.1

)

$

108.9

 

 

In addition to the finite-life intangible assets listed in the table above, the Company has $24.5 million of indefinite-life intangible assets consisting of trade names at both December 26, 2010 and September 25, 2011.

 

Consolidated amortization expense related to intangible assets subject to amortization was $2.9 million and $11.9 million for the three months ended September 26, 2010 and September 25, 2011, respectively, and $6.2 million and $24.5 million for the nine months ended September 26, 2010 and September 25, 2011, respectively.

 

The estimated future amortization expense of purchased intangible assets with finite lives as of September 25, 2011 is as follows (in millions):

 

Fiscal Year

 

Amount

 

2011 (remaining three months)

 

$

13.2

 

2012

 

32.3

 

2013

 

17.0

 

2014

 

15.5

 

2015

 

11.0

 

Thereafter

 

19.9

 

Total

 

$

108.9