Goodwill and Intangible Assets

6 Months Ended

Jul. 03, 2015

Goodwill and Intangible Assets:

The Company's National Security Solutions ("NSS") and Health and Engineering ("HES") reportable segments contain goodwill. The balance and changes in the carrying amount of goodwill by segment were as follows:



	NSS		HES			Total
	(in millions)
Goodwill at January 31, 2014	$	788	$	905		$	1,693
Goodwill impairment charges	—		(486		)	(486		)
Goodwill at January 30, 2015	$	788	$	419		$	1,207
Adjustments	—		—			—
Goodwill at July 3, 2015	$	788	$	419		$	1,207

Goodwill is tested for impairment at the reporting unit level annually, at the beginning of the fourth quarter, and during interim periods whenever events or circumstances indicate that the carrying value may not be recoverable. There were no goodwill impairments during the six months ended July 3, 2015.

During the second quarter ended August 1, 2014, as part of its normal quarterly procedures, the Company considered both qualitative and quantitative factors associated with each of the Company's reporting units and determined that there were indicators that the carrying values of the Health Solutions and Engineering reporting units may not be fully recoverable due to operating performance shortfalls and forecasted declines of revenues and operating income. Based on the unexpected impacts, the Company conducted an interim goodwill impairment test using the two-step quantitative approach.

The Company utilized both the market and income approach as part of the first step of the two-step quantitative goodwill impairment test to determine the estimated fair value of both the Health Solutions and Engineering reporting units (Level 3 fair value measurement).

Based on the first step of the two-step quantitative goodwill impairment test, the Company determined that the fair values of the Health Solutions and Engineering reporting units were below their carrying values. Due to the fact that indicators of impairments existed, the second step of the two-step quantitative goodwill impairment test was performed to determine the implied fair value of goodwill and the impairment amount of the respective reporting units.

As a result of the second step evaluation, the Company recorded goodwill impairment charges in the Health Solutions and Engineering reporting units of $369 million and $117 million, respectively, for the quarter ended August 1, 2014, which represents the difference between the carrying value and the implied fair value. There were no other goodwill impairment charges recorded for the remaining reporting units. No goodwill impairments were identified as part of the Company's annual goodwill impairment evaluation performed in the prior year.

Intangible assets consisted of the following:



	July 3, 2015							January 30, 2015
	Gross carrying value		Accumulated amortization			Net carrying value		Gross carrying value		Accumulated amortization			Net carrying value
	(in millions)
Finite-lived intangible assets:
Customer relationships	$	70	$	(60	)	$	10	$	70	$	(57	)	$	13
Software and technology	61		(43		)	18		52		(41		)	11
Total finite-lived intangible assets	131		(103		)	28		122		(98		)	24
Indefinite-lived intangible assets:
In-process research and development	—		—			—		9		—			9
Trade names	4		—			4		4		—			4
Total indefinite-lived intangible assets	4		—			4		13		—			13
Total intangible assets	$	135	$	(103	)	$	32	$	135	$	(98	)	$	37

The gross carrying value of finite-lived intangible assets increased from January 30, 2015 due to the addition of an in-process research and development intangible asset that reached technological feasibility and began amortizing as a software and technology intangible asset over its useful life of nine years.

Amortization expense related to amortizable intangible assets was $3 million and $5 million for the quarter and six months ended July 3, 2015, respectively, and $5 million and $10 million for the quarter and six months ended August 1, 2014, respectively.

For the quarter ended August 1, 2014, the Company determined that certain customer relationship intangible assets associated with Vitalize and maxIT were not recoverable due to lower projected revenue and operating income levels from the associated customers. As a result, the Health and Engineering reportable segment recognized an impairment charge of $24 million for the quarter and six months ended August 1, 2014 to reduce the carrying value of these intangible assets to their estimated fair values. Fair value was estimated using the income approach based on management's forecast of future cash flows to be derived from the assets' use (Level 3 under the accounting standard for fair value measurement).

The estimated annual amortization expense related to finite-lived intangible assets as of July 3, 2015 was as follows:



Year Ending
	(in millions)
January 1, 2016 (remainder of year)	$	4
Fiscal 2016	8
Fiscal 2017	6
Fiscal 2018	4
Fiscal 2019	2
Fiscal 2020 and thereafter	4
	$	28

Leidos, Inc.

Goodwill [Line Items]

Goodwill and Intangible Assets

Goodwill and Intangible Assets:



	NSS		HES			Total
	(in millions)
Goodwill at January 31, 2014	$	788	$	905		$	1,693
Goodwill impairment charges	—		(486		)	(486		)
Goodwill at January 30, 2015	$	788	$	419		$	1,207
Adjustments	—		—			—
Goodwill at July 3, 2015	$	788	$	419		$	1,207

Intangible assets consisted of the following:



	July 3, 2015							January 30, 2015
	Gross carrying value		Accumulated amortization			Net carrying value		Gross carrying value		Accumulated amortization			Net carrying value
	(in millions)
Finite-lived intangible assets:
Customer relationships	$	70	$	(60	)	$	10	$	70	$	(57	)	$	13
Software and technology	61		(43		)	18		52		(41		)	11
Total finite-lived intangible assets	131		(103		)	28		122		(98		)	24
Indefinite-lived intangible assets:
In-process research and development	—		—			—		9		—			9
Trade names	4		—			4		4		—			4
Total indefinite-lived intangible assets	4		—			4		13		—			13
Total intangible assets	$	135	$	(103	)	$	32	$	135	$	(98	)	$	37

The estimated annual amortization expense related to finite-lived intangible assets as of July 3, 2015 was as follows:



Year Ending
	(in millions)
January 1, 2016 (remainder of year)	$	4
Fiscal 2016	8
Fiscal 2017	6
Fiscal 2018	4
Fiscal 2019	2
Fiscal 2020 and thereafter	4
	$	28

- 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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