Goodwill and Identifiable Intangible Assets

9 Months Ended

Sep. 25, 2015

Goodwill and Intangible Assets Disclosure [Abstract]

Goodwill and Identifiable Intangible Assets

7. Goodwill and Identifiable Intangible Assets

Goodwill. In accordance with the accounting standards for business combinations, the Company records the assets acquired and liabilities assumed based on their estimated fair values at the date of acquisition (commonly referred to as the purchase price allocation). The table below presents the changes in goodwill by segment for the year-to-date period ended September 25, 2015.


	Electronic Systems			Aerospace Systems			Communication Systems		NSS			Consolidated Total
	(in millions)
Balance at December 31, 2014	$	3,773		$	1,730		$	992	$	1,006		$	7,501
Business acquisitions⁽¹⁾		177			—			11		—			188
Business divestitures⁽²⁾		(12	)		—			—		—			(12	)
Impairment loss		—			—			—		(491	)		(491	)
Foreign currency translation adjustments⁽³⁾		(43	)		(31	)		—		—			(74	)

Balance at September 25, 2015	$	3,895		$	1,699		$	1,003	$	515		$	7,112

⁽¹⁾	The increase in goodwill for the Electronic Systems segment was due to the L-3 CTC business acquisition. The increase in goodwill for the Communication Systems segment was due to the Miteq business acquisition.

⁽²⁾	The decrease in goodwill for the Electronic Systems segment was due to the divestitures of BSI and the Tinsley Product Line.

⁽³⁾

The decrease in goodwill presented in the Electronic Systems segment was due to the strengthening of the U.S. dollar against the Canadian dollar, the British pound, the Euro and the Australian dollar during the year-to-date period ended September 25, 2015. The decrease in goodwill presented in the Aerospace Systems segment was due to the strengthening of the U.S. dollar against the Canadian dollar during the year-to-date period ended September 25, 2015.

As previously disclosed on October 29, 2015, the Company continues to evaluate strategic alternatives for NSS. These strategic alternatives could include, among other possibilities, a potential sale, spin-off or other divestiture transactions for the business. During the quarterly period ended September 25, 2015, a decline in the projected future cash flows of NSS indicated that the carrying amount of the goodwill for the NSS business may not be recoverable. As such, the Company performed the first step of the impairment test for the NSS business. The first step of the impairment test indicated that a portion of the $1,006 million of goodwill for the NSS business may not be recoverable. The Company performed the second step of the impairment test in accordance with the accounting standards for goodwill to measure the impairment loss and determined that the implied goodwill was $491 million lower than the carrying amount. Accordingly, the Company recorded a non-cash impairment charge of $491 million ($463 million after income taxes) for the impairment of goodwill. The goodwill impairment charge was due to a decline in the estimated fair value of the NSS business as a result of a decline in the projected future cash flows of NSS caused by NSS’s inability to achieve its planned 2015 orders, sales and operating income, primarily due to lower than expected new commercial and international business awards, and a reduced outlook for operating margin and international sales. The Company’s accumulated goodwill impairment losses were $549 million at September 25, 2015, of which $491 million, $43 million and $15 million were recorded in the NSS, Electronic Systems and Communication Systems segments, respectively.

Identifiable Intangible Assets. The table below presents information for the Company’s identifiable intangible assets that are subject to amortization.


			September 25, 2015						December 31, 2014
	Weighted Average Amortization Period		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
	(in years)		(in millions)
Customer contractual relationships		19	$	461	$	283	$	178	$	440	$	262	$	178
Technology		11		186		118		68		165		111		54
Other		18		27		17		10		27		16		11

Total		17	$	674	$	418	$	256	$	632	$	389	$	243

The table below presents amortization expense recorded by the Company for its identifiable intangible assets.


	Third Quarter Ended				Year-to-Date Ended
	September 25, 2015		September 26, 2014		September 25, 2015		September 26, 2014
	(in millions)
Amortization Expense	$	10	$	11	$	29	$	32

Based on gross carrying amounts at September 25, 2015, the Company’s estimate of amortization expense for identifiable intangible assets for the years ending December 31, 2015 through 2019 is presented in the table below.


	Year Ending December 31,
	2015		2016		2017		2018		2019
	(in millions)
Estimated amortization expense	$	38	$	38	$	35	$	30	$	27

- Definition

The entire disclosure for the aggregate amount of goodwill and a description of intangible assets, which may include (a) for amortizable intangible assets (also referred to as finite-lived intangible assets), the carrying amount, the amount of any significant residual value, and the weighted-average amortization period, (b) for intangible assets not subject to amortization (also referred to as indefinite-lived intangible assets), the carrying amount, and (c) the amount of research and development assets acquired and written off in the period, including the line item in the income statement in which the amounts written off are aggregated, if not readily apparent from the income statement. Also discloses (a) for amortizable intangibles assets in total and by major class, the gross carrying amount and accumulated amortization, the total amortization expense for the period, and the estimated aggregate amortization expense for each of the five succeeding fiscal years, (b) for intangible assets not subject to amortization the carrying amount in total and by major class, and (c) for goodwill, in total and for each reportable segment, the changes in the carrying amount of goodwill during the period (including the aggregate amount of goodwill acquired, the aggregate amount of impairment losses recognized, and the amount of goodwill included in the gain (loss) on disposal of a reporting unit). If any part of goodwill has not been allocated to a reportable segment, discloses the unallocated amount and the reasons for not allocating. For each impairment loss recognized related to an intangible asset (excluding goodwill), discloses: (a) a description of the impaired intangible asset and the facts and circumstances leading to the impairment, (b) the amount of the impairment loss and the method for determining fair value, (c) the caption in the income statement or the statement of activities in which the impairment loss is aggregated, and (d) the segment in which the impaired intangible asset is reported. For each goodwill impairment loss recognized, discloses: (a) a description of the facts and circumstances leading to the impairment, (b) the amount of the impairment loss and the method of determining the fair value of the associated reporting unit, and (c) if a recognized impairment loss is an estimate not finalized and the reasons why the estimate is not final. May also disclose the nature and amount of any significant adjustments made to a previous estimate of an impairment loss.

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